While CRP outpays some cash rents, it also offers another route to profit
River over a rock, Doug England’s cash rent bid never had much chance. As anemic corn prices shrunk his profit window to a pinhole, the southwest Iowa producer anticipated a slight drop in 2016 land rent. But loss trumped hope when his landlord placed the acreage—lock, stock and barrel—in the Conservation Reserve Program (CRP) for 10 years. While the landowner and Uncle Sam sealed the deal, England was left holding the proverbial seed bag with a chunk of his ground gone.
After paying $240 per acre, England was shocked to see his landlord get considerably more in CRP rent.
CRP is often considered the most successful conservation program in the U.S.
However, England’s case is one that highlights a gap between intention and outcome. “The government used my own tax dollars to outbid me on land. That makes no sense and is fundamentally wrong,” says England, who farms in Taylor County.
“I don’t blame the landowner because it makes economic sense,” England says. “Why don’t I try and get my land in CRP too? I called several Iowa legislators and one told me he’d had five other calls about this issue already.”
In England’s case, farmer–landlord negotiations were hollow. When CRP beckons with enough shine, many landowners won’t dance with the one who brought them. They’ll leave the ball arm-in-arm with CRP.
The economics don’t lie, and England is facing the possibility of a second landlord jumping to CRP. “I know I’m not the only farmer in this position. How can I expect my landlords not to sign on the dotted line?”
Despite the cap set by the 2014 farm bill, contracts expire each year. On Sept. 30, 2016, 1.65 million acres are set to expire.
However, the “dotted line” is getting increasingly difficult to find.
Why? Acreage-cap rules and total dollars budgeted to CRP are to blame, says Steven Johnson, farm management specialist at Iowa State University Extension. When the 2014 farm bill reauthorized CRP, it reduced the enrollment cap (see illustration above). In the end, Johnson says, “I think there will be some disappointed landowners who don’t get acres enrolled.”
As landowners jockey for CRP entry, the process mirrors a shell game, dominated by the acreage cap, total dollars budgeted and the farm’s Environmental Benefits Index (EBI). “The demand to enroll land in CRP is expected to be much greater than the roughly 2 million acres the Farm Service Agency [FSA] supplies,” Johnson says.
Despite the 24 million-acre cap, contracts expire each year. Currently, CRP contracts on 1.65 million acres are set to expire Sept. 30, 2016.
“We’ll have to wait and see what the options are for those landowners when the time nears and the results of the 49th general sign-up are known,” says Brenda Carlson, a spokesperson for FSA.
CRP rental rates are based on USDA–National Agricultural Statistics Service (NASS) cash rental surveys—an average of what producers pay to farm.
NASS surveys tend to be 18 months behind because of a data lag. Presently, CRP rates reflect 2013 data for cash rent. John Whitaker, state executive director, Iowa FSA, recognizes the gap. “I don’t know if we’ve got a trend going, but I’m hearing more complaints from farmers. If I were in a producer’s shoes, I think I would feel the same way and I understand the sentiment. At the same time, I administer the law at FSA the way it’s written,” he says.
Small and beginning farmers, in particular, are hit hard when CRP rates rub against or exceed local cash rents. Outbidding possibilities are present from the get-go because USDA looks at NASS cash rental market rates and adds a 10% inflation factor for the life of the 10- to 15-year contract, says Randy Gordon, president, National Grain and Feed Association (NGFA). “Even after rates are boosted 10%, they’re sent to county FSA offices and can be raised even more,” he says.
In 2013, 655 counties had average CRP rates 20% more than cash value on a rental rate basis. In addition, 114 counties had average CRP rates doubling NASS cash rental rates, according to USDA data obtained by NGFA through a Freedom of Information Act request. NGFA, which supports CRP enrollments carefully targeted at environmentally sensitive acres, suggests FSA stop making upward adjustments to NASS rental rates to help eliminate disparities. The 2014 farm law gives FSA considerable discretion when it comes to setting CRP rental rates, NGFA maintains.
Max Fisher, director of economics and government relations for NGFA, advocates for a tighter CRP target. “We believe USDA should focus enrollments on buffer strips, grassed waterways and sensitive lands to address erosion and water quality,” he says. “We’re particularly concerned about whole farm enrollments. Huge tracts of land in CRP are a replacement, not a complement, to farming.”
NGFA believes CRP enrollments need to reflect improvements in farming practices, including new tillage and agronomic practices, which have progressed considerably since CRP was created, enabling growers to farm in more environmentally sustainable ways. “Targeted areas work best with CRP,” Gordon says. “Environmentally sensitive land shouldn’t be farmed. We believe there should be a more judicious focus regarding which lands qualify for CRP to preserve the farming lifeblood of rural communities and U.S. agriculture’s ability to compete for markets.”
INTERACTIVE: CRP Rates Vs. Cash Rent
Data from USDA shows counties where CRP rates are higher than cash rent rates in green, while counties with higher cash rents are represented in yellow. Zoom in to see how your county compares to others across the country.
Since its inception in 1985, CRP has established a stellar 30-year track record of environmental preservation.
Enrollment is competitive and offers are ranked based on environmental benefits from proposed conservation practices. FSA tags individual offers according to the EBI, which measures environmental sensitivity.
“CRP has 30 years of measured success; however, it is not a one-size-fits-all program,” Whitaker says. “FSA works very hard to be as absolutely fair as possible when administering the program, while at the same time addressing the diverse and unique natural resource concerns across 50 states.”
England is preparing for the 2016 season, intent on maintaining his remaining corn and soybean ground but frustrated over his loss of acreage. He says even with a lower CRP cap, concentrated acreage can serve as a heavy drag on local agriculture economies. “Beyond my own operation, I’m very concerned about my local farming industry if much more land is put into CRP,” he says.
“How do I compete with CRP as a small farmer? How do I negotiate when the government sets the floor?” England asks.
Conservation Reserve Program (CRP) rates lag 18 months behind because they’re based on USDA–National Agricultural Statistics Service (NASS) cash rental surveys.