Cropland Retirement and Supply Control in the Great Plains

Abstract

Supply control has been an important rationale for agricultural commodity policies for the past 60 yr. The principal policy instrument to provide supply control through successive agricultural legislation has been cropland retirement. Both annual (set-asides, cropland diversion, acreage reserve) and long term (Soil Bank, Conservation Reserve Program [CRP]) have been applied. This paper evaluates the effectiveness of annual commodity-specific and general long-term cropland retirement programs toward achieving the supply control objectives of agricultural policies. The analyses indicate that annual cropland retirement programs for wheat (Triticum aestivum L.) have no effect on the amount of wheat produced in the Great Plains. Long-term land retirement programs, such as the CRP, have only limited supply control effectiveness for wheat production in the Great Plains states. Rationale for continuing the CRP includes increased reliance on it for supply control within the more market oriented policy for agriculture. While this analysis finds long-term cropland retirement programs to be more effective for supply control than annual wheat set-asides, the effectiveness of the CRP for controlling the wheat supply from the Great Plains is, at best, limited. Research Question Cropland retirement has been the primary agricultural policy tool for controlling the supply of US. agricultural commodities. Cropland retirement was initiated during the 1930s when controlling the amount of land planted to a crop was seen as a direct link to the amount of production. Both annual crop base set-asides and long-term cropland retirement programs such as the Conservation Reserve Program (CRP) have been used. Over time, improved varietals, cultural practices, and fertilizer and pesticide use have increased in importance and these inputs, along with land, are important determinants of agricultural production levels. Annual cropland retirements have occurred in nearly every year and the 1985 farm bill introduced the CRP, which was continued in the 1990 farm legislation. This paper evaluates the effectiveness of both annual and long-term cropland retirement programs toward meeting the supply control objective for wheat production in the Great Plains. Literature Summary Several policy analysts have found that cropland retirement results in less than proportional reductions in commodity production levels. Land quality differences, input substitutions, and natural variations in production were cited as reasons for the partial effectiveness of cropland retirement programs. However, previous analysts have not examined the separate and relative effectiveness of annual and long term cropland retirement programs, nor have they given analytical focus to a region such as the Great Plains. Study Description Fixed-effects regression models are used to estimate the relationship between actual wheat production, acres in wheat production, and the number of acres enrolled in short- and long-term cropland diversion programs. State level data from the 10 Great Plains states for the years 1956 through 1993 were pooled into each model. Because of the effects of technological change on per-acre yields, a trend variable was included in the time series analyses. The models estimate the separate effects of annual and long-term cropland retirement programs. One model examines the relationship between short- and long-term land retirement and wheat yields. A second model looks at the relation between cropland retirement and acres planted to wheat. Another model estimates the effects of cropland retirement and acres of wheat harvested. The final model estimates the effects of the short- and long-term land retirement programs on wheat production. Applied Questions How are wheat yields in the Great Plains affected by cropland retirement programs? The trend variable estimates that wheat yields increase by an average of 0.46 bu/acre each year. Each 1 million acres of annual wheat base set aside in the Great Plains results in a wheat yield increase of 0.65 bu/acre. Long term cropland retirement programs were found to not have a significant effect on wheat yields. How do short and long term land retirement programs affect the acreage planted to wheat in the Great Plains? Each acre enrolled in an annual wheat acreage diversion program results in a 0.36 acre reduction in acres planted to wheat. Each acre enrolled in a long term cropland retirement program results in 0.26 fewer acres planted to wheat. How do short and long term land retirement programs effect the acreage of wheat harvested in the Great Plains? Each annual set-aside results in a 0.46 acre reduction in acres of wheat harvested. Long-term land retirement programs lead to reductions of about 0.24 acres harvested for each acre retired. How do short- and long-term land retirement programs effect wheat production in the Great Plains? Short-term wheat acreage retirement programs have no significant effect on wheat production in the Great Plains. Each acre committed to long term land retirement results in a production decline of 4.32 bu of wheat. However, a 1% reduction in long-term land retirement only results in a 0.03% reduction in wheat production. The trend in higher wheat yields has 17 times the impact on wheat production as do long-term retirement programs. What do the results of this analysis mean to policymakers? Increasing planting flexibility and removal of annual wheat base set-asides will have little effect on the quantity of wheat produced in the Great Plains. Annual set-asides have not been an effective way to control wheat production in this region. Relying on long-term cropland retirement programs to provide needed supply control will be only weakly effective. The effect of technologies to increase yields reduces the effectiveness of any land-based production control scheme. Cropland retirement programs are not efficient at achieving production control objectives in regions such as the Great Plains.