Economic and Environmental Implications of 1990 Farm Bill Sustainability Provisions in Water Quality Sensitive Areas

Final Report for LNC93-055

Project Type: Research and Education
Funds awarded in 1993: $82,650.00
Projected End Date: 12/31/1996
Matching Non-Federal Funds: $64,500.00
Region: North Central
State: South Dakota
Project Coordinator:
Thomas Dobbs
South Dakota State University
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Project Information

Summary:

The overall goal of the research conducted under this project has been to determine whether economic incentives offered by three environmental provisions which were part of, or introduced at about the time of, the 1990 Farm Bill are sufficient to induce farmers in environmentally sensitive areas to adopt sustainable practices and systems. The three provisions were: (a) the Integrated Crop Management (ICM) cost-share program; (b) the Water Quality Incentive Program (WQIP); and (c) the Integrated Farm Management (IFM) program. The study area consists of nearly 100,000 acres and over 400 farms in three eastern South Dakota counties over the Big Sioux Aquifer; this is a USDA-designated “Water Quality Demonstration Project Area” where groundwater quality is a critical concern.

Five case farms in the study area were selected for analysis purposes — one that has participated in the IFM program and four that have participated in either the ICM program or the WQIP. Crop enterprise and rotation budgets were developed for each of the five case farms. For the two ICM and the two WQIP cases, farming system profits were estimated “before” and “after” program participation. Nitrate leaching estimates also were made for the “before” and “after” scenarios. Additional possible practice and system changes were identified for each of the four farms, and both farm profitability and nitrate leaching estimates were made for each of those scenarios, as well. Estimates were made for “typical,” “wet,” and “dry” climate conditions.

Results indicated that changes in at least some farming practices and systems could yield both increased farm profits and improved groundwater quality. In three of four case farm studies, changes in farmers’ practices associated with ICM or WQIP participation lead to increased profits (ranging from $6 to $30/acre) and very little change in nitrate leaching to groundwater. For all four case farms, there appears to be at least one additional practice or system change that could lead to increased profits and decreased nitrate leaching to groundwater. Some practice or system changes would involve tradeoffs between farm profits and groundwater quality, however. In those cases, difficult policy choices may be necessary where deterioration in water quality becomes critical. The results of this research help to illuminate the possible magnitudes of the tradeoffs.

Considering the profitability, capital intensity, complexity, and risk associated with the environmental initiatives examined in this study and with the practices and systems farmers are being encouraged to adopt, we conclude that: (1) operators of “large,” “medium,” and “small” sized farms may adopt several of the practice changes being promoted through WQIP and ICM; and (2) system changes under consideration are more likely to be adopted by operators of “medium” sized farms than by operators of “small” or “large” farms.

Project Objectives:

The following objectives were as listed in the original project submission. No changes in the original objectives were made.

A. Identify and describe the nature of initial Integrated Farm Management (IFM), Integrated Crop Management (ICM), and Water Quality Incentive Program (WQIP) participation by farmers in a critical groundwater area of eastern South Dakota.

B. Develop whole-farm economic models for three to four typical farms in that area, and develop enterprise and whole-farm budgets for alternative farm plans that might be used on those farms to comply with IFM, ICM, and/or WQIP provisions.

C. Develop estimates of the effects on groundwater quality of shifting to the alternative farm plans in Objective B, giving special emphasis to reducing the likelihood of nitrate contamination.

D. Determine economic and environmental effects–for typical farms–of participating in the IFM, ICM, and WQIP provisions of the 1990 Farm Bill, using the whole-farm models and estimates developed for Objectives B and C.

E. Determine what further changes may be needed in the federal farm program in order to induce adoption of sustainable farming practices and systems with potential to satisfy groundwater quality objectives.

F. Extend results of the research on Objectives D and E to farmers and to policy makers.

Research

Materials and methods:

The U.S. Department of Agriculture (USDA) began offering the Integrated Crop Management (ICM) cost-share program under its Agricultural Conservation Program (ACP) starting in the 1990 crop year. Participating farmers were eligible for cost-share payments for crop consultants and other costs associated with such practices as pest and nutrient management, cover crops, improved rotations, and green manure crops. Payments of up to $7/acre for small grains and row crops and $20/acre for orchards, vegetables, and specialty crops were allowed. Contracts up to 3 years in length were allowed, with payments not to exceed $3,500/year. The program was originally limited to a few counties in participating states and to a fixed number of farms in some of the counties. Later, states were allowed to make all counties and farms eligible.

The Water Quality Incentives Program (WQIP) was authorized as part of the 1990 farm bill, and subsequently was administered under the ACP program. Many of the WQIP practices that qualified for funding were the same as those that qualified under the ICM program, such as soil testing, cover crops, and integrated management of crop rotations. In addition, various practices specific to water management qualified for financial assistance, including well testing, filter strips, and irrigation water management. While the ICM program paid a 75% cost share, the WQIP paid a fixed per acre amount; depending on the practice, that amount could be up to $35/acre, with total payments for an individual contract limited to $25/acre. Like the ICM program, multi-year contracts paying up to $3,500/year were allowed. The WQIP was first funded for the 1992 crop year, at $6.8 million. It was then funded at $15 million/year in the following three years.

Our analyses attempted to determine whether the economic incentives offered by the ICM program and the WQIP were sufficient to induce Western Corn Belt/Northern Great Plains farmers in areas sensitive to groundwater contamination by nitrates to adopt farming systems and practices that could reduce contamination risks. The analyses were conducted by examining potential tradeoffs and/or complementarities between farm profits and reduced nitrate leaching in a watershed situated in eastern South Dakota. The general hypothesis was that complementarities may exist–or at least that tradeoffs may not be too severe–for at least some practices and systems.

The study was focused on one of the USDA’s 16 water quality demonstration projects across the country. This one, the Big Sioux Aquifer (BSA) Water Quality Demonstration Project, is located in eastern South Dakota. Here, a shallow aquifer located under intensively farmed, fertile soils is vulnerable to contamination from fertilizers, pesticides, and animal wastes. A major component of the BSA project is aimed at reducing non-point source nitrate pollution of the aquifer.

Four case study farms in the BSA area were used for the profitability/environmental quality tradeoff analyses. They represented different farm sizes, soils, cropping systems, topography, and management in the study area. The case farms were a mix of three dryland operations and one irrigated operation. Farm #1 was a dryland operation that used reduced tillage on a corn-soybean operation, with some alfalfa; it had 266 of its 1,283 acres enrolled in the ICM program, with enrolled acres consisting of Brandt, Marysland, and Fordville soils. Farm #2 also was a dryland operation, and it used some aspects of reduced tillage on 299 ICM acres (out of the farm total of 1,858) on which corn, soybeans, and oats were grown; ICM acres had Lamo and Clamo soil types. The third dryland farm, Farm #3, had corn, soybeans, oats, alfalfa, and clover on 108 acres (made up of Brandt and La Prairie soils) enrolled in the WQIP; this small farm (which had only 168 total acres) was operated by an individual who had a full-time town job, but who had long emphasized conservation practices. Farm #4 was the irrigated operation; our study focused on 73 WQIP acres (out of a farm total of 838), which consisted of continuous corn on Marysland and Fordville soils under a center-pivot sprinkler irrigation system.

Data from the four case farms, as well as from various other sources for practices and systems that could be adopted on those farms, was used to estimate tradeoffs (and complementarities) between farm profitability and nitrate leaching. Crop enterprise and rotation budgets were developed for each of the farms, using a budget generator package called CARE (Cost and Return Estimator). Profitability results (from CARE) for individual crops, fields, and soils were aggregated to a rotation and farming system level with special spreadsheets that took federal farm program acreage set-aside requirements into account. Farming system profits were estimated for the ICM/WQIP acres on each farm for both “before” and “after” participation. ICM and WQIP payments were $7/ac for enrolled acres on Farm #1, $4.93/ac for Farm #2, $7/ac for Farm #3, and $14.30/ac for Farm #4. These payments were not added into the budgets, since the payments were used to directly pay for costs incurred to make management adjustments; these costs, such as for crop consulting and soil testing services, were not included in the budgets, either. Thus, those payments were treated as direct “pass-throughs.”

Baseline economic analyses were completed using data collected from each case farmer. When the data were collected, the farmers were asked to make a distinction between practices that were typically used before enrollment in the ICM or WQIP program and practices that would typically be used after enrollment in these programs. Since the farms had only recently entered these special programs when interviews were initially conducted in winter 1993-1994, and one of the years (1993) since entering had far from typical weather conditions, a good deal of farmer and researcher judgement was used in making yield and other estimates necessary for the “after” economic analyses.

Baseline economic analyses were conducted with the federal farm program as it existed in 1993. Market prices were “typical” prices for the early 1990s in eastern South Dakota.

We also carried out profitability analyses for possible additional practice changes. These were changes that some farmers were not actually using yet, but that could be added to the “after” scenario. One was banding fertilizer at planting and another was splitting nitrogen fertilizer applications. Other changes involved system changes. The system changes involved switching to more diverse crop rotations than existed in the “before” and “after” scenarios for each individual case farmer.

Groundwater quality impacts for each case farm were represented by nitrate leaching. The Nitrate Leaching and Economic Analysis Package (NLEAP) model was used to make nitrate leaching estimates. Estimates of nitrate leaching were made for each of the practices and systems for which farm profits were estimated; this was done under three different rainfall scenarios–“typical,” “wet,” and “dry.” Yields were adjusted for each weather scenario, so that nitrate leaching and profit estimates for each farm and scenario were made under a consistent set of model assumptions.

A fifth case farm in the study area was used to examine farm profitability when the Integrated Farm Management (IFM) provision of the 1990 federal farm program was utilized. This farm, referred to as Farm #5, consisted of 720 acres in 1993. Of the 720 acres, 420 were enrolled in the IFM program; 365 acres of the 420 acres enrolled were managed organically. This allowed the products from those acres to qualify for organic price premiums when marketed. The remaining 55 acres (of the 420 in IFM) consisted of pasture and farmstead area. All of the organically irrigated land had irrigation available from a center pivot system. The crops receiving irrigation were corn, soybeans, and alfalfa. The 365 acres of organic crop land were used in the economic modeling. IFM acres consisted of Brandt, Moody, and Nora-Crofton soils.

We estimated profitability for this case farm–both with and without organic price premiums–using the CARE package. The IFM program, which the farm operator was using, allowed deficiency payments for crops such as corn to be paid on acres planted to Resource-Conserving-Crops (RCCs) just as if the program crop had been planted. The IFM program also allowed some harvesting on set-aside acres. Case Farm #5 used the IFM program to help take advantage of growing resource conserving crops such as legumes.

Research results and discussion:

Objective A: The study area consisted of nearly 100,000 acres and over 400 farms in three counties over the Big Sioux Aquifer. As of fall 1993, there were 45 farms in the study area enrolled in either the ICM or the WQIP, or in both. Most frequently used practices under both the ICM and the WQIP in the study area related to “nutrient management,” “pest management,” “conservation cropping sequence,” and “crop residue use.” Six of the 23 farms participating in the WQIP were irrigated and had a focus on improved “irrigation water management.” We found very little actual change in crops or crop rotations to have resulted from the ICM and WQIP in this study area. We also found very little participation in the IFM program. At the time our grant proposal was prepared, in fall 1992, records of the USDA’s ASCS offices indicated that 11 farmers in the study area planned to participate in the IFM program. However, only three farmers ultimately followed through on IFM contracts.

Objective B: Results of the profitability analyses with CARE are described, along with environmental results, under Objective D, below. They are also described in the Economic Analysis section.

Objective C: We analyzed the groundwater quality impacts of changed practices on the four ICM/WQIP case farms, using the NLEAP model. As indicated in our project proposal, primary emphasis was on nitrate leaching. Estimates of nitrate leaching were made for each of the practices and systems for which farm profits were estimated; this was done under three different rainfall scenarios–“typical,” “wet,” and “dry.” General results are described in the following section.

Objective D: Economic (farm profitability) and environmental (nitrate leaching) effects of different farming practices and systems that were modeled with CARE and NLEAP under “typical” rainfall conditions are shown in Figures 1 through 4.

In the “typical” year on Case Farm #1 (Figure 1), estimated “before” and “after” net returns and nitrate leaching were the same, because the crop consulting services received under the ICM program for that farm apparently did not lead directly to any farming practice or system changes. Profitability was slightly greater for splitting nitrogen application ($92.51/ac) when compared to the baseline scenario ($91.80/ac). The alternative systems had significantly greater economic returns ($109.26/ac for one alternative and $106.15/ac for the other alternative) than the baseline system and the alternative practice. Environmental results for splitting nitrogen application showed a slight decrease in the amount of nitrogen leached, dropping to 9 lbs/ac from 12 lbs/ac for the baseline system. However, the alternative systems showed an unexpected increase (15 lbs/ac for one alternative and 14 lbs/ac for the other) in the amount of nitrogen leached. This may be attributed to the high amount of nitrogen leached for the oats/alfalfa component of the alternative rotations. Even though there is alfalfa in the baseline system, it is on fewer acres, so the contribution to the whole-farm nitrogen leaching figures is not as great as in the alternative systems.

Results for the “typical” year on Case Farm #2 (Figure 2), indicate that profitability increased dramatically from the baseline “before” scenario ($39.28/acre) to the baseline “after” scenario ($68.99/acre). Profitability was slightly greater for the additional practices–$71.12 and $73.29/per acre for banding fertilizer and splitting nitrogen applications, respectively–compared to the baseline “after” scenario. The alternative systems had significantly greater economic returns ($96.28/acre for the O/A,A,A,S,C,S rotation and $82.63/acre for the O/A,A,A,C,S,C rotation) than the baseline systems and the alternative practices. Environmental results for the baseline “after” scenario showed a slight decrease in the amount of nitrate leached (2.9 lbs/acre), compared to the baseline “before” (3.3 lbs/acre), as expected. Even further decreases in the amount of nitrate leached were observed for banding fertilizer (2.3 lbs/acre) and splitting nitrogen applications (2.4 lbs/acre). The amount of nitrate leaching for the O/A,A,A,S,C,S rotation (2.4 lbs/acre) was similar to that for the alternative practices, and was slightly lower for the O/A,A,A,C,S,C rotation (2 lbs/acre). It should be emphasized that the nitrate leaching calculated by the model was only to the nearest pound, but the 6-year annual average is given in tenths of pounds to help the reader see trends.

Net returns were estimated to increase by $6/acre on Case Farm #3, where the WQIP involved elimination of inorganic fertilizer and changes in pesticides on corn on upper fields, but no change in nitrate leaching because leaching was assumed only to occur from this farm’s lower fields directly over the aquifer (Figure 3). Profitability was slightly greater for banding fertilizer ($101.54/acre) and splitting nitrogen applications ($102.06/acre) when compared to the baseline “after” scenario ($100.81/acre) on Case Farm #3 in the “typical” rainfall year. The alternative systems had significantly greater economic returns ($109.49/acre for the O/A,A,A,S,C,S rotation and $111.37/acre for the O/A,A,A,C,S,C rotation) than the baseline systems and the alternative practices. Environmental results for splitting nitrogen applications showed a slight increase in the amount of nitrogen leached, rising to 4.0 lbs/acre from 3.8 lbs/acre for the baseline system. The amount of nitrogen leaching for banding fertilizer was at the same level as the baseline “after” system. As expected, the alternative systems showed a decrease (3.4 lbs/acre for the O/A,A,A,S,C,S rotation and 2.8 lbs/acre for the O/A,A,A,C,S,C rotation) in the amount of nitrogen leached.

In the “typical” year for Case Farm #4 (Figure 4), estimated net returns increased substantially (by $18/acre), where the WQIP involved eliminating dry preplant inorganic fertilizer; nitrate leaching did not change much, however. Profitability was slightly greater for the alternative practice of splitting the nitrogen applications ($88/acre) when compared to the baseline “after” scenario ($81/acre). Using a nitrogen inhibitor (N-Serve) was also examined but was not included in the figure. Profitability for this alternative practice was also slightly greater than the baseline “after.” The alternative systems had lower economic returns ($74.61/acre for the corn/soybean rotation and $53.82/acre for the A,A,C,S,C,S rotation) than the baseline “after” system and the alternative practices. Environmental results for using a nitrogen inhibitor (34 lbs/acre) and splitting nitrogen applications (33 lbs/acre) showed slight decreases in the amount of nitrogen leached when compared to the baseline “after” scenario (36 lbs/acre). The alternative systems showed a more significant decrease in the amount of nitrogen leached (26 lbs/acre for the corn/soybean rotation and 25 lbs/acre for the A,A,C,S,C,S rotation) than did the alternative practices.

More detailed economic and environmental results for each of these four case farms are contained in SDSU Economic Pamphlets 95-1 through 95-4, being submitted with this final report. Those pamphlets contain results for “wet” and “dry” year assumptions, in addition to results for the “typical” year assumptions. They also contain sensitivity analyses for alfalfa prices and yields and results for some additional alternative practices and systems not shown in the figures.

Due to space limitations, profitability/nitrate leaching modeling results under “wet” and “dry” climate conditions are discussed only briefly here. Results showed almost no leaching in dry years on Case Farms #2 and #3. There, changes in practices and systems serve mainly to increase profits–relative to what they would be in dry years without the changes, not (of course) relative to what they would be in typical rainfall years. There would be some leaching in dry years on Case Farm #1, though less than in typical rainfall years. In contrast to the typical year results for this case farm, the more diverse rotation systems showed slightly reduced leaching–compared to the “before-after” baseline–in the dry year. Some leaching also takes place in dry years on the irrigated farm (Case Farm #4). The profitability/leaching relationships for the different practices and systems are the same on this farm in dry years as in typical years, except that nitrate leaching appears highest, rather than lowest, for the diverse rotation that includes alfalfa. However, the estimated leaching differences between all practices and systems on the irrigated farm were very small in dry years.

The case farm modeling for wet years showed relationships similar to those for typical rainfall years in many situations. Nitrate leaching, of course, tends to be higher in wet years than in typical years; the major exception was Case Farm #1, where we found little difference in nitrate leaching between those two types of weather conditions. Overall profitability tends to be higher in wet years than in typical years on Case Farms #1, #3 and #4; on Case Farm #2, which has some low-lying fields where crops can suffer from late-planting and drowning out in especially wet years, estimated profits were lower in wet years.

Some interesting differences in profitability/nitrate leaching relationships in wet years compared to typical years were observed in the analyses for some case farms. For example, on Case Farm #2, where the rotation system with oats, alfalfa, 2 years of corn, and 1 year of soybeans showed the least nitrate leaching of all systems in both typical and wet years, that system was found to be the second most profitable in typical years but the least profitable in wet years. Moving from the baseline “after” system to that system on Case Farm #2, in order to reduce nitrate leaching, would increase farm profitability in typical rainfall years, but decrease profitability in wet years. A similar phenomenon was observed in the model results for Case Farm #3, where switching from a corn/soybean rotation system on the low-lying field to systems that also include oats and alfalfa decreases nitrate leaching in both typical and wet years (though only very slightly in typical years). In typical rainfall years, such a switch increases farm profitability (a complementary situation for profitability and environmental quality goals), but in wet years it decreases profitability (a tradeoff situation) due to reduced alfalfa yields associated with some drowning out.

As explained in our annual reports, delays in the release of version 2 of PLANETOR, a farm-level economic and environmental analysis model, prevented us from relying on that model. However, we tested that model with two of our case farms (#3 and #4) to compare profitability and nitrate leaching tradeoff results from PLANETOR to results from the CARE and NLEAP models that we used for most of the analyses. Since PLANETOR ignores many of the fixed costs that CARE accounts for in computing profitabilities, profits appear to be higher for all scenarios when PLANETOR is used. However, the profitability rankings were the same for three scenarios tested on Farm #3. Nitrate leaching measures also were rather similar on Farm #3–all showing little leaching on this farm–for PLANETOR and NLEAP. (This would be expected, because NLEAP is the nitrate analysis component built into PLANETOR. However, not all procedures and assumptions are the same for the nitrate leaching analyses in PLANETOR and the stand-alone version of NLEAP, as we used it.) In our analyses of profitability/nitrate leaching relationships on Farm #4, the tradeoff patterns were fairly similar for the PLANETOR and the CARE/NLEAP approaches. However, the estimated nitrate leaching was higher for the “before” and “after” scenarios and lower for the three other scenarios tested when PLANETOR was used, compared to NLEAP. The profitability rankings are similar for PLANETOR and CARE on Farm #4, except the corn-soybean rotation is more profitable than the continuous corn “before” scenario when CARE is used and slightly less profitable when PLANETOR is used.

Objective E: The information developed for Objectives B, C, and D were used in policy analyses. Recall that we stated earlier that the ICM and WQIP payments were handled as “pass-throughs” in our budgets, representing costs passed on as payments to crop consultants and so forth. We did not change the payment level for different practices and systems. In reality, some of the rotation changes would qualify for higher payment levels if the farmer was not already at his or her $3,500/year payment limitation. The alternative rotations appear to be profitable on the dryland case farms even without additional cost-share. The irrigated case farm (#4) presumably would qualify for an average additional $5/acre if it went to the alfalfa-corn-soybean rotation that averages one-third of the acreage in alfalfa, since a $15/acre payment is allowed for legumes in rotation. However, that additional $5/acre would not be nearly enough to make that rotation as profitable as either the continuous corn or a corn-soybean rotation. The irrigated farm is already close to the $3,500/year payment limit, so it would not be eligible for an additional average payment of $5/acre on all of its acres under WQIP contract anyway.

Additional policy analyses not presented in this report, due to limits of space, demonstrated that reforms similar to those eventually embodied in the 1996 Farm Bill (FAIR) would probably make a corn/soybean rotation system more profitable than the existing continuous corn system on the irrigated farm. However, such “free market” reforms do not necessarily cause more diverse rotations which also include oats and alfalfa as part of the system to be as profitable as corn/soybean systems. Thus, while the new FAIR legislation may facilitate movement to somewhat more diverse rotations in some instances, cost-share policies are still needed if some kinds of practice and system changes are to be brought about voluntarily.

Objective F: This objective dealt with the dissemination of project findings. Therefore, accomplishments on this objective are described in the section that follows.

Research conclusions:

Positive Benefits

Results of this research indicate that changes in at least some farming practices and systems could yield both increased farm profits and improved groundwater quality. In three of four case farm studies in eastern South Dakota, changes in farmers’ practices associated with ICM or WQIP participation lead to increased profits (ranging from $6 to $30/acre) and very little change in nitrate leaching. For all four case farms, there appears to be at least one additional practice or system change that could lead to increased profits and decreased nitrate leaching to groundwater. Some practice or system changes would involve tradeoffs between farm profits and groundwater quality, however. In those cases, difficult policy choices may be necessary where deterioration in water quality becomes critical. The results of this research at least help to illuminate the possible magnitudes of the tradeoffs.

New Hypotheses

One analytical hypothesis is that the comprehensive model PLANETOR could more easily be used to reach the same general farmer recommendations and policy guidance that was obtained with separate economic (CARE) and environmental (NLEAP) models in this research. Delays in release of the new version of PLANETOR prevented us from exploring that hypothesis extensively during the first two years of this project. A follow-on project that we requested (through SARE) that would have, in part, explored this hypothesis did not receive funding. We did explore this hypothesis to a limited extent with some of the remaining SARE grant funds in this project during the past year’s one-year time extension that we received. Out limited testing gave mixed results, as indicated earlier. Comparability of PLANETOR with other approaches such as CARE and NLEAP merits further examination.

Another issue or hypothesis that should be examined is whether the new Environmental Quality Incentives Program (EQIP) that was authorized by the 1996 federal farm bill can or should be implemented in ways similar to the WQIP. Or, does the broadened scope of EQIP imply that this program will need to be implemented differently–at least for some components–in order to be cost-effective?

Economic Analysis

The economic results for Case Farms #1 through #4 were summarized previously, along with environmental results, under Objective D. Inputs, costs, and net returns are presented in more detail in SDSU Economics Pamphlets 95-1 through 95-4 (see list of citations in appendix). The results are briefly summarized in Table 1 and in the following paragraphs.

Let us first observe the data in rows one and two of Table 1. Estimated “before” and “after” net returns on Case Farm #1 were the same, because the crop consulting services received under the ICM program for that farm apparently did not lead directly to any farming practice or system changes. Estimated net returns increased substantially on Case Farm #2 (by $30/acre), where the ICM program contributed to a decision to switch to no-till practices for corn and soybeans and to begin drilling soybeans. Net returns were estimated to increase by $6/acre on Case Farm #3, where the WQIP involved reduced usage of inorganic fertilizer and changes in pesticides on corn. Estimated net returns increased substantially (by $18/ac) on Case Farm #4, where the WQIP involved eliminating dry preplant inorganic fertilizer.

The third and fourth rows of data in Table 1 constitute profitability estimates for possible additional practice changes. Each–analyzed individually, rather than in combination–appears to add modestly to net profitability in each case. The final rows show estimates for four additional hypothetical scenarios; these involving system changes. All involve changes to more diverse crop rotations than existed in the “before” and “after” scenarios. The first two include oats (as a nurse crop for alfalfa), alfalfa (harvested for 2 years after seeding), soybeans, and corn in 6-year rotations. In one alternative, soybeans are grown 2 years out of 6 and corn is only grown 1 year; in the other, soybeans are grown 1 year and corn is grown 2 years. Both of these scenarios appear to add to net farm profitability–compared to the “after” scenario on Case Farms #1, #2, and #3.

The last two alternatives are system changes for Case Farm #4. These hypothetical scenarios also involve changes to more diverse rotations, but the scenarios are different from those of the other farms because the irrigated farm’s baseline involves a continuous corn rotation. In one alternative, a 6-year rotation, alfalfa (clear-seeded) is harvested 2 years, and soybeans and corn are each grown for 2 years. The other alternative for Case Farm #4 is a corn/soybean rotation. (Corn/soybean rotations were part of the baseline for some of the other case farms.) Neither one of these system alternatives appears to be as profitable as the continuous corn rotation in the “after” scenario.

How operators of farms of different sizes are likely to be impacted by and respond to various types of environmental initiatives can be judged by considering the profitability, capital intensity, complexity, and risk associated with the initiatives and with the practices and systems they are being encouraged to adopt. In this study, we focused primarily on the profitability factor. However, subjective assessment of the other factors indicates that: (1) neither the practice changes nor the system changes are very capital intensive; (2) the practice changes involve minimal risk to participating farmers, but the system changes may involve more price and production risk; and (3) the WQIP and ICM programs are not complex, nor are the proposed practices, but alternative farming systems are more complex than current systems. Considering all four of these factors, we conclude that: (1) operators of “large,” “medium,” and “small” sized farms may adopt several of the practice changes being promoted through WQIP and ICM; and (2) system changes under consideration are more likely to be adopted by operators of “medium” sized farms than by operators of either “small” or “large” farms.

Economic analysis of Case Farm #5 showed this farm to have been very profitable in recent years with use of the IFM program and relatively high price premiums for some of its organic crop production. Net returns to land and management under “typical year” conditions–for the acres enrolled in IFM–were estimated to be $271/acre with organic premiums and $87/acre without such premiums (assuming the same crops are grown in either case). Details of the economic analysis with Case Farm #5 are contained in Economics Pamphlet 96-2 (#15 in the Citations list).

Farmer Adoption

A recent summary of farmer participation in the ICM program and the WQIP in the BSA area indicated that, by 1995: (a) 8,864 out of 100,000 project area acres had utilized integrated crop management practices; and (b) 1,437 acres of irrigated cropland had utilized improved irrigation water management practices. Integrated crop management practices were utilized on an additional 46,221 acres in the BSA area without ICM or WQIP cost-share payments [Note 1].

Five case study farmers were deeply involved in this project, and another farmer with extensive IFM experience was involved in a consultant-advisor role. The economics newsletters (cited earlier in this final report), summarizing economic and environmental findings of the study, directly or indirectly provided information to many farmers. That newsletter has a mailing list of more than 450, including farmers, Extension agents, news outlets, and others.

Involvement of Other Audiences

Approximately 75-100 SDSU faculty, Extension specialists, graduate students, and staff attended the August 1996 poster session at which results of this project were on display. It is likely that at least 200 agricultural economists from across the United States, and some from other countries, saw the poster at the July 1996 American Agricultural Economics Association.

[Note 1. 1995 Annual Report–South Dakota Big Sioux Aquifer Water Quality Demonstration Project, August 1996. ]

Participation Summary

Educational & Outreach Activities

Participation Summary

Education/outreach description:

Eight national and regional formal presentations of findings from this project were presented to policy makers and peers during the past three years. Those presentations (and associated papers and posters) are listed as items #1 through #8 in the Citations appendix to this report. In addition, extensive discussions of project findings were undertaken with government officials, legislative staffers, and non-profit agency policy analysts in Washington, D.C. in June 1995 and June 1996. Also, Dobbs chaired a symposium session on the prospects for “green (or stewardship) payments” at the August 1994 Annual Meetings of the American Agricultural Economics Association, in San Diego.

Preliminary results were presented to a group of farmers interested in sustainable agriculture at a meeting at South Dakota State University in spring 1995. Wider distribution of the economic results to farmers and policy makers in South Dakota was accomplished through an Economics Department newsletter (item #9 in Citations). A later newsletter (item #10) to the same audiences presented the economic/environmental tradeoffs and complementarities. Results were presented to SDSU peers at an Agricultural and Biological Sciences College poster session in August 1996.

Detailed economic and environmental results for each of the four case farms participating in either the ICM program or the WQIP are contained in the South Dakota State University Economics Pamphlet series. Four reports in that series (Citation items #11 through #14) were distributed to Extension specialists working with the Big Sioux Aquifer Demonstration Project and to key personnel in South Dakota offices of the USDA’s Natural Resources Conservation Service.

A fifth report in the Economics Pamphlet series (Citation item #15) describes results of the profitability and policy analyses for the case farm that utilized the IFM program.

South Dakota State University is teaming with North Dakota State University on a 2-year training project using SARE Chapter III funds. Dr. Pflueger participated in a series of four workshops (in North and South Dakota) as part of this project in September 1996. His participation in this study of the Big Sioux Aquifer helped prepare him for the economic presentations he made at the four workshops.

Project Outcomes

Recommendations:

Areas needing additional study

Some areas needing additional study are described in the “New Hypotheses” section.

Also, much more study is needed on how different combinations of crop and livestock systems are likely to effect both farm profits and water quality in areas with shallow aquifers. The study described in this final report examined only crop systems, a large task in itself. Because of the extensive data and resource requirements, few have studied crop/livestock systems jointly (from profitability and environmental quality standpoints). However, long-term funding for such work is badly needed.

Research also is needed on how farmers’ responses to risk under the new, more market-oriented federal farm bill are likely to affect their adoption of more environmentally sound farming practices and systems.

Citations

1. Dobbs, T.L. 1994. Profitability comparisons: Are emerging results conflicting or are they beginning to form patterns? In Proceedings of an Organized Symposium Presented at the Annual Conference of the American Agricultural Economics Association. San Diego, California, August, pp. 33-40.

2. Dobbs, T.L. 1995. Factors influencing the response of producers to environmental initiatives: Profitability, capital intensity, complexity, and risk. Panel presentation at Council for Agricultural Science and Technology (CAST) Conference on Sustainable Agriculture and the 1995 Farm Bill. Washington, D.C., January.

3. Bischoff, J.H., T.L. Dobbs, B.W. Pflueger, and L.D. Henning. 1995. Environmental and farm profitability objectives in water quality sensitive areas: Evaluating the tradeoffs (poster presentation). Abstract in Conference Proceedings for Clean Water-Clean Environment-21st Century, Vol. III, Practices, Systems, & Adoption. Kansas City, Missouri, March, pp. 25-28.

4. Dobbs, T.L., J.H. Bischoff, L.D. Henning, and B.W. Pflueger. 1995. Case study of the potential economic and environmental effects of the water quality incentive program and the integrated crop management program: Preliminary results. Paper presented at Annual Meeting of the Great Plains Economics Committee, of the Great Plains Agricultural Council. Kansas City, Missouri, April.

5. Dobbs, T.L. 1995. Impacts of commodity programs on cropping systems: Is marginal or radical change needed? In Proceedings of Great Plains Agricultural Council Annual Meeting. Albuquerque, New Mexico, June, pp. 97-112.

6. Henning, L., T. Dobbs, B. Pflueger, and J. Bischoff. 1995. Analyses of two pilot “green” payment programs: Integrated Crop Management and Water Quality Incentive Program. Paper presented at Annual Meeting of the Western Agricultural Economics Association. Rapid City, South Dakota, July.

7. Dobbs, T.L. 1996. Slide presentation on farm-level impacts of Integrated Crop Management program and Water Quality Incentives Program to staff of Economic Research Service, U.S. Department of Agriculture. Washington, D.C., June.

8. Dobbs, T.L., and J.H. Bischoff. 1996. Economic/environmental tradeoffs of agricultural practices to improve groundwater quality (poster presentation). Annual Meeting of the American Agricultural Economics Association. San Antonio, Texas, July. Abstract to appear in December 1996 issue of the American Journal of Agricultural Economics.

9. Pflueger, B., L. Henning, and T. Dobbs. 1995. Economic analysis of two cost-share programs to improve ground water quality. Economics Commentator 347. Brookings: South Dakota State University, March 27.

10. Dobbs, T.L., J.H. Bischoff, B.W. Pflueger, and L.D. Henning. 1996. Are there tradeoffs between farm profitability and environmental quality in South Dakota’s Big Sioux Aquifer Area? Economics Commentator 361. Brookings, South Dakota, April 2.

11. Henning, L.D., B.W. Pflueger, J.H. Bischoff, and T.L. Dobbs. 1995. Profitability and Nitrate Leaching Effects of Possible Farming Practice and System Changes over South Dakota’s Big Sioux Aquifer: Case Farm No. 1 Summary. Economics Pamphlet 95-1. Brookings: South Dakota State University, September.

12. Henning, L.D., J.H. Bischoff, T.L. Dobbs, and B.W. Pflueger. 1995. Profitability and Nitrate Leaching Effects of Possible Farming Practice and System Changes over South Dakota’s Big Sioux Aquifer: Case Farm No. 2 Summary. Economics Pamphlet 95-2. Brookings: South Dakota State University, September.

13. Henning, L.D., T.L. Dobbs, J.H. Bischoff, and B.W. Pflueger. 1995. Profitability and Nitrate Leaching Effects of Possible Farming Practice and System Changes over South Dakota’s Big Sioux Aquifer: Case Farm No. 3 Summary. Economics Pamphlet 95-3. Brookings: South Dakota State University, September.

14. Henning, L.D., T.L. Dobbs, J.H. Bischoff, and B.W. Pflueger. 1995. Profitability and Nitrate Leaching Effects of Possible Farming Practice and System Changes over South Dakota’s Big Sioux Aquifer: Case Farm No. 4 Summary. Economics Pamphlet 95-4. Brookings: South Dakota State University, September.

15. Prouty, C.L., and T.L. Dobbs. 1996. Case Study of the Profitability of a South Dakota Farm Using the Integrated Farm Management Program. Economics Pamphlet 96-2. Brookings: South Dakota State University, July.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.