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7. What Is The Nature Of Resource

Policy In The U.S. Today?

Larry D. Sanders

Fall 2005Dept. of Ag Economics Oklahoma State

University

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Introduction Purpose:

– to understand resource policy issues & options Learning Objectives:

1. Become aware of the origin, types & values of resource policy issues.

2. Understand major resource issues, options & who pays.

3. Understand farmland retention & preservation issues.

4. Understand resource provisions in farm bill & other key legislation (this lesson and NRCS presentation on class website).

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Sources Of Resource Policy Issues SCARCITY

– If not reflected in price, use will go up– Technology & Price dependent

VALUE QUESTIONS– Availability, Access, Alternate Uses, Political Will

PROPERTY RIGHTS– Socially Determined, Legally Supported, Not

Absolute, Externalities Matter

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Sources Of Resource Policy Issues (continued) PUBLIC GOODS

– Free Riders & Nondivisibility prevent privatization FREE MARKET-POPULIST MOVEMENT

– Shifting Political Support to Privatize & Localize

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Resource Types NONRENEWABLE

– Stock resource for relevant time frame– Use leads to depletion

RENEWABLE– Flow resource; can be replenished within

relevant time frame– Use does not lead to depletion– Sustainability may be an issue

(rate of usage may matter)– Quality must be maintained

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Value Questions

Private vs. Social values Current vs. Future generations Market value vs. NONMARKET value

– (Use + option + existence)– Property value– Travel cost– Contingent values--ownership an issue

» Willingness to pay» Willingness to sell

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Key Question: Who Pays?

Free market Government subsidies

– Incentives to alter behavior (WTS) Taxes

– Internalize cost of externalities (WTP) Regulations

– May mandate or prohibit actions Current vs. Future generations

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Issues & Options: Soil Conservation Free Market--Soil Erosion Up, Water Quality Down,

Productivity Down, Externalities Up Federal legislation

– Ag Conservation Payments (ACP)--1930s– Technical Assistance--1935– Soil Bank--1950s– Conservation Compliance & Sodbuster—1985– Conservation Reserve Program--1985– Easements--1990– Regulation--”Takings” Issue--1990s– 1996 FAIR Act (CRP; EQIP; CFO)– FSRIA 2002 (expands existing programs; adds CSP, GRP)– Green Payments--2007?

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Issues & Options:Water Use

SUPPLY– Development (Dams, Diversions, etc.)

» increased availability & ag production & lower food prices» reduced endangered species & scenic areas

– Pricing or Sale of Rights--typically a state/local issue» increased water costs & conservation» may reduce ag production» water is more likely available

– Management--typically a state issue» increased water conservation & reduced scarcity» use more consistent with need» reduced freedom & value of water rights

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Issues & Options:Water Use

SURFACE WATER RIGHTS– Riparian (owner of land)– Prior Appropriation

GROUNDWATER RIGHTS– Absolute ownership– Reasonable use– Restatement rule– Correlative rights

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Issues & Options:Water Quality

Free Market--Point & Nonpoint Pollution

Input taxes--Internalize costs Subsidies

– --Incentives (WQIP; CRP; EQIP; CFO; WRP; Cost-sharing; Green payments; IPM)

“Point” source regulations/fines– Water quality, production costs, food prices up– Soil erosion, farmer freedom down

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Issues & Options:Water Quality (continued)

REGULATION – Key regulations:

» Clean Water Act (CWA)-1977» Coastal Zone Management Act (CZMA)-1972» Safe Drinking Water Act (SDWA)-1974» Federal Insecticide Fungicide & Rodenticide Act (FIFRA)-

47; Federal Environmental Pesticide Control Act (FEPCA)-72; 88; 96

» Endangered Species Act (ESA)-1973» Food Quality Protection Act (FQPA)-1996

– Performance Standards (flexibility) – Prescribing/Proscribing Practices

Court cases—OK-AR example

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Issues & Options:Wetlands

Definitional issue Free market

– Reduced wetlands, water quality, wildlife, habitat– More land for ag, residential & commercial use

Regulation– Swampbuster– No net loss– BMPs

Subsidies– WRP--1990– Compensation

Hurricane Katrina brings renewed attention to value of coastal wetlands as barriers to natural disasters

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Issues & Options:Endangered Species

Free market– Increased threat to more species– Reduced biodiversity– Low production costs & food prices

Regulation – “Taking” prohibited (ESA--1973)– Cost/benefit analysis– Sep 05:House passed: Threatened and Endangered Species

Recovery Act (TESRA) of 2005 » Calls for compensation rule

Subsidies – Compensation

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Issues & Options:Farmland Protection

Every single minute of every day, America loses two acres of farmland. We lost farm and ranch land 51 percent faster in the 90s than in the 80s. We're losing our best land-most fertile and productive-the fastest. Our food is increasingly in the path of development. Wasteful land use is the problem, not growth itself. Every state is losing some of its best farmland. [OK losing 12,660 ac/yr…]--American Farmland Trust, October 2002.

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Issues & Options:Farmland Protection

Retention--continues active use Preservation--prevents nonagricultural use Goals--typically state/local issue

– Maintain food/fiber productive capacity– Maintain healthy local agricultural community– Maintain open space amenities– Maintain efficient development policy (rural-

urban interface?)

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Issues & Options:Farmland Protection

Free market vs. Regulation– Zoning laws– Development rights market– Right-to-farm laws– Preferential assessment– Ag districts

Subsidies– 1996 FAIR act ($17.2 mil. for

easements in 1998) – FSRIA continues – State initiatives (OK Land Trust)

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Issues & Options:Global Climate Change

Key issues:– Time perspective?– Sources? – Geography (trans-national?) – Irreversibility?– Science?

Free market Research & extension Regulation—very little domestic rules

– Global: » 1997 Kyoto accords» 1999 Bonn conference» US support unlikely soon» 2002 Earth Summit—Africa

Subsidies

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Issues & Options:Biotechnology

Precision or Prescription Agriculture:

the “Great Green Hope” or “Frankenfoods”?– Robotics, GPS, Microsensors, By-plant Prescription

Production– May minimize environmental concerns– Who can afford it?– Transportation issues– Reduced production flexibility/property rights– Great hope for reducing world hunger

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Issues & Options:Biotechnology

Bio-engineered Seed/GMOs/GEOs– genetically altered attributes (Bt crops: “bacillus

thuringiensis”)– Concerns:

» unintended direct ecosystem impacts» unintended mutation impacts» unintended human impacts when eaten » labeling to give consumer choice» “Microsofting” of agricultural input marketing

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Property Rights Part of Public Policy Debate

Institutional Factors–Property (assumes rights

to possession & use of economic objects w/govt. rules for ownership, transfer, use, etc.)

–Private vs. Common Property –Limited rights (land, water, minerals, air

space, time share, etc.)

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Additional Policy Notes (cont.)

Institutional Factors (cont.)– Development (zoning, building, flood control,

homestead, permit markets, taxes, court injunctions, eminent domain, etc.)

» Property rights for Land--Fee Simple Ownership» Rights of Owner to: Possess/use, Sell, Devise (pass to

heirs), Lease, Mortgage, Subdivide, Grant Easements» Rights of Govt. to: Tax, Take for public use

(eminent domain), Control use of (police power), Escheat (reversion to state at death)

June 05: US Supreme Court Kelo Case– Re-affirmed eminent domain to cover takings for

community economic development

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Additional Policy Notes (cont.)

Institutional Factors (cont.)– Rights are exclusive, not absolute– Rights evolve in court cases & law– Rights carry legal & ethical responsibilities

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Cross-cutting Concepts for Environmental Policy

1. Control of commercial agriculture in US2. Impact on risk & risk management3. Production alternatives4. Political & economic trade-offs5. Treating problems or symptoms 6. War on Terrorism & War on Iraq will complicate

options.7. Common ground for environmentalists and ag

producers/landowners (sustainability)8. Food security/safety9. Energy needs versus Environmental protection

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Summary Natural resource policy

continues to evolve, with recent backlash of individual vs. society

Current policy issues focus on:– Wars on terrorism & Iraq – deficit reduction– guarding property rights & keeping producer

costs down to maintain competitiveness– questioning environmental protection

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Summary (continued)

Environmental battles likely to return to local level, with reduction in overall environmental quality & increased confusion over rules

More focus on agriculture for energy, environmental amenity use, and working farmlands

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CRP—Active Contracts, Aug 2005, US & OK

Type Contracts Farms Acres $mil $/acreGeneral 407,642 267,762 32,408,029 1,417 43.74

continuous

--non CREP 250,233 155,356 2,371,742 211 88.93

--CREP 42,990 28,648 681,336 82 120.30

--subtotal 293,223 179,769 3,053,078 293 95.93

Farmable Wetland

8,481 6,859 130,875 16 118.71

TOTAL 709,346 410,867 35,591,982 1,726 48.49

OK Total 9,137 6,240 1, 052,162 34,188 32.49

Annual Rental Payments

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CRP 1986-2000

CRP Rental Rates ranged from $37-$43/ac. for OK during 1986-1995

CRP Rental Rates ranged from $28-$34/ac for Ok during 1996-2000

OK (OSU-NRCS) 1995 study suggests CRP more profitable than returning to production for CRP land terminating existing contracts:– Participate in new CRP: $25 net income

– Return to wheat/sorghum: ($16)-($32) net loss

– Keep in grass for grazing: $17-$24 net income

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Location of CRP Enrollment, October 2000

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Kingfisher 4,706.6

Dewey19,243

Canadian 2,157

Oklahoma 0

Grady 2,262.7

Cleveland

0 Noble1,316

2,313.4Logan

McClain

77.8

Lincoln 581.3

CRP Acreage as of April 30, 20021,024,842.3

59 CountiesAverage Rental Rate - $32.45Total Contracts - 8568

Cimarron158,615.6

Texas218,206.4

Beaver134,586.3

Harper64,364.4

Woods 24,753

Ellis63,415.9

Woodward23,034.5 Major 16,027.8

Alfalfa9,662

Grant17,086.6

Kay3,547.4

Osage1,126.4

Craig 484.8 D

elaware

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\Payne 291.3

Creek 0

Pawnee Garfield 5,171.3

RogerMills24,024.1

Custer 5,505.3

Blaine6,928.8

Beckham49,030.2

Washita 4,636

Kiowa 4,968.2

Greer 34,902.2

Jackson21,399.1

Harm

on 51,665.3

Comanche 894.8

Caddo7,498.2

Tillman13,843.5 Cotton

5,619.1 Jefferson 9,812.3

Stephens1,498.9

Garvin 46

Love 712.9

Carter 250

Murray

Bryan3,320.8

Choctaw 0

Johnston 0 Atoka 0

Pushmataha 0

McCurtain 1,065.3

LeFlore 0

Latimer0

Pittsburg 22

Coal73

Pontotoc 63.6

Hughes 173.9

McIntosh0

Haskell 457.3

Sequoyah 0

Okmulgee 572.9 Muskogee

553.1

Adair 0

Ottawa 324.7

Mayes 0

Cherokee 0

Wagoner 102.8

Marshall

295.3

Nowata 179.7

Washington

Rogers 0

Tulsa 118.7

Okfuskee 385.9

Seminole

230.2

Pot taw

atomie

587.7

Oklahoma CRP Update, Apr 02(Prepared by R. Wanger, OK FSA)

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Farm Bill Update: FSRIA 02--Conservation Programs

Quadruples EQIP Conservation Security Program (Harkin)

$2 billion total– Fy05:

» US: 14,516 applications; 10.1 mil. Ac.

» OK: 234 apps; 105,820 ac.

Adds 4 bil acres to CRP, WRP

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An Evolving Conservation Philosophy

Previous programs focused on protecting environment/natural resources & compensating producers/landowners

New philosophy is shifting toward working farmland with a conservation ethic (increase from current 7% to new 40% of program costs)

Farmers and ranchers should manage farmland to provide cheap, high quality food and fiber and environmental amenities (e.g. clean air and water, wildlife habitat, open space, sequestered carbon).

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Conservation Programs

TOTAL $17.1 billion for 2002-2007 CRP– 39.2 (36.4) million acre cap- $1.517 billion *Conservation Security Program - $2 billion Environmental Quality Incentives Program- $9 billion Wetland Reserve Program – 2.6 (1.1) million acre cap -

$1.726 billion *Grassland Reserve Program – 2 million acres – $254

million Farmland Protection Program - $1 billion Wildlife Habitat Incentive Program - $700 million Small Watershed Rehabilitation Program - $275 million

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Conservation Programs - Summary

CRP/WRP– if you can’t manage land to meet environmental restrictions

EQIP – if you need technical or financial assistance to manage land

Other Programs to preserve desired landscape– CSP – if you want to try new management– FPP – protect against urban sprawl– GRP – protect fragile grasslands– WHIP – maintain or improve wildlife habitat

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Energy Title—(Title IX, FSRIA02)

1.Federal Procurement of biobased products 2.Biorefinery development grants 3.Biodiesel fuel education programs 4.Energy audit and renewable energy development program 5.Renewable energy systems and energy efficiency

improvements 6.Hydrogen and fuel cell technologies 7.Biomass research and development 8.Cooperative research and extension projects 9.Continuation of bioenergy program

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Energy Title Key provisions

– Federal agencies required to procure biobased products.

– Biobased “products will be purchased to the maximum extent possible.”

– Energy from bio-mass including ag crops and animals waste.

– Energy from renewable sources, wind, solar, biomass or geothermal or hydrogen produced from water or biomass

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Bio-Based Preference

Key Points– Each federal agency required to have specs for bio-

based products within one year. – Optional, allows some wiggle room to opt out.– Labeling for bio-based products.– Office of Federal Procurement Policy coordinated

program.– Preference in contracting goes to item with highest

% bio-based product.– $6 million

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BIO Refinery Grants

Key Points:

– Grants to defray cost of development and construction of bio-refineries.

– Farmers, national lab, institutions of higher ed, state or local agency, tribe, consortium.

– Gov’t cost not to exceed 30% of cost.

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Bio-Diesel Fuel Education Program

Key Points

– Grant to educate public and government about the benefits of bio diesel.

– $1 million/year.

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CCC Bio-Energy Program

– Payments to eligible producers to encourage increased purchase of eligible commodities for purpose of expanding production of bio-energy and supporting new production capacity for bioenergy.

– Contract required» Producers < 65K gallons reimbursed 1 feedstock unit for

every 2.5 feedstock units of commodity used for increased production

» Producers 65K or more gallons 1 feedstock unit for every 3.5 feedstock units.

» No farmer gets more than 5% of total funds» Proration allowed» Total authorized $150M/yr. 2003-06; $0 in 2007

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Other Energy Provisions Energy Audit and Renewable Energy Audits Grant

– Cost share gov’t pays 75%.

Renewable Energy Purchase Grants– Loan and Loan guarantees for farmers to purchase renewable

energy systems or to make energy efficiency improvements.

– Grant not to exceed 25% of cost.

– Grant and Loan not to exceed 50% of cost of system.

– Must be cost effective.

– $75 million

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Other Energy Provisions Hydrogen Cells and Fuel Cells

– Sec. Ag. to work with Sec. Energy to disseminate info.

Biomass Research and Development– Reauthorizes the Biomass Research & Development Act of 2000

– CCC gives $5M 2002; $14M 2003-2007;

– Additional authorized $49M 2002-2007.

CSREES Carbon Sequestration Research & Extension– Such sums as are necessary are authorized .

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Energy Policy in FSRIA02--2005 update

Biomass Research & Development– Oct 05: 11 research, development & demo

projects selected to receive $12.6 mil. » Cost share brings total to $19 mil.

» Joint effort USDA & DOE

» Noble Foundation, Ardmore: $670,166