Conservation reserve program abandonment impacts under general equilibrium conditions

Over the years, soil erosion has resulted in reduced on-site productivity damage and increased environmental off-site damages. To address these concerns public policies such as the Food Security Act of 1985 (FSA85) is established in part to reduce soil erosion. The 1996 farm bill. Federal Agriculture Improvement and Reform Act (FAIR) of 1996, allows for continuance of the CRP for 10 additional years. By the year 2005, all of this land may be available for agricultural production.

This study evaluates the impacts of the returning CRP lands to cropping activities. The present land situation is compared with the projected situation, for the year 2005. The same levels of technology and input prices are assumed for both situations. A model capable of addressing an approximate market equilibrium for farm prices, quantity demanded by consumers, and production patterns is developed and focuses on the following commodities; barley, com, oats, sorghum, soybean, and wheat. The analysis evaluates the impacts from two separate methodologies, a supply-oriented linear programming model and a general equilibrium Tatonnement model. Finally, changes in water and wind erosion levels are explored.

Data, from 1950 through 1992, are used to estimate the seventeen demand equations. Six equations are related to feed-demand for livestock, five equations are related to food-demand for industrial and human consumption. Seemingly Unrelated Regression Equations (SURE) are used to address this concern. The remaining equations are indirectly obtained from their own price elasticities. The demand equations are mostly significant at 1% level.

The results show that prices are higher when lands are enrolled in the CRP. The increase in available lands, due to the CRP termination, cause prices to be lower. The two first linear programming runs determine the boundaries for the optimal solution. The results show that on the aggregate prices fall within these boundaries. Since LP assumes that either demand or prices are fixed, the Tatonnement model is used to provide flexibility. In this process, all the demand and supply equations for feed, food, and export (except barley-feed) converge toward the equilibrium point. Convergence is present when the absolute value of the difference between supply and demand gradually diminish with every iteration.

Lands currently use for production of crops, livestock in Crop Producing Areas (CPA), and water and wind erosion are estimated. These results are at two levels a) Baseline and b) Optimum with CRP. Performing these two runs produce in estimates for land use, sheet and rill erosion, and tons per acre erosion for both the Baseline and Optimum with CRP. The difference between these runs is estimated in percentages, and the comparison of the runs reveal that erosion for wind and water are generally increased. There are some CPAs with negative signs for the amount of percentage in land use, sheet and rill erosion, and per acre erosion. This might occur because some CPAs adjacent to the CPAs with negative erosion are producing their crops at lower costs. This cost efficiency may induce farmers to increase their cropping activities, and export their crops to less cost efficient CPA's. Prices were the driving force in the operation of the Tatonnement model. Prices allow the iteration between the demand and supply equations in an effort to establish equilibrium. At this point, prices for the commodities prove to be in the neighborhood of the second run of the LP (Iteration 1) and between the first run (Baseline) and the second run of the LP(Iteration I). If CRP lands are allowed to be planted in crops, expected prices in the future will be lower than the current prices. Using only a linear programming methodology results in reduced production level estimates and lower prices than when using the Tatonnement modeling method.