The Influence of Rising Commodity Prices on the Conservation Reserve Program
by Daniel Hellerstein
and Scott Malcolm
Economic Research Report No. (ERR-110) 44 pp, February 2011
What Is the Issue?
The Conservation Reserve Program (CRP) is a voluntary program
that enables farmers to retire farmland for conservation in
exchange for rental payments. After a period of relative stability,
the CRP is now facing a number of changes. The 2008 Farm Act
reduced the CRP's maximum enrollment to 32 million acres-4.6
million acres less than the program's peak acreage in 2007.
Moreover, higher commodity prices since 2006 are likely to lead to
increases in cropland rental rates and inflate CRP program costs.
If high prices become the norm, landowner interest in CRP may wane
as they weigh the expected returns to farming against the CRP
payment, particularly if CRP rental rates do not keep up with
market rental rates. This could lead to fewer acres being offered
to the program, with a commensurate drop in ecosystem services.
What Did the Study Find?
Using a computer simulation, the authors of this report
demonstrate that, in an era of elevated crop prices, maintaining
the CRP's acreage, and the environmental benefits it provides, will
require higher program payments.
• If commodity prices and CRP rental rates prevalent in 2007
were maintained over the long term (commodity prices that are
higher than when most CRP contracts enrolled) the quantity and
quality of land offered to the program would decline. An increase
in these 2007 rental rates by 60-percent would largely offset the
long-term impact of the higher prices, albeit with a corresponding
increase in program costs.
• Given the established interest in the program and its
longstanding popularity with landowners, if USDA's policy of using
prevailing rental rates were altered it might be possible to meet
acreage goals with moderate increases in payment rates. But this
would mean accepting offers providing fewer environmental benefits,
as landowners with environmentally s
• Any additional impacts caused by an increase in crop-based
ethanol production from 6.5 to 15 billion gallons per year would be
relatively minor. For example, given a 60% increase in CRP rental
rates, the model predicts 2 million fewer acres (about 5 percent of
the current total) offered to the program over the long term and a
2-percent reduction in environmental benefits (as measured by the
CRP's Environmental Benefit Index). When considering currently
enrolled CRP acres, this expansion in ethanol production leads to
about 200,000 acres leaving the program.
• Using the unusually high crop prices seen in summer 2008, the
model shows a large response by CRP participants. Maintaining the
CRP payments at their current level results in fewer acres offered
to the program, making it unlikely that the program could reach its
goal of 32 million acres. Over the long term, to enroll acreage
that would maintain the environmental benefits currently provided
by the program would require roughly doubling CRP rental rates.
• If a robust carbon market permitted all CRP enrollees to also
sell carbon offsets from their retired land, the impacts of
increased commodity prices on the costs of CRP could be
How Was the Study Conducted?
We use two modeling strategies. A likely-to-bid model predicts
what the CRP would look like if the program were to start from
scratch and enroll the entire acreage in one hypothetical signup-it
is a steady-state model that starts with postulated prices, which
are assumed to stay constant, and predicts what the CRP will look
like over the long term. An opt-out model treats current acreage as
a given, and predicts which acres would be withdrawn and convert to
which crops under different price and rental payment levels.
Each model has inherent strengths and limitations that are
partially compensated for in the other approach.
• The Economic Research Service's likely-to-bid model (LTB) is a
simulation model that predicts how representative parcels of land
will respond to a CRP program under varying circumstances. As part
of the methodology, the LTB predicts factor scores for the
Environmental Benefits Index (EBI).
• Contract data on all currently enrolled CRP acreage is the
basis of the opt-out model. Contract data contain for each contract
the actual value of CRP payments, the maximum payment permitted,
and the EBI factors.
Several scenarios that illustrate possible market and program
situations are constructed. The scenarios incorporate moderate and
high price increases over historical trends. For scenarios that
consider the impacts of increasing ethanol production to 15 billion
gallons per year, the Regional Agriculture and Environment
Programming model (REAP) was used to determine prices and crop
shares. The mitigating effects of increasing CRP rental payments
are included as another factor in the scenarios. Offered and
accepted acres, average environmental benefits index scores;
forgone agricultural revenue, average rental payments, and regional
distribution of CRP acreage are computed for each scenario.