Farms and acres covered by direct payments, crop insurance, and conservation programs

In recent years, direct payments (DPs) have been a key source of environmental compliance (EC) incentives. Under EC, farmers must apply approved soil conservation systems to highly erodible cropland and refrain from draining wetland to maintain eligibility for most USDA agricultural programs. Federally subsidized crop insurance is the only large USDA program that is not currently subject to EC. Direct payments may be reduced or eliminated in the next farm bill (due in 2012) to help reduce the Federal budget deficit. An end to DPs would sharply reduce compliance incentives for many farms. Some farmers (but not all) would continue to be subject to EC because of other payments, primarily conservation and disaster assistance. One way to fill the incentive gap for other farmers would be to extend EC requirements to crop insurance. The extent to which crop insurance could replace compliance incentives now supplied by DPs will depend, in part, on the extent to which farmers who receive DPs also buy crop insurance. Roughly 141,000 farmers (7 percent), operating on 33 million acres of cropland (8 percent), received DPs in 2010 but did not purchase crop insurance or receive conservation payments. For these farms, extending compliance requirements to cover crop insurance would not replace DP incentives. In 2010, 181,000 farms (9 percent), operating on 141 million acres of cropland (36 percent), received DPs and also purchased crop insurance, but did not receive conservation payments. For these farms, making crop insurance subject to compliance sanction could help compensate for compliance incentives lost if direct payments end. Farmers who do not receive DPs or other payments subject to compliance but do purchase crop insurance may be subject to compliance requirements for the first time. In 2010, an estimated 53,000 farms (2.4 percent) with 17 million crop acres (4.3 percent) received neither conservation payments nor DPs but did purchase crop insurance. Some of these farms may already be subject to compliance requirements because of disaster payments. Of course, farms facing compliance requirements based on crop insurance coverage would be affected only if they continued to purchase crop insurance. This chart is found in the ERS report, The Future of Environmental Compliance Incentives in U.S. Agriculture, EIB-94, March 2012.

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