The Economic, Environmental, and Fiscal Impacts of a Targeted Renewal of Conservation Reserve Program Contracts

What to do with CRP contracts as they expire is one of the most pressing issues confronting U.S. agricultural policymakers in 1995. Because CRP renewal will compete in 19959 with other agricultural programs for funding, greater attention will be paid to improve targeting of payments to maintain a significant portion of existing environmental and farm benefits at a reduced program cost. We consider three alternative renewal criteria: (1) renewal of least expensive land first (cost-raking), (2) renewal of most environmentally sensitive land first (benefit-ranking), and (3) renewal of land according to the cost per unit of environmental benefit offered (cost/benefit-ranking). Environmental indicators used to measure benefits include sheet and rill erosion, wind erosion, surface water quality, groundwater vulnerability to pesticide leaching, wildlife habitat, and an aggregate of the five individual indicators. Measures of these environmental benefits from targeting environmental indicators for various limits on annual government expenditure are provided. We show that the degree of conflict between maximizing CRP acreage and maximizing environmental benefit is determined by the moments of joint distribution of land opportunity costs and land characteristics. In particular we show that conflicts increase as (1) land rental rates and the level of environmental benefits offered by individual tracts of CRP land become more positively correlated an D(2) the distribution of renewing 49 percent of CRP acreage could provide 72 percent of aggregate environmental benefits while reducing costs by 55 percent. Greater costs savings will result, so policymakers want to target one or two specific environmental benefits.