1 7. What Is The Nature Of Resource Policy In The U.S. Today? Larry D. Sanders Fall 2005 Dept. of Ag Economics Oklahoma State University

2 Introduction u Purpose: –to understand resource policy issues & options u 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).

3 Sources Of Resource Policy Issues u SCARCITY –If not reflected in price, use will go up –Technology & Price dependent u VALUE QUESTIONS –Availability, Access, Alternate Uses, Political Will u PROPERTY RIGHTS –Socially Determined, Legally Supported, Not Absolute, Externalities Matter

4 Sources Of Resource Policy Issues (continued) u PUBLIC GOODS –Free Riders & Nondivisibility prevent privatization u FREE MARKET-POPULIST MOVEMENT –Shifting Political Support to Privatize & Localize

5 Resource Types u NONRENEWABLE –Stock resource for relevant time frame –Use leads to depletion u 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

6 Value Questions u Private vs. Social values u Current vs. Future generations u Market value vs. NONMARKET value –(Use + option + existence) –Property value –Travel cost –Contingent values--ownership an issue »Willingness to pay »Willingness to sell

7 Key Question: Who Pays? u Free market u Government subsidies –Incentives to alter behavior (WTS) u Taxes –Internalize cost of externalities (WTP) u Regulations –May mandate or prohibit actions u Current vs. Future generations

8 Issues & Options: Soil Conservation u Free Market--Soil Erosion Up, Water Quality Down, Productivity Down, Externalities Up u Federal legislation –Ag Conservation Payments (ACP)--1930s –Technical Assistance –Soil Bank--1950s –Conservation Compliance & Sodbuster—1985 –Conservation Reserve Program –Easements –Regulation--”Takings” Issue--1990s –1996 FAIR Act (CRP; EQIP; CFO) –FSRIA 2002 (expands existing programs; adds CSP, GRP) –Green Payments--2007?

9 Issues & Options: Water Use u 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

10 Issues & Options: Water Use u SURFACE WATER RIGHTS –Riparian (owner of land) –Prior Appropriation u GROUNDWATER RIGHTS –Absolute ownership –Reasonable use –Restatement rule –Correlative rights

11 Issues & Options: Water Quality u Free Market-- Point & Nonpoint Pollution u Input taxes--Internalize costs u Subsidies –--Incentives (WQIP; CRP; EQIP; CFO; WRP;Cost-sharing; Green payments; IPM) u “Point” source regulations/fines –Water quality, production costs, food prices up –Soil erosion, farmer freedom down

12 Issues & Options: Water Quality (continued) u 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 u Court cases—OK-AR example

13 Issues & Options: Wetlands u Definitional issue u Free market –Reduced wetlands, water quality, wildlife, habitat –More land for ag, residential & commercial use u Regulation –Swampbuster –No net loss –BMPs u Subsidies –WRP –Compensation u Hurricane Katrina brings renewed attention to value of coastal wetlands as barriers to natural disasters

14 Issues & Options: Endangered Species u Free market –Increased threat to more species –Reduced biodiversity –Low production costs & food prices u 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 u Subsidies –Compensation

15 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.

16 Issues & Options: Farmland Protection u Retention--continues active use u Preservation--prevents nonagricultural use u 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?)

17 Issues & Options: Farmland Protection u Free market vs. Regulation –Zoning laws –Development rights market –Right-to-farm laws –Preferential assessment –Ag districts u Subsidies –1996 FAIR act ($17.2 mil. for easements in 1998) –FSRIA continues –State initiatives (OK Land Trust)

18 Issues & Options: Global Climate Change u Key issues: –Time perspective? –Sources? –Geography (trans-national?) –Irreversibility? –Science? u Free market u Research & extension u Regulation—very little domestic rules –Global: »1997 Kyoto accords »1999 Bonn conference »US support unlikely soon »2002 Earth Summit—Africa u Subsidies

19 Issues & Options: Biotechnology u 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

20 Issues & Options: Biotechnology u 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

21 Property Rights Part of Public Policy Debate u 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.)

22 Additional Policy Notes (cont.) u 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) u June 05: US Supreme Court Kelo Case –Re-affirmed eminent domain to cover takings for community economic development

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

24 Cross-cutting Concepts for Environmental Policy 1.Control of commercial agriculture in US 2.Impact on risk & risk management 3.Production alternatives 4.Political & economic trade-offs 5. 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/safety 9. Energy needs versus Environmental protection

25 Summary u Natural resource policy continues to evolve, with recent backlash of individual vs. society u Current policy issues focus on: –Wars on terrorism & Iraq –deficit reduction –guarding property rights & keeping producer costs down to maintain competitiveness –questioning environmental protection

26 Summary (continued) u Environmental battles likely to return to local level, with reduction in overall environmental quality & increased confusion over rules u More focus on agriculture for energy, environmental amenity use, and working farmlands

27 CRP—Active Contracts, Aug 2005, US & OK Type Contracts FarmsAcres$mil$/acre General407,642267,76232,408,0291, continuous --non CREP250,233155,3562,371, CREP42,99028,648681, subtotal293,223179,7693,053, Farmable Wetland 8,4816,859130, TOTAL709,346410,86735,591,9821, OK Total9,1376,2401, 052,16234, Annual Rental Payments

28 CRP u CRP Rental Rates ranged from $37-$43/ac. for OK during u CRP Rental Rates ranged from $28-$34/ac for Ok during u 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

29 Location of CRP Enrollment, October 2000

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31 Kingfisher 4,706.6 Dewey 19,243 Canadian 2,157 Oklahoma 0 Grady 2,262.7 Clevelan d 0 Noble 1,316 2,313.4 Logan McClain 77.8 Lincoln CRP Acreage as of April 30, ,024, Counties Average Rental Rate - $32.45 Total Contracts Cimarron 158,615.6 Texas 218,206.4 Beaver 134,586.3 Harper 64,364.4 Woods 24,753 Ellis 63,415.9 Woodward 23,034.5 Major 16,027.8 Alfalfa 9,662 Grant 17,086.6 Kay 3,547.4 Osage 1,126.4 Craig Delaware 49 \Payne Creek 0 Pawnee Garfield 5,171.3 Roger Mills 24,024.1 Custer 5,505.3 Blaine 6,928.8 Beckham 49,030.2 Washita 4,636 Kiowa 4,968.2 Greer 34,902.2 Jackson 21,399.1 Harmon 51,665.3 Comanche Caddo 7,498.2 Tillman 13,843.5 Cotton 5,619.1 Jefferson 9,812.3 Stephens 1,498.9 Garvin 46 Love Carter 250 Murray Bryan 3,320.8 Choctaw 0 Johnston 0 Atoka 0 Pushmataha 0 McCurtain 1,065.3 LeFlore 0 Latimer 0 Pittsburg 22 Coal 73 Pontotoc 63.6 Hughes McIntos h 0 Haskell Sequoyah 0 Okmulgee Muskogee Adair 0 Ottawa Mayes 0 Cherokee 0 Wagoner Marshall Nowata Washington Rogers 0 Tulsa Okfuskee Seminole Pottawatomie Oklahoma CRP Update, Apr 02 (Prepared by R. Wanger, OK FSA)

32 Farm Bill Update: FSRIA 02--Conservation Programs u Quadruples EQIP u Conservation Security Program (Harkin) $2 billion total –Fy05: »US: 14,516 applications; 10.1 mil. Ac. »OK: 234 apps; 105,820 ac. u Adds 4 bil acres to CRP, WRP

33 An Evolving Conservation Philosophy u Previous programs focused on protecting environment/natural resources & compensating producers/landowners u New philosophy is shifting toward working farmland with a conservation ethic (increase from current 7% to new 40% of program costs) u 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).

34 Conservation Programs TOTAL $17.1 billion for u CRP– 39.2 (36.4) million acre cap- $1.517 billion u *Conservation Security Program - $2 billion u Environmental Quality Incentives Program- $9 billion u Wetland Reserve Program – 2.6 (1.1) million acre cap - $1.726 billion u *Grassland Reserve Program – 2 million acres – $254 million u Farmland Protection Program - $1 billion u Wildlife Habitat Incentive Program - $700 million u Small Watershed Rehabilitation Program - $275 million

35 Conservation Programs - Summary u CRP/WRP– if you can’t manage land to meet environmental restrictions u EQIP – if you need technical or financial assistance to manage land u 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

36 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

37 Energy Title u 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

38 Bio-Based Preference u 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

39 BIO Refinery Grants u 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.

40 Bio-Diesel Fuel Education Program u Key Points –Grant to educate public and government about the benefits of bio diesel. –$1 million/year.

41 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 ; $0 in 2007

42 Other Energy Provisions u Energy Audit and Renewable Energy Audits Grant –Cost share gov’t pays 75%. u 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

43 Other Energy Provisions u Hydrogen Cells and Fuel Cells –Sec. Ag. to work with Sec. Energy to disseminate info. u Biomass Research and Development –Reauthorizes the Biomass Research & Development Act of 2000 –CCC gives $5M 2002; $14M ; –Additional authorized $49M u CSREES Carbon Sequestration Research & Extension –Such sums as are necessary are authorized.

44 Energy Policy in FSRIA update u 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