Optimal participation in the Conservation Reserve Program: Land enrollment decisions in a stochastic, dynamic framework
Allard, Celia Ahrens
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https://hdl.handle.net/2142/22514
Description
Title
Optimal participation in the Conservation Reserve Program: Land enrollment decisions in a stochastic, dynamic framework
Author(s)
Allard, Celia Ahrens
Issue Date
1989
Doctoral Committee Chair(s)
Taylor, C. Robert
Department of Study
Agricultural and Consumer Economics
Discipline
Agricultural and Consumer Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Agricultural
Language
eng
Abstract
Growing public recognition of a soil erosion problem on agricultural lands culminated in the establishment of a Conservation Reserve Program (CRP) through the 1985 Food Security Act. The Act authorizes the Secretary of Agriculture to enter into ten-year contracts with farmers, paying them an annual rental fee for withdrawing highly erodible cropland from production.
This thesis develops a stochastic, dynamic programming model to examine CRP entry decisions made by farmers of typical Illinois soils in response to different enrollment incentives. Two representative farms, based on the soil composition by acreage of two disparate Illinois counties, were defined to provide a basis for analysis. Each farm includes a block of fields not highly erodible and thus not eligible for the CRP, plus three eligible fields with different levels of erodibility and productivity.
Net returns to farming, the stochastic variable in the model, was calculated for each field by applying appropriate price and cost data to the average crop yields characteristic of each soil type. The farmer's decision to enroll or farm each field is based on the maximum discounted present value of whole-farm, after-tax returns examined over a 15-year planning horizon for all possible farming and CRP alternatives.
Five of the six highly erodible fields on the two representative farms were also highly productive. These fields were extremely difficult to induce into the CRP because farming was almost always the more profitable alternative. The remaining eligible field, much less productive, entered frequently. The CRP appears to be an ineffective strategy for reducing erosion on highly productive farmland, regardless of its level of erodibility.
The model did not provide strong empirical support for using whole-farm, after-tax returns to analyze CRP enrollment decisions. The maximum expected cost of an erroneous decision based on before-tax rather than after-tax returns was only $2,479 over the 15-year planning horizon, or \$165 per year. A field-specific model based on before-tax returns could accommodate a greater variety of factors and might prove to be a superior tool to assist in decision-making.
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