Elimination of the CRP? Economic Consequences

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1 Elimination of the CRP? Economic Consequences Daryll E. Ray, Presenter Daniel De La Torre Ugarte and Chad Hellwinckel, Authors University of Tennessee Agricultural Policy Analysis Center National Press Club Washington, DC September 7, 2006

2 Conservation Reserve Purpose Program Reduce soil loss on highly erodible cropland Reduce soil sedimentation Improve water quality Increase wildlife habitat Additional impact Reduce production and increase crop prices

3 CRP Land by Use Trees 6.5% Wetland and Wildlife 13.7% Other 0.2% Grass 79.6% Grass is the predominant cover crop for CRP Acreage

4 CRP Cover by Location, 2015 Type of CRP Lands 1 Dot = 10,000 acres Grasslands Other Grass cover predominates in the Great Plains and the upper Midwest. Tree cover predominates in the Southeast and the lower Mississippi River Valley

5 CRP Acres by Location, 2015 CRP Acres Zero Less than 5 thousand 5 to 50 thousand 50 to 200 thousand Over 200 thousand The bulk of CRP acres are located in a wide band from the Dakotas to Texas

6 Elimination of CRP: Crop Acreage, 2015 Million Acres Corn Wheat Soybeans Cotton Baseline Simulated The acreage corn, wheat, soybeans, and cotton increases as a result of the elimination of the CRP. Soybeans show the greatest increase.

7 Elimination of CRP: Results CRP Acres Zero Below 5 thousand 5 to 50 thousand 50 to 200 thousand Over 200 thousand Acres returning to production are concentrated in areas with largest CRP acreage, 2015

8 Elimination of CRP: Prices, 2015 Dollars Drop 31 Drop 63 Drop 0.6 Drop Corn Wheat Soybeans Cotton Baseline Simulated Soybeans show the largest price drop while cotton is barely affected.

9 Elimination of CRP: Market Returns Change in Regional Returns over 60 million loss 60 to 30 million loss 30 to 5 million loss 5 million to zero loss gain Market returns for crops plummet in major production areas, 2015

10 Elimination of CRP: Exports, 2015 Volume of exports Corn exports increase by 7.7% Wheat exports increase by 12.2% Soybean exports increase by 18.9% Value of exports Value of 8 crop exports drops by 2.6%

11 Elimination of CRP: Government Payments Total Regional Change zero or less up to 5 million 5 to 30 million 30 to 60 million over 60 million Government payments increase in major production areas, 2015

12 Elimination of CRP: Government Payments Loan Deficiency Payments Cumulative LDP payments increase by $32 billion, from $20 billion to $52 billion Contract Payments They remain the same Counter-Cyclical Payments Cumulative CCP payments increase by $11 billion, from $25 billion to $36 billion Other payments Cumulative other payments decrease by $13 billion, from $44 billion to $31 billion due to elimination of CRP payments Total government payments Cumulative total government payments increase by $31 billion, from $140 billion to $171 billion due

13 Increase CRP Acreage: Results Billion Dollars $2.5 - $1.0 + $1.1 8 Crop Value of Production Government Payments Realized NFI 34.7 Mil. Ac Mil. Ac Mil. Ac. Increasing the CRP reduces net government payments for farm programs while increasing net farm income, 2015

14 Conclusions Cumulative results of eliminating CRP payments Crop market returns decrease by $22 billion Net farm income decreases by $9.0 billion Government payments increase by $31 billion Cumulative results of increasing CRP acreage to 45 million acres Increases net farm income by $10.6 billion Decreases government payments by $12.7 billion

15 Thank You Agricultural Policy Analysis Center The University of Tennessee 310 Morgan Hall 2621 Morgan Circle Knoxville, TN