Some economic dimensions to grassland preservation in the Northern - PowerPoint PPT Presentation

“Some economic dimensions to grassland preservation in the Northern Great Plains.” Tong Wang David A. Hennessy South Dakota State University Michigan State University With acknowledgements to 2014 NIFA grant & team, Climate Science Center grant & team, Elton Smith Endowment

Support • Hennessy, D.A., Feng, H., et al. 2014. “Adaptation of agroecosystems to climate change at the edge of the U.S. Cornbelt—assessing different drivers in a spatially explicit network of infrastructure.” Agriculture and Food Research Initiative Competitive Grants Program, Agriculture and Natural Resources Science for Climate Variability and Change. • Hennessy, D.A., Feng H. et al. 2015. “Understanding dynamics of land use switching with satellite and field level data in context of climate variability.” North Central Climate Science Center, U.S. Geological Survey. • Wang, Tong et al. 2017. “Saving grassland of the Great Plains: Is management intensive grazing (MIG) a socioeconomically viable option?” USDA NIFA. 2

Hennessy: Two Topics • “Land Conversion in the Prairie Pothole Region – Farmers’ motivations and returns to conversion” Tong Wang, Mary Doidge, others Motives and conversion cost issues • “Grassland Easement Evaluation and Acquisition: an Integrated Framework.” Ruiqing Miao and H. Feng Ways to think about easement contracts and property rights 3

Prairie Pothole Region Source: USDA National Resources Conservation Service 4

Surveys of farmers  Two surveys of farmers in the area, asking about their land conversion decisions  2015 mail survey  2016 focus group meetings/survey  Purpose of both was to gain insight into farmers’ land use decisions  What factors do they consider when converting or not?  How important are non-economic factors? 5

2015 Survey • Survey of N. & S. Dakota farmers conducted in 2015 • Over 1,000 farmers completed the survey • 37 SD counties, 20 ND counties represented • All but 1 farm were east of Missouri River 6

 Asked farmers about the factors determining land use decisions 2015 Survey  Factors broadly categorized into  Prices & policies (Y1-Y2 crop and input prices, Y3 crop insur., Y4 labor avail.)  Technology (Y5 drought-tol. seed, Y6 pest mgmt practices, Y7 yield genetics, Y8 better equipment)  Env’t concerns (Y9 wildlife, Y10 weather/climate patterns)  Farmers were asked whether factors had high, medium, low impact 7

2015 survey results – impact of factors on land use decisions, STATED HIGH IMPACT Crop Question: How low crop profile Medium Crop profile High Crop Profile 60% prices much impact has Seed Input 50% each of the genetics prices Pest Weather/ 40% Machines following farm- mgt climate Insurance Drought related issues had 30% tol. seed Labor on changes you 20% Wildlife have made in the 10% way you use your 0% agricultural land? Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Market environment Environ. Technical I Low profile: < 50% land in crops, high profile ≥ 90% in crops 8

2015 Survey, Weather • Hidden in aggregate weather response is clear south- north gradient 9

2016 survey • Subsequent survey conducted in early 2016 • Focus of second survey was farmers’ land use decisions • Survey was conducted at focus group meetings with ~20 farmers in each location • All meeting locations were along James River Valley, in areas of high grassland to cropland conversion in recent years 10

2016 survey • Survey asked farmers about • Farm characteristics • Farming practices • Land conversion in the preceding ten years (since 2006) • Farmers were asked open-ended questions about what they consider when making land use and land conversion decisions • Also collected information on conversion costs • Reliable estimates unavailable from other sources • Allow for estimates of returns to conversion 11

2016 survey – summary  Almost 60% had converted some of their land from either CRP or grass to cropland in preceding ten years (45/76)  27% had converted grassland to cropland (21/76)  Converted land had been in grass for an average of 29 years  6 instances of native grassland conversion  Mean/median parcel size 269/153 ac. (range, 10-2,500 ac. Mean = 153 ac. if 2,500 parcel removed ) 12

Conversion costs, (Jim Faulstich 2011 comment) § (Converted) Conversion costs for land converted, previous 10 years § (Didn’t) Costs estimates for land they would be most likely to convert Mean per acre conversion cost Mean per acre conversion cost CRP to crop CRP to crop $74.15 Grass to crop Grass to crop $85.73 § Conversion costs broken down (labor, capital, etc.) Labor Labor Equipment quipment Materials Materials Other ther CRP to crop CRP to crop $15.10 $33.42 $26.69 $18.78 Grass to crop Grass to crop $15.41 $36.35 $30.74 $22.70 13

Change in land value after conversion Change in Change in Change in Change in Change in net Change in net land value land value rental value rental value returns returns CRP to crop CRP to crop $862 $72 $79 Grass to crop Grass to crop $1,254 $79 $120 Mean per acre conversion cost Mean per acre conversion cost CRP to crop CRP to crop $74.15 Grass to crop Grass to crop $85.73 Reported conversion costs much less than increase in land value § § C ONVERSION COSTS COULD BE RECOVERED IN ~1 YEAR !!!! 14

Importance of factors Mean comment frequency Mean comment frequency CRP to crop Grass to crop Converted Didn’t Converted Didn’t Profit/other economic concerns Profit/other economic concerns 0.87 0.82 1.10** 0.73** Land characteristics Land characteristics 0.53 0.67 0.33** 0.76** Farm operation Farm operation needs needs 0.20 0.30 0.29 0.27 Stewardship Stewardship 0.27 0.21 0.24 0.22 Lifestyle Lifestyle 0.13 0.20 0.19 0.18 Soil quality Soil quality 0.07 0.16 0.14 0.15 Risk Risk 0.00* 0.15* 0.10 0.13 Wildlife protection Wildlife protection 0.07 0.11 0.10 0.11 Landlord Landlord 0.02*** 0.20*** 0.10 0.04 Other Other 0.13 0.07 0.05 0.14 15

Probability of converting CRP to crop Grass to crop Total farm acres (/1,000) 0.072*** 0.048** Years farming (/10) 0.082 -0.098** Education 0.093* -0.153** Importance of non-profit factors -0.051 -0.057 All or majority acres owned 0.030 0.107 All or majority acres leased 0.199*** 0.106 Comment frequency Profit -0.014 -0.007 Stewardship -0.254** -0.178*** Lifestyle -0.110* -0.070 Land characteristics -0.140** -0.129* Observations 61 68 16

Comparisons  Results from 2015 and 2016 surveys are consistent  Profit and other economic factors reported to have the most influence on farmers’ land conversion decisions  Concern for wildlife/environment reported to be comparatively less important  Farmers who have not converted land to cropland suggest that land quality/cultivation potential is main impediment  Also consistent with 2015 survey – marginal land more responsive to economic factors  Stewardship weighs heavily on minds of many 17

Policy Issues  Researchers are not asking right questions about wildlife/nonpecuniary/stewardship. Farmers have different views on ‘social responsibility’ than do others  Care is needed to understand and manage motives. Programs seeking to monetize a matter of values may backfire  Casual view of how USFWS easement managers do it is that they are on land owners’ wavelengths 18

Thinking about Easements • What are grassland easements? • See https://www.fws.gov/mountain ‐ prairie/realty/grassesmt.htm • “legal agreement signed with the USA, through the U.S. FWS that pays you to permanently keep your land in grass. … … Land covered by a grassland easement may not be cultivated. Mowing, haying, and grass seed harvesting must be delayed until after July 15 each year. This restriction is to help grassland nesting species, such as ducks and pheasants, complete their nesting before the grass is disturbed. Grazing is not restricted in anyway.” 19

Attenuated Property Rights • Ownership delineates right to use a property, to earn income from it, and to protect the above rights • Economists generally view property rights as being important determinants of investments levels. Investments won’t be made if income is not protected • Property rights: a bundle where • the law clarifies and • easements separate. The law may separate mineral rights (underground) from surface property rights 20

Easements and Property Rights • Utility easement: gives government or company certain rights regarding utility maintenance, etc. • Easement by necessity: right to access another property • Public easement: for public use, sidewalks, parking, etc. • Private easement : contractual agreement to cede certain rights. In our case, the right ceded is that of growing anything other than grass. 21

What is ceded? Higher Price • An option to grow Plant to crops Crops crops is ceded. The cost of ceding it depends on current and expected future market situations Graze (Price Beef, Price Crops) = (0,0) Higher Price Beef 22

What is ceded? Plant to crops when prices are  in price area A AREA A AREA A AREA B AREA B Graze when prices are in price area B Land owners will want compensation for giving up right to switch land use whenever prices enter area A 23