the World Trade Organization. Green payments outside the terms of the URAA might be possible as part of an internationally negotiated package of agricultural policy reforms involving reductions in other agricultural price and income supports.
The US experience with conservation compliance
The US Food Security Act of 1985 enacted conservation compliance provi- sions for the purpose of reducing soil erosion. The provisions require produc- ers of so-called ‘programme’ crops (wheat, feed grains, cotton, rice) who farm highly erodible land (HEL) to implement a soil conservation plan. Reducing soil erosion has implications for water quality. Violation of the plan would result in the loss of price support, loan rate, disaster relief, CRP and Farmers Home Administration (FmHA) benefits. A recent review (USDA NRCS, 1996) determined that only 3% of the nearly 2.7 million fields required to have a conservation compliance plan were not in compliance. The US Department of Agriculture (USDA) estimates that nearly 95% have an approved conservation system in place. An additional 3.8% are following an approved conservation plan with a variance granted on the basis of hardship, climate or determina- tion of minimal effect.
Evaluations of conservation compliance report minimal or moderate increases in crop production costs and significant reductions in soil erosion (Dicks, 1986; Thompson et al., 1989), though regional assessments show significant variation in costs and benefits. Two studies concluded that conser- vation compliance is a win–win situation, with increased farm income and reduced soil loss (Osborn and Setia, 1988; Prato and Wu, 1991). However, others show reductions in soil loss achieved only with decreases in net farm income (Nelson and Seitz, 1979; Hickman et al., 1989; Richardson et al., 1989; Hoag and Holloway, 1991; Lee et al., 1991; Young et al., 1991). The majority of HEL can apparently be brought into compliance without a signifi- cant economic burden. A national survey of producers subject to compliance found that 73% did not expect compliance to decrease their earnings (Esseks and Kraft, 1993).
Conservation compliance has resulted in significant reductions in soil erosion. Average soil erosion rates on over 50 million HEL acres have been reduced to ‘T’, or the rate at which soil can erode without harming the long- term productivity of the soil. If conservation plans were fully applied on all HEL acreage, the average annual soil erosion rate would drop from 16.8 to 5.8 tons per acre (USDA NRCS, 1996).
Conservation compliance has been calculated to result in a large social dividend, primarily due to off-site benefits. An evaluation using 1994 HEL data indicated that the national benefit/cost ratio for compliance was greater than 2:1 (although the ratios varied widely across regions) (USDA ERS, 1994). In other words, the monetary benefits associated with air/water quality and productivity outweighed the costs to government and producers by at least 2 to 1. Average annual water quality benefits from conservation compli- ance were estimated to be about US$13.80 per acre (USDA ERS, 1994).
However, conservation compliance is still limited in what it can accom- plish, because it is tied to participation in farm commodity programmes. The conservation compliance’s water quality benefits, like farm programme
Voluntary Policy Instruments 83
participation, are concentrated geographically in the Corn Belt and Great Plains (USDA ERS, 1997). This means that the programme cannot adequately address water quality concerns in other regions where participation in farm commodity programmes is lower, such as the Chesapeake Bay Region, Gulf of Mexico and Great Lakes Region.
Endnotes
1. This chapter borrows extensively from our previous work – in particular, Ribaudo et al.(1999), Ribaudo and Horan (1999), Horanet al.(1999a) and Shortle and Abler (1997, 1999). The views expressed are those of the authors and do not necessarily reflect the views of the US Department of Agriculture.
2. We do not compare the relative efficiency of voluntary versus involuntary policy approaches here. Instead, see Wu and Babcock (1999) for an interesting discussion of factors influencing relative performance in the case of agricultural pollution.
3. Producers may also have limited knowledge about the set of alternative production technologies that are available and their economic and environmental characteristics, as well as uncertainty about how their actions impact water quality. For simplicity, these last two situations are not represented explicitly in Fig. 3.1; however, they would have obvious representations.
4. The authority may also have better information about alternative technologies with which the producer is unfamiliar (which could also be represented by T1), and about the relationship between input use and water quality (curve R1).
5. For simplicity, we ignore short-run influences such as risk and learning. Instead, we take a long-run view and assume that a practice will eventually be adopted if education can convince producers that it will make them better off (increase expected utility). We note, however, that uncertainty and other factors could slow or prevent the adoption of practices that might, in the long run, increase producers’ net returns while also improving water quality. Such factors represent additional limitations that educational programmes would have to overcome.
84 R.D. Horanet al.
Water quality degradation imposes economic costs in a variety of forms. The economic benefit of pollution controls is the reduction in these damage costs.
Control costs include expenditures by firms on pollution control practices and equipment, increased costs of goods for consumers, and government expendi- tures on monitoring and enforcement of pollution control policies. This chap- ter provides an introduction to methods and issues in obtaining valid and reliable estimates.1