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entitled 'Agricultural Conservation: Farm Program Payments Are an 
Important Factor in Landowners' Decisions to Convert Grassland to 
Cropland' which was released on September 18, 2007.

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Report to Congressional Requesters: United States Government 
Accountability Office: GAO:

September 2007:

Agricultural Conservation:

Farm Program Payments Are an Important Factor in Landowners' Decisions 
to Convert Grassland to Cropland:

GAO-07-1054:

GAO Highlights:

Highlights of GAO-07-1054, a report to congressional requesters.

Why GAO Did This Study:

The nation’s remaining grassland has several important benefits, such 
as providing land for grazing and wildlife habitat for many at-risk 
species. However, over the past three centuries about half of the 
grassland has been converted to other uses, principally cropland. In 
addition to losing important grassland values, such conversions may 
result in increased spending on federal farm programs, such as crop 
insurance, especially in marginal areas. GAO examined (1) the extent of 
grassland conversions to cropland and the cost of farm program payments 
for these newly converted cropland acres; (2) the relative importance 
of farm program payments versus other factors in producers’ decisions 
to convert grassland to cropland; and (3) any impact the Sodbuster 
conservation provision—which places soil erosion standards on certain 
converted land—has had on limiting grassland conversions.

What GAO Found:

No comprehensive and current source of information exists on the 
conversion of grassland to cropland or on the resulting farm program 
payments for newly converted land. However, the data that are available 
show a decline in private grassland nationwide, continuing conversion 
of native grassland to cropland in some areas of the country, and that 
certain farm program payments made to producers in counties with 
relatively high rates of conversion were significantly higher than 
payments in other counties. According to USDA’s National Resources 
Inventory, the nation’s privately-owned grassland decreased by almost 
25 million acres between 1982 and 2003. While some conversions are 
attributable to development and other land uses, the leading type of 
conversion has been to cropland. Our analysis of South Dakota counties 
found that between 1997 and 2006, the average annual net crop insurance 
payment per acre for the 16 counties with the highest rates of 
conversion was nearly twice as high as the average payment for all 
other counties in the state. 

Farm program payments are an important factor in producers’ decisions 
on whether to convert grassland to cropland. Certainly other factors, 
including rising crop prices—largely spurred by increased ethanol 
demand—and the emergence of genetically modified crops and new farming 
techniques that make cropping on heretofore unsuitable land possible 
are also important in producers’ decisions. Specifically, our analysis 
found that farm program payments are an important factor in 
conversions. Several economic studies have reached the same conclusion. 
For example, a 2006 USDA study found that increases in crop insurance 
subsidies motivated producers to expand cropland in the contiguous 48 
states by an estimated 2.5 million acres in the mid-1990s. Moreover, 
farm program payments and conservation programs may be working at cross 
purposes with one another. For example, from 1982 to 1997, 1.69 million 
acres of cropland in South Dakota were enrolled in the Conservation 
Reserve Program, while during the same period, 1.82 million acres of 
grassland in South Dakota were converted to cropland.

The Sodbuster conservation provision has had little impact on 
conversions. For certain cropland converted from native grassland and 
classified as highly erodible, Sodbuster requires that producers apply 
a soil conservation system that does not allow a substantial increase 
in erosion as a condition to receiving certain farm program payments. 
However, much of the native grassland converted in recent years is not 
highly erodible and therefore is not subject to Sodbuster. In addition, 
according to county-level USDA officials, the cost of controlling soil 
erosion relative to potential profits from cultivating the land 
provides little disincentive to conversion. USDA has proposed 
legislation to make newly converted native grassland ineligible for 
program benefits.

What GAO Recommends:

GAO recommends that the U.S. Department of Agriculture (USDA) (1) track 
the annual conversion of native grassland to cropland to provide 
policymakers with more comprehensive and current information on such 
conversions and (2) study the extent to which farm program payments and 
conservation programs may be working at cross purposes and report 
findings to the Congress. USDA generally agreed with GAO’s findings and 
provided comments on the recommendations.

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1054]. To view the 
full product, including the scope and methodology, click on the link 
above. For more information, contact Lisa Shames at (202) 512-3841 or 
shamesl@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Available Data Show Conversion of Native Grassland to Cropland 
Continues and These Conversions Add to Farm Program Costs:

Farm Program Payments, Rising Crop Prices, and the Adoption of New 
Farming Technologies Provide Incentives to Expand Crop Production on 
Native Grasslands:

Sodbuster Has Had Little Impact on Native Grassland Conversions:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Objectives, Scope, and Methodology:

Appendix II: National Resources Inventory Data on Net Changes in U.S. 
Land Use, 1982-2003:

Appendix III: Census of Agriculture Data on Net Changes in Uses of Land 
in Farms for the United States and Selected States:

Appendix IV: Partial Budget Analysis for a Proposed Conversion of 
Native Grassland to Cropland in Central South Dakota, 2003-2007:

Appendix V: Summaries of Economic Studies Examining the Impact of Farm 
Program Payments:

Appendix VI: GAO Contact and Staff Acknowledgments:

Related GAO Products:

Tables:

Table 1: Conversions of Rangeland and Pastureland to Cropland in 
Selected Crop Production Regions, 1982-1997 and 1997-2003:

Table 2: Conversions of Grassland That Had No Prior Cropping History to 
Cropland in Montana, North Dakota, and South Dakota, 2005 and 2006:

Table 3: Comparison of Net Crop Insurance Payments in South Dakota for 
the 16 Highest Conversion Counties versus Other Counties:

Table 4: Comparison of Crop Disaster Assistance Payments in South 
Dakota for the 16 Highest Conversion Counties versus Other Counties:

Table 5: Estimated Net Change in Income for a Shift to Crop Production 
from a Cow-Calf Grazing Operation on a 160-Acre Tract in Central South 
Dakota, 2003-2007:

Table 6: Local NRCS Officials' Responses to GAO Survey Question on the 
Effectiveness of Sodbuster in Limiting the Conversion of Native 
Grassland to Cropland:

Table 7: Net Changes in Rangeland, Pastureland, and Other Land Types, 
1982-2003:

Table 8: Net Changes in Uses of Land in U.S. Farms, 1978-1992 and 1997- 
2002:

Table 9: Net Changes in Uses of Land in Farms in States with Large 
Amounts of Rangeland and Pastureland, 1978-1992 and 1997-2002:

Table 10: Partial Budget Analysis for a Proposed 2003 Change from a Cow-
Calf Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central 
South Dakota, 2003-2006:

Table 11: Partial Budget Analysis for a Proposed 2003 Change from a Cow-
Calf Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central 
South Dakota, 2007:

Table 12: Economic Studies That Analyze the Impact of Federal Farm 
Program Payments on Either Producers' Land Use Decisions or Farm 
Profitability and Risk:

Figures:

Figure 1: U.S. Grasslands before European Settlement:

Figure 2: Process to Determine Sodbuster's Applicability:

Abbreviations:

CRP: Conservation Reserve Program: ERS: Economic Research Service:
FSA: Farm Service Agency:
FWS: U.S. Fish and Wildlife Service: HEL: highly erodible land:
NASS: National Agricultural Statistics Service: NRCS: Natural Resources 
Conservation Service: NRI: National Resources Inventory: RMA: Risk 
Management Agency:
USDA: U.S. Department of Agriculture:

[End of section]

United States Government Accountability Office: Washington, DC 20548:

September 10, 2007:

The Honorable Tom Harkin:
Chairman: 
Committee on Agriculture, Nutrition, and Forestry: United States Senate:

The Honorable Collin C. Peterson: Chairman: 
Committee on Agriculture House of Representatives:

Before the European settlement of North America, grasslands occupied 
approximately 1 billion acres of the contiguous United States--about 
half of the land--mostly west of the Mississippi River. Over the last 3 
centuries, about half of this presettlement, or "native," grassland was 
converted to other uses, and in some states, such as Iowa, almost all 
the native grassland has been converted. The most common use to which 
grassland has been converted is cropland for the production of crops 
such as corn and wheat.[Footnote 1] This cropland produces food, feed, 
and fiber--and now, with the rising demand for ethanol and other 
renewable fuels, energy--and can yield relatively high financial 
returns to landowners and agricultural producers. However, grassland is 
also a valuable resource, providing land for livestock grazing; 
recreational opportunities, such as hunting and fishing; and 
environmental benefits, such as reducing soil erosion, improving water 
quality, increasing carbon sequestration, and providing wildlife 
habitat. In particular, some grassland provides habitat for threatened 
and endangered and other at-risk species. Converting grassland to 
cropland reduces or eliminates these benefits, and can result in 
additional spending on federal farm programs. Wildlife, environmental, 
and conservation groups, as well as certain cattle industry interests, 
have expressed concerns that the financial incentives these farm 
programs provide are a significant factor in landowner decisions to 
convert grassland to cropland.

The federal farm programs include a variety of income and price support 
programs for specific commodities, such as corn, soybeans, and wheat; 
crop insurance; and ad hoc disaster assistance programs. For the 
purposes of this report, farm program "payments" include commodity- 
related payments, crop insurance subsidies, and other benefits. The 
U.S. Department of Agriculture (USDA) administers the farm programs. In 
recent years, farm program payments have averaged about $20 billion 
annually.

The conservation compliance provisions of the Food Security Act of 
1985, as amended, condition the receipt of farm program payments on a 
producer's efforts to control soil erosion on highly erodible land and 
protect wetlands. One of these provisions, known as Sodbuster, requires 
producers to apply a soil conservation system that does not allow a 
substantial increase in soil erosion on land converted from native 
grassland if the land was not cropped before December 23, 1985, and was 
determined by USDA to be highly erodible land. In addition, USDA 
conservation programs provide financial incentives for taking 
conservation actions on working land or for retiring it from 
production. Several of these programs, including the Grassland Reserve 
Program and Conservation Reserve Program (CRP), promote the 
conservation of grassland. Under the Grassland Reserve Program, USDA 
offers easements and rental agreements to landowners to assist them in 
protecting, conserving, and restoring eligible grassland--such as 
important habitat for wildlife. Under CRP, USDA provides about $1.8 
billion in annual rental payments to landowners to retire 
environmentally sensitive cropland from production and establish 
permanent vegetative cover on this land.

In November 2006, we identified the need for better oversight of farm 
program payments.[Footnote 2] We specifically highlighted that USDA 
support programs may have unintended consequences, including incentives 
for producers to grow crops on land prone to drought or erosion. 
Without better oversight to ensure that farm program funds are spent as 
economically, efficiently, and effectively as possible, we pointed out 
that USDA has little assurance that these funds benefit the 
agricultural sector as intended.

In this context, you asked us to determine (1) the extent of grassland 
conversions to cropland, and the cost of farm program payments related 
to these newly converted cropland acres; (2) the relative importance of 
farm program payments versus other factors in producers' decisions to 
convert grassland to cropland; and (3) any impact the Sodbuster 
provision has had on limiting grassland conversions.

In conducting our work, we spoke with and reviewed documents provided 
by officials in USDA headquarters and field locations; the U.S. Fish 
and Wildlife Service (FWS); farm, wildlife, conservation, and 
environmental organizations; state governments; and land grant 
universities. To determine the extent of grassland conversions to 
cropland, we examined land use data from (1) USDA's National Resources 
Inventory; (2) USDA's Census of Agriculture; (3) USDA state offices in 
Montana, North Dakota, and South Dakota; and (4) a collaborative study 
by Ducks Unlimited, Inc., a private advocacy group supporting the 
protection and restoration of wetlands and waterfowl habitat, in 
conjunction with FWS; the South Dakota Department of Game, Fish and 
Parks; The Nature Conservancy; and the University of Montana. We also 
reviewed other relevant studies of grassland conversions to cropland. 
To determine the cost of farm program payments on converted land, we 
analyzed USDA data on crop insurance and disaster assistance payments. 
To determine the relative importance of the availability of farm 
program payments in producers' decisions to convert grassland to 
cropland, we analyzed payments per cropland acre in counties with 
relatively high conversion rates of grassland to cropland. We also 
analyzed farm-level financial information for a South Dakota county 
that has had numerous conversions. To determine the impact the 
Sodbuster provision has had on grassland conversions, we examined USDA 
land use data and conducted interviews with USDA field officials in 
selected counties with relatively high rates of conversions in Montana, 
Nebraska, North Dakota, and South Dakota to obtain their views of the 
impact of Sodbuster on conversion decisions. A more detailed 
description of our scope and methodology is presented in appendix I. We 
performed our work between October 2006 and August 2007 in accordance 
with generally accepted government auditing standards.

Results in Brief:

No comprehensive and current source of information exists on the extent 
of grassland conversions to cropland or the amount of farm program 
payments related to this newly converted cropland. As a result, 
policymakers do not have current information on the extent of 
conversions for all areas where conversions may have occurred in recent 
years. Although limited, available data show a decline in private 
grassland nationwide and continuing conversion of native grassland to 
cropland in some areas of the country--particularly the Northern 
Plains--and that these conversions have added to farm program costs. 
For example, USDA's National Resources Inventory data indicate that the 
nation's private grassland decreased by almost 25 million acres from 
1982 through 2003. While some conversions are attributable to 
development and other land uses, the leading type of conversion has 
been to cropland. Our analysis found that crop insurance payments to 
producers were significantly higher per acre in South Dakota counties 
with relatively high rates of conversion, adding to program costs. For 
example, from 1997 through 2006, the 16 South Dakota counties with the 
highest number of grassland conversions to cropland had an average 
annual net crop insurance payment of over $13 per acre, while the 
average payment for all other South Dakota counties was less than $7 
per acre. According to USDA officials, this difference may be explained 
by the fact that the counties with the highest number of conversions 
are in areas of the state that are more prone to drought and crop 
losses.

Farm program payments are an important factor in producers' decisions 
to convert grassland to cropland, but rising crop prices and new 
farming technologies are also important factors in these conversions. 
From September 2006 to January 2007, the price of corn increased by 
over 66 percent, largely because of the growing demand for ethanol, a 
corn-based renewable fuel. This demand is expected to continue to 
increase, and corn prices are expected to be relatively high for 
several years. Genetically modified crops, such as herbicide-resistant 
soybeans, as well as new farming techniques, such as no-till planting, 
contribute to conversion decisions as well. These developments have 
increased the profitability of crop production in some areas that 
heretofore were considered marginally suitable or generally unsuitable 
for crop production. Our analysis of the economic effects on a farm, if 
it were to convert native grassland from grazing to cropping, showed 
increased income in 3 of the 5 years covered from 2003 through 2007. 
Without farm program payments, income would have increased only in 1 
year. Other studies have confirmed a relationship between farm program 
payments and conversions. The studies we reviewed generally found that 
farm program payments provide significant incentive to convert 
grassland to cropland because they increased the expected profitability 
of farming while lowering the associated risks. For example, a 2006 
USDA study found that increases in crop insurance subsidies motivated 
producers to expand cropland in the contiguous 48 states by an 
estimated 2.5 million acres in the mid-1990s. Moreover, farm program 
payments may work at cross purposes with payments made under 
conservation programs intended to protect grassland or to convert 
cropland to grassland or another conserving use. For example, between 
1982 and 1997, 1.69 million acres of cropland in South Dakota were 
enrolled in the CRP, which provides incentives to farmers to convert 
cropland to grassland, at a cost to the government of about $633 
million. However, during the same period, 1.82 million acres of 
grassland in South Dakota were converted to cropland.

Sodbuster has had little impact on slowing grassland conversions 
because, in part, much of the converted native grassland in recent 
years has not been subject to the Sodbuster provision, which applies 
only to highly erodible land. For example, according to USDA's National 
Resources Inventory, an estimated 59 percent of the rangeland converted 
to cropland between 1997 and 2003 in the Northern Plains was classified 
as non-highly erodible and therefore was not subject to the Sodbuster 
provision. Similarly, in reviewing records for selected high conversion 
counties in Nebraska, we found that over half of the land parcels 
converted from 2003 through 2006 were classified as non-highly 
erodible. Even when converted grassland is classified as highly 
erodible and subject to Sodbuster, the potential profits from cropping 
the land usually outweigh the perceived costs associated with 
controlling soil erosion. According to USDA officials, the cost of 
implementing and maintaining the conservation practices needed to 
comply with Sodbuster's soil erosion control standards generally does 
little to discourage conversions, especially when the price of corn and 
other crops is high. Further, these officials said that new technology 
such as herbicide-resistant crops and no-till planting has reduced the 
cost of complying with Sodbuster and made farming highly erodible land 
economically feasible. For the 2007 farm bill, USDA has offered a 
proposal known as Sod Saver that, according to USDA, would discourage 
further grassland conversion. In proposing Sod Saver, USDA recognized 
that properly managed grasslands provide environmental benefits such as 
the protection of wildlife habitat. Under this proposal, certain 
grassland--specifically rangeland and native grassland not cropped for 
the 6 years preceding the effective date of the 2007 farm bill-- 
converted to cropland would be permanently ineligible for farm program 
payments. The Sod Saver proposal is generally supported by wildlife, 
environmental, and conservation groups, as well as certain cattle 
industry interests. However, several farm, crop, and livestock 
organizations maintain that the proposal would reduce the amount of 
farmable land available for beginning farmers, and would constrain 
farmers' ability to adapt to changing market conditions related to the 
growing demand for crops to produce food and renewable fuels.

In light of these findings, we are recommending that USDA (1) track 
annually native grassland conversion to cropland to develop a 
comprehensive and current source of information in those geographic 
areas where such conversions can occur and (2) study the extent to 
which farm program payments and conservation programs, such as the CRP, 
may be working at cross purposes and report its findings to the 
Secretary of Agriculture and the Congress.

We provided a draft of this report to USDA for review and comment. USDA 
provided oral comments through the Chief, NRCS, on September 5, 2007, 
indicating general agreement with the report's findings and 
recommendations. USDA also said it wanted to ensure that GAO was aware 
that with few exceptions, the crop insurance program has strict 
criteria on where converted land may be insured. Although USDA has 
these criteria, our work found that it does not have a method and the 
information needed to enforce them. USDA also provided us with 
suggested technical corrections, which we incorporated into this report 
as appropriate.

Background:

Before the European settlement of North America, grasslands occupied 
approximately 1 billion acres of the contiguous United States--about 
half of the land--mostly west of the Mississippi River, as shown in 
figure 1.

Figure 1: U.S. Grasslands before European Settlement:

[See PDF for image]

Source: Richard Conner, Andrew Siedl, Larry Van Tassel, and Neill 
Wilkins. "United States Grasslands and Related Resources:An Economic 
and Biological Trends Assessment," (2001). [hyperlink, 
http://landinfo.tamu.edu/presentations/grasslands.html] (Downloaded 
January 31, 2007).

[End of figure]

Over the last 3 centuries, about half of this presettlement, or 
"native," grassland was converted to other uses, and almost all the 
native grassland has been converted in some states, such as Iowa and 
Minnesota. While most of the existing privately owned grasslands are 
between the Mississippi River and the Rocky Mountains, the grasslands 
west of the Rocky Mountains are largely under federal management.

The land uses to which native grasslands have been converted include 
pastureland, developed land, and cropland. Historically, cropland-- 
land used for the production of crops such as corn and wheat--has been 
the most common use to which native grassland has been converted. 
Cropland--which produces food, feed, fiber, and now energy, especially 
ethanol--can yield relatively high financial returns to crop producers 
and landowners, and these returns generally increase economic activity 
in rural communities. In 2006, the value of U.S. crop production was 
$121 billion (43 percent of the value of U.S. agricultural production). 
As the United States shifts to more renewable fuels, increasing amounts 
of crops, especially corn, are being used to produce energy. The use of 
corn to produce ethanol is projected to double between 2006 and 2008 
and continue to increase rapidly for several years. Furthermore, crop 
exports contribute to the U.S. balance of trade. The United States is 
the world's leading exporter of several major crops including corn, 
cotton, soybeans, and wheat. Finally, crop production contributes to 
local economies in rural counties, affecting demand for farm inputs-- 
seed, fertilizer, pesticides, herbicides, farm machinery, and labor--as 
well as grain marketing and transportation companies.

However, the grassland that cropland displaces also has many economic 
as well as environmental benefits. Grassland provides forage for 
grazing livestock; provides recreational opportunities, such as for 
hunting and fishing; reduces soil erosion; improves water quality; and 
aids carbon sequestration, which reduces the amount of carbon dioxide, 
a greenhouse gas, in the atmosphere. Although these benefits generally 
result from both pastureland and native grassland, those concerned 
about the continued loss of grassland have placed a very high priority 
on preserving the remaining native grassland for the following reasons:

* Conservation of native grassland contributes to the maintenance of 
biological diversity. More specifically, native grassland provides 
habitat for wildlife and native species, including native grassland 
bird species, some of which are declining. The conversion of native 
grassland to other uses, including introduced grasses, can change the 
structure and function of habitat such that it no longer supports 
native wildlife species. For example, the loss of native grassland in 
the Texas coastal prairie eliminated habitat that supported the 
Attwater's prairie chicken, a federally endangered species native to 
this area. In addition, research in North Dakota by U. S. Geological 
Survey wildlife biologists found significantly higher counts of certain 
grassland bird species in native grassland than in other grassland. 
Furthermore, the fragmentation of remaining native grasslands may 
reduce their habitat value and result in them not being large enough to 
support their natural biodiversity.

* Once converted, restoring native grassland is difficult and 
expensive, and it is questionable whether native habitat can ever be 
fully restored. In general, land that is converted back to native 
grassland does not regain the ecological function of undisturbed native 
grassland. Furthermore, FWS estimates that the cost of restoring native 
grassland in eastern South Dakota is about $200 per acre, a substantial 
amount relative to the 2006 market value of native grassland in that 
area, which ranged from an average of $751 per acre in northeast South 
Dakota to $1,055 per acre in east central South Dakota.

Federal farm programs provide payments that can increase the 
profitability of crop production and may create incentives for 
conversions. Among these programs are the federal crop insurance 
program, crop disaster assistance programs, and the marketing 
assistance loan program.[Footnote 3]

The federal crop insurance program protects crop producers from 
production risks associated with adverse weather as well as price risks 
associated with commodity market fluctuations.[Footnote 4] USDA's Risk 
Management Agency (RMA) administers the program in partnership with 
private insurance companies, which share a percentage of the risk of 
loss and the opportunity for gain associated with each insurance policy 
written. RMA pays companies a percentage of the premium on policies 
sold to cover the administrative costs of selling and servicing these 
policies. In turn, insurance companies use this money to pay 
commissions to their agents, who sell the policies, and fees to 
adjusters when claims are filed. RMA absorbs a large percentage of the 
crop insurance program's losses--the difference between premiums 
collected and indemnity payments[Footnote 5]--and subsidizes a portion 
of the premium paid by participating producers.

Crop disaster assistance programs--ad hoc programs enacted by the 
Congress and administered by USDA's Farm Service Agency (FSA)--provide 
payments to producers to compensate for losses sustained when planting 
is prevented or crop yields are abnormally low because of adverse 
weather and related conditions. From 1998 through 2004, ad hoc disaster 
assistance legislation was enacted and crop disaster assistance 
payments were made for each crop year. These payments were made to both 
producers with crop insurance and those without insurance. A May 2007 
supplemental spending bill,[Footnote 6] which authorized crop disaster 
assistance payments for crop year 2005, 2006, and 2007 losses, 
prohibited payments to a producer who either waived crop insurance or 
did not participate in the Noninsured Assistance Program in the year of 
the loss.

The conservation compliance provisions of the Food Security Act of 
1985,[Footnote 7] as amended, condition the receipt of farm program 
payments on the producer's efforts to control excessive soil erosion on 
highly erodible land and protect wetlands. One of these provisions, 
known as Sodbuster, requires producers to apply a soil conservation 
system that meets the required level of protection that allows for no 
substantial increase in soil erosion on land converted from native 
vegetation if the land was not cropped before December 23, 1985, and is 
or was determined by USDA to be highly erodible land.[Footnote 8] A 
producer applying for certain farm program payments certifies with FSA 
that he or she will comply with conservation provisions. If the land in 
question was not cropped before December 23, 1985, and USDA's Natural 
Resources Conservation Service (NRCS) has not previously determined 
whether or not the land is highly erodible land, FSA refers the 
producer's application to NRCS to conduct the determination. If NRCS 
determines, or has previously determined, that the land is highly 
erodible, Sodbuster applies and the producer must maintain a 
conservation system that will not permit a substantial increase in soil 
erosion. Under NRCS's procedures, this producer must use a conservation 
system that controls erosion to a greater extent than is required for 
highly erodible land that was cropped before December 23, 
1985.[Footnote 9] Figure 2 illustrates when a landowner must apply a 
conservation system, as required by Sodbuster, to control erosion on 
newly converted cropland.

Figure 2: Process to Determine Sodbuster's Applicability:

[See PDF for image]

Source: GAO's analysis of USDA’s information; photo, U.S. Fish and 
Wildlife Service.

[End of figure]

Available Data Show Conversion of Native Grassland to Cropland 
Continues, and These Conversions Add to Farm Program Costs:

Over the last 25 years, some areas, particularly in the Northern 
Plains, experienced conversions of native grassland to cropland, and 
these conversions have added to farm program costs. While there is no 
comprehensive and current source of information on the extent of native 
grassland conversions to cropland or the amount of farm program 
payments made in relation to this newly converted cropland, available 
sources provide some information on conversions and related costs. 
Nationwide, total private grassland declined by almost 25 million acres 
from 1982 through 2003. In addition, conversions of native grassland to 
cropland continue in the Northern Plains, particularly in areas of 
North Dakota and South Dakota. Analysis of county-level data indicates 
that South Dakota counties with relatively high rates of conversions 
had high crop insurance and crop disaster assistance program costs.

Available Sources of Information Indicate That Grasslands Decreased, 
and Native Grassland Conversions to Cropland Were Highest in the 
Northern Plains:

Available information on the extent and location of grassland 
conversions to cropland is not comprehensive and current. For example, 
data on conversions of grassland to cropland are not available at the 
state or county level for the most recent years (except in three 
states--Montana, North Dakota, and South Dakota--where data are being 
collected on an informal basis to provide information to FWS and Ducks 
Unlimited on wildlife habitat loss). In addition, the most recent 
national and regional data are current only through 2003. As a result 
of these limitations, policymakers do not have current information on 
the extent of conversions at relevant landscape levels for all areas 
across the country where conversions may have occurred in recent years. 
For example, except for the above three states, information is not 
available on conversions within local areas where further loss of 
native grassland may affect wildlife populations. Such information-- 
particularly for native grasslands, which are difficult to restore--is 
important in assessing the need for and the results of policy changes. 
Moreover, among the available sources of grasslands data, differences 
in grassland definitions complicate characterization of conversions to 
cropland and trends in the amount of grasslands. Despite these 
limitations, available sources provide some information on conversions. 
Specifically:

NRCS's National Resources Inventory (NRI). The NRI is a periodic 
statistical survey of land use and natural resource conditions and 
trends on nonfederal lands.[Footnote 10] According to the NRI, from 
1982 to 2003 in the 48 contiguous states, rangeland and pastureland 
declined by about 10.4 million acres (about 2.5 percent) and 14.1 
million acres (about 10.8 percent), respectively, making the total 
decline in grassland about 24.5 million acres. Most of the decline in 
rangeland occurred between 1982 and 1992. These net changes do not 
indicate the number of acres converted from rangeland and pastureland 
to cropland. For example, some of the decline in rangeland was due to 
conversions to non-cropland uses, such as developed land. Appendix II 
has additional NRI data on net changes in grassland and other land-use 
categories.

The NRI also provides information on conversions of rangeland and 
pastureland to cropland. As shown in table 1, for selected USDA crop 
production regions, the highest conversions of rangeland to cropland 
were in the Northern Plains, where 2.61 million acres (about 3.5 
percent) and 590,000 acres (about 0.8 percent) were converted during 
1982 through 1997 and 1997 through 2003, respectively. The annual 
rangeland conversion rates declined from the 1982 through 1997 time 
frame to the 1997 through 2003 time frame for each of the three regions 
that had rangeland. Regarding conversions of pastureland to cropland, 
the highest amounts were in the Corn Belt, where 4.48 million acres 
(about 17.6 percent) and 1.66 million acres (about 8 percent) were 
converted during 1982 through 1997 and 1997 through 2003, respectively.

Table 1: Conversions of Rangeland and Pastureland to Cropland in 
Selected Crop Production Regions, 1982-1997 and 1997-2003:

Region: Northern Plains[A]; 
Rangeland to cropland, 1982-1997, (acres in millions with margins of 
error): 2.61 (2.19-3.03); 
Rangeland to cropland, 1997-2003, (acres in millions with margins of 
error): 0.59 (0.47-0.71); 
Pastureland to cropland, 1982-1997, (acres in millions with margins of 
error): 1.80 (1.57- 2.03); 
Pastureland to cropland, 1997-2003, (acres in millions with margins of 
error): 0.77 (0.62-0.92).

Region: Southern Plains[B]; 
Rangeland to cropland, 1982-1997, (acres in millions with margins of 
error): 1.17 (0.98-1.36); 
Rangeland to cropland, 1997-2003, (acres in millions with margins of 
error): 0.29 (0.15-0.43); 
Pastureland to cropland, 1982-1997, (acres in millions with margins of 
error): 0.94 (0.70-1.18); 
Pastureland to cropland, 1997-2003, (acres in millions with margins of 
error): 0.42 (0.28-0.56).

Region: Mountain States[C]; 
Rangeland to cropland, 1982-1997, (acres in millions with margins of 
error): 2.04 (1.63-2.45); 
Rangeland to cropland, 1997-2003, (acres in millions with margins of 
error): 0.58 (0.27-0.89); 
astureland to cropland, 1982-1997, (acres in millions with margins of 
error): 0.99 (0.76-1.22); 
Pastureland to cropland, 1997-2003, (acres in millions with margins of 
error): 0.80 (0.55-1.05).

Region: Lake States[D]; 
Rangeland to cropland, 1982-1997, (acres in millions with margins of 
error): [d]; 
Rangeland to cropland, 1997-2003, (acres in millions with margins of 
error): [d]; 
Pastureland to cropland, 1982-1997, (acres in millions with margins of 
error): 1.98 (1.80-2.16); 
Pastureland to cropland, 1997-2003, (acres in millions with margins of 
error): 0.96 (0.80-1.12).

Region: Corn Belt[E]; 
Rangeland to cropland, 1982-1997, (acres in millions with margins of 
error): [e]; 
Rangeland to cropland, 1997-2003, (acres in millions with margins of 
error): [e]; 
Pastureland to cropland, 1982-1997, (acres in millions with margins of 
error): 4.48 (4.21-4.75); 
Pastureland to cropland, 1997-2003, (acres in millions with margins of 
error): 1.66 (1.46-1.86).

Source: NRCS's NRI data.

Note: These regions have large amounts of cropland and have or 
previously had large amounts of native grassland as well.

[A] The Northern Plains states are Kansas, Nebraska, North Dakota, and 
South Dakota.

[B] The Southern Plains states are Oklahoma and Texas.

[C] The Mountain States are Arizona, Colorado, Idaho, Montana, Nevada, 
New Mexico, Utah, and Wyoming.

[D] The Lake States are Michigan, Minnesota, and Wisconsin. None of 
these states had measurable rangeland in 1982 or 1997.

[E] The Corn Belt States are Illinois, Indiana, Iowa, Missouri, and 
Ohio. Among these states, only Missouri had measurable rangeland in 
1982 or 1997. Specifically, Missouri had about 143,000 and 88,000 acres 
of rangeland in 1982 and 1997, respectively.

[End of table]

National Agricultural Statistics Service's (NASS) Census of 
Agriculture. The Census of Agriculture, conducted every 5 years by 
NASS, is a census of U.S. farms and ranches and is another source of 
national data on changes in the amount of private grasslands on farms. 
The Census of Agriculture does not use the NRI definitions of rangeland 
and pastureland, and unlike the NRI, the Census of Agriculture combines 
rangeland and pastureland grasslands into a single category. Also, 
unlike the NRI, the Census of Agriculture provides data only on net 
changes and does not provide information on conversions of grassland to 
cropland. According to the Census of Agriculture, rangeland and 
pastureland declined by 21.9 million acres (about 5.1 percent) between 
1978 and 1992 and 2.9 million acres (about 0.7 percent) between 1997 
and 2002. Appendix III provides additional information from the Census 
of Agriculture on changes in land use for the United States and 
selected states.

FSA data for Montana, North Dakota, and South Dakota. In recent years, 
to provide information to FWS and Ducks Unlimited on the amount and 
location of native grassland converted to cropland, FSA state and 
county offices in Montana, North Dakota, and South Dakota voluntarily 
collected county-level data on conversions of grassland that had no 
prior cropping history.[Footnote 11] The FSA offices collected this 
information through existing annual acreage reports. These data showed 
that within North Dakota and South Dakota, conversions have been 
highest in counties in the western part of the Prairie Pothole Region, 
an area of many small, isolated wetlands where the remaining native 
grassland provides important wildlife habitat. Table 2 shows the 
available data on acres converted in 2005 and 2006.

Table 2: Conversions of Grassland That Had No Prior Cropping History to 
Cropland in Montana, North Dakota, and South Dakota, 2005 and 2006:

State: Montana; 
2005: 10,373 acres; 
2006: 6,245 acres.

State: North Dakota; 
2005: [A]; 
2006: 20,592 acres.

State: South Dakota; 
2005: 54,404 acres; 
2006: 47,167 acres.

Source: GAO's analysis of FSA's data.

[A] According to FSA officials in North Dakota, consistent data are not 
available for 2005 because county offices did not use consistent data 
collection methods in that year.

[End of table]

Ducks Unlimited Study.[Footnote 12] A recent Ducks Unlimited study 
provided additional information regarding the extent of native 
grassland conversions to cropland in the western part of the Prairie 
Pothole Region in North Dakota and South Dakota. The researchers 
analyzed conversions from 1984 through 2003, examining satellite 
imagery from this period and performing field checks to identify native 
grassland. The study found that from 1984 through 2003, an estimated 
144,000 acres were converted from native grassland to cropland. The 
highest conversions were in central South Dakota. The study concluded 
that the annual conversion rates--which ranged from 0.32 percent to 
0.95 percent across the study areas--were relatively low but that the 
acreage converted was significant from a biological and economic 
perspective.

Although states other than Montana, North Dakota, and South Dakota may 
have experienced conversions in recent years, we did not find any other 
systematic efforts to collect state or local conversions data. However, 
we were able to obtain some quantitative information that provides some 
indication of recent conversions in Nebraska. While data on the number 
of acres converted were not available, NRCS state and county officials 
in Nebraska provided data for 26 of the state's 93 counties on the 
number of land tracts on which producers had informed USDA of their 
intention to convert grassland to cropland.[Footnote 13] The data show 
that USDA was informed of nearly 5,200 planned conversions during 2003 
through 2006, with the highest county having 678 planned conversions. 
According to FSA, NRCS, and state wildlife agency officials in 
Nebraska, many producers were motivated to convert by an interest in 
gaining irrigation water rights before moratoriums on these rights took 
effect in certain areas of the state. Some of these officials believe 
this motivation--and thus the number of conversions--may decline if 
existing moratoriums on water rights are not modified and new 
moratoriums are not announced.

Crop Insurance and Crop Disaster Assistance Costs Were Significantly 
Higher in Counties That Had Higher Conversion Rates:

Converting grassland to cropland, and thus bringing more land into 
production, has the potential to increase government costs because this 
new cropland is eligible for crop insurance, crop disaster assistance, 
and marketing assistance loan payments, and could become eligible for 
direct and countercyclical payments if an update of crop base acres is 
allowed in the future. However, only limited data are available on 
government costs associated with grassland converted to cropland 
because USDA has little information on the location of converted land 
tracts and generally does not track farm program payments to specific 
tracts. As such, we analyzed county crop insurance and disaster 
assistance payments data in relation to 2005 and 2006 data on 
conversions of grassland to cropland for South Dakota 
counties.[Footnote 14] The South Dakota counties that had the most 
conversions of grassland with no cropping history to cropland also had 
significantly higher crop insurance and crop disaster assistance costs 
than other counties. Specifically, we found:

Crop insurance. Our analysis of RMA's crop insurance data indicates 
that conversions of grassland with no cropping history added 
disproportionately to government costs for crop insurance in South 
Dakota. Table 3 shows the net crop insurance payments received by 
producers in the 16 South Dakota counties with the highest rates of 
conversions in 2005 and 2006 in comparison with the net payments 
received by producers in the state's other counties. The 16 highest 
conversion counties had net crop insurance payments that averaged 
$13.03 per acre from 1997 to 2006, almost twice as much as the $6.66 
per acre net payment received in South Dakota's remaining 50 counties. 
Also illustrated in the table is the contrast between the net payments 
in the 16 highest conversion counties and 7 historically cropped 
counties in southeast South Dakota that had a negative net crop 
insurance benefit during this period--that is, crop producers in these 
counties collectively paid more into the crop insurance program as 
premiums and other fees than they received from the program as 
indemnity payments.[Footnote 15]

Table 3: Comparison of Net Crop Insurance Payments in South Dakota for 
the 16 Highest Conversion Counties versus Other Counties:

Area: 16 counties with the highest conversions; 
Crop: Corn; 
Crop years 1997 to 2006, Total: $255,520,183; 
Crop years 1997 to 2006, Per acre: $22.78; 
Crop years 1989 to 2006, Total: $280,392,006; 
Crop years 1989 to 2006, Per acre: $18.62.

Area: 16 counties with the highest conversions; 
Crop: All crops[A];
Crop years 1997 to 2006, Total: 485,522,546; 
Crop years 1997 to 2006, Per acre: 13.03; 
Crop years 1989 to 2006, Total: 550,751,456; 
Crop years 1989 to 2006, Per acre: 10.30.

Area: 50 other counties; 
Crop: Corn; 
Crop years 1997 to 2006, Total: 231,662,594; 
Crop years 1997 to 2006, Per acre: 8.27; 
Crop years 1989 to 2006, Total: 290,214,231; 
Crop years 1989 to 2006. Per acre: 7.11.

Area: 50 other counties; 
Crop: All crops[A]; 
Crop years 1997 to 2006, Total: 532,176,375; 
Crop years 1997 to 2006, Per acre: 6.66; 
Crop years 1989 to 2006, Total: 672,826,085; 
Crop years 1989 to 2006, Per acre: 5.67.

Area: 7 selected historically cropped counties[B]; 
Crop: Corn; 
Crop years 1997 to 2006, Total: (3,562,466); 
Crop years 1997 to 2006, Per acre: (0.45); 
Crop years 1989 to 2006, Total: 5,135,553; 
Crop years 1989 to 2006, Per acre: 0.42.

Area: 7 selected historically cropped counties[B]; 
Crop: All crops[A]; 
Crop years 1997 to 2006, Total: State totals: (3,059,947); 
Crop years 1997 to 2006, Per acre: 
Crop years 1989 to 2006, Total: 11,805,739; 
Crop years 1989 to 2006, Per acre: 0.49.

State totals: 
Crop: Corn; 
Crop years 1997 to 2006, Total: $487,182,777; 
Crop years 1997 to 2006, Per acre: $12.42; 
Crop years 1989 to 2006, Total: $570,606,237; 
Crop years 1989 to 2006, Per acre: $10.21.

State totals: 
Crop: All crops[A]; 
Crop years 1997 to 2006, Total: $1,017,698,921; 
Crop years 1997 to 2006, Per acre: $8.68; 
Crop years 1989 to 2006, Total: $1,223,577,541; 
Crop years 1989 to 2006, Per acre: $7.11.

Source: GAO's analysis of RMA's data.

Note: Net crop insurance payments are the indemnity payments that 
producers received less the premiums and administrative fees that 
producers pay. We did not include government costs resulting from (1) 
payments to insurance companies for underwriting gains and 
administrative and overhead expenses and (2) the cost of RMA operating 
expenses in this analysis because county-level data on these costs were 
not available.

[A] Includes all crops except forage production and forage seeding.

[B] These counties have not had large increases in crop production in 
recent years and are located in two adjacent NRCS major land resource 
areas.

[End of table]

Crop disaster assistance payments. Similar to our crop insurance 
analysis, our analysis of FSA crop disaster assistance payments data 
indicates that conversions of grassland with no cropping history add 
disproportionately to government costs for disaster assistance payments 
in South Dakota.[Footnote 16] Table 4 shows the crop disaster 
assistance payments received by producers in the 16 South Dakota 
counties with the highest conversion rates in comparison with the 
payments received by producers in other South Dakota counties. From 
1998 to 2004, crop disaster assistance payments in the 16 highest 
conversion counties totaled more than $195 million (40 percent of the 
state total), compared with approximately $292 million for the other 50 
South Dakota counties, including about $16 million in 7 historically 
cropped counties in southeast South Dakota.

Table 4: Comparison of Crop Disaster Assistance Payments in South 
Dakota for the 16 Highest Conversion Counties versus Other Counties:

Crop years: 1998; 
16 counties with the highest conversions (as a percentage of state 
totals): $8,534,884 (38%); 
All 50 other counties: $13,710,472; 
7 selected historically cropped counties[A]: $393,778; 
State totals: $22,245,356.

Crop years: 1999; 
16 counties with the highest conversions (as a percentage of state 
totals): 16,063,451 (40%); 
All 50 other counties: 24,502,868; 
7 selected historically cropped counties[A]: 4,969,368; 
State totals: 40,566,319.

Crop years: 2000; 16 counties with the highest conversions (as a 
percentage of state totals): 23,266,266 (45%); 
All 50 other counties: 28,741,631; 
7 selected historically cropped counties[A]: 1,992,956; 
State totals: 52,007,897.

Crop years: 2001; 16 counties with the highest conversions (as a 
percentage of state totals): 12,480,417 (34%); 
All 50 other counties: 24,474,570; 
7 selected historically cropped counties[A]: 2,782,104; 
State totals: 36,954,987.

Crop years: 2002; 16 counties with the highest conversions (as a 
percentage of state totals): 74,432,452 (42%); 
All 50 other counties: 104,322,913; 
7 selected historically cropped counties[A]: 2,716,984; 
State totals: 178,755,365.

Crop years: 2003; 16 counties with the highest conversions (as a 
percentage of state totals): 43,800,987 (46%); 
All 50 other counties: 50,521,907; 
7 selected historically cropped counties[A]: 2,796,699; 
State totals: 94,322,894.

Crop years: 2004; 16 counties with the highest conversions (as a 
percentage of state totals): 16,744,315 (27%); 
All 50 other counties: 45,360,495; 
7 selected historically cropped counties[A]: 784,346; 
State totals: 62,104,810.

Crop years: Total; 16 counties with the highest conversions (as a 
percentage of state totals): $195,322,772 (40%); 
All 50 other counties: $291,634,856; 
7 selected historically cropped counties[A]: $16,436,235; 
State totals: $486,957,628.

Source: GAO's analysis of FSA's data.

Notes: (1) These crop disaster assistance payments include payments for 
losses of major cultivated crops, such as corn, soybeans, and wheat, as 
well as fruits and vegetables, such as melons, apples, cabbage, and 
beets. In addition, some payments were made for grass losses. However, 
according to an FSA official, these payments were not for grazing 
losses. (2) In analyzing crop disaster assistance payments, we did not 
calculate payments per acre because data on the number of acres that 
potentially were eligible for these payments were not available.

[A] These counties have not had large increases in crop production in 
recent years and are located in two adjacent NRCS major land resource 
areas.

[End of table]

According to USDA officials, a possible reason for the relatively high 
crop insurance and disaster assistance payments in South Dakota 
counties with the highest conversion rates is that these counties are 
in areas that are more prone to drought and crop losses than other 
major crop-producing counties. Drought has been the largest cause of 
crop insurance indemnity payments nationwide from 1989 to 2004, 
accounting for about 40 percent of the primary causes of total 
indemnity payments.

Our 2005 report on crop insurance explains why areas that are prone to 
frequent or severe crop losses may have relatively high crop insurance 
costs.[Footnote 17] The crop insurance program has high premium 
subsidies to encourage participation. Premium subsidies are calculated 
as a percentage of the total premium and can be as high as 67 percent. 
The subsidies shield producers from the full cost of growing crops in 
these areas. Because premiums are higher in areas that are prone to 
frequent or severe crop losses than in the major crop-producing 
counties, premium subsidies have the effect of causing crop insurance 
costs to be higher in these areas.

Farm Program Payments, Rising Crop Prices, and the Adoption of New 
Farming Technologies Provide Incentives to Expand Crop Production on 
Native Grasslands:

Federal farm program payments are an important factor in producers' 
decisions to convert native grassland to cropland, but rising crop 
prices and advances in crop production technology are also important 
factors in these conversions. Specifically, increased crop prices, due 
largely to rising ethanol demand, are important in producers' 
decisions. In addition, the adoption of genetically modified crops as 
well as new farming techniques have made cropping more profitable on 
land previously considered to be marginally suitable or generally 
unsuitable for crop production. Regarding farm program payments, our 
analysis of crop production costs and returns and our review of 
economic studies indicate that these payments are an important factor 
in producers' conversion decisions. Moreover, the incentives farm 
programs provide to convert grassland to cropland appear to be 
inconsistent with USDA conservation programs that encourage producers 
to either maintain grassland or convert cropland to grassland or 
another conserving use.

Rising Crop Prices and Advanced Crop Production Technologies Are 
Important Factors in Decisions to Convert Native Grassland to Cropland:

Increasing demand for crops used to produce ethanol and other renewable 
fuels has caused crop prices to increase, increasing the profitability 
of crop production and providing incentives for conversions. For 
example, the price of a March 2007 corn futures contract on the Chicago 
Board of Trade rose from $2.50 per bushel in September 2006 to $4.16 
per bushel in January 2007, an increase of more than 66 percent. A May 
2007 USDA study stated that the increased demand for renewable fuels 
would result in continued expansion of crop acreage and bring new land 
into crop production, particularly in the Corn Belt and the Northern 
Plains.[Footnote 18] Furthermore, a June 2007 NASS report announced 
that corn growers had planted 92.9 million acres of corn in 2007, 14.6 
million acres more than were planted in 2006 and the highest total 
since 1944.[Footnote 19] NASS stated that this increased corn acreage 
was partially offset by reduced soybean acreage in the plains and the 
Corn Belt. USDA and agricultural experts expect this demand to continue 
to increase, and corn and other crop prices are expected to be 
relatively high for several years. NRCS and FSA officials in states and 
counties with the highest conversions of grassland to cropland 
confirmed that crop prices strongly influence producers' conversion 
decisions.

In addition, the availability of advanced crop production technologies, 
including genetically modified crops, such as herbicide-resistant 
soybeans, and new farming techniques, such as no-till planting, 
contribute to producers' decisions to convert native grassland to 
cropland. For example, herbicide-resistant soybeans became available to 
farmers for the first time in 1996, and, according to USDA, usage 
nationwide expanded to over 40 percent of soybean acreage in 1998 and 
then to 87 percent by 2005 (95 percent in South Dakota). The use of 
these soybean varieties makes weed control easier and has, in turn, 
made no-till planting--a conservation practice that reduces soil 
erosion and conserves moisture while also cutting fuel and labor costs-
-more feasible. These developments have reduced the cost of production 
and made it more profitable to produce high-value crops, especially 
corn and soybeans, in some areas that historically were considered 
marginally suitable or generally unsuitable for crop production. FSA 
and NRCS officials confirmed that advanced crop production technologies 
strongly influence producers' conversion decisions.

Farm Program Payments Provide Incentives to Convert Native Grassland to 
Cropland by Increasing Producers' Income and Reducing Their Financial 
Risks:

Farm program payments, including crop insurance, crop disaster 
assistance, and marketing assistance loan payments, are important 
factors in producers' decisions to convert native grassland to cropland 
because they reduce producers' financial risks and, in many cases, 
increase producers' profits over maintaining grassland. To evaluate the 
impact of farm program payments and other factors in producers' 
conversion decisions, we prepared a partial budget analysis for a 
hypothetical 160-acre tract in a South Dakota county--located in the 
Prairie Pothole Region--that was among the state's highest counties in 
conversions of grassland that had no cropping history in 2005 and 2006. 
A partial budget analysis evaluates the economic effects of making an 
adjustment to part of the farm operation, such as changing what is 
produced or buying new machinery. Specifically, we compared the 
estimated costs and returns for 2003 through 2007 from 160 acres of 
native grassland--used for grazing as part of a cow-calf operation--to 
the costs and returns if the same land had been converted to cropland 
in 2003 and used to produce corn, soybeans, and spring wheat through 
2007. This period exhibited a variety of yield and price scenarios as 
well as farm program payments and thus may illustrate how the 
significance of farm program payments can change from year to year.

We found that for certain years, high crop prices as well as farm 
program payments would provide economic incentives for a producer to 
convert native grassland used for grazing in a cow-calf operation to a 
cropping operation. In 3 of the 5 years, the conversion from grazing to 
cropping would have resulted in increased income. In the other 2 years, 
the conversion would have resulted in reduced income largely because 
cattle prices were high relative to crop prices and farm program 
payments were lower than in the other years. Without any farm program 
payments, income would have increased only in 2007, but in view of 
projections that crop prices will remain relatively high, this increase 
in income without farm program payments may continue for several 
years.[Footnote 20] However, even with high crop prices, farm program 
payments from crop insurance and crop disaster assistance likely will 
continue to be a relevant factor in conversion decisions because of the 
need for protection against adverse crop production risks, such as 
drought. Table 5 shows the net change in income from shifting to crop 
production from a cow-calf operation on a 160-acre parcel of land, with 
and without farm program payments (crop insurance, crop disaster 
assistance, and marketing assistance loan payments).[Footnote 21] The 
table also shows corn prices and yields as well as calf and cow prices 
during this period.

Table 5: Estimated Net Change in Income for a Shift to Crop Production 
from a Cow-Calf Grazing Operation on a 160-Acre Tract in Central South 
Dakota, 2003-2007:

Factors: Net change in income[A], With farm program payments (crop 
insurance, crop disaster assistance, and marketing assistance loan 
payments); 
2003: $3,761.20; 
2004: ($3,602.75); 
2005: ($4,834.66); 
2006: $2,366.35; 
2007: $2,099.47.

Factors: Net change in income[A], Without farm program payments (crop 
insurance, crop disaster assistance, and marketing assistance loan 
payments); 
2003: ($8,499.29); 
2004: ($6,631.58); 
2005: ($7,634.62); 
2006: ($6,729.35);
2007: $2,099.47.

Factors: Selected prices and yields, Corn price ($ per bushel)[B]; 
2003: $2.36; 
2004: $1.64; 
2005: $1.76; 
2006: $3.37; 
2007: $3.52.

Factors: Selected prices and yields, Corn yield (bushels per acre)[C]; 
2003: 37.1; 
2004: 84.4; 
2005: 81.2; 
2006: 41.5; 
2007: 69.0.

Factors: Selected prices and yields, Calf price ($ per 100 pounds)[D]; 
2003: $111.38; 
2004: $121.59; 
2005: $136.85; 
2006: $113.16; 
2007: $124.48.

Factors: Selected prices and yields, Cow price ($ per head)[E]; 
2003: $616.50; 
2004: $750.83; 
2005: $839.27; 
2006: $797.55; 
2007: $769.00.

Source: GAO's analysis using data from South Dakota State University, 
NRCS, NASS, RMA, FSA, and Drovers' Inc.

Notes: (1) We assumed a decision was made to convert to crop production 
in 2003 and carried forward through 2007. (2) The net change in income 
is the result of comparing the alternate income streams from cropping 
(corn, soybeans, and spring wheat) versus grazing (cow-calf operation). 
(3) Both herd liquidation and conversion costs were amortized over a 5- 
year period from 2003 to 2007 at a 6 percent rate of interest.

[A] While the 2003 to 2006 results are retrospective, the 2007 crop had 
not been harvested as of July 2007. On the basis of July 2007 crop 
prices and USDA estimates, we assumed no marketing assistance loan 
payments would be made for 2007. We did not include any crop insurance 
or disaster assistance payments for 2007, although such payments may be 
made in the future.

[B] Corn prices for 2003 through 2006 are yearly averages of weekly 
cash prices in central South Dakota from the South Dakota State 
University extension grain marketing service. Corn prices for 2007 are 
average weekly cash prices for the Central South Dakota region from 
January to July 2007, from South Dakota State University extension 
service.

[C] Corn yields for 2007 are a moving average of NASS county yields, 
adjusted for soil productivity.

[D] For 2003 through 2006, calf prices are November South Dakota 
stocker cattle prices, monthly average, obtained from South Dakota 
State University's "Cattle Market Review," June 22, 2007, for 500 to 
600 pound steers. For 2007, calf prices are average monthly prices for 
the first 6 months of 2007, January through June.

[E] Cow prices are bred female prices for "young and middle aged" bred 
cows from the central region of the United States which includes South 
Dakota, obtained from Drovers. For 2007, bred female prices are average 
monthly prices for the first 5 months of 2007, January through May.

[End of table]

We did not attempt to evaluate the social, environmental, and wildlife 
habitat costs and benefits of this conversion. Furthermore, although 
crop prices are projected to continue to rise over the next several 
years, the likelihood of prices remaining at such high levels, 
especially in conjunction with high levels of production, may not 
materialize. In the absence of data on future weather patterns, yields, 
and commodity prices, we did not project future rates of return. 
Moreover, we did not project future rates of conversion because we 
cannot speculate on many of the factors that enter into producers' land 
use decisions, such as their aversion to risk in the presence of 
significant potential crop yield variability, although the stabilizing 
effect of crop insurance would tend to lessen risk concerns, especially 
compared to livestock grazing. Nevertheless, this analysis demonstrates 
that there have been economic incentives for producers, at least in the 
short run, to shift into crop production on native grassland. It also 
illustrates the importance of farm program payments in years of lower 
crop prices or yields. Appendix IV provides more information on our 
partial budget analysis.

In addition to our partial budget analysis, several economic studies we 
reviewed found that farm program payments influence producers' 
conversion decisions because they increase the expected profitability 
of cropping land while lowering the risks. For example, a study by 
USDA's Economic Research Service (ERS) found that increased crop 
insurance subsidies in the mid-1990s encouraged producers to expand 
crop production in the contiguous 48 states by an estimated 2.5 million 
acres, with most of the land coming from pastureland and other 
grassland. Another recent paper, by Iowa State University agricultural 
economists, concluded that the reduction in risk by crop insurance and 
commodity programs creates incentives for farmers and landlords to 
focus on growing the commodities supported by these programs. In 
addition, some of the economic studies we reviewed raised the 
possibility that land value appreciation due to farm program payments 
may be another economic incentive for farmers to convert native 
grassland to cropland. Since the value of agricultural land depends, in 
part, upon expected future earnings from farming, purchasers of land 
will pay a higher price for land that is expected to provide a future 
stream of farm program payments. For example, ERS reported that the 
effect of farm program payments on land values varies widely throughout 
the United States but that increases are highest in the Northern 
Plains. For more detailed summaries of these and other studies that we 
examined, see appendix V.

Most of the FSA and NRCS state and local officials in Montana, 
Nebraska, North Dakota, and South Dakota confirmed that farm program 
payments, specifically crop insurance, crop disaster assistance, and 
marketing assistance loan payments are important--although not always 
the most important--factors in producers' conversion decisions. In 
particular, among the farm programs, the officials noted the importance 
of crop insurance because it reduces the risk of growing crops. Nearly 
all of these officials believed that farm program payments play a 
greater role in producer decisions when crop prices are lower. For 
example, several officials noted that a reduction in program payments 
would have had a more pronounced effect in reducing crop conversions 2 
years ago, before the prospect of increased demand for ethanol 
contributed to higher corn prices.

Incentives to Convert Grassland May Work at Cross Purposes with USDA 
Conservation Programs:

The incentives provided by farm program payments appear to be 
inconsistent with USDA conservation programs, such as the Wetlands 
Reserve Program,[Footnote 22] the Grassland Reserve Program,[Footnote 
23] and CRP. These conservation programs, among other things, pay 
producers and landowners to either maintain grassland or convert 
cropland to grassland or another conserving use. However, these 
programs appear to be at odds with farm programs that provide 
incentives for conversions of grassland to cropland. For example, NRI 
data on South Dakota CRP enrollments--which represent conversions of 
cropland to grassland--and conversions of grassland to cropland 
illustrate this apparent inconsistency. From 1982 through 1997, 1.69 
million acres of cropland in South Dakota were enrolled in CRP--with 
almost all of this acreage planted in grasses--at a total government 
cost of about $633 million. However, during the same period, 1.82 
million acres of grassland in South Dakota were converted to cropland. 
About half of this acreage had been rangeland, generally supporting 
native grasses and vegetation, and the other half pastureland. Other 
states had similar patterns during this period. For example, North 
Dakota had CRP enrollments of 2.8 million acres, CRP costs of about 
$973 million, and grassland conversions to cropland of 1.16 million 
acres. Montana had CRP enrollments of 2.7 million acres, CRP costs of 
about $957 million, and conversions to cropland of 1.35 million acres.

Sodbuster Has Had Little Impact on Native Grassland Conversions:

Sodbuster has had little impact in limiting the conversion of native 
grassland to cropland, in part because much of the native grassland 
converted in recent years is not highly erodible and therefore not 
subject to Sodbuster. According to USDA officials, even in most cases 
where Sodbuster applies, the costs associated with Sodbuster compliance 
have not been enough to deter producers from converting the land. USDA 
and some stakeholder organizations have suggested a proposal known as 
Sod Saver that would discourage native grassland conversions by making 
converted land ineligible for farm program payments.

Much of the Native Grassland Converted in Recent Years Was Not Subject 
to Sodbuster:

Much of the native grassland converted to cropland in recent years is 
classified as non-highly erodible land and thus is not subject to 
Sodbuster. NRI data on the percentage of rangeland converted to 
cropland and classified as highly erodible provide an approximation of 
the percentage of conversions that are subject to Sodbuster. According 
to NRI data, between 1997 and 2003, an estimated 59 percent of the 
rangeland converted to cropland in the Northern Plains production 
region--encompassing Kansas, Nebraska, North Dakota, and South Dakota-
-was classified as non-highly erodible. In the Southern Plains and the 
Mountain regions, which also have large amounts of rangeland, NRI data 
for this period indicate an estimated 43 percent and 47 percent, 
respectively, of the rangeland acres that producers converted were 
classified as non-highly erodible. In addition, according to our 
analysis of NRCS records for selected Nebraska counties that have had 
relatively high conversion rates, slightly over half of the land 
parcels converted in those counties between 2003 and 2006 were 
classified as non-highly erodible. Because non-highly erodible land is 
not subject to Sodbuster, producers who convert such land do not have 
to bear the cost of applying conservation systems in order to maintain 
farm program benefits.

Even When Planned Conversions Are Subject to Sodbuster, Producers Are 
Not Usually Deterred:

According to FSA and NRCS officials, even when native grassland that is 
to be converted is classified as highly erodible, producers generally 
perceive that the potential profits from cropping the land outweigh the 
potential costs of controlling soil erosion as required by Sodbuster. 
As such, officials in Montana, Nebraska, North Dakota, and South Dakota 
counties that have had relatively high conversion rates said that the 
costs associated with meeting Sodbuster's soil erosion standards 
usually do not discourage native grassland conversion, especially when 
crop prices are high and crop production is profitable. Specifically, 
these officials said Sodbuster rarely or never deterred conversions. 
According to these officials, the cost of complying with Sodbuster has 
been reduced by new crop production technologies. For example, almost 
all of the officials cited no-till planting as a low-cost management 
practice that controls soil erosion sufficiently to meet Sodbuster 
requirements and added that the development of herbicide-resistant 
crops has facilitated producers' adoption of no-till planting by making 
it easier to control weeds without using tillage.

The views expressed by the officials we spoke with are generally 
consistent with the responses of local NRCS officials to our 2002 
survey, in which we asked them to rate the effectiveness of Sodbuster 
in limiting the conversion of native grassland.[Footnote 24] The survey 
results for four states with relatively high rates of conversions-- 
Montana, Nebraska, North Dakota, and South Dakota--are shown in table 
6. As indicated in the table, the majority of officials in three of 
these states--Montana, Nebraska, and South Dakota--responded that 
Sodbuster was slightly or not effective in limiting native grassland 
conversion. Nearly 44 percent of officials in North Dakota provided a 
similar response.

Table 6: Local NRCS Officials' Responses to GAO Survey Question on the 
Effectiveness of Sodbuster in Limiting the Conversion of Native 
Grassland to Cropland (total in percent):

State: Montana; 
Extremely effective: 0; 
Very effective: 11.9; 
Moderately effective: 7.1; 
Somewhat effective: 28.6; 
Slightly or not effective: 52.4.

State: Nebraska; 
Extremely effective: 0; 
Very effective: 4.1; 
Moderately effective: 11.0; 
Somewhat effective: 15.1; 
Slightly or not effective: 69.9.

State: North Dakota; 
Extremely effective: 0; 
Very effective: 16.7; 
Moderately effective: 18.8; 
Somewhat effective: 20.8; 
Slightly or not effective: 43.8.

State: South Dakota; 
Extremely effective: 1.9; 
Very effective: 7.7; 
Moderately effective: 13.5; 
Somewhat effective: 17.3; 
Slightly or not effective: 59.6.

Source: GAO survey results.

[End of table]

USDA and Some Stakeholder Organizations Have Offered a Proposal to 
Discourage Grassland Conversions:

To discourage future conversions, USDA and some stakeholder 
organizations have suggested a proposal known as Sod Saver that would 
make certain grassland--primarily native grassland--ineligible for farm 
program payments if it is converted to cropland. USDA's proposed 
legislative language--issued in April 2007--applies to rangeland and 
native grassland not used for crop production at any time during the 
previous 6 years preceding the effective date of the 2007 farm bill. If 
such land is converted to crop production, it would be permanently 
ineligible for a wide range of farm program payments, including direct 
and countercyclical, marketing assistance loan, conservation, disaster 
assistance, and crop insurance payments. According to USDA's proposal, 
Sod Saver is needed because, among other things, grasslands provide 
important ecological functions and the rate of conversion to cropland 
could increase greatly over the next several years as increased 
production of biofuels boosts the demand for corn and other crops.

Most NRCS state and local officials we spoke with suggested that 
barring newly converted cropland from farm program payments, as called 
for under Sod Saver, would be a deterrent to new conversions in their 
counties. However, FSA state and local officials we interviewed were 
less certain than the NRCS officials about Sod Saver's potential 
impact. While generally acknowledging that barring farm program 
payments would affect some conversion decisions, these officials placed 
more emphasis on the impact of crop prices and advanced production 
technologies. Officials from both agencies agreed that Sod Saver's 
impact would be less when crop prices are high than when they are low.

Certain farm, crop, and livestock organizations have expressed 
opposition to USDA's Sod Saver proposal. These organizations include 
the American Farm Bureau Federation, National Association of Wheat 
Growers, National Corn Association, National Cotton Council, National 
Pork Producers Council, United Egg Producers, and USA Rice Federation. 
For example, a crop organization official we interviewed said that 
advances in crop production technology continue to make more land 
suitable for cropping and that it would be inequitable for some crop 
producers to receive farm program payments on their cropland while 
others could not. In a May 15, 2007, letter, organizations opposed to 
the Sod Saver proposal expressed their concerns. Among other things, 
they said:

* Sod Saver would constrain farmers' ability to adapt to changing 
market conditions related to the growing demand for crops to produce 
food and renewable fuels.

* Sod Saver would reduce the amount of farmable land available for 
beginning farmers.

* Current information on the extent of conversions is insufficient to 
justify the Sod Saver proposal.

* Existing policy--referring to the current conservation compliance 
provisions, including Sodbuster--is effectively controlling soil 
erosion on highly erodible land.

On the other hand, the Sod Saver approach is supported by a number of 
wildlife, environmental, and conservation organizations, as well as 
certain cattle industry interests. These organizations include, Ducks 
Unlimited, Pheasants Forever, the North Dakota and South Dakota 
chapters of the Wildlife Society, and the South Dakota Cattlemen's 
Association. In particular, wildlife organizations have emphasized that 
Sod Saver would help maintain native grassland habitat that is 
important for waterfowl and grassland birds, especially in Prairie 
Pothole Region areas of Montana, North Dakota, and South Dakota. In 
addition, a cattle industry official we spoke with expressed concern 
that farm program payments encourage conversions and subsidize crop 
production, putting cattle producers at a disadvantage relative to crop 
producers in the competition for land. In a May 29, 2007, letter, a 
coalition of representatives from Montana, North Dakota, and South 
Dakota wildlife organizations and agencies responded to arguments 
against the Sod Saver proposal. Among other things, they said:

* Sod Saver would not prevent farmers from responding to market signals 
because it would allow conversions to cropland.

* Beginning farmers would not have good prospects for success if they 
grew crops on marginal lands that have not been cropped previously, and 
beginning ranchers would benefit from Sod Saver because it would result 
in more grassland being available to them.

* Available FSA and NRCS data and anecdotal information about 
conversions are sufficient to justify the Sod Saver proposal.

* Soil erosion is still a significant problem in North Dakota and South 
Dakota, and the conservation compliance provisions, including 
Sodbuster, do not prevent the conversion of native grassland to 
cropland.

Conclusions:

In the absence of more comprehensive and current data, policymakers and 
stakeholders cannot fully understand the extent of conversions of 
native grassland to cropland or how farm program payments and other 
factors influence producers' conversion decisions. More complete 
information, especially at the county or local level, would enable 
stakeholders to identify where conversions are occurring and the 
environmental implications. In addition, having this information would 
be a first step in assessing the additional farm program costs that 
result from conversions. Such knowledge can help in developing policies 
balancing the environmental and economic benefits of grasslands against 
the rising demand for food, feed, fiber, and fuel from renewable 
sources. In developing the means to collect such information, USDA 
could draw on the experiences of FSA state and county offices in 
Montana, North Dakota, and South Dakota, which have incorporated the 
collection of conversions data into their annual acreage reporting 
process. In addition, the dynamic between USDA farm program payments 
and conservation programs needs to be better understood. Available data 
suggest that USDA's programs that increase the profitability of 
cropping and its programs that encourage conservation of rural land may 
be working at cross purposes with one another. Specifically, some 
conservation programs, such as CRP, provide incentives for conversions 
of cropland to grassland, while farm program payments may have the 
unintended consequence of providing incentives for conversions of 
grassland to cropland. Such apparent inconsistency undermines USDA's 
conservation goals and the most effective use of funds. While we have 
identified possible cases where USDA's farm program payments work at 
cross purposes with its conservation programs, there could be others. 
Any such inconsistencies should be identified and examined in order to 
better inform the Congress of opportunities to improve the 
effectiveness and efficiency of these programs.

Recommendations for Executive Action:

To provide policymakers and stakeholders with more comprehensive and 
current information on the extent of native grassland conversions to 
cropland, the associated farm program costs of these conversions, and 
their impact on natural resources, we recommend that USDA annually 
track native grassland conversions to cropland in those geographic 
areas where such conversions can occur.

To better understand the extent to which farm programs, such as crop 
insurance, and conservation programs, such as the Conservation Reserve 
Program, may be working at cross purposes, we recommend that the 
Secretary of Agriculture direct the Administrator of the Economic 
Research Service, the Administrator of the Farm Service Agency, and the 
Chief of the Natural Resources Conservation Service to jointly study 
this issue and report their findings to the Secretary and the Congress.

Agency Comments and Our Evaluation:

We provided a draft of this report to USDA for review and comment. USDA 
provided oral comments through the Chief, NRCS, on September 5, 2007, 
indicating general agreement with the report's findings and 
recommendations. USDA also said it wanted to ensure that GAO was aware 
that with few exceptions, the crop insurance program has strict 
criteria on where converted land may be insured. USDA noted that land 
generally must have a history of being cropped in at least 1 of the 3 
previous crop years in order to be eligible for crop insurance 
coverage, unless such acreage was not cropped because it was enrolled 
in another USDA program. Thus, newly converted grassland that has not 
been cropped in the previous 3 crop years or enrolled in another 
program is only insurable by written agreement as approved by USDA's 
Risk Management Agency. According to USDA, written agreements go 
through an underwriting process that is much more restrictive than for 
standard policies, resulting in reduced coverage and possible denial of 
coverage. For example, the insurance guarantee is generally based on 
the percent of the average county yield. If the expected yield for the 
converted acreage is less than 50 percent of the county average, the 
request for insurance is generally denied. In addition, USDA said 
certain types of coverage, such as prevented planting coverage, are not 
available for any written agreement approved for newly converted land.

We recognize that USDA has criteria on where converted land may be 
insured. However, our work found that RMA does not have a method and 
the information needed to enforce its policy that land must have been 
cropped in at least 1 of the 3 previous crop years to be eligible for 
crop insurance coverage. Specifically, according to RMA officials we 
interviewed, RMA has limited ability to enforce these restrictions on 
insurance coverage because it lacks necessary information on land 
parcels' location and cropping history. Thus, the restrictions may not 
prevent ineligible converted land from being covered. Moreover, even if 
RMA were able to enforce these restrictions, the converted land would 
be eligible for crop insurance coverage in the year after the 
conversion.

USDA also provided technical corrections, which we have incorporated 
into the report as appropriate.

As arranged with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from its issue date. At that time we will send copies of this report to 
appropriate congressional committees; the Secretary of Agriculture; the 
Director, Office of Management and Budget; and other interested 
parties. In addition, this report will be available at no charge on 
GAO's Web site at [hyperlink, http://www.gao.gov].

If you or your staff have any questions about this report, please 
contact me at (202) 512-3841 or shamesl@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Key contributors to this report are 
listed in appendix VI.

Signed by:

Lisa Shames: 
Director, Natural Resources and Environment:

[End of section]

Appendix I: Objectives, Scope, and Methodology:

At the request of the Chairman, Senate Committee on Agriculture, 
Nutrition, and Forestry, and the Chairman, House Committee on 
Agriculture, we reviewed issues related to grassland conversions. 
Specifically, we determined (1) the extent of grassland conversions to 
cropland and the cost of farm program payments related to these newly 
converted cropland acres, (2) the relative importance of farm program 
payments versus other factors in producers' decisions to convert 
grassland to cropland, and (3) any impact the Sodbuster provision has 
had on limiting grassland conversions.

To determine the extent of grassland conversions to cropland, we 
examined land use data for 1982 through 2003 from the Natural Resources 
Conservation Service's (NRCS) National Resources Inventory 
(NRI).[Footnote 25] We supplemented this information with land use data 
gathered by the U.S. Department of Agriculture's (USDA) National 
Agricultural Statistics Service (NASS).[Footnote 26] In addition, we 
analyzed data gathered by USDA's Farm Service Agency (FSA) state and 
county offices in Montana, North Dakota, and South Dakota on acres 
converted from grassland with no cropping history to cropland for 2005 
and 2006. We also reviewed a collaborative study on conversions of 
native grassland to cropland in the Prairie Pothole Region prepared by 
Ducks Unlimited, Inc., a private advocacy group supporting the 
protection and restoration of wetlands and waterfowl habitat, in 
conjunction with the U.S. Fish and Wildlife Service (FWS); the South 
Dakota Department of Game, Fish and Parks; The Nature Conservancy; and 
the University of Montana.[Footnote 27] In addition, we reviewed other 
relevant studies of grassland conversions to cropland, including a 2001 
study[Footnote 28] by Texas A&M University and other researchers and a 
1999 study by University of Wisconsin researchers.[Footnote 29] We 
interviewed USDA officials from the Economic Research Service (ERS), 
FSA, NASS, NRCS, and the Risk Management Agency (RMA). We also 
interviewed FWS state officials in Colorado, Montana, Nebraska, North 
Dakota, South Dakota, and Texas; state government officials; and 
officials at land grant universities, including Iowa State University, 
Kansas State University, North Dakota State University, South Dakota 
State University, and Texas A&M University. To determine the cost of 
farm program payments on converted land, we interviewed ERS and FSA 
officials and analyzed RMA crop insurance and FSA disaster assistance 
payments data. Specifically, we analyzed crop insurance and crop 
disaster assistance payments data in relation to 2005 and 2006 data on 
conversions of grassland that had no prior cropping history to cropland 
for all South Dakota counties. We selected South Dakota counties 
because conversion data were available by county for 2005 and 2006, and 
conversions have received considerable attention in the state. In 
conducting our analysis, we assumed that the counties with the most 
acres converted during those years were indicative of the counties with 
the most conversions during 1997 through 2006.

To determine the relative importance of the availability of farm 
program payments in producers' decisions to convert grassland to 
cropland, we identified and reviewed studies that directly examined the 
economic incentives of farm program payments on a producer's decision 
to convert grasslands to cropland, as well as related studies that 
examine the effects of farm program payments on farm profitability and 
risk. To evaluate how factors such as conversion costs, expected crop 
prices, crop production costs and technology, and farm program payments 
affect conversion decisions, we analyzed farm-level budget data for a 
hypothetical 160 acres in a South Dakota county that had a relatively 
high conversion rate during 2005 and 2006. The methodology for 
conducting this analysis was reviewed by ERS, NRCS, and land grant 
university agricultural economists and is discussed in appendix IV. In 
addition, we interviewed FSA and NRCS officials in Montana, Nebraska, 
North Dakota, and South Dakota to obtain their views of the importance 
of farm program payments and other factors in producers' decisions to 
convert native grassland to cropland.

To determine the impact the Sodbuster provision has had on grassland 
conversions, we examined NRI land use data for 1982 through 1997 and 
1997 through 2003 showing conversions of rangeland to highly erodible 
and non-highly erodible cropland by USDA crop production regions. We 
supplemented these data by analyzing available NRCS data on whether 
land that producers intended to convert was highly erodible for 
selected Nebraska counties.[Footnote 30] We selected these counties 
because the Nebraska NRCS state office had identified them as being in 
areas that recently had relatively high conversion rates. In addition, 
we conducted interviews with FSA and NRCS officials in Montana, 
Nebraska, North Dakota, and South Dakota to obtain their views of the 
impact of Sodbuster on producers' conversion decisions. We compared 
information obtained in these interviews with comments on Sodbuster's 
effectiveness submitted by NRCS field office officials in response to 
GAO's nationwide 2002 survey on conservation compliance 
issues.[Footnote 31] We also interviewed FWS officials in Colorado, 
Montana, Nebraska, North Dakota, South Dakota, and Texas, as well as 
officials from industry stakeholder organizations, including the South 
Dakota Corn Growers Association, South Dakota Soybean Association, 
South Dakota Cattlemen's Association, and Montana Grain Growers 
Association, to obtain their views on Sodbuster's effectiveness and 
proposed legislative changes to reduce conversions. Finally, to 
identify proposed legislation that could affect payments that producers 
receive on newly converted land, we reviewed USDA's 2007 farm bill 
proposals and position papers submitted by environmental, conservation, 
and commodity groups, including Ducks Unlimited, Pheasants Forever, the 
North Dakota and South Dakota Chapters of The Wildlife Society, the 
North Dakota Game and Fish Department, the American Farm Bureau 
Federation, the National Corn Growers Association, the National Pork 
Producers Council, and the National Association of Wheat Growers.

We performed our work between October 2006 and August 2007 in 
accordance with generally accepted government auditing standards. We 
performed data reliability assessments for (1) FSA state office data on 
conversions of grassland that had no prior cropping history to cropland 
in Montana, North Dakota, and South Dakota, (2) crop insurance data 
from RMA's Summary of Business database, and (3) FSA disaster 
assistance payments data. We determined that data from each of these 
sources were sufficiently reliable. For the data obtained from the 
other sources noted above, we did not independently verify the data, 
but we discussed with these sources, as appropriate, the measures they 
take to ensure the accuracy of these data. For the purposes for which 
the data were used in this report, these measures seemed reasonable.

[End of section]

Appendix II: National Resources Inventory Data on Net Changes in U.S. 
Land Use, 1982-2003:

The U.S. Department of Agriculture's Natural Resource Conservation 
Service's National Resources Inventory is a statistical survey of 
natural resource conditions and trends on nonfederal land in the United 
States. Nonfederal lands include privately owned lands, tribal and 
trust lands, and lands controlled by state and local governments. The 
NRI provides data on net changes in rangeland, pastureland, and other 
land types over time, as well as on conversions of rangeland and 
pastureland to cropland over time.[Footnote 32] Table 7 shows the net 
changes in cropland, Conservation Reserve Program (CRP) land, 
rangeland, pastureland, and developed land, from 1982 to 2003 for the 
48 contiguous states. The changes illustrated in the table are net 
changes, which do not indicate the number of acres converted from 
rangeland and pastureland to cropland.

Table 7: Net Changes in Rangeland, Pastureland, and Other Land Types, 
1982-2003:

Year: 1982 (acres in millions with margins of error); 
Cropland: 419.9 (417.8-422.0); 
CRP land: 0 (NA); 
Rangeland: 415.5 (412.0-419.0); 
Pastureland: 131.1 (129.7-132.5); 
Developed land: 72.9 (72.1-73.7).

Year: 1992 (acres in millions with margins of error); 
Cropland: 381.3 (379.3-383.3);
CRP land: 34.0 (33.8-34.2); 
Rangeland: 406.8 (403.5-410.1); 
Pastureland: 125.2 (123.9-126.5); 
Developed land: 86.5 (85.5-87.5).

Year: 1997 (acres in millions with margins of error); 
Cropland: 376.4 (374.4-378.4); 
CRP land: 32.7 (32.7-32.7); 
Rangeland: 404.9 (401.6-408.2); 
Pastureland: 119.5 (118.3-120.7); 
Developed land: 97.6 (96.6-98.6).

Year: 2003 (acres in millions with margins of error); 
Cropland: 367.9 (365.5-370.3);
CRP land: 31.5 (31.2-31.8);
Rangeland: 405.1 (401.6-408.6);
Pastureland: 117.0 (115.2-118.8); 
Developed land: 108.1 (106.7-109.5).

Change,1982-2003 (acres in millions); 
Cropland: -52; 
CRP land: 31.5; 
Rangeland: -10.4; 
Pastureland: -14.1; 
Developed land: 35.2.

Source: GAO's analysis of NRCS's NRI data.

Notes: (1) The amounts in parentheses represent the two-sided 95 
percent confidence interval. (2) This table does not include other land-
use categories, which did not have large changes during this period. 
These land-use categories are forest land, water areas, and other rural 
areas.

[End of table]

[End of section]

Appendix III: Census of Agriculture Data on Net Changes in Uses of Land 
in Farms for the United States and Selected States:

The Census of Agriculture, conducted every 5 years by USDA's National 
Agricultural Statistics Service, is a census of agricultural 
producers.[Footnote 33] It gathers information about the nation's 
agricultural production and provides agricultural data for every state 
and county in the United States.

Tables 8 and 9 show net changes in uses of land in farms between the 
years 1978 and 1992, and 1997 and 2002, as reported by the Census of 
Agriculture. Table 8 shows net changes in land use at the national 
level, while table 9 shows changes in land use for states that-- 
according to USDA's National Resources Inventory--have large amounts of 
rangeland and cropland. Data for 1978 to 1992 are not comparable to 
data for 1997 to 2002 and are listed separately in the tables. This is 
because a different methodology was used for the latter time frame to 
more completely capture all relevant producers.

In tables 8 and 9, "Total cropland" includes cropland harvested, 
cropland used only for pasture or grazing, idle cropland,[Footnote 34] 
cropland on which all crops failed or were abandoned, and cropland 
cultivated in summer fallow. "Pastureland and rangeland" includes all 
grazable land that does not qualify as cropland pasture or woodland 
pasture. Pastureland and rangeland includes both native grassland and 
grassland composed of introduced grasses. Finally, "Total land in 
farms" consists primarily of agricultural land used for crops, pasture, 
or grazing.

Table 8: Net Changes in Uses of Land in U.S. Farms, 1978-1992 and 1997- 
2002 (acres in millions):

Year: 1978; 
Total cropland: 453.6; 
Pastureland and rangeland[A]: 431.0; 
Total land in farms: 1011.5.

Year: 1982; 
Total cropland: 445.1; 
Pastureland and rangeland[A]: 416.0; 
Total land in farms: 983.5.

Year: 1987; 
Total cropland: 442.9; 
Pastureland and rangeland[A]: 408.4; 
Total land in farms: 961.8.

Year: 1992; 
Total cropland: 435.0; 
Pastureland and rangeland[A]: 409.1; 
Total land in farms: 943.0.

Year: Change in acres,1978-1992; 
Total cropland: - 18.6; 
Pastureland and rangeland[A]: -21.9; 
Total land in farms: -68.5.

Year: 1997; 
Total cropland: 444.9; 
Pastureland and rangeland[A]: 396.6; 
Total land in farms: 952.5.

Year: 2002; 
Total cropland: 433.9; 
Pastureland and rangeland[A]: 393.7; 
Total land in farms: 936.1.

Year: Change in acres, 1997-2002; 
Total cropland: - 11.0; 
Pastureland and rangeland[A]: -2.9; 
Total land in farms: -16.5.

Source: GAO's analysis of NASS's Census of Agriculture data.

[A] The full name of this category is Pastureland and rangeland, other 
than cropland and woodland pastured.

[End of table]

Table 9: Net Changes in Uses of Land in Farms in States with Large 
Amounts of Rangeland and Pastureland, 1978-1992 and 1997-2002 (acres in 
millions):

State: Colorado; 
Year: 1978; 
Total cropland: 10.6; 
Pastureland and rangeland: 22.7; 
Total land in farms: 35.3.

State: Colorado; 
Year: 1992; 
Total cropland: 10.9; 
Pastureland and rangeland: 21.3; 
Total land in farms: 34.0.

State: Colorado; 
Year: Change in acres, 1978-1992; Total cropland: 0.3; 
Pastureland and rangeland: -1.4; 
Total land in farms: - 1.3.

State: Colorado; 
Year: 1997; 
Total cropland: acres in millions: 10.8; 
Pastureland and rangeland: 
acres in millions: 19.4; 
Total land in farms: acres in millions: 32.3.

State: Colorado; 
Year: 2002; 
Total cropland: acres in millions: 11.5; 
Pastureland and rangeland: 
acres in millions: 17.3; 
Total land in farms: acres in millions: 31.1.

State: Colorado; 
Year: Change in acres, 1997-2002; 
Total cropland: 0.7; 
Pastureland and rangeland: -2.1; 
Total land in farms: -1.3.

State: Kansas; 
Year: 1978; 
Total cropland: 29.8; 
Pastureland and rangeland: 15.5; 
Total land in farms: 47.5.

State: Kansas; 
Year: 1992; 
Total cropland: 31.1; 
Pastureland and rangeland: 13.8; 
Total land in farms: 46.7.

State: Kansas; 
Change in acres, 1978-1992; 
Total cropland: 1.3; 
Pastureland and rangeland: -1.8; 
Total land in farms: - 0.8.

State: Kansas; 
Year: 1997; 
Total cropland:31.1; 
Pastureland and rangeland: 13.6; 
Total land in farms: 46.7.

State: Kansas; 
Year: 2002; 
Total cropland: 29.5; 
Pastureland and rangeland: 15.5; 
Total land in farms: acres in millions: 47.2.

State: Kansas; 
Year: Change in acres, 1997-2002; 
Total cropland: -1.5; 
Pastureland and rangeland: 1.9; 
Total land in farms: 0.6.

State: Montana; 
Year: 1978; 
Total cropland: 16.2; 
Pastureland and rangeland: 42.4; 
Total land in farms: 61.7.

State: Montana; 
Year: 1992; 
Total cropland: 17.5; 
Pastureland and rangeland: 39.3; 
Total land in farms: 59.6.

State: Montana; 
Year: Change in acres, 1978-1992; 
Total cropland: 1.3; 
Pastureland and rangeland: -3.1; 
Total land in farms: - 2.0.

State: Montana; 
Year: 1997; 
Total cropland: 18.2; 
Pastureland and rangeland: 37.2; 
Total land in farms: acres in millions: 58.4.

State: Montana; 
Year: 2002; 
Total cropland: 18.3; 
Pastureland and rangeland: 38.2; 
Total land in farms: 59.6.

State: Montana; 
Year: Change in acres, 1997-2002; 
Total cropland: 0.8; 
Pastureland and rangeland: 1.1; 
Total land in farms: 1.2.

State: Nebraska; 
Year: 1978; 
Total cropland: 22.3; 
Pastureland and rangeland: 22.1; 
Total land in farms: 46.1.

State: Nebraska; 
Year: 1992; 
Total cropland: 22.4; 
Pastureland and rangeland: 20.6; 
Total land in farms: 44.4.

State: Nebraska; 
Year: Change in acres, 1978-1992; 
Total cropland: 0.1; 
Pastureland and rangeland: -1.6; 
Total land in farms: - 1.7.

State: Nebraska; 
Year: 1997; 
Total cropland: 22.6; 
Pastureland and rangeland: 21.6; 
Total land in farms: 45.9.

State: Nebraska; 
Year: 2002; 
Total cropland: 22.5; 
Pastureland and rangeland: 21.9; 
Total land in farms: 45.9.

State: Nebraska; 
Year: Change in acres, 1997-2002; 
Total cropland: -0.1; 
Pastureland and rangeland: 0.3; 
Total land in farms: 0.05.

State: New Mexico; 
Year: 1978; 
Total cropland: 2.3; 
Pastureland and rangeland: 42.5; 
Total land in farms: 47.9.

State: New Mexico; 
Year: 1992; 
Total cropland: 2.3; 
Pastureland and rangeland: 42.0; 
Total land in farms: 46.8.

State: New Mexico; 
Year: Change in acres, 1978-1992; 
Total cropland: -0.004; 
Pastureland and rangeland: -0.5; 
Total land in farms: -1.1.

State: New Mexico; 
Year: 1997; 
Total cropland: 2.3; 
Pastureland and rangeland: 41.0; 
Total land in farms: 46.2.

State: New Mexico; 
Year: 2002; 
Total cropland: 2.6; 
Pastureland and rangeland:39.1; 
Total land in farms: 44.8.

State: New Mexico; 
Year: Change in acres, 1997-2002; 
Total cropland: 0.3; 
Pastureland and rangeland: -1.8; 
Total land in farms: -1.4.

State: North Dakota; 
Year: 1978; 
Total cropland: 28.6; 
Pastureland and rangeland: 10.8; 
Total land in farms: 41.7.

State: North Dakota; 
Year: 1992; 
Total cropland: 27.5; 
Pastureland and rangeland: 10.3; 
Total land in farms: 39.4.

State: North Dakota; 
Year: Change in acres, 1978-1992; 
Total cropland: -1.1; 
Pastureland and rangeland: -0.5; 
Total land in farms: - 2.3.

State: North Dakota; 
Year: 1997; 
Total cropland: 27.4; 
Pastureland and rangeland: 10.3; 
Total land in farms: 39.7.

State: North Dakota; 
Year: 2002; 
Total cropland:26.5; 
Pastureland and rangeland: 11.0; 
Total land in farms: 39.3.

State: North Dakota; 
Year: Change in acres, 1997-2002; 
Total cropland: -0.9; 
Pastureland and rangeland: 0.7; 
Total land in farms: -0.4.

State: Oklahoma; 
Year: 1978; 
Total cropland: 14.4; 
Pastureland and rangeland: 16.5; 
Total land in farms: 33.7.

State: Oklahoma; 
Year: 1992; 
Total cropland: 14.5; 
Pastureland and rangeland: 15.1; 
Total land in farms: 32.1.

State: Oklahoma; 
Year: Change in acres, 1978-1992; 
Total cropland: 0.2; 
Pastureland and rangeland: -1.5; 
Total land in farms: - 1.6.

State: Oklahoma; 
Year: 1997; 
Total cropland: 15.5; 
Pastureland and rangeland: 15.5; 
Total land in farms: 34.1.

State: Oklahoma; 
Year: 2002; 
Total cropland: 14.8; 
Pastureland and rangeland: 15.7; 
Total land in farms:33.7.

State: Oklahoma; 
Year: Change in acres, 1997-2002; 
Total cropland: -0.6; 
Pastureland and rangeland: 0.2; 
Total land in farms: -0.4.

State: South Dakota; 
Year: 1978; 
Total cropland: 18.7; 
Pastureland and rangeland: 24.2; 
Total land in farms: 44.4.

State: South Dakota;
Year: 1992; 
Total cropland: 19.6; 
Pastureland and rangeland: 23.9; 
Total land in farms: 44.8.

State: South Dakota;
Year: Change in acres, 1978-1992; 
Total cropland: 0.8; 
Pastureland and rangeland: -0.2; 
Total land in farms: 0.4.

State: South Dakota;
Year: 1997; 
Total cropland: 19.7; 
Pastureland and rangeland: 23.0; 
Total land in farms: 44.1.

State: South Dakota;
Year: 2002; 
Total cropland: 20.3; 
Pastureland and rangeland: 22.0; 
Total land in farms: 43.8.

State: South Dakota;
Year: Change in acres, 1997-2002; 
Total cropland: 0.6; 
Pastureland and rangeland: -1.0; 
Total land in farms: - 0.4.

State: Texas; 
Year: 1978; 
Total cropland: 39.4; 
Pastureland and rangeland: 87.3; 
Total land in farms: 135.6.

State: Texas; 
Year: 1992; 
Total cropland: 36.4; 
Pastureland and rangeland: 87.8; 
Total land in farms: 130.9.

State: Texas; 
Year: Change in acres, 1978-1992; 
Total cropland: -3.0; 
Pastureland and rangeland: 0.5; 
Total land in farms: - 4.7.

State: Texas; 
Year: 1997; 
Total cropland: 39.1; 
Pastureland and rangeland: 86.9; 
Total land in farms: 134.0.

State: Texas; 
Year: 2002; 
Total cropland: 38.7; 
Pastureland and rangeland: 83.4; 
Total land in farms: 129.9.

State: Texas; 
Year: Change in acres, 1997-2002; 
Total cropland: -0.4; 
Pastureland and rangeland: -3.5; 
Total land in farms: -4.1.

State: Wyoming; 
Year: 1978; 
Total cropland: 2.7; 
Pastureland and rangeland: 30.1; 
Total land in farms: 33.6.

State: Wyoming; 
Year: 1992; 
Total cropland: 2.8; 
Pastureland and rangeland: 28.9; 
Total land in farms: 32.9.

State: Wyoming; 
Year: Change in acres, 1978-1992; 
Total cropland: 0.1; 
Pastureland and rangeland: - 1.2; 
Total land in farms: -0.8.

State: Wyoming; 
Year: 1997; 
Total cropland: 3.0; 
Pastureland and rangeland: 30.2; 
Total land in farms: 34.3.

State: Wyoming; 
Year: 2002; 
Total cropland: 3.0; 
Pastureland and rangeland: 30.2; 
Total land in farms: 34.4.

State: Wyoming; 
Year: Change in acres, 1997-2002; 
Total cropland: 0.0; 
Pastureland and rangeland: 0.1; 
Total land in farms: 0.1.

Source: GAO's analysis of NASS's Census of Agriculture data.

[End of table]

[End of section]

Appendix IV: Partial Budget Analysis for a Proposed Conversion of 
Native Grassland to Cropland in Central South Dakota, 2003-2007:

To assess the economic incentives to convert native grassland to 
cropland at the farm level, we used a partial budget analysis and a 
"constructed" farm scenario for a 160-acre tract in Hand County, South 
Dakota--a central South Dakota county that was relatively high in 2005 
and 2006 conversions of grassland that had no cropping history. A 
partial budget can be used by a farmer or rancher to evaluate the 
economic effects of making an adjustment to a part of the farm 
operation, such as switching to an alternative farm enterprise or 
buying new machinery. While not including all farm costs and revenues 
of the enterprise, a partial budget[Footnote 35] estimates the net 
change in income that results when shifting from a base plan to an 
alternative scenario.[Footnote 36]

Livestock grazing enterprises, in particular cow-calf operations, have 
historically been typical farm enterprises in South Dakota. In recent 
years, however, some of the land that was used for grazing has been 
converted to crop production. To analyze the role of farm program 
payments in these conversions, we developed a partial budget to compare 
the estimated costs and returns for 2003 through 2007 from 160 acres of 
native grassland--used for grazing as part of a cow-calf operation--to 
the costs and returns that would have resulted if the 160 acres had 
been converted to cropland in 2003 and used to produce corn, soybeans, 
and wheat through 2007. We assumed that the farm operation initially 
consisted of both a cropping enterprise and a cow-calf enterprise. 
Therefore, the farmer already had certain fixed capital equipment for 
both of these enterprises, such as tractors and harvesting equipment. 
In the base plan, the producer had a 160-acre parcel of native 
grassland that was part of a larger cow-calf grazing enterprise.

We analyzed cow-calf and crop budgets (1) prospectively for the current 
2007 crop year and (2) retrospectively for crop years 2003 through 2006 
to specifically evaluate the effects of past farm program payments on 
costs and returns. During these years, crop and calf prices varied and 
central South Dakota experienced a range of weather conditions that 
affected crop and forage production. These changes in price and 
production make these years illustrative for analysis of the effect 
farm program payments can have on farm enterprises.

We found that for certain years, high crop prices as well as farm 
program payments would provide economic incentives for a producer to 
convert native grassland used for grazing in a cow-calf operation to an 
alternative cropping operation. In 3 of the 5 years, the conversion 
from grazing to cropping would have resulted in increased income. In 
the other 2 years, 2004 and 2005, when cattle prices and returns were 
high relative to crop prices and returns and total farm program 
payments were lower, it would have been more profitable not to convert 
and continue the cow-calf operation. Without any farm program payments, 
income would have increased only in 2007, but in view of projections 
that crop prices will remain relatively high, this increase in income 
without farm program payments may continue for several years. However, 
even with high crop prices, farm program payments for crop insurance 
and crop disaster assistance will continue to be an important factor in 
conversion decisions because of the need for protection against adverse 
crop production risks, such as drought.

Base Plan Scenario--Cow-Calf Grazing:

For the base plan or cow-calf section of the analysis, we used 
production and price data from South Dakota State University's cow-calf 
budget tool[Footnote 37] as well as expert opinion from South Dakota 
State University livestock extension economists and USDA Natural 
Resources Conservation Service officials in South Dakota. We assumed 
that Hand County, South Dakota, in a normal year of precipitation, 
would support one cow-calf pair for every 8 acres of native grassland. 
Since South Dakota experienced varied weather conditions--including 
drought--during 2003 through 2007, we adjusted our cow-calf model to 
incorporate changes in the number of pounds of calves and cows sold to 
account for changes in the amount of forage available for grazing on 
the 160 acres. These adjustments were based on NRCS rangeland forage 
production values for favorable, normal, and unfavorable 
years.[Footnote 38] On the basis of South Dakota NRCS officials' expert 
opinion, we assumed that a 20 percent deviation in annual rainfall 
above or below the 30-year average during 1976 through 2006 would be 
either favorable or unfavorable, respectively. Using this definition, 
2003 forage production values were normal, 2004 were favorable, 2005 
were normal, and 2006 were unfavorable. We assumed 2007 forage 
production values were normal based on South Dakota NRCS officials' 
observations as of July 2007.

In estimating cow-calf returns, we used calf prices from South Dakota 
State University's stocker cattle prices (500 to 600 pounds), monthly 
average prices, for November. For cull cow prices, we used the Sioux 
Falls price of slaughter cows for November 2003 through 2006; for 2007, 
we used an average of the first 5 months of the year. For additional 
income due to herd liquidation, we obtained yearly average "Bred 
Female" prices, Central Region, for "young and middle-aged cows" from 
Drovers for 2003 through 2006 and the first 5 months of 2007.[Footnote 
39] For corn feed costs, we calculated an average price for each year, 
2003 through 2006, based on weekly Central South Dakota cash corn 
prices from South Dakota State University's extension service; for 
2007, we calculated an average of these weekly prices from January to 
July. For hay alfalfa prices, we used USDA National Agricultural 
Statistics Service yearly average prices for 2003 through 2006, and for 
2007, an average monthly price based on the first 5 months of this 
year. Regarding "other" costs, we reduced all direct costs in the cow- 
calf spreadsheet before 2005 by 10 percent, with the exception of 
"Veterinary and Drug," which we reduced by 15 percent, and kept all the 
later years the same as in the budget tool spreadsheet.[Footnote 40]

Alternative Scenario--Corn/Soybean/Spring Wheat Cropping Rotation:

For the alternative scenario--the crop portion of the partial budget 
analysis, we assumed a corn/soybean/spring wheat crop rotation on the 
160-acre parcel for a farm in Hand County, South Dakota. We assumed 
this particular crop rotation based on those crops having the highest 
acreages according to NASS statistics and consultations with South 
Dakota State University crop extension experts. We first looked 
retrospectively at the time period from 2003 through 2006 to see the 
effects of prices, yields, and farm payments on costs and returns. We 
then used preliminary data for crop prices and average historical yield 
data to examine potential returns for crop year 2007.[Footnote 41]

For 2003 through 2007, we adjusted all yield data to reflect the fact 
that this newly converted land may represent "marginal" or less 
productive land than the land that was already in crop production. To 
do this, we consulted with NRCS officials in central South Dakota to 
obtain information on the soil types that were most often being 
converted.[Footnote 42] On the basis of this information, we then 
adjusted the county average crop yields for corn, soybeans, and spring 
wheat to estimate a likely yield for a newly converted parcel of native 
grassland for a particular year. On average, these estimated yields 
were about 17 percent lower than the county average yields. We used 
these adjusted yields in our calculation of gross income from corn, 
soybeans, and spring wheat in our partial budget analysis. In addition, 
because documentation on the soil types most often being converted was 
not available and to determine how sensitive our results were to these 
adjusted crop yields, we also estimated gross returns from crop 
production in our partial budget analysis using unadjusted NASS county 
average crop yields for 2003 through 2006. For 2007, we estimated an 
unadjusted 3-year moving county average for corn and soybeans, and for 
spring wheat, we used the South Dakota NASS yield projection as of July 
2007.

We obtained the remaining data on prices and costs for the crop 
analysis from extension specialists and agricultural economists in 
central South Dakota and at South Dakota State University.[Footnote 43] 
For instance, we obtained most of the cost data for the crop budgets 
from an area farm management specialist in the Department of Economics 
at South Dakota State University. For price data, we used yearly 
average central South Dakota cash prices for corn, soybeans, and spring 
wheat for 2003 through 2006 from South Dakota State University's 
extension grain marketing specialist. For 2007 price data, we used the 
most recent statewide average cash price, as of July 13, for South 
Dakota for corn, soybeans, and spring wheat. For 2003 through 2006 loan 
deficiency payments, we used Hand County average yearly loan deficiency 
payments for this period from the USDA Farm Service Agency's South 
Dakota state office.[Footnote 44] For crop insurance payments to 
farmers, we used crop insurance indemnity payments per acre in Hand 
County, South Dakota as estimated by a USDA Risk Management Agency 
official. For crop disaster assistance payments, we used data from FSA 
on crop disaster assistance payments by county to estimate an average 
crop disaster assistance payment per acre for Hand County for 2003, the 
only year when these payments were significant.[Footnote 45] Because 
crop insurance indemnity and crop disaster assistance payments 
generally are related to the same crop losses, we used RMA crop 
insurance indemnity payments data in making this estimate. 
Specifically, we applied the proportion of the amount of crop insurance 
indemnities that were paid to each crop (i.e., corn, soybeans, and 
spring wheat) to the total crop disaster assistance payments in the 
county for 2003 to estimate the crop disaster assistance payment for 
each crop.

In addition to income from crop production, the producer's additional 
returns in the first year of conversion would be from the sale or 
liquidation of the herd that had grazed on the 160-acre parcel. 
Specifically, we assumed the conversion takes place in 2003, and the 
herd liquidation in a normal year would consist of about 20 bred 
females that previously grazed on the land, of which 10 would be sold 
in the bred female market and 10 in the cull cow market since the cow 
herd would be composed of various ages. In order not to 
disproportionately influence any one year's returns from the herd 
liquidation, the proceeds were amortized over a 5-year period, from 
2003 to 2007, at an interest rate of 6 percent, resulting in annual 
revenue of about $3,125. Similarly, as part of the conversion, we also 
assumed conversion costs for the 160-acre parcel of land, consisting of 
about $3,200 for herbicide treatment, would be amortized over this 
period, resulting in an annual cost of about $760. According to NRCS 
officials, rock removal can also add to conversion costs, but these 
costs are highly variable because the amount of rocks on native grass 
and the methods used in removing them varies. Thus, we did not include 
rock removal in our partial budget analysis.

As noted, we assumed the conversion to cropland occurred in 2003. The 
use of another year for the conversion would have some effect on the 
results. For example, if the conversion had occurred in 2004, a year of 
relatively high cattle prices and better forage available for grazing, 
the revenue from the cow liquidation would have been greater. In that 
year, the amortized annual value from the sale of the cow herd would 
have been $4,284, about $1,158 greater than in 2003. Thus, the annual 
net change in income resulting from the conversion to cropland would 
have been about $1,158 higher.

Partial Budget Analysis:

After creating the base plan and alternative scenario and collecting 
the appropriate data for the 5 years, we then used these data in the 
partial budget to analyze the role of farm program payments in 
conversion decisions and determine which option, the cow-calf 
enterprise or the cropping enterprise, would provide higher returns 
over costs. Specifically, as table 10 shows, the alternative scenario-
-conversion to cropland--would result in additional returns from crop 
production, farm program payments, and the sale of the cow herd 
(Section 1), reduced costs from no longer having the present cow-calf 
enterprise (Section 2), additional costs from crop production 
(including conversion costs) (Section 3), and reduced returns from the 
cow-calf enterprise (Section 4). Therefore, in the partial budget 
analysis, the net change in income for the producer would be the total 
benefits of the proposed change (Sections 1 and 2) minus the total 
costs (Sections 3 and 4).

The partial budget results for crop years 2003 through 2006 are shown 
in table 10. For each year, we estimated the net change in income using 
crop yields adjusted for soil productivity. As noted earlier, we also 
estimated these income changes using unadjusted NASS county average 
crop yields. In 2003, the sum of gross revenue from the sale of crops 
produced, farm program payments (crop insurance, crop disaster 
assistance, and loan deficiency payments), and the amortized proceeds 
from the liquidation of the cow herd would have resulted in a positive 
change in net income of $3,761 in favor of the alternative scenario, 
crop production using the adjusted crop yields. Although 2003 cash corn 
prices were at relatively average historical levels, $2.36 per bushel, 
and soybean prices were high, averaging about $7.70 per bushel, yields 
were at very low levels resulting in relatively low crop revenue. 
However, farm program payments would have offset this low crop revenue, 
contributing approximately $12,300 on the 160-acre tract. Without these 
farm program payments, net income from the base plan, the cow-calf 
enterprise, would have been about $8,500 greater than crop production 
in this year. Using the unadjusted county average, crop yields would 
have produced a net change in income of about $6,824 in favor of the 
cropping alternative.

For 2004, we estimate net income of about $3,602 in favor of remaining 
with the base plan, the cow-calf enterprise. Although crop yields were 
relatively high in 2004, corn and soybean prices were much lower than 
the previous year, at $1.64 and $5.49, respectively. Also, the total of 
crop insurance, crop disaster assistance, and loan deficiency payments 
for this year were almost $9,000 lower than in 2003. Although loan 
deficiency payments were higher due to the lower crop prices, crop 
insurance benefits were lower due to the higher crop yields, and crop 
disaster assistance payments would not have been made because, as 
provided in the legislation, the producer could only receive a crop 
disaster assistance payment for 2003 or 2004 and could not receive a 
payment for both years. Moreover, 2004 cow-calf returns were relatively 
high, as calf prices had increased over 2003, going from an average of 
$111 to $122 per hundredweight. In addition, we estimate higher returns 
to the cow-calf enterprise in this year due to more favorable weather 
for forage production and lower prices for feedstuffs. Furthermore, 
direct costs of production for the cow-calf enterprise (about $6,500) 
were about one-third that of the costs of production for the cropping 
enterprise (about $19,500). However, using unadjusted county average 
yields to estimate gross revenue causes the alternative scenario, 
conversion to cropland, to be higher in net income, but only by about 
$1,375.

Similarly, for 2005, we estimate that net income from the alternative 
scenario, crop production, with yields adjusted for soil productivity 
would have been about $4,835 less than the base plan, the cow-calf 
enterprise. The net change in income using the unadjusted county 
average crop yields would have been higher for the alternative scenario 
by about $90. In 2005, crop yields were similar to those in 2004, but 
crop prices were again quite low. At the same time, calf prices were at 
historically high levels--$137 per hundredweight. Feedstuff costs, due 
to the low corn prices, were relatively low, and the costs of 
production for cropping were over three times greater than costs for 
the cow-calf enterprise. Also, in 2005, while some loan deficiency 
payments ($2,175 for the 160-acre parcel) were received, crop insurance 
payments, about $625 for the parcel, were much lower than the previous 
year, and no crop disaster assistance payments had been received as of 
July 2007.

For 2006, we estimate an increase net income of about $2,366 in favor 
of the alternative scenario, crop production. Although crop yields were 
very low due to drought, crop prices increased. Average cash corn 
prices for Central South Dakota jumped from $1.76 per bushel in 2005 to 
$3.37 per bushel in 2006. More importantly, however, due to the low 
yields that year, the producer would have received about $8,995 on the 
160-acre parcel from crop insurance payments.[Footnote 46] At the same 
time, cow-calf returns decreased because of decreases in calf and cow 
prices and unfavorable conditions for forage production because of the 
drought. This reduced forage production would result in lower calf 
weights and higher feed costs for the cow-calf enterprise. Using the 
unadjusted NASS county average crop yields would have increased the net 
income change to about $6,069.

Table 10: Partial Budget Analysis for a Proposed 2003 Change from a Cow-
Calf Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central 
South Dakota, 2003-2006:

Partial budget, 2003: Section 1:

Additional returns from proposed change: Corn; 
Amount of change, Adjusted crop yields: $4,666.73; 
Amount of change, County average crop yields: $5,610.14.

Additional returns from proposed change: Soybeans; 
Amount of change, Adjusted crop yields: 4,063.06; 
Amount of change, County average crop yields: 4,883.88.

Additional returns from proposed change: Spring wheat; 
Amount of change, Adjusted crop yields: 6,120.97; 
Amount of change, County average crop yields: 7,349.00.

Additional returns from proposed change: Loan deficiency payment; 
Amount of change, Adjusted crop yields: 351.14; 
Amount of change, County average crop yields: 421.71.

Additional returns from proposed change: Crop insurance payment; 
Amount of change, Adjusted crop yields: 7,895.33; 
Amount of change, County average crop yields: 7,895.33.

Additional returns from proposed change: Disaster assistance payment; 
Amount of change, Adjusted crop yields: 4,014.02; 
Amount of change, County average crop yields: 4,014.02;

Additional returns from proposed change: Liquidation of cow herd 
(amortized); 
Amount of change, Adjusted crop yields: 3,125.23; 
Amount of change, County average crop yields: 3,125.23;

Subtotal additional returns:
Amount of change, Adjusted crop yields: $30,236.49; 
Amount of change, County average crop yields: $33,299.32.

Partial budget, 2003: Section 2:

Reduced costs from proposed change: Reduced costs from cow-calf 
operation; 
Amount of change, Adjusted crop yields: $5,473.62; 
Amount of change, County average crop yields: $5,473.62.

Subtotal reduced costs: 
Amount of change, Adjusted crop yields: $5,473.62; 
Amount of change, County average crop yields: $5,473.62.

Partial budget, 2003: Section 3:

Additional costs of proposed change: Corn; 
Amount of change: Adjusted crop yields: $7,330.88; 
Amount of change: County average crop yields: $7,330.88.

Additional costs of proposed change: Soybeans; 
Amount of change: Adjusted crop yields: 4,770.35; 
Amount of change: County average crop yields: 4,770.35.

Additional costs of proposed change: Spring wheat; 
Amount of change: Adjusted crop yields: 5,039.52; 
Amount of change: County average crop yields: 5,039.52.

Additional costs of proposed change: Herbicide treatment for conversion 
(amortized); 
Amount of change: Adjusted crop yields: 759.67; 
Amount of change: County average crop yields: 759.67.

Subtotal additional costs: 
Amount of change: Adjusted crop yields: $17,900.42; 
Amount of change: County average crop yields: $17,900.42.

Partial budget, 2003: Section 4: 

Reduced returns from proposed change: Sale of calves and cull cows in a 
year with normal forage production; 
Amount of change: Adjusted crop yields: $14,048.49; 
Amount of change: County average crop yields: $14,048.49.

Subtotal reduced returns: 
Amount of change: Adjusted crop yields: $14,048.49; 
Amount of change: County average crop yields: $14,048.49.

Net change in income, 2003: 
Amount of change: Adjusted crop yields: $3,761.20; 
Amount of change: County average crop yields: $6,824.03.

Partial budget, 2004, Section 1: 

Additional returns from proposed change: Corn; 
Amount of change, Adjusted crop yields: $7,377.57; 
Amount of change, County average crop yields: $8,863.58.

Additional returns from proposed change: Soybeans; 
Amount of change, Adjusted crop yields: 7,373,95; 
Amount of change, County average crop yields: 8,866,30.

Additional returns from proposed change: Spring wheat; 
Amount of change, Adjusted crop yields: 8,029.96; 
Amount of change, County average crop yields: 9,662.22.

Additional returns from proposed change: Loan deficiency payment; 
Amount of change, Adjusted crop yields: 1,817.32; 
Amount of change, County average crop yields: 2,184.39.

Additional returns from proposed change: Crop insurance payment; 
Amount of change, Adjusted crop yields: 1,211,51; 
Amount of change, County average crop yields: 1,211,51.

Additional returns from proposed change: Disaster assistance payment; 
Amount of change, Adjusted crop yields: 
Amount of change, County average crop yields: 

Additional returns from proposed change: Liquidation of cow herd 
(amortized); 
Amount of change, Adjusted crop yields: 3,125.23; 
Amount of change, County average crop yields: 3,125.23;

Subtotal additional returns:
Amount of change, Adjusted crop yields: $28,935.54; 
Amount of change, County average crop yields: $33,913.23.

Partial budget, 2004: Section 2:

Reduced costs from proposed change: Reduced costs from cow-calf 
operation; 
Amount of change, Adjusted crop yields: $6,570.14; 
Amount of change, County average crop yields: $6,570.14.

Subtotal reduced costs: 
Amount of change, Adjusted crop yields: $6,570.14; 
Amount of change, County average crop yields: $6,570.14.

Partial budget, 2004: Section 3:

Additional costs of proposed change: Corn; 
Amount of change: Adjusted crop yields: $8,568.51; 
Amount of change: County average crop yields: $8,568.51.

Additional costs of proposed change: Soybeans; 
Amount of change: Adjusted crop yields: 4,796.47; 
Amount of change: County average crop yields: 4,796.47.

Additional costs of proposed change: Spring wheat; 
Amount of change: Adjusted crop yields: 6,163.61; 
Amount of change: County average crop yields: 6,163.61.

Additional costs of proposed change: Herbicide treatment for conversion 
(amortized); 
Amount of change: Adjusted crop yields: 759.67; 
Amount of change: County average crop yields: 759.67.

Subtotal additional costs: 
Amount of change: Adjusted crop yields: $20,288.26; 
Amount of change: County average crop yields: $20,288.26.

Partial budget, 2004: Section 4: 

Reduced returns from proposed change: Sale of calves and cull cows in a 
year with normal forage production; 
Amount of change: Adjusted crop yields: $18,820.18; 
Amount of change: County average crop yields: $18,820.18.

Subtotal reduced returns: 
Amount of change: Adjusted crop yields: $18,820.18; 
Amount of change: County average crop yields: $18,820.18.

Net change in income, 2004: 
Amount of change: Adjusted crop yields: ($3,602.75); 
Amount of change: County average crop yields: $1,374.94.

Partial budget, 2005, Section 1: 

Additional returns from proposed change: Corn; 
Amount of change, Adjusted crop yields: $7,617.21; 
Amount of change, County average crop yields: $9,155.66.

Additional returns from proposed change: Soybeans; 
Amount of change, Adjusted crop yields: 7,416.70; 
Amount of change, County average crop yields: 8,927.00.

Additional returns from proposed change: Spring wheat; 
Amount of change, Adjusted crop yields: 7,079.57; 
Amount of change, County average crop yields: 8,516,01.

Additional returns from proposed change: Loan deficiency payment; 
Amount of change, Adjusted crop yields: 2,174.75; 
Amount of change, County average crop yields: 2,164.15.

Additional returns from proposed change: Crop insurance payment; 
Amount of change, Adjusted crop yields: 625.21; 
Amount of change, County average crop yields: 625.21.

Additional returns from proposed change: Disaster assistance payment; 
Amount of change, Adjusted crop yields: 
Amount of change, County average crop yields: 

Additional returns from proposed change: Liquidation of cow herd 
(amortized); 
Amount of change, Adjusted crop yields: 3,125.23; 
Amount of change, County average crop yields: 3,125.23;

Subtotal additional returns:
Amount of change, Adjusted crop yields: $28,038.66; 
Amount of change, County average crop yields: $32,963.26.

Partial budget, 2005: Section 2:

Reduced costs from proposed change: Reduced costs from cow-calf 
operation; 
Amount of change, Adjusted crop yields: $5,737,80; 
Amount of change, County average crop yields: $5,737,80.

Subtotal reduced costs: 
Amount of change, Adjusted crop yields: $5,737,80; 
Amount of change, County average crop yields: $5,737,80.

Partial budget, 2005: Section 3:

Additional costs of proposed change: Corn; 
Amount of change: Adjusted crop yields: $9,187.85; 
Amount of change: County average crop yields: $9,187.85.

Additional costs of proposed change: Soybeans; 
Amount of change: Adjusted crop yields: 5,344.39; 
Amount of change: County average crop yields: 5,344.39.

Additional costs of proposed change: Spring wheat; 
Amount of change: Adjusted crop yields: 6,459.43; 
Amount of change: County average crop yields: 6,459.43.

Additional costs of proposed change: Herbicide treatment for conversion 
(amortized); 
Amount of change: Adjusted crop yields: 759.67; 
Amount of change: County average crop yields: 759.67.

Subtotal additional costs: 
Amount of change: Adjusted crop yields: $21,751.34; 
Amount of change: County average crop yields: $21,751.34.

Partial budget, 2005: Section 4: 

Reduced returns from proposed change: Sale of calves and cull cows in a 
year with normal forage production; 
Amount of change: Adjusted crop yields: $16,859.78; 
Amount of change: County average crop yields: $16,859.78.

Subtotal reduced returns: 
Amount of change: Adjusted crop yields: $16,859.78; 
Amount of change: County average crop yields: $16,859.78.

Net change in income, 2005: 
Amount of change: Adjusted crop yields: ($4,834.66); 
Amount of change: County average crop yields: $89.94.

Partial budget, 2006, Section 1: 

Additional returns from proposed change: Corn; 
Amount of change, Adjusted crop yields: $7,454.27; 
Amount of change, County average crop yields: $8,963.09.

Additional returns from proposed change: Soybeans; 
Amount of change, Adjusted crop yields: 5,632,64; 
Amount of change, County average crop yields: 6,752.58.

Additional returns from proposed change: Spring wheat; 
Amount of change, Adjusted crop yields: 5,197.82; 
Amount of change, County average crop yields: 6,252.09.

Additional returns from proposed change: Loan deficiency payment; 
Amount of change, Adjusted crop yields: 100.26; 
Amount of change, County average crop yields: 120.19.

Additional returns from proposed change: Crop insurance payment; 
Amount of change, Adjusted crop yields: 8,995.44; 
Amount of change, County average crop yields: 8,995.44.

Additional returns from proposed change: Disaster assistance payment; 
Amount of change, Adjusted crop yields: 
Amount of change, County average crop yields: 

Additional returns from proposed change: Liquidation of cow herd 
(amortized); 
Amount of change, Adjusted crop yields: 3,125.23; 
Amount of change, County average crop yields: 3,125.23;

Subtotal additional returns:
Amount of change, Adjusted crop yields: $30,505.65; 
Amount of change, County average crop yields: $34,208.62.

Partial budget, 2006: Section 2:

Reduced costs from proposed change: Reduced costs from cow-calf 
operation; 
Amount of change, Adjusted crop yields: $4,609.36; 
Amount of change, County average crop yields: $4,609.36.

Subtotal reduced costs: 
Amount of change, Adjusted crop yields: $4,609.36; 
Amount of change, County average crop yields: $4,609.36.

Partial budget, 2006: Section 3:

Additional costs of proposed change: Corn; 
Amount of change: Adjusted crop yields: $9,707.00; 
Amount of change: County average crop yields: $9,707.00.

Additional costs of proposed change: Soybeans; 
Amount of change: Adjusted crop yields: 5,617.82; 
Amount of change: County average crop yields: 5,617.82.

Additional costs of proposed change: Spring wheat; 
Amount of change: Adjusted crop yields: 7,043.06; 
Amount of change: County average crop yields: 7,043.06.

Additional costs of proposed change: Herbicide treatment for conversion 
(amortized); 
Amount of change: Adjusted crop yields: 759.67; 
Amount of change: County average crop yields: 759.67.

Subtotal additional costs: 
Amount of change: Adjusted crop yields: $23,127.55; 
Amount of change: County average crop yields: $23,127.55.

Partial budget, 2006: Section 4: 

Reduced returns from proposed change: Sale of calves and cull cows in a 
year with normal forage production; 
Amount of change: Adjusted crop yields: $9,621.12; 
Amount of change: County average crop yields: $9,621.12.

Subtotal reduced returns: 
Amount of change: Adjusted crop yields: $9,621.12; 
Amount of change: County average crop yields: $9,621.12.

Net change in income, 2006: 
Amount of change: Adjusted crop yields: $2,366.35; 
Amount of change: County average crop yields: $6,069.31.

Source: GAO's analysis based on data provided by and consultations with 
South Dakota State University, FSA, NASS, NRCS, and RMA. Partial budget 
template used by permission of the Agricultural Economics Department, 
University of Missouri.

Notes: (1) We calculated returns and costs assuming conversion of 
native grassland to cropland on a "constructed" farm in Hand County, 
South Dakota that produced a rotation of corn, soybeans, and spring 
wheat. (2) For the crop enterprise, we used regional average crop 
prices; NASS county average crop yields, both adjusted and unadjusted 
for soil productivity; central South Dakota region crop production cost 
data; and county average crop insurance, and crop disaster assistance, 
and loan deficiency payments. We used assumptions and data provided by 
agricultural economists, agronomists, and soil scientists from South 
Dakota State University and NASS to estimate yields and conversion 
costs. Farm program payments data were provided by FSA and RMA 
officials. (3) Data and assumptions for the cow-calf enterprise are 
from South Dakota State University extension service in the central and 
eastern regions and NRCS officials in South Dakota. We did not include 
in our analysis the benefits from any livestock disaster assistance 
payments, although we realize there were such payments in 2004. For 
feed prices, we used average weekly cash corn prices for the Central 
region of South Dakota, from the South Dakota State University 
extension service and yearly NASS prices for alfalfa hay. (4) The 
dashes indicate that we did not include a crop disaster assistance 
payment for 2004, 2005, or 2006.

[End of table]

We also estimated the income effects of converting native grassland to 
crop production prospectively for the current 2007 crop year. As table 
11 shows for 2007, we estimate that the net change in income for the 
alternative scenario, crop production, would be about $2,099. Also, in 
this high price year for crops, the value of production from the 
cropping enterprise would be about $15,000 more than from the cow-calf 
enterprise. An important factor for the cow-calf enterprise during this 
year would be the adjustment to much higher feed prices, which along 
with lower calf prices, would lead to lower cow-calf returns in 2007. 
On the crop side, because 2007 crop prices are forecast to stay above 
the marketing loan rates, we assumed no loan deficiency payments would 
be received for this year. In addition, we did not include any crop 
insurance or disaster assistance payments for 2007, although such 
payments may be made in the future. Despite the absence of farm program 
payments, the partial budget demonstrates that in this high crop price 
year crop production would have been more profitable than using the 
land for grazing cattle. Using the unadjusted 2007 projected county 
average yields would increase the net income resulting from the 
conversion to cropland to about $8,290.

Table 11: Partial Budget Analysis for a Proposed 2003 Change from a Cow-
Calf Enterprise to a Corn/Soybean/Wheat Cropping Enterprise in Central 
South Dakota, 2007:

Partial budget, 2007, Section 1: 

Additional returns from proposed change: Corn; 
Amount of change, Adjusted crop yields: $12,951.13; 
Amount of change, County average crop yields: $15,566.50.

Additional returns from proposed change: Soybeans; 
Amount of change, Adjusted crop yields: 8,335.76; 
Amount of change, County average crop yields: 10,018.18.

Additional returns from proposed change: Spring wheat; 
Amount of change, Adjusted crop yields: 9,382.80; 
Amount of change, County average crop yields: 11,276.15.

Additional returns from proposed change: Loan deficiency payment; 
Amount of change, Adjusted crop yields: 
Amount of change, County average crop yields: 

Additional returns from proposed change: Crop insurance payment; 
Amount of change, Adjusted crop yields: 
Amount of change, County average crop yields:

Additional returns from proposed change: Disaster assistance payment; 
Amount of change, Adjusted crop yields: 
Amount of change, County average crop yields: 

Additional returns from proposed change: Liquidation of cow herd 
(amortized); 
Amount of change, Adjusted crop yields: 3,125.23; 
Amount of change, County average crop yields: 3,125.23;

Subtotal additional returns:
Amount of change, Adjusted crop yields: $33,794.92; 
Amount of change, County average crop yields: $39,986.06.

Partial budget, 2007: Section 2:

Reduced costs from proposed change: Reduced costs from cow-calf 
operation; 
Amount of change, Adjusted crop yields: $7,187.80; 
Amount of change, County average crop yields: $7,187.80.

Subtotal reduced costs: 
Amount of change, Adjusted crop yields: $7,187.80; 
Amount of change, County average crop yields: $7,187.80.

Partial budget, 2007: Section 3:

Additional costs of proposed change: Corn; 
Amount of change: Adjusted crop yields: $9,726.18; 
Amount of change: County average crop yields: $9,726.18.

Additional costs of proposed change: Soybeans; 
Amount of change: Adjusted crop yields: 5,573.05; 
Amount of change: County average crop yields: 5,573.05.

Additional costs of proposed change: Spring wheat; 
Amount of change: Adjusted crop yields: 7,324.49; 
Amount of change: County average crop yields: 7,324.49.

Additional costs of proposed change: Herbicide treatment for conversion 
(amortized); 
Amount of change: Adjusted crop yields: 759.67; 
Amount of change: County average crop yields: 759.67.

Subtotal additional costs: 
Amount of change: Adjusted crop yields: $23,383.39; 
Amount of change: County average crop yields: $23,383.39.

Partial budget, 2007: Section 4: 

Reduced returns from proposed change: Sale of calves and cull cows in a 
year with normal forage production; 
Amount of change: Adjusted crop yields: $15,499.86; 
Amount of change: County average crop yields: $15,499.86.

Subtotal reduced returns: 
Amount of change: Adjusted crop yields: $15,499.86; 
Amount of change: County average crop yields: $15,499.86.

Net change in income, 2006: 
Amount of change: Adjusted crop yields: $2,099.47; 
Amount of change: County average crop yields: $8,290.61.

Source: GAO's analysis based on data provided by and consultations with 
South Dakota State University extension service, NASS, and NRCS. 
Partial budget template used by permission of the Agricultural 
Economics Department, University of Missouri.

Notes: (1) We calculated returns and costs assuming conversion of 
native grassland to cropland on a "constructed" farm in Hand County, 
South Dakota, that produced a rotation of corn, soybeans, and spring 
wheat. (2) For the crop enterprise, we used regional average crop 
prices for January to July 2007; a 3-year moving average of NASS county 
average crop yields, adjusted and unadjusted for soil productivity for 
corn and soybeans and a projected 2007 South Dakota yield for spring 
wheat, adjusted and unadjusted for soil productivity; and central South 
Dakota regional crop production cost data. We used assumptions and data 
provided by NRCS officials to estimate conversion costs. (3) Data and 
assumptions for the cow-calf enterprise are from South Dakota State 
University extension service in the central and eastern regions and 
NRCS officials in South Dakota. For 2007, we used 2007 average weekly 
cash corn prices for the central region of South Dakota from January to 
July from the South Dakota State University extension service and 
January to June average monthly NASS prices for alfalfa hay. (4) The 
dashes indicate that no loan deficiency payments would be received for 
2007 and that we did not include any crop insurance or disaster 
assistance payments for this year, although such payments may be made 
in the future.

[End of table]

In summary, if South Dakota corn, soybean, and wheat prices stay at 
relatively high levels, as forecast by USDA national price projections, 
incentives for conversion should continue in the near future.[Footnote 
47] In addition, as the retrospective analysis suggests, farm program 
payments, especially crop insurance and crop disaster assistance 
payments, lower the risk of negative returns in years with low crop 
yields.

[End of section]

Appendix V: Summaries of Economic Studies Examining the Impact of Farm 
Program Payments:

We identified and reviewed 15 studies that analyze the potential 
economic impacts of federal farm program payments on either producers' 
land use decisions or farm profitability and risk. The impact of farm 
program payments on farm profitability and risk is closely related to 
land use decisions. Table 12 summarizes the 15 studies, including the 
purpose and results associated with each.

Table 12: Economic Studies That Analyze the Impact of Federal Farm 
Program Payments on Either Producers' Land Use Decisions or Farm 
Profitability and Risk:

Economic study: Janssen, Larry, Burton Pflueger, and Terry Ahrendt. 
South Dakota Agricultural Land Market Trends, 1991-2007. South Dakota 
State University Agricultural Experiment Station, USDA; Purpose of the 
study: To report on current agricultural land values and cash rental 
rates by land use in different regions in South Dakota; 
Year: 2007; 
Related findings and conclusions: Land values in South Dakota have 
doubled since 2002 and tripled since 1996. During this time, farm 
commodity payments increased from $230 million to more than $700 
million a year. In addition to commodity payments, interest rates, 
technology, and ethanol demand have also been factors in increasing 
land values. However, farmland values have become more dependent on 
farm program payments.

Economic study: Shaik, Saleem, Joseph Atwood, and Glenn Helmbers. "Farm 
Programs and Agricultural Land Values: The Case of Southern 
Agriculture." Paper presented to the Southern Agricultural Economics 
Association Annual Meetings, Orlando, Florida, February 2006; Purpose 
of the study: To examine the contribution of expected farm returns and 
farm program payments in 12 southern states; 
Year: 2006; 
Related findings and conclusions: The proportion of land values 
attributable to farm program payments has increased from about 14 
percent in the early 1980's to 67 percent in the southern United States 
from 2002 to 2004.

Economic study: U.S. Department of Agriculture. Economic Research 
Service. Environmental Effects of Agricultural Land-Use Change: The 
Role of Economics and Policy. Economic Research Report Number 25, 
Washington, D.C., August 2006; Purpose of the study: To examine the 
relationship between agricultural land use changes, soil productivity, 
and environmental sensitivity and the effects of increased crop 
insurance subsidies on land use; 
Year: 2006; 
Related findings and conclusions: Land moving between cultivated 
cropland and less intensive agricultural uses is less productive and 
more vulnerable to erosion and nutrient runoff than other cultivated 
land. Producers tend to keep highly productive land in cultivation 
regardless of changing economic conditions. But economic conditions, 
such as changing commodity prices or production costs, encourage 
farmers to expand production to less productive land or to shift less 
productive croplands to other uses. Agricultural and conservation 
policies also affect land use. These land use changes affect 
environmental quality, particularly when affected lower-quality lands 
are environmentally sensitive. Crop insurance raises incentives to 
expand crops to less productive land. Increased crop insurance 
subsidies in the mid-1990s motivated producers to expand cropland in 
the contiguous 48 states by an estimated 2.5 million acres, with most 
of the land coming from pastureland and other grassland. Due to this 
land-use change, annual wind and water erosion estimates increased by 
1.4 and 0.9 percent, respectively, as of 1997.

Economic study: U.S. Department of Agriculture. Economic Research 
Service. Agricultural Resources and Environmental Indicators, 2006 
Edition. Economic Information Bulletin 16, Washington, D.C., July 2006; 
Purpose of the study: To describe patterns and trends in land, water, 
and biological resources; report on the condition of natural and other 
resources used in the agricultural sector; and describe public policies 
and programs as well as economic factors that affect resource use, 
conservation, and environmental quality in agriculture; 
Year: 2006; 
Related findings and conclusions: Previous research has shown that 
capitalization of expected farm program payments increases cropland 
values. The effect of farm program payments on cropland values varies 
widely throughout the United States, but increases are highest in the 
Northern Plains.

Economic study: Janssen, Larry, and Yonas Hamda. Federal Farm Program 
Payments (1990 - 2001): An Analysis of Changing Dependency and the 
Distribution of Farm Payments in South Dakota. Selected paper 136474 
presented to the American Agricultural Economics Association Annual 
Meetings, Providence, Rhode Island, July 2005; Purpose of the study: To 
examine the economic impact of federal farm program payments in South 
Dakota at the state and local levels from 1996 to 2001; 
Year: 2005; 
Related findings and conclusions: Statewide, federal farm program 
payments averaged 36 percent of net farm income from 1990 to 1995 and 
almost 54 percent from 1996 to 2001. The lowest dependency rate of net 
farm income on payments was in the most cropland-intensive East 
Central/Southeast region, while the highest dependency rate was in the 
Western region, which was the only region with payments exceeding net 
farm income in most years examined. The dependency rate of farm income 
on payments increased considerably in all regions from the 1990-1995 
time period to the 1996-2001 period.

Economic study: Babcock, Bruce, and Chad Hart. "Risk-Free Farming?" 
Iowa Ag Review, vol. 10. no. 1 (Winter 2004), 1-3,11; Purpose of the 
study: To examine how farm programs and crop insurance affect revenue; 
Year: 2004; 
Related findings and conclusions: The reduction in risk that crop 
farmers obtain from crop insurance and commodity programs has largely 
resulted in risk-free crop production. In addition, the article states 
that farm programs create incentives for farmers and landlords to focus 
on growing the commodities that are supported by these programs.

Economic study: Goodwin, Barry, Ashok Mishra, and Francois Ortolo- 
Magne. "Landowners' Riches: The Distribution of Agricultural 
Subsidies." (Madison, Wisconsin: University of Wisconsin, February 
2004). [hyperlink, 
http://www.busc.wisc.edu/Realestate/pdf/Landownersriches.pdf] 
(downloaded June 21, 2007); Purpose of the study: To examine the 
distribution of farm program payments and how landowners may benefit 
from these payments; 
Year: 2004; 
Related findings and conclusions: Farm program subsidies have a 
significant impact on farm land values. Among the types of payments 
studied, loan deficiency payments appear to have the largest effect. 
Long-term payments not directly related to production had relatively 
little impact.

Economic study: Gray, Allan, Michael Boehlje, Brent Gloy, and Stephen 
Slinksy. "How U.S. Farm Programs and Crop Revenue Insurance Affect 
Returns to Farm Land," Review of Agricultural Economics, vol. 26, no. 2 
(2004), pp. 238-253; Purpose of the study: To examine the economic 
impact of federal farm program and crop insurance payments on a typical 
Northwest Indiana corn/soybean farm; 
Year: 2004; 
Related findings and conclusions: Federal farm program payments 
influence land use decisions because they increase the expected returns 
to farming while lowering the associated risk. Also, crop revenue 
insurance enhanced the impact of other farm programs by substantially 
increasing the attractiveness of farming for the most risk-averse 
producers.

Economic study: Smith, Katherine. "The Growing Prevalence of Emergency, 
Disaster, and Other Ad Hoc Farm Program Payments: Implications for Agri-
Environmental and Conservation Programs," Agricultural and Resource 
Economics Review, vol. 30, no.1 (2004): 1-7; Purpose of the study: To 
examine various federal disaster assistance programs to determine 
potential reasons for the rise in ad hoc disaster payments and their 
impact on agri-environmental and conservation programs; 
Year: 2004; 
Related findings and conclusions: The use of emergency, disaster, and 
other ad hoc sources of income support to American farmers escalated 
dramatically between 1991 and 2002, increasing year- to-year 
uncertainty about the magnitude and distribution of farm program 
benefits. Ad hoc payments have the potential to substitute for or 
conflict with agri-environmental and conservation program goals. Crop 
disaster payments mitigate risk for risk-averse producers, thus 
increasing risky production, which, in turn, could lead to more natural 
and market-based losses. This could increase the need for additional 
crop insurance and disaster payments.

Economic study: Goodwin, Barry, and Vincent Smith, "An Ex Post 
Evaluation of the Conservation Reserve, Federal Crop Insurance, and 
Other Government Programs: Program Participation and Soil Erosion," 
Journal of Agricultural and Resource Economics, vol. 28, no. 2 (2003): 
201-216; Purpose of the study: To examine the impact of federal farm 
programs on soil erosion; 
Year: 2003; 
Related findings and conclusions: The Conservation Reserve Program 
significantly reduced soil erosion in areas where producers have 
participated. While federal crop insurance and disaster relief programs 
appear to have had little impact on soil erosion, income supports that 
have encouraged production have had substantial effects. In particular, 
about half of the reduction in soil erosion attributable to CRP 
enrollment was offset by increased erosion induced by increases in 
income-supporting federal programs.

Economic study: Federal Reserve Bank of St. Louis. Political Allocation 
of U.S. Agriculture Disaster Payments in the 1990s. Working paper 2003- 
005C (St. Louis, Missouri, 2003); Purpose of the study: To examine the 
impact of political influence on the allocation of crop disaster 
payments, in addition to the effectiveness of legislation aimed at 
promoting more efficient disaster payments systems, such as crop 
insurance, over direct payments; 
Year: 2003; 
Related findings and conclusions: The report cites earlier studies 
finding that crop disaster payments create an incentive for producers 
to continue farming in high-risk areas, therefore continuing the 
likelihood of losses and the need for assistance. Also, because 
individual production histories are not always available, county 
averages are often used to determine disaster payments, and producers 
farming less than the county average receive payments exceeding their 
actual losses. Finally, disaster payments do not have predictable 
annual costs.

Economic study: Young, C. Edwin, Monte Vandeveer, and Randal Schnepf. 
"Production and Price Impacts of U.S. Crop Insurance Programs," 
American Journal of Agricultural Economics, vol. 83, no. 5 (2001), 1196-
1203; Purpose of the study: To examine the impact of federal crop 
insurance on farmers' crop decision making; 
Year: 2001; 
Related findings and conclusions: The presence of subsidized crop 
insurance adds an estimated 960,000 acres to the annual planting of 
grain, soybean, cotton, and five other row crops for the years 2001-
2010, with more than half of these plantings occurring in the Great 
Plains. To the extent that subsidized crop insurance leads to expanded 
acreage and higher production, market returns to producers will be 
reduced for the major crops. This reduction partially offsets the 
subsidy benefits of the insurance.

Economic study: Claassen, Roger, and Abebayehu Tegene, "Agricultural 
Land Use Choice: A Discrete Choice Approach," Agricultural and Resource 
Economics Review (1999), 26-36; Purpose of the study: To examine the 
impact of certain economic and land quality factors on land use choices 
between crop production and pasture or CRP in the Corn Belt between 
1980 and 1987; 
Year: 1999; 
Related findings and conclusions: Conversion probabilities depend on 
the relative returns from crop production and pasture, government 
policy (CRP), and land quality. In general it is found that landowners 
are less inclined to remove land from crop production than to convert 
land to crop production. Corn Belt landowners appear to be generally 
less inclined to remove land from crop production than to convert land 
to crop production for land that was not eligible for the CRP. This is 
true even for low-quality land that was not eligible for the CRP. The 
asymmetry found here is consistent with a long-term trend toward 
increasing cropland acreage in the Corn Belt. CRP eligibility 
significantly increased the probability of converting land away from 
crop production.

Economic study: Atwood, Joseph, Myles Watts, and Alan Baquet. "An 
Examination of the Effects of Price Supports and Federal Crop Insurance 
upon the Economic Growth, Capital Structure, and Financial Survival of 
Wheat Growers in the Northern High Plains," American Journal of 
Agricultural Economics, vol. 78, no. 1 (February 1996), 212-214; 
Purpose of the study: To examine the economic impact of federal farm 
program and crop insurance payments on wheat producers in High Plains 
states, such as Montana; 
Year: 1996; 
Related findings and conclusions: Price support programs and crop 
insurance are substitutes in reducing producer risk because the 
availability of crop insurance led to little change in farm viability 
if price supports were available. Moreover, the availability of crop 
insurance in a setting with price supports allows producers to service 
higher levels of debt with no increase in risk.

Economic study: Heimlich, Ralph. "Agricultural Programs and Cropland 
Conversion, 1975-1981," Land Economics, vol. 62, no. 2 (May 1986), 174- 
181; Purpose of the study: To examine the implications of legislation 
to reduce the conversion of rangeland and other land to cropland; 
Year: 1986; 
Related findings and conclusions: For some newly converted highly 
erodible cropland, price support and farm credit program subsidies 
would make the difference between crop production revenues and variable 
costs positive. Farm programs would provide a subsidy for conversion of 
highly erodible land to cropland, averaging about $17 per acre.

Source: GAO's analysis of the studies cited.

[End of table]

[End of section]

Appendix VI: GAO Contact and Staff Acknowledgments:

GAO Contact:

Lisa Shames, (202) 512-3841 or shamesl@gao.gov:

Staff Acknowledgments:

In addition to the contact named above, James R. Jones, Jr. (Assistant 
Director), Kevin S. Bray, Gary T. Brown, Barbara J. El Osta, Chad M. 
Gorman, Grant M. Mallie, Lynn M. Musser, Alison D. O'Neill, Susan E. 
Offutt, and Steve C. Rossman made key contributions to this report. 
Also contributing to this report were Muriel C. Brown and Kim M. Raheb.

[End of section]

Related GAO Products:

Agricultural Conservation: USDA Should Improve Its Management of Key 
Conservation Programs to Ensure Payments Promote Environmental Goals. 
GAO-07-370T. Washington, D.C.: January 17, 2007.

Suggested Areas for Oversight for the 110th Congress. GAO-07-235R. 
Washington, D.C.: November 17, 2006.

USDA Conservation Programs: Stakeholder Views on Participation and 
Coordination to Benefit Threatened and Endangered Species and Their 
Habitats. GAO-07-35. Washington, D.C.: November 15, 2006.

Agricultural Conservation: USDA Should Improve Its Process for 
Allocating Funds to States for the Environmental Quality Incentives 
Program. GAO-06-969. September 22, 2006.

Conservation Security Program: Despite Cost Controls, Improved USDA 
Management Is Needed to Ensure Proper Payments and Reduce Duplication 
with Other Programs. GAO-06-312. Washington, D.C.: April 28, 2006.

Agricultural Conservation: USDA Should Improve Its Methods for 
Estimating Technical Assistance Costs. GAO-05-58. Washington, D.C.: 
November 30, 2004.

Agricultural Conservation: USDA Needs to Better Ensure Protection of 
Highly Erodible Cropland and Wetlands. GAO-03-418. Washington, D.C.: 
April 21, 2003.

Agricultural Conservation: State Advisory Committees' Views on How USDA 
Programs Could Better Address Environmental Concerns. GAO-02-295. 
Washington, D.C.: February 22, 2002.

Environmental Protection: Federal Incentives Could Help Promote Land 
Use That Protects Air and Water Quality. GAO-02-12. Washington, D.C.: 
October 31, 2001.

[End of section]

FOOTNOTES

[1] According to U.S. Department of Agriculture's (USDA) National 
Resources Inventory, cropland includes areas used for the production of 
adapted crops for harvest; rangeland is composed principally of native 
grasses or other native vegetation suitable for grazing; and 
pastureland is land that is managed for introduced forage plants for 
grazing. The USDA definitions of cropland, rangeland, and pastureland 
are discussed in appendix II. For the purposes of this report, native 
grassland generally refers to rangeland unless otherwise specified. 

[2] GAO, Suggested Areas for Oversight for the 110th Congress, GAO-07-
235R (Washington, D.C.: Nov. 17, 2006).

[3] The marketing assistance loan program provides benefits to 
producers of major crops when market prices are low. We did not analyze 
the cost of marketing assistance loan payments. According to spending 
forecasts, marketing assistance loan payments are predicted to be zero 
for corn, soybeans, and wheat through 2011 because prices of these 
crops are expected to be above the levels that trigger payments.

[4] Producers who grow a crop that is currently ineligible for crop 
insurance may be eligible for a direct payment under USDA's Farm 
Service Agency's Noninsured Assistance Program. 

[5] Producers receive indemnity payments if they realize a qualifying 
crop loss under the crop insurance program.

[6] Pub. L. No. 110-28, tit. IX, § 9001, 121 Stat. 112 (2007).

[7] Pub. L. No. 99-198, 99 Stat. 1354 (1985) (codified as amended in 
scattered sections of titles 7 and 16 of U.S.C.)

[8] The cropland must have been converted for use in producing annually 
tilled agricultural commodity crops in order to come under the 
protections provided by Sodbuster. 

[9] A conservation system is a combination of one or more conservation 
practices that are approved by NRCS. These practices include structural 
measures, such as terraces, or management techniques, such as 
conservation tillage, used to enhance, protect, or manage natural 
resources, including soil. 

[10] All NRI numbers in this report are statistical estimates.

[11] FSA state officials in these states instructed county offices on 
the procedures to use in collecting data on conversions of grassland 
that had no cropping history to cropland, and they believe county 
offices used consistent procedures. However, they have not confirmed 
that the county offices used these procedures. As a result, some 
counties may have overreported or underreported the number of acres 
converted. In addition, it is possible that some of the converted land 
identified as previously uncropped grassland had been converted to 
cropland before FSA began keeping crop history records, was later 
returned to grassland, and then was again converted to cropland. 

[12] Scott Stephens, Johanna Walker, Darin Blunck, Aneetha Jayaraman, 
and Dave Naugle, Grassland Conversion in the Missouri Coteau of North 
and South Dakota 1984-2003, Ducks Unlimited (forthcoming). Information 
from this report was presented as "Grassland Conversion and Risk Models 
for the Missouri Coteau: Tools for Staying Ahead of the Plow," at the 
annual conference of the South Dakota Wildlife Society, Oacoma, South 
Dakota, March, 2007. 

[13] These counties are in a contiguous area that runs from southwest 
to northeast across Nebraska. NRCS officials believed conversion rates 
were relatively high in the counties of this area. According to FSA and 
NRCS officials in Nebraska, producers almost always carry out these 
planned conversions. 

[14] We selected South Dakota counties because conversion data were 
available by county for 2005 and 2006 and conversions have received 
considerable attention in the state. In conducting this analysis, we 
assumed that the counties with the highest number of converted acres in 
2005 and 2006 were also the counties with the highest conversion rates 
in previous years. 

[15] In addition, we separated the 66 South Dakota counties into three 
groups based on the number of acres converted and found that the 22 
counties with the highest number of converted acres had net crop 
insurance benefits of about $600 million from 1997 to 2006, while the 
22 counties with the lowest number of conversions had net benefits of 
about $100 million for the same time period.

[16] Crop disaster assistance payments are approved by the Congress on 
an ad hoc basis, and therefore these payments do not necessarily add to 
government costs every year. However, ad hoc crop disaster assistance 
payments have been available for nearly every crop year since 1988.

[17] GAO, Crop Insurance: Actions Needed to Reduce Program's 
Vulnerability to Fraud, Waste, and Abuse, GAO-05-528 (Washington, D.C.: 
Sept. 30, 2005).

[18] USDA Economic Research Service and Office of the Chief Economist, 
An Analysis of the Effects of an Expansion in Biofuel Demand on U.S. 
Agriculture, (Washington, D.C., May 2007).

[19] USDA National Agricultural Statistics Service, Acreage, June 29, 
2007.

[20] To estimate crop prices for the 2007 crop enterprise, we used 
regional average crop prices for January to July 2007.

[21] Since this land had not been in crop production previously, under 
current legislation it would not be eligible for counter-cyclical 
payments or direct payments. 

[22] The Wetlands Reserve Program was authorized by the Food, 
Agriculture, Conservation, and Trade Act of 1990 (1990 Farm Bill), Pub. 
L. No. 101-624, 104 Stat. 3359, to assist landowners in restoring and 
protecting wetlands. Producers enrolling in the program must agree to 
implement approved wetland restoration and protection plans. In return, 
participating producers receive payments based on the fair market value 
of the land covered by the easement. The 2002 Farm Bill reauthorized 
the program with mandatory funding through fiscal year 2007 and set a 
maximum enrollment ceiling of 2.275 million acres.

[23] The Grassland Reserve Program was authorized in the 2002 Farm 
Bill, which authorized enrollment of up to 2 million acres of restored 
or improved grassland, rangeland, and pastureland under temporary and 
permanent easements or rental agreements of at least 10 years. A total 
of $254 million in mandatory funding between fiscal years 2003 and 2007 
was provided. The 2002 Farm Bill also provided cost sharing payments at 
75 percent to restore disturbed grasslands and 90 percent to protect 
virgin grasslands.

[24] This survey was done in conjunction with our work on Agricultural 
Conservation: USDA Needs to Better Ensure Protection of Highly Erodible 
Cropland and Wetlands, GAO-03-418 (Washington, D.C.: Apr. 21, 2003). 
See also the special publication, Agricultural Conservation: Survey 
Results on USDA's Implementation of Food Security Act Compliance 
Provisions (GAO-03-492SP, Apr. 21, 2003), which includes survey results 
stratified by state.

[25] The NRI, conducted by NRCS in cooperation with Iowa State 
University's Center for Survey Statistics and Methodology, is a 
statistical survey of land use and natural resource conditions and 
trends on U.S. nonfederal lands.

[26] NASS conducts yearly surveys to gather data on aspects of U.S. 
agriculture production. NASS also administers the Census of 
Agriculture, a comprehensive census of U.S. agriculture producers that 
is conducted every 5 years.

[27] Scott Stephens, Johanna Walker, Darin Blunck, Aneetha Jayaraman, 
and Dave Naugle. Grassland Conversion in the Missouri Coteau of North 
and South Dakota 1984-2003, Ducks Unlimited (forthcoming). Information 
from this report was presented as "Grassland Conversion and Risk Models 
for the Missouri Coteau: Tools for Staying Ahead of the Plow," at the 
annual conference of the South Dakota Wildlife Society, Oacoma, South 
Dakota, March, 2007.

[28] Richard Conner, Andrew Seidl, Larry Van Tassell, and Neal Wilkins, 
"United States Grasslands and Related Resources: An Economic and 
Biological Trends Assessment," a special report prepared with financial 
support from the National Cattlemen's Beef Association, The Nature 
Conservancy, and Ducks Unlimited, 2001.

[29] N. Ramankutty and J. E. Foley, "Estimating historical changes in 
land cover: North American croplands from 1850 to 1992," Global Ecology 
and Biogeography, 8: 381-396 (1999).

[30] To qualify for farm program payments, a producer must certify 
compliance with conservation provisions. To qualify under Sodbuster 
provisions, a producer seeking to convert previously uncropped land to 
cropland notifies FSA of that intention. FSA then requests a 
determination for highly erodible land. According to FSA and NRCS 
officials, after informing USDA of their intention to convert land, 
producers seldom decide not to carry out the conversion. 

[31] This survey was conducted in conjunction with our work on GAO-03-
418. Specifically, in September 2002, we surveyed staff--usually the 
district conservationist--responsible for the conservation compliance 
reviews in each of NRCS's 2,549 field offices that conducted compliance 
reviews during the period 1998 through 2001 to obtain information on 
their understanding and implementation of conservation provisions, and 
their views on the effectiveness of these provisions.

[32] Rangeland is a USDA land cover/use category on which the plant 
cover is composed principally of native grasses, grasslike plants, 
forbs or shrubs suitable for grazing, and introduced forage species 
that are managed like rangeland, with little or no chemicals or 
fertilizer being applied. Grasslands, savannas, many wetlands, some 
deserts, and tundra are considered to be rangeland. Pastureland is a 
USDA land cover/use category of land managed primarily for the 
production of introduced forage plants for livestock grazing. 
Management of pastureland usually consists of treatments such as 
fertilization, weed control, reseeding or renovation, and control of 
grazing. Cropland is a USDA land cover/use category that includes areas 
used for the production of adapted crops for harvest. Two subcategories 
of cropland are recognized: cultivated and noncultivated. Cultivated 
land comprises land in row crops or close-grown crops and also other 
cultivated cropland, for example, hayland or pastureland that is in a 
rotation with row or close-grown crops. Noncultivated cropland includes 
permanent hayland and horticultural cropland.

[33] Between 1840 and 1996, the U.S. Department of Commerce, Bureau of 
the Census was responsible for collecting Census of Agriculture data. 
The Census of Agriculture Act, Pub. L. No. 105-113, 111 Stat. 2274 
(1997), transferred the responsibility for the Census of Agriculture 
from the Bureau of the Census to the Secretary of Agriculture who 
subsequently delegated that responsibility to the Administrator of NASS.

[34] Idle cropland includes Conservation Reserve Program land unless 
the land was used for haying or grazing. 

[35] Michael D. Boehlje and Vernon R. Eidman, Farm Management, John 
Wiley & Sons, New York, 1984, pp. 237-242. 

[36] Specifically, a partial budget analysis examines the additional 
returns that would result from adopting an alternative plan plus the 
decreased costs from no longer using a base plan, minus the sum of the 
additional costs of the alternative plan plus the reduced returns from 
the base plan. The partial budget only considers the direct private 
costs and benefits to the farmer and does not include the social costs 
and benefits to society that a change would bring about, such as to the 
environment or wildlife habitat. 

[37] South Dakota State University, Department of Economics, Extension, 
Management Tools and Links, Livestock Budgets, Beef Cow Unit, Feeder 
Calf Sold, (B1CC). [hyperlink, 
http://econ.sdstate.edu/Extension/Tools/budgets.htm].

[38] These rangeland production values are from the NRCS Web Soil 
Survey. [hyperlink, http://www.websoilsurvey.nrcs.usda.gov/app/]. 

[39] Drovers is a monthly magazine and online livestock information 
service that provides business management and marketing information for 
all segments of the beef industry, including the female market, fed- 
cattle markets, and stocker/feeder prices.

[40] These "other costs," such as veterinary and medicine, were 
obtained from a South Dakota State University Extension area farm 
management specialist.

[41] Also, since the 2007 crop has not been harvested, we assumed a 3- 
year moving average county yield from NASS statistics, adjusted by 
expert opinion from our interviews with South Dakota soil scientists.

[42] Per our discussions with NRCS officials concerning Hand County, 
South Dakota, the soil types most likely to be converted were: ErB 
(Eakin-Raber Complex-Undulating), HkB (Houdek-Prosper Loams, 
Undulating), RaB (Raber Loams, Undulating), ReB (Raber-Eakin Complex, 
Undulating), WmB (Glenham Loam, Undulating), WpB (Glenham-Cavo, 
Undulating), and WzC (Glenham-Java, Rolling).

[43] For the cost estimates, we assumed that the cropping enterprise 
used no-till treatment rather than conventional tillage. 

[44] Land newly converted into cropland would only qualify for 
marketing assistance benefits, such as loan deficiency payments, and 
would not be eligible for countercyclical payments or direct payments 
since the land would not have a cropping history.

[45] May 2007 supplemental appropriation legislation authorized crop 
disaster assistance payments for crop years 2005, 2006, and early 2007. 
Producers can receive a disaster assistance payment for only one of the 
3 years. Because these payments had not been made as of July 2007, we 
did not include estimates of them in our analysis.

[46] Crop disaster assistance payments, which likely will be made for 
the 2006 crop year, are not included in this analysis.

[47] USDA Agricultural Projections to 2016, Interagency Agricultural 
Projections Committee, Long Term Projections Report OCE-2007-1, 
(Washington, D.C., February 2007).

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