Alternative Agriculture: Federal Incentives and Farmers' Opinions

Published by the Government Accountability Office on 1990-02-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                     United   Slates   Generd   Accounting   Office   -   -
I   -t‘---
I mm                 Report to Congressional Requesters

1   Fetmmry   1990

                     Federal Incentives and
                     Farmers’ Opinions

United States
General Accounting Office
Washington, D.C. 20648

Program Evaluation aud
Methodology Division


February 16,199O

The Honorable E (Kika) de la Garza
Chairman, Committee on Agriculture
House of Representatives

The Honorable George E. Brown, Jr.
Chairman, Subcommittee on Department Operations,
  Research, and Foreign Agriculture
Committee on Agriculture
House of Representatives

In response to your letter of November 1,1988, we are submitting this report entitled
Alternative Agriculture: Federal Incentives and Farmers’ Opinions. This study identifies and
describes key federal farm program incentives and disincentives that can influence farmers’
adoption of alternative production methods. Federal farm program components addressed in
the study include commodity price and income support, farm credit, and crop insurance

As agreed with your office, unless you publicly announce the contents of this report earlier,
we plan no further distribution of it until 30 days from the date of this report. At that time,
we will send copies to interested congressional committees and the Department of
Agriculture, and we will make copies available to others upon request.

If you have any questions or would like additional information, please call me at (202) 275-
1864 or Dr. Michael J. Wargo, Director of Program Evaluation in Physical Systems Areas, at
(202) 276-3092. Other major contributors to this report are listed in appendix II.

Eleanor Chelimsky
Assistant Comptroller General

             Farming in the United States is highly productive, yet several emerging
             health, environmental, and economic problems associated with conven-
             tional farming practices threaten its sustainability. Concerns about con-
             ventional farming have led to interest in alternative farming methods
             that may lower health risks, protect farm resources, reduce environmen-
             tal damage, and improve long-term farm profitability and competitive-
             ness. To ensure that farmers have the flexibility to use a variety of
             management approaches, particularly those that emphasize low-input,
             sustainable agricultural methods, the House Agriculture Committee and
             House Subcommittee on Department Operations, Research, and Foreign
             Agriculture asked GAO to assess how current federal agriculture policies
             and programs may contribute to, or inhibit, the use of alternative farm
             production methods.

             Conventional agriculture in the United States is characterized by spe-
Background   cialized farms that employ intensive cropping systems and rely heavily
             on synthetic agrichemical inputs to control pests and enhance soil fertil-
             ity. A basic strategy of alternative agriculture is the reduction in the use
             of agrichemical inputs, through the use of diverse crop rotations, inte-
             grated pest management, mechanical weed control, and other alternative

             Few farms currently meet the goals and practices of alternative agricul-
             ture. Some studies have suggested that more farmers are not using alter-
             native practices because they believe profits will be lower, greater
             management skills are required, or information on practical alternatives
             is lacking. Also, these same studies suggest that government farm poli-
             cies and programs may contribute to the reluctance of farmers to adopt
             alternative practices since they significantly influence farm profits,
             credit, and insurance availability for farmers.

             GAO’S  study focused on three components of the federal agricultural sup-
             port system-farm commodity price and income support, farm credit,
             and crop insurance programs. GAO collected, reviewed, and analyzed
             existing information on alternative farming methods and federal pro-
             gram influences and conducted in-depth interviews with 74 farmers and
             farm program officials selected from seven different counties across the
             nation. Because existing information about farm program influences is
             fairly limited and GAO examined data from only a small, judgmentally
             selected sample of farmers in a few locations, these findings cannot be
             generalized to other farmers or farm areas.

             Page 2                GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
                     Exeentlve Snmmary

                     The farmers GAO interviewed believe that greater management require-
Restilts in Brief    ments, lower yields and profits, increased weed problems, and federal
                     farm program constraints all create barriers to the use of alternative
                     agriculture. While the federal price and income support programs do not
    I                impose direct barriers, they provide strong incentives to grow program
    I                crops and to specialize in them year after year. Program provisions rein-
                     force farmers’ use of high-input conventional practices and make it eco-
                     nomically difficult for them to adopt alternative practices. The loss of
                     program benefits that would result from giving up program crop acreage
                     and using it to grow nonprogram crops in a diversified crop rotation
                     system is a key economic disincentive.

                     GAO  also found no direct evidence that farmers are denied accessto fed-
                     eral farm credit and crop insurance because of the use of alternative
                     practices. However, these programs do place greater emphasis on con-
                     ventional farming practices and are less likely to accept the potential of
                     alternative farming practices, particularly those for which economic
                     outcomes are uncertain.

                     The literature suggests that there are several farm program incentives
Prim ipal Findings   and disincentives that influence farm production practices.

                     The farm programs support crops that tend to require high agrichemical
                     inputs and are associated with high rates of soil erosion. Other less-ero-
                     sive and less-agrichemical-dependent crops receive little government
                     support. The programs reward farmers for specializing in program crops
                     year after year, resulting in further soil depletion and pest problems,
                     which in turn lead to a greater need for agrichemical inputs. The pro-
                     grams tend to discourage farmers from planting other crops and from
                     using more diversified crop rotations.

                     By basing program benefits on historical crop production levels, the
                     farm programs encourage farmers to maximize the production of pro-
                     gram-supported crops and possibly use greater amounts of conventional
                     inputs to do so. Provisions enacted through the Food Security Act of
                     1986, however, limit the ability of farmers to increase their program
                     benefits as a result of higher crop production yields. Furthermore, the
                     farm programs provide incentives for farmers to grow program crops on
                     marginal lands that require more intensive production practices. How-
                     ever, conservation compliance legislation enacted by the Food Security
                     Act of 1986 has reduced this influence.

                     Page 3               GAO/PEMD-90-12 Alternative Agricul~   Incentives and Opinions
Fqrmers’Opinions About   The farmers GAO interviewed reported that the desire to maintain pro-
Program Influences       gram crop acreage bases and federal program benefits had a great influ-
                         ence on their planting decisions. They also identified experience with a
                         crop, the availability of markets, and crop prices as having a moderate-
                         to-great influence in their planting decisions. Federal farm programs
                         were relatively more important for farmers specializing in program
                         crops than for farmers planting a more diverse set of crops.

                         Most of the farmers strongly agreed that the federal farm programs
                         encourage them to grow only program crops and make it difficult to
                         switch crop rotations or grow nonprogram crops. About 60 percent of
                         the farmers reported they had considered planting some other crop but
                         many felt that the farm programs do not provide adequate flexibility to
                         do so without losing valuable crop acreage bases.

                         Over 90 percent of the farmers believe that participation in the farm
                         commodity programs is the best way for them to reduce economic risks.
                         A majority also reported that planting a diverse number of crops
                         reduces their risks. Less than half the farmers felt that buying crop
                         insurance was an effective way to reduce risk.

                         Almost all the farmers stated that they intend to continue growing the
                         same crops and using the same farm practices and that the likely out-
                         comes of this would be improved crop yields and farm profits with no
                         expected change in environmental effects, Although research has sug-
                         gested that conventional agriculture damages the environment and
                         alternative agriculture can reduce such damage, knowledge of these
                         findings is not reflected in the farmers’ statements.

                         Farmers also reported concerns about greater management require-
                         ments, yield reductions, increase in weeds, and declining profits as key
                         barriers to the use of alternative agriculture. This suggests that unless
                         research or farm demonstrations convince farmers that these are not
                         problems, movement toward alternative agriculture will be slow, regard-
                         less of farm program effects.

                         Some research studies have shown that under certain conditions alter-
                         native agriculture can be profitable. Further research, however, is
                         needed before it is possible to draw firm conclusions. Technical informa-
                         tion about workable alternatives that can be substituted for agrichemi-
                         cal inputs is not well developed or applicable to many different farm
                         situations. Research on the use of practical crop rotations that use cover

                         Page 4               GAO/PEMD-90-12 Alternative Agriculture   Incentives and Opinions
                         Executive Summary

                         crops such as legumes or intercropping and other alternative methods
                         that rely less on agrichemical inputs have been largely neglected.

                         Finally, the farmers overwhelmingly reported that their use of farm
                         practices was not an issue when applying for a loan or taking out crop
                         insurance. However, about one fifth said that lenders suggested they
                         participate in the farm programs.

Genpral Implications     This exploratory study has several important implications:

                       9 To the extent that the federal farm programs make it difficult for farm-
                         ers to grow other crops and implement more diverse crop rotations, they
                         act as a barrier to the adoption of alternative agriculture. Farmers most
                         specialized in program crops face the strongest disincentives.
                       9 The farm programs have a great influence on crop choice. Crop selection
                         in turn strongly influences the types and amounts of production inputs
                         that are required. Thus, even though the farm programs do not have a
                         strong and direct effect on production methods, they do have a major
                         indirect effect on input use.

                         The federal farm programs, and particularly the crop acreage base sys-
                         tem, will have to be modified if the government wants to facilitate the
                         adoption of alternative agriculture. However, because other factors play
                         an important role, changing the farm programs alone may not be suffi-
                         cient to bring about any significant increase in the adoption of alterna-
                         tive agriculture. Yet changing the farm programs to provide greater
                         flexibility does seem necessary to offer farmers the opportunity to make
                         production changes and incorporate alternative agriculture practices
                         without suffering undue financial consequences.

                         GAO   makes no recommendations.

                         At the request of the Subcommittee, GAO did not seek formal comments
Agency Comments          on this report, However, a draft was discussed with Department of Agri-
                         culture officials and they generally agreed with the findings.

                         Page 5               GAO/PEMD-9042 Alternative Agriculture: Incentives and Opinions

Eetive      Summary                                                                                           2

Cljapter 1                                                                                                  10
Introduction               Conventional Agriculture: Description and Concerns
                           Interest in Alternatives to Conventional Agriculture
                           Objective, Scope, and Methodology                                                24

Chapter 2                                                                                                   31
Cl$aracteristics of        Defining Alternative Agriculture
                           Barriers to the Adoption of Alternative Agriculture
4 ; ernative               SUlnm~                                                                           41
Chapter 3                                                                                                   42
Tl$e Implications of       Federal Farm Commodity Price and Income Support
Federal Farm               Farm Credit and Crop Insurance Programs                                          63
Programs                   Summary                                                                          66

Chapter 4                                                                                                   67
Farmers’Opinions           Description of Farms
                           Factors Influencing Planting Decisions
                           Ways to Reduce Farm Risk                                                         62
                           Influence of the Farm Programs on Farmers’ Behavior                              64
                           Farmers’ Opinions About Sustainability                                           67
                           Barriers to the Adoption of Alternative Practices                                69
                           Obtaining Credit and Crop Insurance                                              71
                           Summary                                                                          73

Chapter 5                                                                                                   74
Summary                    Farm Programs                                                                    74
                           Farmers’ Opinions                                                                76
                           Conclusion                                                                       78

Appendixes                 Appendix I: Farmer Survey Statistical Data                                       80
                           Appendix II: Major Contributors to This Report                                   86

                           Page 6               GAO/PEMD-fN-12 Altemtive   Agriculture: Incentives and Opinions

Bi@iography                                                                                    86
              Table 1.1: Distribution of Farm Operators by Financial                          22
              Table 1.2: Study Sites                                                          27
              Table 1.3: Farm Officials We Interviewed                                        29
              Table 2.1: Farm Practices                                                       32
              Table 3.1: Crop Acres Receiving Agrichemicals in 1988                           60
              Table 4.1: Factors Influencing Planting Decisions                               60
              Table 4.2: Ways to Reduce Farm Risk                                             62
              Table 4.3: “Does Participating in the Farm Program                              66
                  Encourage You to -----?”
              Table 4.4: “Does Participating in the Farm Program Make                         66
                  It -----y
              Table 4.6: Effects of Continuing Current Crop Rotation                          68
              Table 4.6: Barriers to the Adoption of Alternative                              70
              Table 4.7: Farm Credit                                                          72
              Table I. 1: Planting Decisions                                                  81
              Table 12: Farm Risk                                                             82
              Table 1,3: Farm Program Participation, Personal                                 82
              Table 1.4: Farm Program Participation, General                                  83
              Table 1.6: Farm Sustainability                                                  83
              Table 1.6: Barriers                                                             84

Figures       Figure 1.1: Farm and Nonfarm Productivity Index
              Figure 1.2: Farm Input Index
              Figure 1.3: Trends in Farm Size and Population
              Figure 1.4: Specialization in Corn, Soybeans, and Wheat
              Figure 1.6: Gross and Net Farm Income
              Figure 1.6: Increased Production Expenses
              Figure 1.7: Government Outlays for Farm Income Support
              Figure 1.8: Farm Exports and Imports
              Figure 2.1: Conventional, Alternative, and Sustainable
              Figure 3.1: Specialization in Corn, Wheat, and Soybeans                         48
              Figure 3.2: Displacement of Oats by Corn and Soybeans                           49
              Figure 6.1: Input Use as a Function of Crop Choice                              78

              Page 7              GAO/PEMD-90-12 Alternative Agriculturez Incentives and Opinions


ASCS        Agricultural Stabilization and Conservation Service
ATlY3.A     Appropriate Technology Transfer for Rural Areas
FCIC        Federal Crop Insurance Corporation
FIllHA      Farmers Home Administration
GAO         U.S. General Accounting Office
IPM         Integrated pest management
            Low Input Sustainable Agriculture
NRC         National Research Council
USDA        U.S. Department of Agriculture

Page 8                 GAO/PEMD-BO-12 Alternative Agrkulhue:   Incentives and Opinions
Page 9   GAO/PEMDB@12 Alternative Agrkul~   Incentives and Opinions

                 Conventional agriculture in the United States can be characterized as
                 consisting of increasingly specialized, mechanized farms that use syn-
                 thetic fertilizers and pesticides to produce large quantities of food and
                 fiber. Alternative farm systems that rely on diversified crop rotations
                 and reduce the use of nonrenewable inputs are considered by many
                 observers to be healthier, less environmentally harmful, and profitable
                 in the long run. (National Research Council, 1989) Concerned that alter-
                 native farm practices are not used as much as they could be, the House
                 Agriculture Committee and House Subcommittee on Department Opera-
                 tions, Research, and Foreign Agriculture asked us to evaluate whether
                 current federal farm policies contribute to or inhibit the use of alterna-
                 tive production practices.

                 Agriculture in the United States has become increasingly specialized and
Cdnventional     dependent on agrichemicals in recent decades. Since 1960, productivity
A&iculture:      has grown much faster in farming than in the nonfarm business sector.
Dkcription and   (Figure 1.1.) This increased productivity made it possible for total farm
                 output to increase by 46 percent between 1960 and 1987 while the
Concerns         amount of land farmed remained essentially the same. (President of the
                 United States, 1989)

                 Page 10               GAO/PEMD-GO-12 Alternative Agricul~   Incentives and Opinions
                                           Chapter 1

Flguri 1.1: Farm and Nontarm Productivity Index’
209   1p0.199

                          1995                 1979                        1975                        19EO                         1995       1997

      -         Farm
      l   ---   Nonfarm
                                          a1970= 100.
                                           Source: President of the United States, Council of Economic Advisers, Economic Report of the Presi-
                                          -dent (Washington, DC.: 1989), tables B-97 and B-46.

                                          The tremendous gains in productivity and output have been accom-
                                          plished in part by using more agrichemicals and less labor. (Figure 1.2.)
                                          Pesticide use on major crops rose from 226 million pounds in 1964 to
                                          668 million pounds in 1982 before dropping to 440 million pounds in
                                          1988.1Total use of commercial fertilizers also increased dramatically
                                          from 7.6 million tons in 1960 to a high of 23.7 million tons in 1981. Since
                                          then, the absolute amount of fertilizer applied has declined to 19.6 mil-
                                          lion tons; the per acre use has remained fairly stable since the late
                                          1970’s for most major crops. (Vroomen, 1989) Farms have also grown
                                          steadily bigger and the farm population has steadily declined, continu-
                                          ing patterns that have existed since the mid-1930’s. (Figure 1.3.)

                                          ‘Weight is an imperfect measure of pesticide use. As Osteen and Szmedra note, “The decline in insec-
                                          ticide quantity can be attributed to technological advances in the chemical industry heralded by the
                                          introduction of insecticides . . . that are applied at much lower rates than the materials they replaced.
                                               ” Other measures that provide a look at pesticide use over time, however, are not available.
                                          ~&teen and Szmedra, 1989, p. 37)

                                          Page 11                       GAO/PEMDfKbl2 Alternative Agriculture: Incentives and Opinions
                                      chapter 1

Flgul/e 1.2: Farm Input Index0
199   ~97OdW


                               1955       1970                       1976                        1950                          1995     1997

       -        Labor
      ,-m-w     Land
       m        Machines
       m ml m   Agrkhemicals
                                      a197o = 100.
                                      Source: President of the United States, Council of Economic Advisers, Economic Report of the Presi-
                                      dent (Washington, D.C.: 1989), table B-98.

                                      Page 12                       GAO/PEMLMO-12 Alternative Agriculture         Incentives    and Opinione
                                            Chapter 1

Flgure ~1.3: Trends In Farm Size and PopulatIona
im          1~7o.ioo



     1969                           lgs5           i9m                       1975                        1990                         1985       1957

            m          Farm Size
            II--   -   Population
                                            a1970 = 100.
                                            Source: President of the United States, Council of Economic Advisers, Economic Report of the Presi-
                                            dent (Washington, D.C.: 1989), table B-98; U.S. Department of Agriculture, Agricultural Statistics 1987
                                            (Washington, D.C.: 1988), table 531, and Agricultural Statistics, 1974 (Washington, DC.: 1975), table

                                            Farming has also become more specialized: a larger share of the total
                                            farm acreage has been planted in a smaller number of crops. Corn,
                                            wheat, and soybeans have gradually accounted for a larger share of
                                            farm acreage. (Figure 1.4.) Individual farms have also become more spe-
                                            cialized. Fewer and fewer farms raise both crops and livestock; more
                                            farms concentrate on growing smaller numbers of crops.

                                            Page 13                       GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
                                            chapter 1

Flgu/re 1.4: Speclallzatlon In Corn, Soybeans, and Wheat
70   IPorconl of cropland   hwvoetod

                                                1970                        1976                        1989                         1985        1997
                                            Source: U.S. Department of Agriculture, Agricultural Statistics 1987 (Washington, DC.: 1988); U.S.
                                            Department of Agriculture, Agricultural Statistics 1974 (Washington, DC.: 1975).

                                            Conventional agriculture has helped make food in the United States
                                            plentiful and relatively inexpensive. Many observers believe, however,
                                            that such farming produces health, environmental, and economic

Health Concerns                             The use of agrichemicals in conventional agriculture can endanger
                                            human health in two ways, Consumers may be exposed to agrichemical
                                            residues on the food they eat and the water they drink, while farmers
                                            and farm workers face heavier and more direct contamination from han-
                                            dling agrichemicals and working in fields where they have been used.

                                            Food safety was a highly visible issue in 1989. Major news stories and
                                            reports appeared and legislative hearings were held concerning the
                                            health risks of chemical residues in food.2 One survey of shoppers in
                                            early 1989 showed that 82 percent believed that chemical residues

                                           “For example, on March 27,1989, Time and Newsweek ran cover stories on agrichemicals and food
                                           safety; the House Energy and CommerceCommittee Subcommittee on Health and the Environment
                                           held hearings on legislation concerning pesticides and food safety on May 17 and 31, 1989; the Senate
                                           Committee on the Environment and Public Works Subcommittee on Toxic Substances,Environmental
                                           Oversight, Research,and Development held hearings on chemicals and food crops on May 16,1Q89.

                                            Page 14                       GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
Chapter 1

posed a “serious hazard” to the health of consumers.3A public opinion
poll released in March 1989 showed that 84 percent of Americans said
they would buy organically grown food if it was readily available and
49 percent would be willing to pay higher prices for it.4

According to the National Research Council (NRC),available data do not
show that the pesticide residues consumed in the average diet make a
“major contribution to the overall risk of cancer for humans.” (National
Research Council, 1989, p. 126; 1987; 1982) However, a recent NRC study
did find that 30 percent of the insecticides, 50 percent of the herbicides,
and 90 percent of the fungicides applied to farm products contain
agrichemicals that cause tumors in laboratory animals. (National
Research Council, 1987) But it is quite difficult to know precisely how
dangerous such agrichemicals are to human health. Extrapolating labo-
ratory results to humans is subject to scientific debate. Little data are
available on the actual levels of pesticides present in the human diet.
(National Research Council, 1987) The health effects of many active
ingredients in pesticides have also not yet been fully assessed,nor have
the synergistic effects of chemicals used in common combinations been
fully evaluatede6Health problems may develop only after long periods of
exposure or years after a single contact. (U.S. Environmental Protection
Agency, 1988)

Agrichemicals also pose an ongoing threat to the safety of surface and
groundwater supplies used for drinking. However, evidence is spotty
regarding both the extent of the pollution and its effect on human
health. Pesticides have been found in the groundwater of 26 states as
the result of normal agricultural practices. (Williams et al., 1988) A U.S.
Geological Survey study established that in 474 of 1,663 counties sam-
pled, 25 percent of the wells tested had nitrate-nitrogen amounts above
natural levels; 87 of these counties had nitrate-nitrogen levels exceeding
EPA’s interim standard for nitrate in drinking water. (National Research
Council, 1989, p. 105) USDAestimates that 1,437 counties (46 percent of
all counties in the United States) contain groundwater susceptible to
contamination from agricultural pesticides or fertilizers. (Nielsen and

3Survey conducted by the Food Marketing Institute, a supermarket trade group. (Steimel, p. FL)
4This Louis Harris Poll was conducted in November 1988 for Organic Gardening magazine.(Nazario,
March 21,1989, p, Bl)
“In 1984, an NRC panel estimated that “data to conduct a complete assessmentof health effects were
publicly available for only 10 percent of the ingredients in pesticide products.” (National Research
Council, 1989) For studies of the possible synergistic effects of chemicals, see LhrBois, 1972.

Page 15                      GAO/PEMD-9042 Alternative Agriculture         Incentives and Opinions


                         Lee, 1987) EPA is currently conducting a nationwide survey of pesti-
                         cides in groundwater, scheduled to be completed in 1990.

                         If agrichemicals create risks for human health, health concerns can cre-
                         ate economic risks for farmers. If an agrichemical is shown to produce
                         unreasonable risks to human health, EPA can ban it. (U.S. Environmen-
                         tal Protection Agency, 1988) If manufacturers believe that an
                         agrichemical is dangerous, they may voluntarily withdraw its federal
                         registration, making certain uses of that chemical illegal.6 If retailers
                         think that a pesticide is harmful, they may refuse to sell produce treated
                         with it. (Gutfeld, 1989) If consumers suspect that an agrichemical is
                         harmful, purchases of treated crops can fall sharply.7 Whether food
                         safety concerns are justified or not, farmers who rely on agrichemicals
                         may face a loss of productivity if these chemicals become unavailable
                         for use or a loss of income if they cannot sell products treated with
                         them. Either way, farmers who have become dependent on these
                         agrichemicals are at economic risk.

                         Agrichemical use may pose a serious health threat to farmers them-
                         selves. Frequent exposure from handling certain pesticides raises the
                         risk of cancer. National Cancer Institute studies in Kansas and Nebraska
                         found that farmers exposed to herbicides more than 20 days per year
                         had from three to six times higher risk than nonfarmers of developing
                         non-Hodgkins lymphomas. (Hoar et al,, 1986, 1988) Other studies have
                         also found evidence of a link between pesticide use and certain types of
                         cancer among farmers. (Pearce, Smith, and Fisher, 1986; Weisenburger,
                         1985) Acute and chronic health problems have also been linked to heavy
                         exposure to agrichemicals. (Davies, 1985) No regular surveys or exami-
                         nations, however, are used to monitor farm-worker exposure to pesti-
                         cides or the health consequencesof this exposure, so it is not possible to
                         accurately estimate the real effect of agrichemical use on farmers’

Environmental Concerns   Conventional agriculture has also been blamed for contributing to envi-
                         ronmental problems involving soil erosion and water pollution. Each
                         year, between 2.7 and 3.1 billion tons of soil erode from the nation’s
                         farmland. (National Research Council, 1986; usm, 1988a) Much of this

                         “The makers of ethylene bisdithiocarbamate (EBDC) fungicides voluntarily suspendedtheir registra-
                         tion on roughly 60 crops. (Schneider, 1989)

                         7Aft.er the intense media coverage of Alar in February 1989, it was estimated that the Washington
                         State Red Delicious apple industry lost $140 million in revenue. (Buxton, 1989, pp. 86-88)

                         Page 16                      GAO/PEMD-90-12 Alternative Agricullxuw Incentives and Opinions
chapter 1

loss is caused by intensive farm production methods and the cultivation
of highly erodible lands. Soil erosion poses a threat to the long-term pro-
ductivity of some farms, because it reduces soil quality and increases
the need for fertilizers. (Pimentel, 1987) The actual effect on farm pro-
ductivity can vary tremendously, however. Farms with deep topsoil can
maintain productivity for the forseeable future even with heavy soil
loss, while farms with thin soils can lose productivity after only a few
years. Estimates of the cost of soil erosion for farms vary widely, rang-
ing from $1 billion to $18 billion per year. (National Research Council,
1989, p. 116)

Agriculture also causes nonfarm damage, since farming is a primary
nonpoint source of water pollution.8 The major sources of agricultural
pollution are sediment (from soil erosion) and nutrients (from fertiliz-
ers). USDA calculated that agriculture contributes 60 percent of all sus-
pended sediments in surface waters; as much as 1 billion tons of
agricultural soil are deposited in waterways every year through erosion.
(National Research Council, 1986) From 60 to 70 percent of nutrients in
surface water also have been linked to agricultural use. (Phipps and
Crosson, 1986) Deposited soil obstructs waterways and fills reservoirs;
suspended soil chokes water life, depresses recreational use, and
increases water purification costs. Increased nutrient levels promote
algae growth, which depletes available oxygen; decreased oxygen limits
the population of larger plants and animals. The National Research
Council argues that “nutrient loading has had a devastating effect on
many lakes, rivers, and bays throughout the country.” (National
Research Council, 1989, p. 100) The declining fisheries along the Chesa-
peake Bay illustrate the effect of increased nutrient levels on water
quality. (Kahn and Kemp, 1986) As with estimates of damages to farms
from soil erosion, calculations of the total economic costs associated
with the pollution of surface water by agriculture vary widely, running
between $2 billion and $16 billion per year. (National Research Council,

Farm practices can affect soil erosion and nutrient runoff in several
ways, but the net effect of conventional farming on soil erosion is not
known. Soil erosion increases with the amount and intensity of plowing
and cultivating. The trend toward larger farm equipment has made

8Nonpoint-source pollution is diffused pollution resulting from water runoff from urban areas, agri-
culture, and the like; point-source pollution occurs from a pipe or other discrete sources from facto-
ries, wastewater treatment plants, or confined animal feedlots.

Page 17                       GAO/PEMD-90-12 Alteruative Agrkulturez Incentives and Opiuions
                    Chnpter 1

                    traditional soil conservation practices such as contour farming, wind-
                    breaks, and terraces more difficult to follow.Q Furthermore, intensive
                    crop rotations using row crops (such as corn and soybeans) are more
                    erosive than ones including small grains, hay, or other cover crops; for a
                    number of reasons, few conventional farms include these less-erosive
                    crops in their rotations. 10However, several conventional practices
                    reduce the potential for erosion. Increased reliance on herbicides has
                    “made it possible to control weeds in most of the major crops with little
                    or no disturbance of the soil surface”; widespread use of herbicides has
                    almost certainly reduced erosion and nutrient runoff. In addition, the
                    increased use of fertilizer may have cut erosion rates by promoting
                    faster, heavier plant growth. Both early growth, which protects soil at
                    the beginning of the planting season, and heavy growth, which increases
                    the amount of residue that can be left on the field after harvest, can
                    protect the soil at vulnerable periods. (American Farmland Trust, 1984,
                    pp. 49 and 60) The erosion-reduction benefits that can be derived from
                    increased fertilizer and herbicide use can be negated, however, if such
                    inputs are used to promote intensive row crop production.

                    Perhaps the main effect of conventional farming on soil erosion con-
                    cerns not how land is farmed but what land is cultivated. Soil erosion is
                    concentrated: 63 percent of total erosion on cropland occurred on 11
                    percent of the acres farmed, according to the first reliable, nationally
                    consistent estimates, obtained in 1977. (American Farmland Trust, 1984,
                    p. x) About one fifth of all farmed land is subject to serious damage
                    from erosion. (Clark, Haverkamp, and Chapman, 1986; USDA, 1987b) The
                    best way to conserve soil on highly erodible land is to keep it out of
                    production; some experts believe this can be done without endangering
                    the supply of farm commodities. (American Farmland Trust, 1984, pp.
                    44 and 46)

Economic Concerns   American agriculture faces many economic challenges. In assessing
                    them, it is important to focus on long-term trends and not just tempo-
                    rary conditions. Farmers typically have good years and bad years.

                    Q‘Urger equipment is best suited to long, paAle rows; conservation is maximized by farming land
                    to its contours.” (American Farmland Trust, 1984, p. 60)
                    loCrop rotations that include hay, forages, and other cover crops are used infrequently, in past
                    because(1) the number of farms raising livestock has fallen dramatically in recent decades,and with-
                    out livestock, farmers have less need to produce these crops; (2) the increasing availability of afford-
                    able synthetic fertilizers has made it less necessary for farmers to rotate crops to enhance soil
                    fertility; (3) fertilizers have made it possible to grow row crops year after year. (American Farmland
                    Trust, 1984, pp. 50-M)

                    Page 18                       GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
                                               Chapter 1

                                              Therefore, one should not place too much emphasis on the latest
                                              drought or bumper crop in describing agriculture’s economic condition.
                                              We have identified several important trends.

                                              Real net farm income has been falling since 1960, even though gross
                                              income has continued to grow. (Figure 1.6.) Thus, despite yearly varia-
                                              tions, farming as a whole has become less profitable. Although gross
                                              income has grown, more farm revenue has been spent on the costs of
                                              production, thus reducing profit margins. (Figure 1.6.) Meanwhile, gov-
                                              ernment spending on farm income stabilization has increased substan-
                                              tially. (Figure 1.7.) The growth in government support to farming has
                                              occurred during periods when farm income was both high and low.

Flgurp 1.5: Qross and Net Farm Income’
210         lEWkm     of 1982 dolbra










     1880                              1966        1970                       1975                        1880                       1985       1927

            -          Actualgross
            - - - -    Trend gross
            D          ActualNet
            n mum      Trend net
                                              aTrend lines are estimated by regression.
                                              Source: President of the United States, Council of Economic Advisers, Economic Report of the Presi-
                                              dent (Washington, DC.: i989), table B-96.

                                              Page 19                      GAO/PEMD-90-12 Alternative Agriculture: Incentives and OpMons
                                              Chapter 1

Figure/ 1.6: Increased Production Expenaeaa
190   lkoont    of gron   horn0

  1060                            1005             1970                       1976                       1980                        1985

         -       Actual
         ---1    Trend
                                              aTrend lines are estimated by regression.
                                              Source: President of the United States, Council of Economic Advisers, Economic Report of the Presi-
                                              dent (Washington, DC: 1989), table E-96.

                                              Page 20                       GAO/PEMD-90-12 Alternative Agricule:          Incentives and Opinions

                                         Chapter 1

Flgu+ 1.7: Qovernment Outlay8 ior Farm Income Support
200   hwoMtofnothmlInoome

      ‘-       Actual
      ,-mm-    Trend

                                         Source: President of the United States, Council of Economic Advisers, Economic Report of the Presi-
                                         dent (Washington, DC.: 1989) table S-96; Office of Management and Budget, Historical Tables, tludget
                                         me    United States Government, FY 1989 (Washington, DC.: 1989) table 3.3.m
                                         ment and Budget dlvldes federal spending on agriculture into two categories: farm income stabilization
                                         and agricultural research and services.

                                        Farm exports fell sharply between 1980 and 1986 after a long history of
                                        expansion, (Figure 1.8.) Declining exports put additional economic strain
                                        on the farm sector. However, it is not clear whether the export slump
                                        marks a dramatic break from the historical trend or is a return to it. In
                                        1987, farm exports returned to a long-term growth path, and figures for
                                        1988 indicate a continuation of this path.

                                        Page 2 1                       GAO/PEMDQO-12 Alternative Agriculture: Incentives and Opinions

                                             Chapter 1

Fig&        1.8: Farm Exports and Imports
50      ~llllom   of 1992 ddlam

 lS45                   1950       1955        1960              1955              1970              1975              1980              1985       1987

        -          Exports
        m--g       Imports

                                              Source: President of the United States, Council of Economic Advisers, Economic Report of the Presi-
                                             -dent (Washington, DC.: 1989).

                                             As shown in figure 1.5, net farm income increased from about $12 bil-
                                             lion in 1983 to about $40 billion in 1987. Despite a period of renewed
                                             prosperity, however, many farmers still face financial uncertainty. The
                                             U.S. Department of Agriculture (USDA) estimated that 33 percent of farm
                                             operators were in questionable economic health at the end of 1988,
                                             because they had marginal income, marginal solvency, or both. (Table

Table 1 .l: Distribution of Farm Operators
by Financial Position’                                                                          Marginal             Marginal
                                             Year                         Favorable              income              solvency          Vulnerable
                                             1988                                66.9%                19.5%                    8.3%                  53%
                                             ___-._____                          68.1                 16.9                    10.1                   4.9
                                             1986                                56.8                 21.6                    11.7                  10.0
                                             aAs percentage of all farms. Farms with marginal incomes had low levels of debt but negative incomes.
                                             Farms with marginal solvency had high debt-asset ratios but positive income. Vulnerable farms had high
                                             debt loads and negative income.
                                             Source: USDA, Financial Characteristics of U.S. Farms (Washington, D.C.: U.S. Government Printing
                                             Office, January 1, 1989) p. 9.

                                             Page 22                       GAO/PEMD9&12 Alternative Agriculture: Incentives and opinions
                  Chapter 1

                  W ith the budget deficit problems presently facing the nation, pressure
                  to reduce government support to farmers is likely to increase. (Although
                  farm program funding levels have declined since 1986, farm programs
                  are structured such that the government continues to remain vulnerable
                  to increased spending levels when market conditions change. As policy-
                  makers implement measures to reduce the federal deficit, farm support
                  programs may become targets for restructuring.

                  The health, environmental, and economic concerns associated with con-
Interest in       ventional agriculture have led to a growing interest in the development
Alternatives to   of alternatives that would lower health risks, protect farm resources,
Copventional      reduce adverse environmental effects, and improve long-term farm prof-
                  itability and competitiveness. Farmers, environmentalists, consumers,
Agriculture       and researchers have begun to seek, study, test, adopt, and advocate
                  alternatives to conventional agriculture. Interest in alternatives is partly
                  reflected by the workshops, conferences, and farm demonstrations being
                  conducted around the countryS1lAlternative farming methods are also
                  gaining recognition as an important area of scientific inquiry at several
                  universities and agricultural research centers. Furthermore, information
                  networks have recently been established to provide information about

                  Federal and state governments are also beginning to focus more atten-
                  tion on alternatives. Recent initiatives in a small number of states have
                  established stronger regulations to reduce the effects of some conven-
                  tional farming practices and to devote more resources to the develop-
                  ment of alternatives. Earmarking taxes on agrichemical products for

                   ’’National conferencessponsored by USDA, the Soil and Water Conservation Society, the Center for
                  Sciencein the Public Interest, the Institute for Alternative Agriculture, the Freshwater Foundation,
                  and other government and nonprofit organizations were held on the subject in 1988 and 1989. Farm
                  demonstrations and tours of farms using alternatives were conducted in several farm areas across the
                  country. Dick Thompson of Boone, Iowa, a well-known alternative agriculture farmer, has attracted
                  several hundred visitors each year to his farm to learn about the production practices he uses, and
                  the Rodale ResearchCenter in Ku&town, Pennsylvania, attracted over 6,000 visitors interested in
                  alternatives in 1987.

                  “One sourcebook on alternative agriculture research lists 18 universities having programs in
                  research, education, and extension work. (Haney, Krome, and Stevenson, 1986) The Appropriate
                  Technology Transfer for Rural Areas (ATTRA) is a national service begun ln 1987 and funded by
                  USDA to collect, analyze, and transfer information on alternative agriculture. In fiscal year 1988,
                  ATTRA responded to over 2,600 requests for information; during the first part of fiscal year 1989,
                  the rate of requests ran more than double the previous year. The University of Missouri at Columbia
                  also started an information network on alternatives for farmers in 1989.

                  Page 23                      GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
                       Chapter 1

                       research on alternatives and developing programs to monitor ground-
                       water and promote the use of “best” management practices by farmers
                       are some examples of state efforts. l3

                       The Secretary of USDA made a formal statement in support of alterna-
                       tives early in 1988, saying that USDA encourages research and education
                       programs “that provide farmers with a wide choice of cost effective
                       farming systems including systems that minimize or optimize the use of
                       purchased inputs and that minimize environmental hazards.” (USDA,

                       A small program specifically designated to provide research, education,
                       and technical assistance efforts for alternative agriculture was estab-
                       lished at the federal level by the Food Security Act of 1986. Although
                       not funded until fiscal year 1988, USDA'S Low Input Sustainable Agricul-
                       ture (LEA) program did provide $3.9 million in 1988 and $4.46 million in
                       1989. USDA also claims to spend about $100 million on related research.
                       (U.S. Congress, 1988) In addition, USDA initiatives focusing on farm mar-
                       keting and competitiveness, water quality, and alternative crops are
                       under way.

                       Concerned with ensuring that farmers have the flexibility to use a vari-
Objective, Scope,and   ety of management approaches, particularly methods that reduce
M&hodology             agrichemical inputs, the House Committee on Agriculture and the Sub-
                       committee on Department Operations, Research, and Foreign Agricul-
                       ture asked us to assesshow current federal farm programs and policies
                       may contribute to or inhibit the use of alternative farm production
                       methods. The Committee is aware of the health, environmental, and eco-
                       nomic problems that are associated with some conventional farming
                       practices, and it is familiar with the growing interest in alternatives.
                       The Committee believes that if federal policy limits the farmers’ ability
                       to use alternative practices, the Congress should begin developing meas-
                       ures to remove these limitations.

Objective              Given the Committee’s request, we designed a study to identify and
                       describe the extent to which federal agriculture policies and programs

                       131n1987, Iowa enacted a major groundwater protection law that created a tax of 76 cents per ton on
                       nitrogen fertilizer, along with pesticide sales and registration fees. Part of the money collected
                       through these measures is used to fund a research program at Iowa State University to study ways of
                       reducing the use of agrichemicals. Wisconsin also has a per ton sales tax on fertilizer and license fees
                       on pesticides, which in part fund a state system to monitor and regulate groundwater supplies.

                       Page 24                       GAO/PEMLHO-12 Alternative Agrkuhm               Incentives and Opinions
        Chapter 1

        provide incentives and disincentives to the use of alternative farming
        practices. Our study is partly exploratory, because alternative agricul-
        ture is difficult to define or measure operationally and because little is
        known about the use of alternative practices in the farm sector. In addi-
        tion, it is difficult to precisely identify and measure program influences
        on farm practices, because other factors such as market conditions and
        management capabilities also influence farm management decisions.

        Three research questions guided our analysis. First, What is known
        about alternative farm practices, particularly their technical utility and
        economic viability? Second, What incentives do the federal programs
        create that favor conventional practices, and what barriers do they pre-
        sent to the adoption of alternatives? Third, What do farmers think about
        the effect of federal farm programs on alternative agriculture?

Scope   We selected the components of the federal farm programs that have
        major importance for agriculture generally and, in particular, for the
        economics of farming. We also looked at the federal components that
        have been identified within the literature as having potentially impor-
        tant implications for the adoption of alternative agriculture. From these
        criteria, we chose to examine the commodity price and income support,
        federal farm credit, and federal crop insurance programs.

        We narrowed the scope of our study of the commodity price and income
        support programs to the major commodity cash crops-namely, feed
        grains, wheat, soybeans, and cotton. These programs make up the bulk
        of the price and income support system, in terms of both program
        spending and acreage in production. They are also commodities that
        have received much of the criticism directed against conventional agri-
        culture. The production of these commodities is generally associated
        with high agrichemical use, and many of the adverse environmental
        effects identified with conventional farming involve the production of
        these commodities. We included the main farm operating and ownership
        loan programs of the Farmers Home Administration (FmHA) within the
        federal farm credit system. For crop insurance, we included the Federal
        Crop Insurance Corporation (FCIC) programs, which subsidize insurance
        coverage on many different farm commodities.

        We decided not to include federal agricultural research and extension,
        resource conservation, and tax policies in this study. Although the

        Page 25              GAO/PEMD-90-12 Alternative Agriculturez Incentives and Opinions
               Chapter 1

               research and extension system provides essential information and tech-
               nical assistance to farmers, and although it has been the subject of criti-
               cism for failing to focus more on alternative agriculture practices, we
               chose not to include it, because other evaluation work is currently in
               progress and because it may be too soon to evaluate the effect of USDA'S
               IX% program and other recent research and education initiatives. While
               it is important to consider resource conservation-because of the possi-
               ble effect the conservation compliance provisions of the Food Security
               Act of 1986 may have on the use of alternative farming practices-
               many of these provisions are not fully implemented, so it may be more
               appropriate to evaluate them later. The tax code can influence agricul-
               tural practices by favoring certain investments over others. (Benfield,
               Ward, and Kinsinger, 1987) We did not evaluate tax policies, because
               any incentives they provide for selecting farm practices are less direct
               than those provided by the federal farm support programs.

               We considered several ways to obtain information on the farm programs
               and on farmers’ opinions about the programs’ effect on their farm prac-
               tices. These ranged from conducting a review and synthesis of existing
               studies to surveying major farm organizations to polling a nationally
               representative sample of farmers. We believed it was crucial to obtain
               information directly from farmers but thought it would have been
               extremely difficult to accurately collect complex information about
               alternative agriculture and the influence of federal programs through a
               mailed questionnaire. Thus, we chose to obtain the information most
               appropriate for this exploratory study through personal, in-depth inter-
               views with a small number of farmers in selected sites around the coun-
               try so that terminology and questions could be explained clearly and
               answers could be given at length.

MeI/hodology   Our study includes a number of evaluation components. To learn more
               about the characteristics of alternative agriculture and its use, we con-
               ducted an information synthesis. (U.S. General Accounting Office, 1983)
               The synthesis consisted of identifying, collecting, and reviewing availa-
               ble research studies and other relevant literature published over the
               past 16 to 20 years, as well as interviewing researchers, public interest
               group representatives, and other experts in the field. We also examined
               federal agriculture legislation, program regulations, and administrative
               provisions that pertained to the price and income support, credit, and
               insurance programs in order to identify program objectives, interactions,
               and intended effects. Information sources for this assessment included
               the Food Security Act of 1986 and subsequent farm legislation, sections

               Page 26               GAO/PEMD4M-12 Alternative Agriculture; Incentives and Opinions
                         Chapter 1

                         of the Code of Federal Regulations, USDAdocuments, and relevant litera-
                         ture on program operations and effects. We supplemented this work by
                         interviewing officials from USDA’S Agricultural Stabilization and Conser-
                         vation Service, F~HA,FCIC,Extension Service, and Economic Research
                         Service and others knowledgeable about federal agriculture policies and
                         programs. Our final evaluation component was a set of interviews with
                         farmers-in effect, a series of case studies. The purpose was to learn
                         how programs are implemented at the local level and to obtain farmers’
                         views about the influence of farm programs on their farm practices.

CakfzStudy Approach      Our case studies were designed to collect descriptive information from
                         farm officials and farm producers in a judgmentally selected sample of
     /                   local farm areas. We used several criteria to select local farm areas. We
                         first chose locations concentrated in the major commodity production
                         areas of the country. W ithin these areas, we identified counties where
                         agriculture was a key part of the economy and where the federal pro-
                         grams were a key part of agriculture, as indicated by farmers’ participa-
                         tion and federal farm program spending. In addition, we considered
                         information on farm and farmer-related characteristics in the counties.
                         We also tried to select counties that contained at least some farms
                         devoted to alternative farming. Since only limited information was
                         available on the location of such farms, we could not use this criterion
                         for selecting all county sites. The seven farm counties we selected are
                         listed in table 1.2.
Tab14 1.2: Study Sites
                         County                    State                         Agricultural region
                         Colquitt                  Georgia                       Southeast
                         Robeson                   North Carolina                Southeast
                         McLean                    Illinois                      Corn Belt
                         Boone                     Iowa                          Corn Belt
                         Cowley                    Kansas                        Northern plains
                         Brookings                 South Dakota                  Northern plains
                         Dane                      Wisconsin                     Lake states

                         In selecting a sample of farmers to interview, we were assisted by state
                         and local extension service officials. We asked extension officials in our
                         selected farm counties to identify farmers who generally own their
                         farms, have farmed for many years, rely on farming for their livelihood,
                         grow program-supported crops, participate in the farm programs, and
                         typically use conventional farming practices. We also asked extension

                         Page 27               GAO/PEMD-f612 Alternative Agriculture: Incentives and Opinions

Chapter 1

officials to identify farmers who used or were in the process of develop-
ing alternative practices. Of the farmers we chose for our sample, 2 con-
sidered themselves organic farmers and 4 others did not use pesticides;
22 farmers indicated that they had reduced their agrichemical use in the
past 6 years.

We developed a structured questionnaire for interviewing farmers. We
reviewed related surveys of farmers concerning farm production prac-
tices, alternative agriculture, and federal farm policies to aid in con-
structing our questionnaire. We also used information from our review
of the literature to develop additional questions. We included questions
about the types of farming practices they use (crop rotation, tillage, pest
and weed control, and soil fertility practices), their participation in the
farm programs (price and income supports, conservation, credit, and
insurance), factors that affect their decisions about what crops to plant
and practices to use (market conditions, experience with crops, availa-
bility of labor and machinery, and farm programs), the extent to which
participation in the farm programs influences their crop selection and
production practices, and their views about the potential barriers to the
use of alternative farming practices. (Several of these questions are
highlighted in chapter 4,)

In conducting the seven site visits, we interviewed a total of 74 farm-
ers-from 8 to 13 farmers in each county site. The interviews averaged
l-1/2 hours each and took place with individual farmers at their farms
or at the local county extension offices. We also interviewed state and
local farm officials, and we obtained reports on farming systems and
practices in the area and data and documents on federal farm program
provisions and participation. We met with staff from Ascs and FhHA and
with Cooperative Extension officials and, in some sites, a few commer-
cial farm lenders, crop insurance agents, and farm management com-
pany representatives. We also had discussions with agricultural
researchers at nearby land-grant universities about farming practices
and the use of alternative agriculture in the state. (Table 1.3.) Our site
visits were conducted between April and June 1989.

Page 28              GAO/PEMD-90-12 Alternative Agriculm   Incentives and Opinions
                                           Chapter 1

Table 1.3: Farm Official8 We Interviewed
                                                                                       Private officials
                                                                                     Lender or
                                    State officials County officials               management
                  County          ASCS FmHA CESOASCS FmHA CES’                        company         Insurance   University    Farmers
                  Colquitt             x    xx               x        xx                       X                           X           12
Nort Carolina     Fiobeson             x    xx               x        xx                                      X            X           12
Illinoib          McLean                                     X                 X               X                                       13
Iowa;             Boone                X                     X                 X               X                                        9
__... - .__-.--
Kamps             Cowley               X                     x        xx                       X                           X            9
Souxi%&a          Brookings            x    xx               x        xx                       X              X            X           11
   - ___t-----
Wisconsin         Dane                               x       x                 X                                           X            8
                                           Tooperative    Extension Service.

                                           We documented, analyzed, and summarized the information we collected
                                           from the site visits. Our findings from the case studies are presented in
                                           chapter 4.

Strengths and Lim itations
                                           Relatively little evaluation work has been conducted on the extent to
                                           which federal policy contributes to or inhibits farmers’ adoption of
                                           alternative farming practices. Our report should therefore provide infor-
                                           mation useful for understanding the influence of federal agricultural
                                           policies and programs while identifying areas where additional work is

                                           This report is limited to a review of existing policy and an examination
                                           of the data from seven farm counties. We were strongly impressed by
                                           the diversity of conditions within and across these seven counties and
                                           believe that the findings reflect many points of view. However, the
                                           counties we visited were not randomly chosen, and the sample of farm-
                                           ers we interviewed in each site may not represent farmers throughout
                                           the country or even throughout the local areas we visited. Our findings
                                           therefore cannot be generalized to the nation. However, when these
                                           farmers are compared to their peers, they do not appear, collectively, to
                                           be unusual regarding farm size, crop types, and management practices.
                                           Our case studies, therefore, serve the exploratory function intended:
                                           they provide a better basis for developing a more complete evaluation,
                                           and they illustrate current concerns among farmers, knowledge of
                                           which should be useful for setting policy in this area. Except as noted

                                           Page 29                         GAO/PEMD-99-12 Alternative Agricul~    Incentives and Opinions
chapter 1

above, our work was conducted in accordance with generally accepted
government auditing standards.

Page 30             GAO/PEMD-9@12 Alternative Agriculture: Incentives aud Opinions
. Chapter 2

 Characteristics of Alternative Agriculture

                      In this chapter, we briefly describe what is known about alternative
                      agriculture. We begin by defining the concept of alternative agriculture
                      and then discuss key factors that may limit its adoption by farm produc-
                      ers. Our discussion is based on a review of the existing research litera-
                      ture and information from conferences and meetings about alternative
                      agriculture and interviews with agricultural experts and others familiar
                      with the subject.

                      Alternative farming strategies attempt to address the health, environ-
                      mental, and economic problems associated with conventional agricul-
                      ture. The most well-known labels for these strategies include
                      alternative, sustainable, low (or reduced) input, organic, and regenera-
                      tive agriculture. Although these terms do not have precise or identical
                      meanings, they are generally used to identify a broad range of farm
                      practices centered on common farm goals. Detailed definitions of these
                      terms have not been well-developed in the literature. (Lockeretz, 1988)

 Goals                For agriculture to be sustainable in the long run as well as the near
                      future, it must balance several goals. The goals commonly identified

                  . promoting consumers’ and farmers’ health,
                  l maintaining environmental stability,
                  . enhancing farmers’ profitability, and
                  9 producing the agricultural goods that meet society’s needs.

                      Whether these goals can be attained simultaneously and whether con-
                      ventional or alternative farm production methods are best suited to
                      attaining them are empirical questions that have not been conclusively
                      answered. We do not attempt to address these questions in this report.
                      Instead, our purpose is to assess whether existing federal farm pro-
                      grams contribute to or inhibit the use of alternative methods. To answer
                      this question, it is important to differentiate between conventional and
                      alternative practices.

 Practices            Alternative practices can best be illustrated by contrasting them in gen-
                      eral with conventional practices regarding the four components of farm-
              ”       ing listed in table 2.1: crop choice, pest and weed control, soil fertility,
                      and soil cultivation.

                      Page 31               GAO/PEMD-9@12 Alternative Agricultum   Incentives and Opinions

                      chapter 2
                      CharacterIstica of Altematlve    Agriculture

2/l: Farm Practicer
                      component            Conventional practice                     Alternative practice
                      Crop choice          Specialize; plant most profitable         Increase diversity, use multiyear
                                           crop on same ground year after            rotations, and develop integrated
                                           year                                      crop and livestock operations
                      Pest and weed        Apply synthetic insecticides,             Use integrated pest management,
                      control              herbicides, and fungicides                natural predators, resistant crops,
                                                                                     crop varieties well-suited to
                                                                                     agronomic conditions, crop
                                                                                     rotations, mechanical cultivation,
                                                                                     and intercropping
                      Soil fertility       Apply synthetic fertilizer, especially    Use crop rotations, le umes to fix
                                           nitrogen products such as                 nitrogen, and livestoc gkmanures
                                           anhydrous ammonia and urea
                      Soil cultivation     Cultivate highly prepared seed            Maintain protective cover on soil
                                           beds                                      and plow to minimize soil erosion
                                                                                     and loss of soil moisture

                      These practices are distinctly different, although farms often use some
                      blend of conventional and alternative practices. Farms consequently
                      need not necessarily be either conventional or alternative but can be
                      more-or-less conventional or alternative regarding each agricultural
                      component. Farms are usually labeled “conventional” or “alternative”
                      for their main tendencies, not because they fall completely within either

                      Proponents of alternative agriculture contend that farmers can move
                      toward the goal of sustainable agriculture by using fewer nonrenewable
                      inputs such as synthetic fertilizers and pesticides.’ In particular, they
                      strive to hold agrichemical input use to the lowest feasible level. For
                      example, they believe that using fewer agrichemicals may increase prof-
                      its by reducing production costs. Reducing agrichemical use can also
                      decrease pollution, thus improving water quality, and it can help restore
                      depleted fields. Less exposure to agrichemicals may ease consumer and
                      farmer health problems and concerns. Furthermore, advocates of alter-
                      native agriculture believe that farm productivity can be maintained
                      even with reduced agrichemical use.

                      Defenders of conventional agriculture generally argue that the farm
                      practices most commonly used today are themselves sustainable. They
                      note that agriculture in the United States is highly productive and pro-
                      vides food and fiber to the public at relatively low cost. Furthermore,

                      ‘Some proponents of alternative agriculture see reduced nonrenewable input use as a goal in itself,
                      while others view it as a means of achieving the other goals.

                      Page 32                       GAO/PEMD-30-12 Alternative Agricul~           Incentives and Opinions
                           Charaetorlsties of Altentative   Agriculture

                           although farm incomes fluctuate, they are close to the national average,
                           and net worth per farm family is about four times the national average.
                           (USDA,198913)Supporters of conventional agriculture consider environ-
                           mental problems minor compared to productivity gains, and harmful
                           effects on human health are considered largely unproven and unwar-
                           ranted. (Butz, 1987)

Cojwentional and           To clarify the conceptual relationship between conventional and alter-
Aldernative Agriculture:   native farming within the context of the goals of sustainable agriculture,
                           it may be helpful to see them as three partially overlapping shapes, as in
Cohvergenceand             figure 2.1. One circle shows the entire body of alternative practices, and
Divergence                 the other circle shows the conventional practices, while the square rep-
                           resents all the sustainable goals. The lettered sections identify the possi-
                           ble relationships. Much of the debate over conventional and alternative
                           agriculture concerns the practices that actually are sustainable in sec-
                           tions b, d, and f.

                           Page 33                      GAO/PFMD-90.12 Alternative Agriculture: Incentives and Opinions
                                              Chapter 2
                                              Characteriefics of Alternative Agriculture

Figure; 2.1: Conventlonal, Alternative, and
Surtaihable Agriculture

                                                                          r-         Conventional    practices

                                              aConventional practices that are not sustainable.
                                              bConventional practices that are sustainable.

                                              ‘Alternative practices that are not sustainable.
                                              dAlternative practices that are sustainable.

                                              @Conventional and alternative practices that are not sustainable.

                                              ‘Conventional and alternative practices that are sustainable.

                                              T&stainable goals that are not met by existing conventional or alternative practices.

                                              Because conventional and alternative farm practices overlap, moving
                                              from one to the other may not necessarily require dramatic changes in
                                              techniques. For example, using “pest scouting” and carefully targeted
                                              applications of pesticides can help control insects and diseases while

                                              Page 34                        GAO/PEMD-90-12 Alternative Agrhl~               Incentives and Opinions
                  Chapter 2
                  Characteristics of Alternative Agciculture

                  reducing the use of agrichemical inputs. Introducing legumes and live-
                  stock manure, and following the guidelines of regular soil tests to accu-
                  rately monitor soil fertility, can enhance fertility and reduce the need
                  for synthetic fertilizers. Broadening crop rotations to include a variety
                  of cash crops, legumes, and hay can also improve soil quality, cut down
                  on erosion, and break insect and disease cycles. Using different cultiva-
                  tion techniques and cover crops to control weeds can limit the need to
                  use herbicides, These are all alternative techniques that lead to signifi-
                  cant reductions in agrichemical inputs. Together, these practices may
                  help improve consumers’and farmers’ health and lessen the adverse
                  environmental effects while improving farm productivity and

                  Even though conventional agriculture presents some health, environ-
Barriers to the   mental, and economic problems, only a relatively small number of the
Adoption of       farms in the United States are considered to have operations that cur-
Alternative       rently meet the goals and practices of alternative agriculture. Although
                  no accurate data are available on the extent of the use of alternative
Agriculture       agriculture, one expert believes that 20,000 to 50,000 farms of a total of
                  2.2 million farms in the country have stopped using agrichemical inputs
                  or are in transition to farming without them. (Youngberg, 1988) Given
                  the potential benefits that many observers believe can be derived from
                  alternative agriculture, this number seems fairly small.

                  A larger number of farmers employ one or more alternative agriculture
                  practices in conjunction with their more dominant use of conventional
                  practices. For example, conservation tillage, integrated pest manage-
                  ment (IPM), and crop rotation methods are extensively used alternative
                  practices. A survey by the Conservation Technology Information Center
                  reports that conservation tillage practices are used on about one third of
                  the total planted crop acreage in the country. (Conservation Technology
                  Information Center, 1988) IPM, in one form or another, is also used on a
                  relatively large proportion of farm acreage, according to USDA informa-
                  tion. (USDA, 1988b; USDA 1987a) For certain crops such as cotton and pea-
                  nuts, IPM is used on approximately 40 to 50 percent of the planted
                  acreage, while for crops such as wheat and corn, IPM is used on approxi-
                  mately 15 to 20 percent of the planted acreage. Conventional agriculture
                  has not eliminated crop rotation from common use, either. Most farmers
                  still employ some form of crop rotation, although it may consist of inten-
                  sive rotation of only two alternating crops.

                  Page 35                    GAO/PEMD!M-12 Alternative Agriculturez Incentives and Opinions

                     Chapter 2
                     Characterbtic*r of Alternative Agriculture.

                     In addition, a significant number of farmers do not use some kinds of
                     agrichemicals because of the types of crops they grow and their
                     favorable growing conditions. A large proportion of wheat producers,
                     for example, do not use herbicides or insecticides on their fields. Herbi-
                     cides are not used on 39 percent of the total wheat acreage under pro-
                     duction and insecticides are not used on 93 percent of the acreage.
                     (Osteen and Szmedra, 1989)

                     There are several reasons why a larger number of farmers have not
                     adopted alternative production practices that significantly reduce
                     agrichemical use. Farmers may perceive that alternative agricultural
                     practices would lower crop yields and profits while making credit and
                     insurance harder to get. Lack of information, lack of access to informa-
                     tion, or simple reluctance to change might also hinder their adoption.
                     Farmers may lack markets for some alternative crops, the financial
                     resources to change farm labor and machinery, or the skills needed for
                     more complex management. Finally, since the federal government’s farm
                     policies significantly influence farm profits, credit and insurance availa-
                     bility, and the development and transfer of research information to
                     farmers, these policies may- intentionally or unintentionally-institu-
                     tionalize the use of conventional methods and contribute to the reluc-
                     tance of farmers to adopt alternative agricultural practices.

Economic Viability   Alternative agriculture must be profitable if farmers are to accept it.
                     Studies on the economic performance of alternative agriculture, how-
                     ever, are few, methodologically limited, and enterprise-specific. They do
                     not allow us to draw firm conclusions about the general profitability of
                     these farming systems compared to conventional farms.

                     Only a small number of studies using direct farm comparisons, research
                     test plot data, or simulation models have analyzed the economic charac-
                     teristics of alternative systems and compared them to conventional farm
                     systems. (Dobbs, Leddy, and Smolik, 1988; Goldstein and Young, 1987;
                     Helmers, Langemeier, and Atwood, 1986; Shearer et al., 1981) Addi-
                     tional information from case studies and surveys of farming operations
                     that use alternative systems are also available and lend support to what
                     is known about the economic performance of these farming systems.
                     (National Research Council, 1989; Duffy, Ginder, and Nicholson, 1988;
                     Taylor, Dobbs, and Smolik, 1989) The vast majority of the literature,
                     however, focuses on a narrow set of alternative agriculture systems-
                     namely, farms that use virtually no agrichemical inputs and are most
                     closely linked to organic farming systems. At least one critic has pointed

                     Page 38                     GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions

    chapter 2
,   characteristics   of Alternative Agricnltnre

    out that this is a major shortcoming in the research literature, because
    farmers are less likely to move all the way to organic farming and more
    likely to adopt one or more alternative practices that are compatible
    with their conventional farming systems. (Nowak, 1989)

    Several reviewers have criticized the methodological quality of many
    studies that compare alternative and conventional farming systems, par-
    ticularly much of the research conducted in the 1970’s. Problems such
    as small sample sizes, poorly matched farm comparison groups, and lack
    of multiyear data have been noted. (Cacek and Langner, 1986; Crosson
    and Ekey, 1987; McKinney, 1987) Such problems make it difficult to
    attribute differences in economic outcomes (production costs and profit-
    ability) to the farm methods employed.

    The studies conducted in recent years appear to be stronger methodolog-
    ically, but the findings are highly specific to the farm enterprises ana-
    lyzed. That is, they are limited to specific crop mixes, rotation systems,
    agroclimatic conditions, and production practices. Findings are difficult
    to compare, because different assumptions about market prices, crop
    yields, and government agricultural policies are used. In addition, many
    of the findings are weakened because the research does not generally
    take into account possible uncertainties about weather conditions, varia-
    tions in crop yields, differences in management skills and labor require-
    ments, and the influence of government policies or market conditions.

    Although the available research is limited, evidence is beginning to
    emerge with respect to the potential profitability of certain alternative
    farming systems that have completely stopped using agrichemical
    inputs. One economic characteristic shown in much of the literature is
    that the production costs of the alternative farming systems studied are
    usually lower than those of the conventional systems that are compared
    to them. This difference stems largely from a reduction in agrichemical
    inputs. Although the alternative systems in these studies appear to
    require more labor for mechanical cultivation and other alternative pest
    control measures, the increase is not enough to offset the cost reduction
    gains arising from the decreased use of agrichemicals.

    W ith respect to crop yields, the literature is more divided. In some stud-
    ies, yields under alternative farming systems were found to be compar-
    able to those achieved under conventional systems; in other studies,
    alternative agriculture yields were shown to be lower. Several research-
    ers have noted that during an initial transition or conversion phase, crop
    yields may be significantly lower for alternative systems because of the

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Chapter 2
Charactmistlce of Alternative Agriculture

time usually required for reduced chemical cropping systems to become
established and effective. (Dabbert and Madden, 1986) After some time,
however, yields tend to improve as these systems take hold and mature.
In several studies, yields are shown to improve to levels slightly lower,
on the order of 5 to 10 percent, than those produced under conventional
systems. (Goldstein and Young, 1987; USDA, 1980) Although yields pro-
duced in these alternative systems were lower, they did appear to be
less variable year to year than thz conventional yields studied. (Hel-
mers, Langemeier, and Atwood, 1986) In other literature, however, par-
ticularly various case studies of alternative farms, yields were found to
be higher than local county averages. (Culik, 1983; National Research
Council, 1989)

Evidence based on existing research about the overall profitability of
alternative farming systems is inconclusive. Most of the available case
study information concerns alternative farms that are profitable.
(National Research Council, 1989; Madden, 1988) Many of these farms
are profitable in part by reducing input costs and relying on higher
prices for their crops. By producing crops without agrichemical inputs,
these farmers can often take advantage of higher prices available for
organic products.

A few existing comparative studies also show that alternative systems
can be profitable under certain situations but less so under other condi-
tions, In a study of two different alternative farming systems in the
Northern plains, net income for one system was shown to be 30 percent
higher than the conventional system analyzed but 48 percent lower for
the other alternative system. (Dobbs, Leddy, and Smolik, 1988) In
another study of an alternative farming system in the Northwest, net
returns were 21 and 7 percent less compared to the conventional system
under high and low yield assumptions. (Goldstein and Young, 1987) The
authors of this study, however, noted that when government support
prices were subtracted from the farm budget calculation, the alternative
systems provided higher net returns. Finally, in another study of experi-
mental farming systems in Nebraska, net returns under alternative crop
rotation systems were somewhat lower than those of conventional sys-
tems employing intensive crop rotation systems but higher than several
other systems involving continuous crops. (Helmers, Langemeier, and
Atwood, 1986)

One reason for the difference in profitability in these studies appears to
be the difference in market value of the crops produced. The alternative
systems in these studies tended to have diversified crop rotations, which

Page 38                    GAO/PEMDO-12     Alternative Agricultum   Incentives and Opinions
                           Chapter 2
                           Characteristics of AIternatlve Agrlcnltnre

                           included crops such as alfalfa and small grains. These crops generally
                           have lower market prices than the crops characteristic of conventional
                           systems, such as corn or soybeans.

                           Since many macroeconomic, microeconomic, environmental, and agro-
                           nomic factors influence farm profitability, a significant amount of fur-
                           ther research will need to be completed before it is possible to make
                           general statements about the relative profitability of alternative and
                           conventional agriculture systems. Farmers will naturally be reluctant to
                           change existing production practices without convincing information
                           regarding profitability. Recent interest in alternative agriculture, how-
                           ever, has led to the start of additional farm economics studies. This
                           increased effort should provide better data to assessthe profitability of
                           alternative agriculture systems.

Tdchnical Information on   Reliable information about alternative agriculture practices must be
Alternative Agriculture    available and readily accessible to farmers if alternative agriculture is to
                           be accepted. Many observers have pointed out, however, that research,
                           education, and technology transfer activities in alternative practices
                           have been lacking. (Edwards, 1987; National Research Council, 1989)
                           These observers stress that agricultural research and education activi-
                           ties during the past 3 decades have focused chiefly on increasing food
                           supplies and farm profits through higher yields. This has led to develop-
                           ments in intensive farming practices and the dominant use of agrichemi-
                           cal inputs. Alternative practices that make use of reduced agrichemical
                           methods have not been studied as extensively and, as a result, are not
                           well developed.

                           A significant amount of work has been conducted on selected practices
                           that can help reduce agrichemical use and improve resource conserva-
                           tion. IPM, conservation tillage, nutrient management, disease and insect
                           resistant crop types, and more efficient agrichemical application tech-
                           niques are areas where research and education have taken place. As
                           mentioned earlier, some of these practices are used by a large number of

                           Research, however, on the use of practical crop rotations that incorpo-
                           rate cover crops such as legumes or intercropping techniques and vari-
                           ous biological and mechanical pest control methods has been largely
                           neglected until recently. (Dahlberg, 1986) Information gaps currently
                           exist with respect to these alternative methods. It is generally known,
                           for example, that certain crop rotations contribute to better crop yields

                           Page 39                      GAO/PEMD-O-12 Alternative Agriculture: Incentives and Opinions
Chapter 2
CharacterIedce of Alternative     Agriculture

and help break some pest cycles, but information about the types of
crop rotations (crop mix, crop varieties, and rotation sequence) that are
best suited to different agroclimatic conditions and farm management
situations is not readily available. Also, it is widely recognized that vari-
ous legumes and other nitrogen-fixing crops can be used to enhance fer-
tility but information about the most effective plants to use is limited.

Several proponents of alternative agriculture have suggested that farm-
ers considering the adoption of alternative practices have difficulty
obtaining information about such practices. A small number of surveys
have been conducted of farmers who use organic methods to learn what
sources of information they have used in deciding upon their farming
operations. (Blobaum, 1983; Baker and Smith, 1987) Survey respondents
from these studies most often identified fellow farmers, specialized farm
magazines and newsletters, farm workshops and conferences, and farm
experiments as the most important sources of information. A relatively
small number of the respondents said that they relied on land grant uni-
versity researchers or extension specialists for technical information.

Alternative agriculture researchers often emphasize the importance of
applying a systems perspective to the study of alternative practices.
That is, they look at a whole farm and the interactions of its various
components-crop rotations, cultivation, fertilization, crop protection,
and farm economics-rather than just balancing inputs against profits.
(Edwards, 1987) As agrichemical inputs are reduced, the interaction of
the components within the farm system become more important. Instead
of relying on a single component such as pesticides, alternative agricul-
ture places greater emphasis on a diverse set of components such as
crop rotations, cultivation, and possibly biological controls to protect
crops. Knowledge about the interactions of these components is impor-
tant for developing effective alternative farm management strategies.

A key criticism of agricultural research is that it has failed to approach
farming from a systems perspective. Agricultural research, like many
other areas of research, has tended to emphasize specialized subareas
within the discipline- agronomy, soil science, entomology, and so on-
rather than interdisciplinary work that considers the whole farm. As a
result, scientific advances pertaining to individual practices have
occurred but advances toward the development of agricultural systems
have not. Proponents of alternative agriculture argue that the develop-
ment of alternative practices can come only from an interdisciplinary

Page 40                         GAO/PEMD-90-12 Alternative Agriculturez Incentives and Opinions
Chapter 2
Chaawtetitics   of Alternative Agriculture

A great deal of technical information on particular alternative practices
is currently available but much of it is fragmented and not well inte-
grated or accessible to farm producers. Recent interest among farmers
and others has contributed to increased research on different aspects of
alternative agriculture. Several farm research projects and demonstra-
tions are under way around the country, funded by USDA'S LISA program
and other government and nongovernment funding sources. These
efforts should increase our knowledge about alternative agriculture.

Alternative agriculture emphasizes a reduction in agrichemical inputs
and greater use of management techniques to conserve farm resources,
reduce adverse environmental effects, promote health, and improve
profits. A broad range of management practices is emphasized, including
the use of diversified crop rotations, conservation tillage, animal
manures and nitrogen-fixing crops, and biological pest control tech-
niques. Greater adoption of alternative agriculture is unlikely to occur,
however, unless more research can demonstrate its profitability and
technical utility. The profitability of alternative agriculture systems has
been shown in some cases when compared to conventional systems. Fur-
ther research is needed to systematically evaluate the costs and benefits
of various farm practices so farmers can see the likely trade-offs.
Research is also needed to develop a better understanding of the effects
of reducing agrichemical inputs and to investigate techniques that may
effectively replace them.

In the next chapter, we focus on the role of federal agriculture policy
and the incentives and disincentives of existing policy for the adoption
of alternative agriculture. Federal policy has traditionally had a strong
influence on the agricultural sector by supporting farm income and reg-
ulating production. Several proponents of alternative agriculture believe
that federal policy has been a key factor influencing crop selection and
the use of farm production practices.

Page 41                     GAO/PEMLMO-12 Alternative Agricul~   Incentives and Opinions

C h a p ter 3

T h e Im p lica tio n so f F e d e ralF a m P r o g r a m s

                              In this c h a p ter, w e discuss fe d e r a l agriculture policies a n d p r o g r a m s
                              th a t create incentives a n d disincentives for crop selection a n d p r o d u c -
                              tio n practices a n d , th u s , h a v e th e p o te n tial to e n c o u r a g eor d i s c o u r a g e
                              th e u s e o f alternative fa r m i n g practices. W e e m p h a s i z eth e w o r d “p o te n -
                              tial” b e c a u s em u c h o f w h a t is k n o w n a b o u t th e relationship b e t w e e n
                              fe d e r a l p r o g r a m s a n d fa r m practices is largely u n p r o v e n or d e p e n d e n t
                              o n specific circumstances.Little empirical researchisolates a n d m e a s -
                              ures th e e ffect o f th e s e incentives. Thus, w h a t follows is m o r e a logical
                              th a n a n empirical analysis; w e d o , o f course,m a k e u s e o f available d a ta .

                              F a r m e r s ’decisionsa b o u t w h a t crops to p l a n t, h o w m u c h to p l a n t, a n d
                              w h i c h fa r m practices to u s e a r e influenced in varying d e g r e e sb y a
                              diverse set o f interacting factors, including m a r k e t prices, g o v e r n m e n t
                              policies, p e r s o n a lpreferences,m a n a g e m e n skills t    a n d abilities, p a s t
                              experiences,available financial resources,costs o f i n p u ts, a n d a g r o -
                              n o m i c conditions. M a r k e t prices m a y influence s o m e fa r m e r s to c h a n g e
                              crops in o r d e r to increaseshort-term profits, for e x a m p l e ,while o th e r
                              fa r m e r s m a y prefer to c o n tin u e g r o w i n g th e crops with w h i c h th e y h a v e

                              T h e following sections describeth e fe d e r a l fa r m p r o g r a m s a n d i d e n tify
                              e l e m e n tsin th e m th a t c a n logically b e e x p e c te dto a ffect th e u s e o f alter-
                              n a tive agriculture, especiallyth r o u g h th e incentives or disincentives
                              th e y m a y o ffer, a n d th e extent to w h i c h th e y m a y lim it fa r m e r s ’flexibil-
                              ity to consider a n d incorporate alternatives. This discussionis b a s e do n
                              o u r review o f existing literature, fe d e r a l legislation a n d a g e n c yp r o g r a m
                              regulations, a n d m a terial collected from interviews with U S D A p r o g r a m
                              o fficials a n d o th e r individuals k n o w l e d g e a b l ea b o u t th e fe d e r a l agricul-
                              tural s u p p o r t system, A fter describingth e m a i n fe a tures o f th e fa r m
                              p r o g r a m s ,w e consider s o m e o f th e m a i n criticism s raised b y p r o p o n e n ts
                              o f alternative agriculture.

                              A b o u t 5 0 p e r c e n t o f th e to tal m a r k e t v a l u e o f U .S . agricultural crop a n d
F e d e r a Fl a r m          livestock p r o d u c tio n is i n c l u d e d in U S D A ’S   price a n d i n c o m e s u p p o r t pro-
C o m m o d ityP rice a n d   g r a m s . ( U S D A1, 9 8 8 1 3T)h e s e p r o g r a m s ,administeredb y th e Agricultural
In c o m eS u p p o rt        S tabilization a n d ConservationService, w e r e created d u r i n g th e fa r m
                              d e p r e s s i o no f th e 1 9 2 0 ’sa n d 1 9 3 0 ’sto a d d r e s sth e e c o n o m i cinstability
P rograms                     a n d risk associatedwith fa r m i n g . T h e y a r e i n t e n d e d to s u p p o r t c o m -
                              m o d i ty prices, i m p r o v e fa r m e r s ’incomes,a n d m a n a g eth e supply o f
                *             fa r m c o m m o d i ties.A c o m b i n a tio n o f a u thorizing legislation, m o s t
                              recently th e F o o d Security A c t o f 1 9 8 6 a n d a m e n d m e n ts,a n d U S D A 'S dis-
                              cretionary a u thority g o v e r n th e p r o g r a m s ’s c o p ea n d structure. A

                              Page 42                       G A O /P E M D - 9 0 - 1 2Alternative Agricultures Incentives a n d O p i n i o n e
                          Chapter 3
                          The Implications of Federal Farm Programs

                          number of provisions authorized by law can be implemented or
                          approved by USDA, based on certain supply, demand, and other market
                          conditions in the farm sector.

                          One difficulty in discussing farm price and income support programs is
                          that several provisions are commodity specific. Our discussion in the fol-
                          lowing section pertains to the general provisions that apply most
                          directly to wheat and feed grains.

    Hc)w Farm Commodity   All farmers growing eligible crops are entitled to participate in the farm
    Pr/ogramsWork         programs regardless of income, and most of the acreage in program sup-
                          ported crops has been enrolled in recent years.’ Between 86 and 95 per-
                          cent of eligible farmland in 1987 was enrolled in the programs that
                          support wheat, corn, cotton, and rice. (USDA, 1989d) Price support pro-
                          grams ensure participating farmers that they will not have to sell
                          selected commodities for less than an authorized floor price. Income sup-
                          port programs pay participating farmers directly if prices for certain
                          crops fall below an established “target” price. Supply management pro-
                          grams may require farmers who are participating in price and income
                          support programs to reduce their plantings; they also allocate produc-
                          tion quotas or provide producer storage payments.

                          In the price support program, nonrecourse loans are made to farmers
                          who pledge their commodity crop as collateral against the loan. A key
                          purpose behind the use of these loans is to enable farmers to hold on to
                          their crops after harvest and sell them at a later date when market
                          prices might be higher. The loan rate is given in dollars per bushel, ton,
                          or hundredweight and effectively acts as a floor price for each crop.
                          Farmers can either repay the loan by selling their crops when market
                          prices are higher than the loan rate or forfeit their crops to USDA when
                          market prices are lower than the loan rate. The loans are “nonrecourse”
                          because the IJSDA has no choice but to accept the crop as repayment for
                          the loan, regardless of how low market prices may be. A farmer’s total
                          loan for each crop is essentially the loan rate times actual production.

                          ’Program-supported commodities include feed grams (corn, grain sorghum, barley, and oats), wheat,
                          soybeans, cotton (upland and extra long staple), tobacco (flue-cured and burley), peanuts, rye, rice,
                          sugar, wool, mohair, honey, and dairy. Our discussion of the commodity programs focuses mainly on
                          the provisions that pertain to corn, wheat, cotton, and soybeans. Historically, program participation
                          rates have tended to go up and down as market prices fluctuate. During periods when market prices
                          are low relative to program support prices, participation rates are high, when market prices improve,
                          program participation rates begin to fall.

                          Page 43                      GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
Chapter 3
The Implications of Federal Farm Programa

The income support program makes “deficiency” payments directly to
participating farm producers of wheat, feed grains, cotton, and rice if
crop prices fall below the “target” price level set by law. The payment
rate is the difference between the target price for the crop and the
crop’s average market price or government nonrecourse loan rate,
whichever is higher. A farmer’s total deficiency payment for each crop
is calculated by multiplying the payment rate by the farmer’s estab-
lished program yield (measured in bushels, pounds, or hundredweight
per acre) by the farmer’s permitted program acres (the farmer’s total
crop acreage base minus land set aside through the acreage reduction
program) for that crop.2

The producer’s acreage base and program yield, which together make up
the crop acreage base system, are based on previous, not current, pro-
duction. The acreage base is the average of the acreage that is planted,
or “considered planted,” in the program crop during the previous 5
years. Land is “considered planted” if it is taken out of production to
comply with program requirements designed to manage supply or if it
could not be planted because of extreme weather or other conditions
beyond the producer’s control. The program yield is the average crop
yield for the 5-year period 1981-85, dropping the highest and lowest
yields. Before 1986, farmers could increase their program yield by
increasing actual yields. Since then, farmers have not been allowed to
increase program yields, even if their actual crop yields have continued
to grow.3

Farmers who participate in commodity programs are required to reduce
their planted acreage in order to receive support payments or loans
when an acreage reduction program is put into effect by USDA. The land
that farmers take out of production to meet acreage reduction program
requirements, commonly called “set aside” land, must be put into an
approved conserving use or planted in an approved crop.4 Conserving
uses vary by locality but generally involve measures to protect land
from weeds and erosion. Common measures include growing grass or

“If the payment rate is $1.00 per bushel, a farmer with a program yield of 100 bushels per acre and a
permitted base of 100 acres will receive $10,000 in deficiency payments ($1.00 times 100 times 100).

‘$TheCongressis considering proposals to remove the freeze on program yield levels. The House
passed a bill on June 13, 1989, to allow wheat, feed grains, cotton, rice, and soybean farmers to report
annual crop yields.
4Technically, land taken out of production through the acreagereduction program is called ACR
(acreageconservation reserve) land rather than set-asideland; set-aside land is slightly different. The
term “set aside” is commonly used, however.

Page 44                       GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
chapter 3
The Implications of Federal Farm Programs

leaving crop residue on the ground. USDAallows grazing on set-aside
acreage during part of the year but not haying except under special cir-
cumstances, which involve determining that no adverse economic
effects will result from such production. The amount of land that partic-
ipating farmers must put in set-aside varies yearly, depending on esti-
mated crop supplies. A lo-percent acreage reduction was in effect for
the 1989 crop year for wheat and corn, compared to 27.5percent and
20-percent reductions respectively for each crop in 1988.

Farmers are not allowed to plant more than their base acreage in a pro-
gram crop as long as they are participating in the farm programs. Farm-
ers may leave the program in a given year to “build” their base,
however. A farmer with a loo-acre corn base, for example, could stay
out of the program for a year, not collect any support payments, and
plant 200 acres of corn. A farmer who planted twice as much corn acre-
age would increase the corn base to 120 acres the following year, based
on the previous 5-year average acreage.

Farmers also have the option to participate in the “O/92” and “50/92”
acreage diversion programs. Producers can choose to plant less of a pro-
gram crop than they are permitted to grow and still receive deficiency
payments. In the O/92 program, wheat and feed grain producers can
plant as little as 0 percent of their permitted crop acreage base and
receive 92 percent of their expected deficiency payments.” Land enrolled
in these programs and not planted must be devoted to conserving uses.

The crop acreage base system gives participants limited flexibility to
grow other program or nonprogram crops. A farmer growing a program
crop cannot plant any other program crop, for example, unless that
farmer also has a crop acreage base for that crop (this is called the
“cross compliance” provision). Thus, a participating farmer growing
corn who plants wheat as well but has no established wheat base stands
to lose eligibility for benefits in the corn program. Cross-compliance
restrictions do not apply, however, to separate farms operated by the
same farmer. Farmers who operate multiple farms have greater flexibil-
ity to establish or change crop acreage bases.

Certain program provisions can enable farmers to plant other program
or nonprogram crops on their acreage bases without becoming ineligible

“The “60/92” program applies to upland cotton and rice producers. These producers can receive 92
percent of their expected deficiency payments for planting as little as 60 percent of their permitted
program acreage.

Page 46                       GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
                             Chapter 3
                             The Implications of Federal Farm Programs

                             to receive benefits or without having to reduce their crop acreage bases.
                             The actual provisions vary from year to year, and many are imple-
                             mented at the discretion of the Secretary of USDA. Follow-on legislation
                             to the Food Security Act of 1985 allowed participants for each of the
                             crop years 1986-89 to grow “other nonprogram crops” on a portion of
                             their program crop’s permitted acreage without any reduction in that
                             crop’s acreage base.”In 1989, farmers participating in the wheat, feed
                             grains, cotton, and rice programs were also allowed by the Disaster
                             Assistance Act of 1988 to plant soybeans or sunflowers on 10 to 25 per-
                             cent of the program crop’s permitted acreage without reducing their
                             crop acreage base, and an oats provision allows farmers to substitute
                             oats for a program crop.

Farti Commodity Price        Proponents of alternative agriculture contend that federal farm pro-
and income Support           grams encourage the use of conventional farm practices while discour-
                             aging the use of alternative farming practices. There are several main
Program Incentives and       criticisms, all involving incentives for farmers to
                         .   grow only a small group of selected program crops,
                         .   grow these program crops year after year instead of planting diverse
                             crop rotations,
                         .   overproduce the program crops by farming more intensively, and
                         .   plant program crops on land best left unfarmed.

                             The logic underlying these assumptions about program incentives is
                             based on four general observations about farmers’ behavior. The first is
                             that farmers seek profits: given two alternatives, alike in other ways, a
                             farmer will normally choose the more profitable one. Second, farmers
                             are averse to risk: given two alternatives, alike in other ways, a farmer
                             will usually choose the less risky one. Third, farmers also prefer to fol-
                             low routines: given two alternatives, alike in other ways, a farmer will
                             typically choose the one that does not require a change in behavior.
                             Finally, farmers differ in their preferences: given two alternatives, alike

                             “Producers could substitute up to 60 percent of the permitted crop acreagebase in a nonprogram crop
                             in 1986 and 1987,36 percent in 1988, and 20 percent in 1989, the last year the provision was in
                             effect. The Secretary also has legislative authority to allow the planting of another set of nonprogram
                             crops called “approved” nonprogram crops, These include sweet sorghum, guar, sesame,safflower,
                             sunflower, castor beans, mustard seed, crambe, plantago ovato, flaxseed, triticale, rye, commodities
                             grown for experimental use, and commodities for which no substantial domestic production or mar-
                             kets exist but that could be used to make industrial raw materials that are being imported. In approv-
                             ing these crops, the Secretary must determine that their production will not have an adverse effect on
                             the cost of price support programs or farm income. The Secretary has not yet chosen to approve the
                             planting of these nonprogram crops.

                             Page 46                       GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
Chapter 3
The Implications of Federal Farm Programs

in every way, two farmers may make different choices. These observa-
tions suggest that it is not always possible to precisely predict the effect
of a farm program on farmers’ behavior. Programs that increase the
profits farmers seek may require other changes in behavior that they
may resist. However, if a farm program provides strong and consistent
incentives for farmers to develop routines that increase profits and
reduce risks, then the likelihood that the program will influence farm-
ers’behavior is increased.

1. Incentives to grow only a small group of selected crops. The farm pro-
grams support the production of only 16 specified commodities, and
they support these commodities to varying degrees. Many other com-
modities produced in this country, such as vegetables, fruits, and live-
stock, receive no direct government support7 By providing support for
selected crops through crop price and income support protection, pro-
grams offer incentives to farmers to devote more resources (land, capi-
tal, and so on) to the production of supported crops compared to
nonsupported crops, The lack of government support for other crops
may discourage farmers from planting them.

Many observers have noted that program commodity crops, and espe-
cially those given higher levels of support, have tended to displace non-
program crops, or program crops receiving less support, in areas where
the crops could be substituted for one another. In parts of the country
best suited to growing grain crops, selected program grains have come to
dominate other grains (nonprogram grains and program grains receiving
less support). As shown in figure 3.1, the proportion of total acreage
devoted to three of the most important program crops (corn, soybeans,
and wheat) has increased relative to acreage in other crops8 Oats, as
shown in figure 3.2, have declined substantially in importance as a cash
grain crop, although recent concern about the health risks associated
with cholesterol has contributed to an increase in oats consumption
since the mid-1980’s. The farm programs alone have not been responsi-
ble for the changes in crop acreage uses. The displacement of oats by
corn and soybeans, for example, occurred in part because prices for corn

7Someanalysts note that farmers can receive indirect support. If farm programs encouragefarmers
to grow program-supported crops, market prices of nonprogram crops will tend to rise becausemore
acres are planted in program crops and fewer in nonprogram crops. Also, if program support subsi-
dizes the overproduction of feed grains, nonsubsidizedcattle growers still benefit by accessto
cheaper feed.
sSoybeans,however, have received historically less government support compared to corn and
wheat, Much of the growth in soybean acreageis largely attributed to expanding markets and
improved market prices.

Page 47                     GAO/PEMD-90-12 Alternative Agriculturez Incentives and Opinions
                                           Chapter 3
                                           The Implications of Federal Farm Programs

                                           and soybeans were better and corn and soybean yields improved faster
                                           than those of oats.

Ftgurd 3.1: Specialization in Corn, Wheat, and Soybeans
70   P&ont   ot total aomage

     ---0     Pluswheat
     m        Plus eoybeans

                                           Page 48                   GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
                                           Chapter 8
                                           The Impkation~   of Federal Farm Program

Flgul/e 3.2: Displacement of Oat8 by Corn and Soybeans
11   +tk     ot l   ereo plantad

     h              Corn
     ill..          Soylwane

                                          Several analysts have noted that some program crops are heavy
                                          agrichemical users.g Less-agrichemical-dependent crops receive smaller
                                          amounts of or no direct government support. Agrichemical use on four
                                          of the largest program-supported crops (corn, wheat, cotton, and soy-
                                          beans) is extensive. About 65 percent of all commercial nitrogen fertil-
                                          izer use is directed toward these crops, as is a large proportion of
                                          pesticides. (Vroomen, 1989; Osteen and Szmedra, 1989) As shown in
                                          table 3.1, fertilizers, herbicides, and insecticides are applied to a high
                                          percentage of the acreage planted in these crops, Herbicides, for exam-
                                          ple, are applied to more than 95 percent of all the corn, cotton, and soy-
                                          bean acreage, and synthetic fertilizer is applied to almost all the corn
                                          acreage and about 80 percent of the wheat and cotton acreages.

                                          ‘Many nonprogram crops such as vegetables and fruits also rely heavily on agrichemical inputs,
                                          although the acreageof these crops is considerably smaller than that of the program crops.

                                          Page 49                      GAO/PEMD-O-12 Alternative Agriculture: Incentives and Opinion8
                                   Chapter 3
                                   The Implicntiona of Federal Farm Programs

Table j3.1; Crop Acres Receiving
Agric(wmical8 in 1988              Agrichemical                              Corn           Wheat            Cotton          Soybeans
                                   Fertilizer                                   97%              83%              80%                     32%
                                   Herbicide                                    96               53               95                      96
                                   insecticide                                  35                4               61                       8
                                   Source: US. Department of Agriculture, Agricultural Resources: Situation and Outlook Report, Eco-
                                   nomic Research Service, AR-13 (Washington, DC.: U.S. Government Pnntlng Offlce, 1989); (5. Osteen
                                   and P. Szmedra, Agricultural Pesticide Use Trends and Policy Issues, AER 622 (Washington, DC.: USDA
                                   Economic Researc{

                                   Several program crops are also linked with high levels of soil erosion.
                                   Cotton and soybeans are considered to be highly erosive crops, corn is
                                   moderately erosive, and wheat is less erosive. (Reichelderfer and
                                   Phipps, 1988) Several nonsupported crops including legumes are less
                                   erosive as well. The conservation compliance features of the Food Secur-
                                   ity Act of 1985, which require farmers with highly erodible land to
                                   develop conservation compliance plans as a condition for receiving crop
                                   support benefits, are expected to help reduce soil erosion through the
                                   use of alternative farm practices. The expanded use of conservation till-
                                   age methods as a conservation compliance strategy to reduce soil ero-
                                   sion, however, has been subject to controversy. Although reduction in
                                   soil erosion is generally associated with reduced tillage, another conse-
                                   quence can be the need to increase herbicide use to control weeds.lO

                                   2. Incentives to grow program crops year after year rather than rotating
                                   crops. The farm programs have provided incentives for farmers to grow
                                   the same crop continuously or, where agronomic conditions prohibit
                                   farmers from growing the same crop continuously, to grow these crops
                                   in intensive rotations. In particular years, federal programs have made
                                   profits for supported commodity crops less risky. One way that the farm
                                   programs reduce risk for farmers is by guaranteeing them deficiency
                                   payments. Program deficiency payments are independent of what a
                                   farmer actually produces in a given year, since payments are based on
                                   past rather than current production. If, for example, a farmer’s yield is
                                   reduced because of drought conditions, the farmer receives the same
                                   deficiency payments, regardless. The farm programs also can reduce the
                                   price risk for farmers because, as market prices fall, deficiency pay-
                                   ments increase.

                                   Farm programs also make commodity crops less risky, not only in any
                                   given year but also in terms of expectations. This discourages farmers

                                   l”Although it is conventional wisdom that conservation tillage increases herbicide use, this has not
                                   been proven. For a summary of the debate and literature, see Osteen and Szmedra, 1989, pp. 29-36.

                                   Page QU                       GAO/PEMD-B&12 Alternative Agriculture: Incentivets and opinions
Chapter 8
The Implicationa of Federal Farm Programa

from leaving the program, even when other crops look more profitable.ll
Because crop programs on the average increase the profitability of com-
modity crops and make them less risky, farmers tend to grow them as a
matter of routine, a routine that is difficult to break. Again, because of
the crop acreage base system, farmers have a substantial investment in
expected returns from these crops. The limited flexibility that farmers
have with the crop acreage base system also makes it difficult for farm-
ers to make short-term crop changes.

The incentives to grow program crops can lead to greater crop speciali-
zation and less diversification in crop mix. But planting the same crops
can increase pest and disease pressures and further deplete soil quality,
whereas diversified crop rotations can help break pest cycles and
improve soil conditions. As a consequence of these problems associated
with continuous crop production practices, farmers tend to become more
dependent on agrichemical inputs to maintain production.

3. Incentives to overproduce program crops through intensive farming.
The incentives to produce program crops may result not only in more
total land in the production of program crops but also in increased pro-
duction per acre of these crops. The incentives to boost per acre produc-
tion stem from three program features: deficiency payments, loan
payments, and acreage set-asides. Deficiency payments are based on his-
torical program yields, so if farmers raise their program yields, they get
higher payments every year into the future. Loan payments are made on
current actual yields, so raising production gives the farmer greater
payments in that one year only. Set-asides force farmers to take land
out of production; to maintain net income, they may farm the remaining
land more intensively, All three program features may lead to a greater
use of agrichemical inputs than in the absence of these programs.

Before 1986, farmers could raise their program yields by increasing
their production. This ability to increase program yields by maximizing
actual yields may have caused greater agrichemical use than would

“The economic tradeoffs involved in switching from corn to soybeans were estimated in a recent
study by USDA’s Economic ResearchService. Although market prices for soybeans increased signifi-
cantly in recent years in proportion to corn prices, to a point where soybean prices were almost three
times higher than corn prices in 1988, it was estimated that price increases for soybeans were proba-
bly not enough to offset the long-term net returns that could be gained from staying with the corn
program. (Glauber, 1988)

Page 6 1                      GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opiniolln
Chapter 9
The Implications of Federal Farm Progmms

have occurred in the absence of this program.12This incentive was sig-
nificantly reduced by the 1985 Food Security Act, which placed a cap on
program yields. But because the Congress may reverse this policy, as the
farmers are aware, the farmers have some continued inducements to
boost their actual yields.

The loan rates may induce farmers to increase production in any given
year. According to economic theory, farmers will apply inputs to boost
production to the point where the marginal costs of doing so equal the
marginal returns to be gained. It has generally been assumed that when-
ever the loan rate is above the market price, marginal returns are raised
and farmers have incentives to apply more agrichemicals. (National
Research Council, 1989, pp. 70-71) But the accuracy of this assumption
depends on actual economic and agronomic conditions, and it has not
been empirically proven.

Acreage reduction programs could also contribute to the intensity with
which land is farmed. Acreage reduction programs are designed to
reduce crop production levels by reducing the total acreage planted with
program crops, However, when acreage reduction programs are used,
permitted acreage may be farmed more intensively to make up for the
production lost from idled acreage. Farmers who have less land under
production may be able to concentrate greater available resources
(machinery and operating capital) toward increasing production. Again,
it is not clear that farmers actually do apply extra inputs to their
planted acres when they are required to put land into the set-aside

4. Incentives to plant program crops on land best left unfarmed. Pro-
gram support may have encouraged farmers in the past to bring mar-
ginal lands into production. That is, lands on which it would be less
economically feasible to produce commodities in the absence of govern-
ment support, such as wetlands or land susceptible to high rates of ero-
sion, are planted with program crops. Cultivation of such marginal land
often requires more intensive production methods. The result of this
may be a greater total amount of land under production in program
crops -crops for which excess supplies already exist.

Recent changes in agricultural legislation may help reduce the incentive
to bring additional marginal land into production. The sodbuster and

‘2Though “the theoretical basis for this incentive is clear,” the empirical evidence is not. (Young,
forthcoming; Young, 1988; Daberkow and Reichelderfer, 1988)

Page 62                       GAO/PEMD4JO~I2 Alternative Agriculture; Incentives and Opinions

                           Chapter 8
                           The In~plkationa of Federal Farm Prvgrame

                           swampbuster conservation compliance provisions created by the Food
                           Security Act of L885 restrict farmers’ opportunities to cultivate fragile
                           lands in the future. Placing land in the Conservation Reserve Program
                           also reduces the total acreage under production.

                           In this section, we describe USDA'S Farmers Home Administration and
Farm Credit and Crop       Federal Crop Insurance Corporation programs and discuss the ways in
Insurance Programs         which these programs can encourage or discourage the use of alterna-
                           tive farming practices.

Ho& Farm Credit and Crop   Many farmers use credit to finance operating expenses and long-term
Insbrance Programs Work    investments in land or machinery. F~HA makes loans directly to farmers
                           and guarantees loans from other sources. It is a “lender of last resort”
                           because it grants credit to farmers who would otherwise be unable to
                           obtain financing at reasonable rates and terms. FIWA loans are intended
                           to serve as a temporary source of credit to help farmers start a farming
                           operation or to strengthen an existing farm operation. F~HA loan terms
                           are more favorable than those available from commercial lending
                           sources. F~HA held about $26 billion in outstanding loans, or about 16
                           percent of the total outstanding farm debt, in 1987.

                           WA    loans are available through several. programs authorized by the
                           Consolidated Farm and Rural Development Act of 1961 and amend-
                           ments. The major loan programs include farm ownership loans to enable
                           certain farmers to buy, improve, or expand farm enterprises; operating
                           loans to pay for the purchase of seed, pesticides, and farm machinery;
                           and emergency disaster loans to help farmers recover from production
                           or physical losses caused by natural disasters. In fiscal year 1987, oper-
                           ating loans made up about $2.6 billion and ownership loans constituted
                           about $0.4 billion of the $3.1 billion in new F~HA farmer program loans.

                           Farmers must meet certain criteria, such as having sufficient farming
                           experience or training and being unable to obtain adequate credit else-
                           where, to qualify for an FIYIHA loan, Applicants are required to provide
                           detailed information on farm assets and liabilities, crop and livestock
                           production and sales, operating expenses, and key management prac-
                           tices employed on the farm. Loan approval is then baaed on F~HA’S
                           determination of the cash flow expected from an applicant’s farm and
                           the applicant’s overall ability to repay the loan.

                           Page 53                   GAO/PlDlD4O-12 Alternative Agriculturez Incentives and Opinions

                              Chapter 3
                              The Implications of Federal Fame Programs

     Federal Crop Insurance   USDA'S Federal Crop Insurance Corporation was created more than 60
                              years ago to provide farmers with limited crop insurance protection
     Cotiporation             against unavoidable losses from events such as adverse weather and
                              pests or diseases. The Federal Crop Insurance Act of 1980 expanded the
                              FCIC program into a nationwide program offering subsidized coverage in
                              nearly all agricultural counties on some 60 different crops. A key intent
                              of the act was to make crop insurance the primary federal disaster relief
                              program for farmers. Crop insurance was intended not to protect farm-
                              ers’expected profits but, rather, to provide a reasonable level of protec-
                              tion against loss on some portion of their crops’market value.

                              1x1~ relies heavily on the private sector for selling insurance to farmers.
                              The most widely used system involves “reinsured” commercial compa-
                              nies, which sell and service FCIC insurance in their own company names.
                              Under this arrangement, FCIC is responsible for the major portion of the
                              costs resulting from insurance claim losses and administrative expenses.
                              Alt.hough program participation rates have gradually increased over
                              time, only one fourth of the eligible planted acreage was insured by the
                              M=IC program in 1988.13During the 1980’s, FCIC operated at a net loss.
                              Total crop loss indemnities paid out to farmers were more than $1 bil-
                              lion higher than the premiums collected through the sale of insurance.

                              Farmers who purchase crop insurance can select one of three different
                              coverage levels and one of three different price options. Coverage is
                              available on 60,65, or 76 percent of a farmer’s historical average crop
                              yield. Price options are based on different percentages of a crop’s esti-
                              mated market price. If a farmer, for example, has a 100 bushel per acre
                              average corn production yield and chooses the 65-percent program cov-
                              erage level, FCIC will guarantee coverage of 65 bushels per acre of corn.
                              If an insurable loss occurs and the farmer’s actual production of corn
                              drops to 25 bushels per acre, FClC will pay the farmer for the difference,
                              40 bushels per acre. The price level that the farmer signs up for deter-
                              mines the amount of payment per acre. If, for example, the farmer
                              selected a price of $2.00 per bushel, then the total FCIC payment would
                              equal $80.00 (40 bushels times $2.00) per acre.

                              Insurance premiums are calculated by multiplying the number of acres
                              to be insured by the level of production coverage selected by the crop
                              price selected by an actuarially established premium rate. The premium
                              rate on specific crops takes into account crop production risks by county

                              13Farmws    can also purchase private crop hail insurance from a number of different commercial

                              Page 54                       GAO/PEMD-90-12 Alternative Agricul~          Incentive8 and Opinions
                       Chapter 3
                       The Implications of Federal Farm Progrtmw

                       location. Local production yields, farming practices, agronomic condi-
                       tions, and past insurable losses all factor in to risk determinations.

Farb Credit and Crop   Proponents of alternative agriculture claim that farm credit and insur-
Insdrance Program      ance opportunities are limited for farmers who use alternative farming
                       practices. The basis for this assertion is that farm lenders and insurers
Infl~nces              are more likely to place greater emphasis on the use of conventional
                       farm practices and are less likely to invest in or provide protection for
                       alternative practices. Credit lenders concerned about an applicant’s
                       expected cash flow and ability to repay a loan often require detailed
                       information on past crop production yields and farm management input
   ,                   practices. An applicant who does not have a well-established production
                       history or does not use generally accepted conventional farm practices
                       may be considered a higher lending risk, thus requiring more stringent
                       loan terms.

                       Similarly, farm practices may play a role in the way crop insurance pre-
                       mium rates are structured and insurance claims are settled. The crop
                       insurance program does not insure any crop acreage if the farming prac-
                       tices being used are not in accordance with the farming practices used to
                       establish the premium rates. And the farm practices considered in estab-
                       lishing premium rates tend to be those associated with conventional
                       farming. Furthermore, the program will not insure against any loss
                       resulting from the failure to use recognized “good” farming practices.

                       Proponents of alternative agriculture also claim that credit lending poli-
                       cies work against the adoption of alternative practices because many
                       lenders can require that applicants participate in the farm commodity
                       programs as a condition for loan approval. Therefore, farmers wanting
                       to switch from program crops to alternative crops may find it harder to
                       qualify for a loan. For producers of alternative crops, the availability of
                       crop insurance can also be a limiting factor. Although FCIC insurance is
                       available on more than 40 different crops, insurance on these crops is
                       not available in every county and, for many other crops, federal crop
                       insurance is not available at all.

                       Farm lenders and insurers are concerned about risks. Lenders want a
                       reasonable assurance that loans will be repaid and insurers want to be
                       able to predict outcomes so that premiums can be properly priced to
                       account for risks. Lenders and insurers rely on some knowledge base
                       (for example, historical evidence or available technical information)
                       about farming systems to establish loan-making terms and insurance

                       Page 55                   GAO/PEMD-9@12 Alternative Agriculture: Incentives and Opinion8
           Chapter 8
           The Implication@ of Federal Farm Programs

           rates. Alternatives for which there may be no reliable information avail-
           able may be regarded as risky by lenders and insurers. Although advo-
           cates of sustainable agriculture may say that growing alternative crops
           or adopting low-input production practices can lead to economic and
           environmental benefits, the data available on these outcomes are

           In interviewing F~HA officials, we found that “key” farm management
           practices are formally identified for each county. The practices identi-
           fied are based on generally accepted farm practices used in the area. For
           individual crops, particular types of fertilizer, pesticides, and herbicides
           are included as well as recommended application rates. Officials said
           that these management practices are used mainly as a guide in review-
           ing loan applications and not as strict criteria for approving loans.

           There are no statutory or regulatory barriers in the farm commodity
Surnmary   programs that prevent farmers from incorporating alternative practices.
           However, the incentives to participate in the commodity price and
           income programs are strong. The loss of financial benefits derived from
           participation in the programs is a major economic disincentive that
           farmers must consider in making any changes that involve growing
           alternative crops, switching to nonprogram crops, or using low-input
           production practices, which might result in reduced crop yields. Farmers
           who have been continuously growing corn, for example, stand to lose
           significant government support payments, over the short and long run,
           if they convert to an alternative multiyear rotation that might include
           corn, soybeans, alfalfa, and meadow. In such a multiyear crop rotation,
           a farmer may receive government payments for corn on only 26 percent
           of the acreage, whereas in a continuous corn operation, program pay-
           ments are provided on all the acreage.

           The literature we reviewed indicates that a number of program mecha-
           nisms can create incentives and disincentives for crop selection and pro-
           duction practices for some farmers. Farm commodity program
           provisions can encourage farmers to specialize in the production of pro-
           gram-supported crops and discourage the use of more diversified crop-
           ping systems. In the following chapter, we present information from our
           case study interviews with farmers to examine the effects of these farm
           program incentives on their behavior.

           Page 56                   GAO/PEMD-90-12 Alternative Agricul~   Incentives and Opinions

I Chabter 4

F&me& Opinions

                        In this chapter, we summarize the information we collected from our
                        seven site visits to selected counties in Georgia, Illinois, Iowa, Kansas,
                        North Carolina, South Dakota, and W isconsin. We completed interviews
                        with a judgmentally selected sample of 74 farmers and met with various
                        farm program, extension service, and other farm-program-related offi-
                        cials. In the first section, we describe the farms we visited. In the follow-
                        ing sections, we present summary information on the farmers’ opinions
                        regarding factors related to planting decisions, ways to reduce farm risk,
                        the sustainability of their farms, and their assessment of barriers to
                        alternative production practices.

                        The survey results are presented to help answer three questions: (1)
                        What are these farmers’ opinions about the issues? (2) How strongly do
                        they feel about particular issues? (3) Are there differences of opinion
                        among different types of farmers? The tables in this chapter present
                        data concerning the farmers’ opinions. The statistical tests we used to
                        assessthe answers to the latter two questions, and the data from these
                        tests, appear in appendix I. Throughout this chapter, when we say that,
                        for example, a factor is important, or that differences do exist between
                        categories of farmers-&e mean that we are at least go-percent certain of
                        these conclusions, given appropriate statistical tests. If we state that
                        factors may be important, or differences may exist, this indicates that
                        statistical tests do not give us at least go-percent confidence in the

                        The farms in our sample tend to be fairly large, the median farm having
Dkjscription of Farms   886 acres. Farm size varies from a median of 430 acres in W isconsin to
                        about 1,826 acres in Kansas. The farms generally grow the major crops
                        found in the different agricultural production areas represented. About
                        two thirds of the farms supplement their income with livestock.

                        The farmers in Illinois, Iowa, and Kansas have the least-diversified
                        farms with respect to the number and types of crops grown and have
                        the farms most heavily concentrated in the farm program crops. The
                        Illinois and Iowa farmers have 90 and 98 percent of their cropland
                        planted in corn and soybeans, with somewhat more devoted to soy-
                        beans. In Kansas, wheat accounts for almost 70 percent of cropland.
                        Farmers in Georgia and North Carolina also plant corn and soybeans but
                        in addition grow sizable acreages of cotton, tobacco, wheat, peanuts, or
                        vegetables. In W isconsin, the farmers we interviewed are primarily
                        dairy farmers growing corn and hay for feed. The farmers in South
                        Dakota generally grow corn, soybeans, wheat, oats, and hay.

                        Page 57               GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
    Chapter 4
    Farmers’ Opiniona

    We found that the farmers employ a large number of farm practices to
    prepare fields, fertilize soils, and control pests and weeds. Their prac-
    tices are for the most part those generally associated with conventional
,   farming and with the common practices used locally. Almost all the
    farmers we interviewed said they recognize the agronomic benefits
    derived from rotating crops into different fields and that they use some
    form of a crop rotation system on at lea& some of their land. Crop rota-
    tions vary from simple and short ones with two crops alternated every
    other year to complex ones, with four or more crops, lasting a number of
    years. Many farmers plant the same crop year after year on some por-
    tion of their land in addition to using crop rotations on other parts of
    their farms. In general, our farmers do not follow a rigid schedule for
    rotating their crops.

    The farmers in our sample take a variety of steps to enhance the fertil-
    ity of their soil but rely primarily on commercial fertilizer. Anhydrous
    nitrogen is the most common fertilizer, used by about 76 percent of the
    farmers we interviewed. While no farmer relies on livestock manure as a
    sole source of fertilizer, many do intermittently spread manure on their
    fields to supplement the synthetic fertilizer. About half the farmers indi-
    cated that they grow some cover crops or other nitrogen-fixing crops,
    which are used to enhance soil fertility.

    In preparing their fields for planting, the farmers use several techniques
    to till the soil.’ The farmers noted that their tillage practices are influ-
    enced by the type of crop they are planting and the quality of the land.
    About 66 percent of the farmers claimed to use conservation tillage
    practices, including no-till and contour farming on some portion of their

    The farmers in our sample use a broad range of practices to control
    weeds, insects, and plant diseases. Herbicides, insecticides, and fungi-
    cides are commonly used. Farmers differ in their application methods.
    Some farmers said they do not use any agrichemicals on certain crops
    such as small grains, while others noted that they use pesticides in
    anticipation of pest problems. Many other farmers indicated the number

    ‘About 84 percent of the farmers said they use a disk, 68 percent a chisel plow, and 67 percent a
    moldboard plow on some portion of their crop fields.

    ?!onservation tillage systems must leave certain amounts of crop residue on the ground to help pre-
    vent erosion. For a precise definition, see USDA, 1989d. Estimates of conservation tillage use vary
    greatly, becausefarmers may say they are practicing it if they are using certain equipment, regard-
    less of how much crop residue they actually leave on the ground. (Bull, 1989, p. 36)

    Page 58                      GAO/PEMD-WI-12 Alternative Agriculturez Incentives and Opinions

    Fanners’ Opinlone

    of applications depends on the severity of the pest problem. Most farm-
    ers spread their agrichemicals over the entire field, although many also
    apply them directly to the crop rows. More than half the farmers said
    they use some form of integrated pest management on their crops3 For
    the most part, the type of IPM these farmers use involves regularly
    scouting their fields for pests before applying control measures. The
    farmers also employ cultivation methods to control weeds and rely on
    crop rotation to help break pest cycles. To a lesser degree, they spray
    pesticides and herbicides only on infested areas, adjust planting dates,
    or use organic pesticides.

    Although we visited a variety of different farms, they may usefully be
    divided into two main groups: “specialized” and “diversified” farms. We
    defined specialized farms as those that have a high percentage of their
    farmland concentrated in a small number of commodity crops, while
    diversified farms grow greater numbers of crops in relatively smaller
    portions. As with conventional and alternative farms, there is no abso-
    lute distinction between specialized and diversified farms; rather, our
    definition divides a continuum into two categories.4

    Dividing the responses into specialized and diversified farm categories
    gives us the ability to examine the influence of the federal farm pro-
    grams on farmers’ behavior in an interesting and important way. As we
    have seen, proponents of alternative agriculture claim that the federal
    farm programs provide incentives for farmers to become and remain
    highly specialized in program crops and that such specialization leads
    farmers to choose farm practices that are not sustainable. By distin-
    guishing between relatively specialized and diversified farms, we can
    examine such claims. For example, did the specialized farmers in our
    sample behave differently from the diversified ones? Did the diversified
    farmers believe that the farm programs encouraged them to specialize in
    program crops? Did the specialized farmers think that the farm pro-
    grams provided them incentives to remain specialized?

    ““IPM is a pest control strategy baaedon the determination of an economic threshold that indicates
    when a pest population is approaching the level at which control measures are necessary to prevent a
    decline ln net returns-that is, when the predicted value of the impending crop damage exceedsthe
    cost of controlhng the pest. . . In practice, however, IPM is generally baaedon scouting fields to
    determine pest or disease populations or infestation levels, more precise timing and application of
    pesticides derived from scouting, better knowledge of consequencesof various levels of pest and
    predator populations, rotations, and more precise timing of planting.” (National ResearchCouncil,
    1989, pp. 208-9)
    4The specialized farmers planted an average of 69 percent of their cropland in their main commodity
    crop, 52 percent in two crops, and 96 percent ln three crops. The comparable numbers for diversified
    farmers are 38,158,and 68 percent.

    Page 59                      GAO/PEMIMJ@12 Akernative Agrkulhwtx           Incentives and Opinions
                                          Chapter 4
                                          Farmers’ Opinions

                                          Each year, farmers must decide what crops, and how many acres of
Fa!ctorsInfluencing                       them, they will plant. These decisions are among the most important
Plhnting Decisions                        ones a farmer makes, The choice of crops and livestock heavily influ-
                                          ences the kinds and quantities of inputs that will be used to control
                                          weeds, insects, diseases, and soil fertility. The choice has a large effect
                                          on the farm’s profitability. Consequently, these decisions are tremen-
    ,                                     dously important for the farm’s economic outcomes and environmental

                                          In this section, we focus on the factors that influence planting decisions
                                          as revealed in our farmers’ interviews. Although we consider a broad
                                          array of influences, we are particularly interested in the effect of the
                                          federal farm programs. To examine this influence, we asked farmers:
                                          “To what degree did the following factors affect your decision about
                                          what crops to plant this year.3” We listed 10 possible factors that we had
                                          selected from the literature, The farmers could rate them between 1 and
                                          6, with 1 representing “no influence” and 5 signifying a “large influ-
                                          ence.” In table 4.1, we present averages for specialized and diversified
                                          farmers, as well as a summary of all the farmers together.

Tab(e 4.1: Factors Influencing Planting
DecIsions8                                                                                                  Farmers interviewed
                                          Factor                                                     All      Specialized       Diversified
                                          Desire to keep crop acreage base                         4.09               4.26                3.91
                                          Experience with the crop                                 4.00               3.60     -          4.48
                                          Availability of markets                                  3.78               3.46                4.12
                                          Farm program benefits                                    3.76               3.77         -574
                                          Need to rotate crops                                     3.76               3.80                3.72
                                          Crop prices                                              3.74               3.37                4.08
                                          Availability of equipment                                3.26               3.03                3.49
                                          Availability of labor                                    2.87               2.63                3.11
                                          Need to produce feed                                     2.83               2.63                3.03
                                          Conservation compliance                                  2.55               2.29                2.85
                                          a1 = no influence; 3 = moderate influence; 5 = large influence.

                                          Because planting decisions are such an important influence on input use,
                                          we examine this table in depth. First, we highlight the factors that
                                          appear to be the most influential, and then we note the differences
                                          between specialized and diversified farmers.

                                          Federal farm programs are among the most important factors influenc-
                                          ing planting decisions. On the average, farmers responded that the fed-
                                          eral farm programs have a moderate-to-large influence on their planting

                                          Page 60                       GAO/PEMD-W-12 Alternative Agriculture: Incentives and Opinions
Chapter 4
Farmers’ Opinions

decisions. Both “the desire to keep my crop acreage base” and the “farm
program benefits” were important. (See appendix I.)

Federal farm programs are not the only important factors: other factors
are also influential. Although the farmers think the federal farm pro-
grams have a great deal of influence on their planting decisions, they
also believe that other factors are quite important. Overall, the average
scores for 6 of the 10 factors indicated that they have a moderate-to-
large influence on planting decisions. (See appendix I.)

The desire to maintain the crop acreage base may be the most important
influence on farmers’ decisions.6Crop prices, markets, and the amount
of federal program benefits a farmer receives change every year. The
farmer is unable to control prices, markets, or benefit levels. Crop acre-
age bases, however, are both durable and controllable. Since crop acre-
age bases are actually tied to the land, they can permanently enhance its
value and the farmer’s income.”The crop acreage base seems to be like
the farmer’s home: the price cannot be controlled by the owner, but the
condition can be.

Specialized and diversified farmers may be influenced by different fac-
tors in making their planting decisions. When comparing the two farm
categories, it appears that diversified farmers give greater weight to
experience, markets, and prices in determining what to plant. Special-
ized farmers are less influenced by prices or markets. Specialized and
diversified farmers do not differ in their assessment that the farm pro-
grams are important. (See appendix I.)

Specialized farmers may be more influenced than the diversified farm-
ers by the federal farm programs. The specialized farmers gave the
“desire to maintain my crop acreage base” a higher score than any other
response. The average score the diversified farmers gave for “desire to
maintain my crop acreage base” was lower than the ones indicating the
“experience with the crop,” “availability of markets,” or “crop prices.”
(See appendix I.)

In general, the farmers indicated that they prefer to continue planting
what they have planted in the past, and those crops for which markets

“In our statistical analysis of these responses,this factor had the highest reported probability, and it
is not significantly correlated with the other factors.

“The expected benefits from the crop acreagebase are capitalized into the value of the land. (Strange,
1988, pp. 196-98)

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                                       Chapter 4
                                       Farmers’ Opinions

                                       are available, but that they are also influenced by federal farm pro-
                                       grams. This has important implications for the effect farm programs
                                       may have on planting decisions. Farmers may be reluctant to discon-
                                       tinue growing crops that they have substantial experience with, even if
                                       federal programs change. Farmers who do stop growing a crop may be
                                       hesitant then to grow it again. To the extent that the farm programs
                                       continuously provide signals to grow a limited number of specific com-
                                       modity crops, they are likely to discourage farmers from growing other
                                       crops. Although changes in the farm programs may quickly change the
                                       amount of each program crop farmers grow, farmers are less likely to
                                       quickly change the crops they actually grow.

                                       The farmers noted often that they want, and try, to use crop rotation.
                                       This can point to a clear conflict, though, with their desire to maintain
                                       their crop acreage base, if by maintaining their base they must alter
                                       their rotation or by following their rotation they must reduce their base.

                                       Farming is a risky business. To stay in business, farmers must find ways
Ways to ReduceFarm                     to reduce their risks. The strategies they choose for cutting risks can
Risk                                   influence their choice of farming practices. In table 4.2, we present the
                                       farmers’ opinions about various risk-management strategies.

Table 4.2: Ways to Reduce Farm Risk’
                                                                                     All         Specialized      Diversified
                                       Response                                    Yes     No     Yes      No    Yes          No
                                       Enter farm programs                          65       6     33       2     32           -2
                                       Diversify with crops                         57      14     24      11     33             3
                                       Diversify with livestock                     43      28     19      16     24            12
                                       Buy crop insurance                           31      40     20      15     11            25
                                       LJse “extra” fertilizer                      11      60      2     33       9            27
                                       Use “extra” pesticide                          5     66       2     33       3           33
                                       aNumbers are numbers of respondents.

Farm Programs                          More farmers think that participating in the federal farm programs is a
                                       better way for them to reduce the economic risks that they face than
                                       any other factor. When given a list of six possible ways to reduce risks,
                                       they overwhelmingly chose “entering the farm programs to get at least a
                                       fixed minimum price” for their crops as a good way; the specialized
                                       farmers were not different from the diversified farmers in this respect.
                                       (See appendix I.) In follow-up comments, many farmers said they con-
                                       sidered farm program support to be economically essential to them as a

                                       Page 62                     GAO/PEMD-90-12 Alternative Agriculturez Incentives and Opinions
                            Chapter 4
                            Farmers’ Opinions

                            condition for growing the crops covered by the programs. According to
                            them, producing these crops outside the programs, and then competing
                            with farmers who received program support, would have been very dif-
                            ficult during the mid-1980’s.

Crdp Diversification        This was the second most popular factor. More diversified farmers than
                            specialized farmers preferred to cut their risks by planting a variety of
                            crops. (See appendix I.) This may not seem surprising, but it is impor-
                            tant. Farm management specialists have long advocated diversification
                            as a way to reduce risk. But these data suggest that farmers who are
                            specialized are less likely to think they need to diversify in order to
                            lessen their uncertainties, W ithin the diversified farm category, about
                            the same number of farmers think that program participation and crop
                            diversification are good ways to cut risk. Among the specialized farm-
                            ers, however, a substantially greater number think that program partici-
                            pation, rather than crop diversification, is a good way to reduce risk.

Livestock Diversification   The third most common way for reducing risk that the farmers in our
                            sample cited was to diversify a farm by adding livestock. Diversified
                            farmers did not agree with this position more than specialized farmers.
                            (See appendix I.)

Federal Crop Insurance      Overall, fewer than half the farmers believe that buying crop insurance
                            is a good way to reduce their business risks. However, a majority of spe-
                            cialized farmers said they thought it is; this was significantly more than
                            the number of diversified farmers who agreed. (See appendix I.)

he of “Extra” Fertilizer    Some observers have suggested that farmers may use greater amounts
and Pesticides              of fertilizers and pesticides than are objectively necessary to produce
                            optimal crop yields. (Nowak, 1989) However, as table 4.2 shows, few
                            farmers said that applying “extra” fertilizer or pesticides to their crops
                            was a good way to reduce their risks. This indicates that these farmers
                            are applying the amount of agrichemicals that they perceive to be neces-
                            sary to achieve their yield goals. It is not surprising that farmers and
                            outside observers disagree on this point. However, whatever the objec-
                            tive conditions, unless farmers believe that they are overapplying
                            agrichemicals, it is unlikely that they will voluntarily reduce their use of
                            them unless convincing evidence to do so is provided.

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                        Chapter 4
                        Farmers’ Opinions

                        In the previous sections, we saw that the federal farm programs are con-
Influence of the Farm   sidered to be very important for farmers’ planting decisions and risk-
Pr@gramson Farmers’     reduction strategies. We also noted that the federal programs are not the
Behavior                only factor influencing planting decisions or risk reduction. The farmers’
                        decisions are influenced by their experiences with a crop, the availabil-
                        ity of markets, crop prices, and other considerations. Risk reduction
                        involves crop and livestock diversification and purchasing crop insur-
                        ance as well as enrolling in the federal farm programs.

                        In this section, we focus more explicitly on the influence of the federal
                        farm programs on farmers’ behavior. Instead of asking farmers “Do
                        these factors influence this behavior?” as we did in the section on plant-
                        ing decisions, here we a?%d farmers “Does this factor influence these
                        behaviors?” Because we saw that a variety ofactors influence planting
                        decisions, it should not be assumed that the farm programs are the only
                        influence on these other behaviors. Still, it is important to examine the
                        effect the farm programs do have.

                        We asked the farmers two kinds of questions about the effect of the
                        federal farm programs. The first was phrased as a personal one: “Does
                        participating in the farm program encourage you to -----?”              The
                        second was stated more generally: “Does participating in the farm pro-
                        gram make it (easier, harder) to -----?”           In both cases, we read
                        the farmers a list of choices. The farmers could choose from the follow-
                        ing list of responses: strongly agree (l), agree (2) no effect (3), disagree
                        (4), and strongly disagree (6). Their responses are summarized in tables
                        4.3 and 4.4. The main results can be summarized as follows.

                        Page 64               GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opiniona
                                            chnpt%r 4
                                            Farmed Opinions

Farm tirogram Encourage You to              Behavior                                                 All       Specialized          Diversified
---J--?“”                                   Grow only program crops                                 2.18                2.14                   2.22
                                            Specialize in one crop                                  3.22                3.00                   3.43
                                            Get crop insurance                                      3.31                3.00                   3.63
      ,                                     Use more fertilizer                                     3.33                3.23                   3.43
                                            Use more herbicide                                      3.43                3.31                   3.54
                                            Grow best crop rotation                                 3.44                3.74                   3.16
                                            Expand farm size                                        3.51                3.63                   3.41
                                            Produce hiaher
                                                                                                    3.60                3.60                   3.59
                                            Use more pesticides                                     3.63                3.51                   3.73
                                            Raise crops and livestock                               3.69                3.63                   3.75
                                            Borrow more                                             3.94                386                    4.03
                                            *Farmers were asked whether participation in the farm program encouraged them to engage in the
                                            behaviors listed. Responses ranged from 1 = strongly agree through 3 = no effect to 5 = strongly

Table:4.4: “Does Participating In the
Farm ‘Program Make It                       Behavior                                                 All       Specialized           Diversified
-----        7 “0                           Difficult to switch rotations                           1.94                1.63                   2.25
                                            Easier to get credit                                    2.17                2.31                   2.03
                                            Tough to grow nonprogram crops                          2.41                2.00                   2.81
                                            Tough to raise crops or livestock                       3.13                3.09                   3.17
                                            Easier to grow one crop                                 3.30                3.06                   3.53
                                            Important to expand                                     3.43                3.40                   3.46
                                            More important to get insurance                         3.51                3.51                   3.50
                                            Less important to use fertilizer                        3.77                3.86                   3.69
                                            Less important to use pesticide                         3.90                3.88                   3.91
                                            Less important to use herbicide                         3.97                4.03                   3.92
                                            “Farmers were asked whether participation in the farm program made these behaviors likely. Responses
                                            ranged from 1 = strongly agree through 3 = no effect to 5 = strongly disagree.

                                            The farmers agreed that participating in the farm program encourages
                                            them to grow only program crops and makes it difficult to switch crop
                                            rotations, somewhat tough to grow nonprogram crops, and easier to get
                                            credit. (See appendix I.) While the farmers believe that the farm pro-
                                            grams encourage them to specialize in program crops, they do not neces-
                                            sarily believe that the programs encourage them to specialize in a single
                                            program crop:

                                        l   The farm programs do not encourage the farmers to use more agrichemi-
                                            cals, nor do they make it less important to use them.

                                            Page 86                      GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
  Chapter 4
  Farmers’ Opinions

. The farm programs do not encourage farmers to raise both crops and
  livestock, nor do they make it tougher to raise both.
. Overall, there are few differences between the specialized and diversi-
  fied farmers.

  The data do not allow us to conclude that the specialized and diversified
  farmers have systematically different opinions about these farm pro-
  gram influences. (See appendix I.) They may differ on individual fac-
  tors, however. In particular, the specialized farmers agreed more
  consistently than the diversified farmers that the farm programs make
  it difficult to switch crop rotations and grow nonprogram crops. Diversi-
  fied farmers are ambivalent about whether the farm programs
  encourage them to grow their best crop rotations, but the specialized
  farmers tend to view the farm programs as being more of a disincentive.
  (See appendix I.)

  The farmers disagreed that participating in the farm programs encour-
  ages them to produce higher yields than they otherwise would. We did
  ask farmers how their actual crop yields compared with their program-
  established crop yields in order to learn whether they might have lev-
  eled off production since program yields were frozen by the Food Secur-
  ity Act of 1986. Almost 90 percent of the farmers said that their actual
  yields were higher by anywhere from 6 percent to 60 percent. In follow-
  up comments, some farmers felt that program yields should more closely
  reflect their actual yields. The farmers said that for the most part they
  try to produce the best crop yield possible, regardless of program

  In subsequent questions, we asked farmers whether they had considered
  planting some other crops and, if so, what crops. Fifty-seven percent
  responded that they had considered planting other crops. Twenty-nine
  farmers stated that they were interested in adding either more acreage
  of their existing crop mix or more of some other program-supported
  crop such as oats and soybeans. Twelve farmers said that they had con-
  sidered growing some other nonprogram crop. A variety of reasons were
  given for not wanting to plant other crops, including the weather, the
  lack of markets, and the lack of flexibility in the farm programs.

  We also asked the farmers if they would consider growing some other
  crop if their existing program crop acreage base were protected. In
  response, 76 percent of the farmers said they would. Several farmers
  stated that the farm programs should provide more flexibility to enable
  them to switch crops and expand rotations while still maintaining crop

  Page 66               GAO/PEMD9@12 Altemative Agriculturez Incentives and Opinions
                       Chapter 4
                       Farmers’ Ophkma

                       bases intact. About one fourth of the farmers in our sample said they
                       had signed up for USDA'S soybean and sunflower program, which allows
                       farmers to plant a limited amount of these crops on a crop acreage base
                       without any loss of base acres.

                       Farmers’ responses about planting other crops may have important
                       implications with respect to any proposed program changes that provide
                       farmers with flexibility to plant different crops. The farmers we talked
                       with showed a strong interest in having greater flexibility in their plant-
                       ing decisions, but much of the interest was directed toward other pro-
                       gram crops and not necessarily alternative crops. Allowing farmers to
                       plant other program crops would certainly improve farm diversity and
                       perhaps profit, but there is some question as to whether or not such
                       flexibility would lead to significant changes in production methods and
                       improvements in resource conservation or reductions in farm-related
                       environmental effects.

                       The farmers believed that participating in the farm programs makes it
                       easier for them to borrow money but does not encourage them to borrow
                       more. Some observers have noted that it is easier to obtain credit if one
                       is in the program, because lenders are more certain of the farmers’ cash
                       flow, A few farmers noted that the programs themselves are a source of
                       credit: advance deficiency payments can be used to cover early planting

                       The farmers disagreed mildly that the farm programs encourage them to
                       buy crop insurance or make it more important to get insurance. A major-
                       ity of the farmers (68 percent) we interviewed were currently insured.
                       Some pointed out, however, that they were required by law to buy crop
                       insurance because they received disaster benefits following the severe
                       drought of 1988. Several farmers were critical of the current crop insur-
                       ance program and believe it is not cost effective. These farmers said that
                       insurance coverage is insufficient to cover their crop production levels
                       and that the cost of premiums is too high. A number have chosen to
                       insure selected crops, usually the ones with a high cash value such as
                       corn, tobacco, or peanuts.

Farmers’Opinions       view: sustainability is assessedaccording to the analyst’s criteria. In this
About Sustainability   section, we let the farmers speak for themselves, by asking them what
                       they think about their farms’ prospects.

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                                               Chapter 4
                                               Farmers’ Opinions

                                               Most farmers we interviewed were optimistic. When asked whether they
                                               intended to continue planting their current crop rotation into the fore-
                                               seeable future, fully 97 percent said “Yes.” We then asked them about
                                               the effects of continuing to use this rotation on their agrichemical use,
                                               farm environment, and farm economics. The farmers could choose from
                                               the following list of responses: greatly increase (l), increase (2), no
                                               change (3), decrease (4), and greatly decrease (6). Again, most farmers
                                               were fairly confident about the future, as table 4.6 shows. (See also
                                               appendix I.)

    Tadle 4.5: Effects of Continuing Current
    Crqp Rotationa                             Effect                                                    All       Specialized          Diversified
                                                 Herbicide                                                                  3.11               3.11
                                                 Pesticide                                             3.11                 3.20               3.03
                                                 Fertilizer                                            2.96                 3.00               2.92
                                                 Erosion                                               3.23                 3.40               3.06
                                                 Weed problems                                         3.13                 3.11               3.14
                                                 Water oualitv                                         3.06                 3.00               3.12
                                                 Pest problems                                         3.01                 3.00               3.03
                                                 Soil fertility                                        2.63                 2.66               2.60
                                                 Profits                                               2.61                 2.65               2.57
                                                 Croo vields                                           2.31                 2.29               2.34
                                               aEffects ranged from 1 = large increase through 3 = no change to 5 = large decrease

                                               Most farmers expect the future to be similar to the present. In particu-
                                               lar, the farmers do not think they would use more agrichemical inputs,
                                               nor do they think that their water quality and pest or weed problems
                                               will change. Although on the average they see the other factors as
                                               changing, the changes they expected were modest.

                                               The farmers are in general slightly optimistic about their input use,
                                               environmental effects, and business prospects. The farmers on the aver-
                                               age said that their crop yields and profits would increase if they contin-
                                               ued planting their current crop rotation; the farmers said they thought
                                               that these would increase more than any other factors. The farmers
                                               believe their soil fertility will increase and soil erosion will decline.
                       *                       Some qualifications should be made to these results, however. First, the
                                               farm economy in general was improving when these interviews were

                                               Page 68                      GAO/PEMD-90-12 Alternative         Agriculturez Incentives and Opinions
                       Chapter 4
                       Farmers’ Opinions

                       conducted; this economic upswing may have biased the responses for
                       the other questions. In addition, these farmers themselves had weath-
                       ered the economic problems of the mid-1980’s. Finally, we believe that
                       the farmers tended to say what they hoped would happen rather than
                       what they thought would happen. Still, the responses demonstrate that
                       the farmers are not terribly concerned that their operations will require
                       more agrichemicals, damage the environment, or become unprofitable.

                       In this section, we discuss what the farmers themselves identified as
Batriers to the        barriers to the adoption of alternative agriculture. We read the farmers
Adbption of            the following statement,
Akernative Practices   “Currently, many peopleare talking about the viability of alternative farming oper-
                       ations which, for example,use diversified crop rotation systems and rely less on
                       pesticidesand fertilizers. What do you seeas the main barriers farmers face in
                       adopting these alternative farm practices?”

                       Then we presented them a list of potential barriers. We asked them
                       whether they strongly agreed (l), agreed (Z), felt neutral (3), disagreed
                       (4), or strongly disagreed (5) with each factor. Their responses are sum-
                       marized in table 4.6.

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                                         Chapter 4
                                         Farmem’ Opinkme

Table 4.6: Barriers to the Adoption of
Altefnatlve Agrtculture8                 Potential barrier                                         All      Specialized             Diversified
                                         Greater management is required                          1.61                 1.63                 1.59
                                         Yields may decline                                      1.66                 1.56                 1.76
                                         Weeds may increase                                      1.76                 1.86                 1.66
                                         Profits may decline                                     1 .I39               1.80                 1.97
                                         Farm labor is unavailable                               1.89                 2.06                 1.71
                                         Need to maintain crop acreage base                      1.90                 1.80                 2.00
                                         Workload may increase                                   1.96                 2.09                 1.82
                                         Current system works well                               1.99                 2.09                 1.88
                                         Lack of information                                     2.11                 2.14                 2.09
                                         Loans are more difficult to get                         2.13                 2.23                 2.03
                                         Loss of federal benefits                                2.39                 2.54                 2.24
    I                                    Markets are not available                               2.43                 2.40                 2.46
                                         Rotations are not allowed in program                    2.49                 2.23                 2.74
                                         Livestock will be needed                                2.53                 2.26                 2.80
                                         Alternative techniques are not allowed on
                                            rental land                                          2.87                 2.47                 3.26
                                         Crop insurance may be more difficult to get             2.77                 2.94                 2.60
                                         No vacations will be oossible                           2.91                 3.34                 2.45
                                         Neighbors “won’t understand”                            3.27                 3.29                 3.26
                                         aBarriersranged from 1= strongly agree through 3 = feel neutral to 5 = strongly disagree

                                         Farmers see a great many barriers to the adoption of alternative agricul-
                                         ture. Of the 18 potential barriers we listed, 14 were thought to be signifi-
                                         cant barriers. (See appendix I.) The first 16 factors in particular seemed
                                         to provide the largest barriers. Again, it is not possible to precisely rank
                                         these factors in order of importance because many of them are

                                         The federal farm programs provide significant barriers to alternative
                                         agriculture. “Need to maintain crop acreage base,” “loss of federal bene-
                                         fi&,” and “crop rotations not allowed in the farm programs” all pose
                                         significant barriers. The crop acreage base factor seems likely to be the
                                         most important of these.

                                         Many barriers to alternative agriculture are not directly related to the
                                         federal farm programs. In particular, farmers believe that adopting
                                         alternative agriculture practices may require greater management skills
                                         and cause greater weed problems, lower yields, and lower profits. The

                                         7For example, management is positively correlated with yields, crop acreagebase, and loam at the
                                         .Ol level in a tw&ailed test.

                                         Page 70                       GAO/PEMD-W12 Alternative Afpiculture: Incentives and opi!doM
                      Farmers’ Opinions

                      lack of farm labor, and the opinion that their workload may increase,
                      also appears to discourage farmers from embracing alternative

                      Specialized and diversified farmers do not appear to differ in the barri-
                      ers they see. (See appendix I.) The farmers stressed that many alterna-
                      tive practices might be technically feasible on their farms but that for a
                      variety of reasons they are impractical. For example, several farmers
                      expressed an interest in using livestock manure to enhance soil fertility
                      but said that the lack of an available supply was a major constraint and
                      to a lesser degree, given that supplies existed, the costs of accurately
                      measuring and applying the manure would be too high. A number of
                      farmers also said that legume crops had been used many years ago to
                      enhance soil fertility but they could not be used effectively now. Using
                      legumes is more costly and time consuming than using commercial fertil-
                      izer, they said, and also means losing a cash crop.

                      Several farmers also gave specific examples concerning their reluctance
                      to adopt alternatives. Peanut and tobacco farmers in the Southeast, for
                      example, said that past disease problems required clean fields before
                      planting. According to these farmers, this meant that alternative prac-
                      tices involving the use of legumes or conservation tillage are not practi-
                      cal. A number of other farmers claimed that reduced prices for lower-
                      quality crops also limit their ability to use alternative practices. A few
                      cotton and soybean producers, for example, said that weeds mixed in
                      with a harvested crop would lower the quality of the crop and the
                      expected price they could obtain in the market.

                      In our interviews with farmers, we asked them if, when they applied for
ObbainingCredit and   a loan or purchased insurance, lenders and insurers inquired about their
Crqp Insurance        farm practices and participation in the farm commodity programs.
                      Slightly over 80 percent of the farmers in our sample said they had
                      applied for a farm mortgage or operating loan in the last 5 years from a
                      commercial bank, MH.&, or another credit source. A summary of the
                      responses to our farm credit questions is given in table 4.7.

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                         Chapter 4
                         Farmers’ Opinions

Tabih 4.7: Farm Credit
                         Question                                                                             “yes f!
                         “Did the loan officer ask you about your -------?‘I

                         USDA farm program participation                                                           47%
                         Program payments                                                                          36
                         Pesticide use                                                                             11
                         Herbicide use                                                                             11
                         Fertilizer use                                                                            11
                         Tillaae practices                                                                         11

                         “Did the loan officer suaaest that vou should -----?”

                         Participate in the farm programs                                                          18%
                         Chanae vour oesticide use                                                                  3
                         Chanae your herbicide use                                                                  2
                         Change your fertilizer use                                                                 2
                         Change your tillage practices                                                              2

                         These data suggest that lenders are concerned more about farmers’
                         financial condition and their ability to repay a loan and less about their
                         choice of farm management practices. However, because the govern-
                         ment has been an increasingly important source of income for farmers,
                         participation in the programs has almost certainly become more impor-
                         tant for farmers repaying loans. Eighteen percent of the farmers said
                         that lenders recommended they participate in the programs in order to
                         qualify for a loan. We also asked our farmers if they were aware of any
                         other local farmers who had trouble borrowing because of the type of
                         farm practices they used or because they wanted to switch some of their
                         cropland from a program crop to a nonprogram crop. Only about 5 per-
                         cent of our respondents said they knew of any such cases.

                         About 70 percent of the farmers we interviewed had purchased crop
                         insurance at some time in the past and about 58 percent were currently
                         insured with FCIC. The farmers overwhelmingly said that farm practices
                         and commodity program participation are not a consideration when
                         applying for crop insurance or in settling insurance claims.

                         To the extent that farmers are in reasonably sound financial condition
                         and make regular loan repayments, it may not be surprising that lenders

                         Page 72                      GAO/PEMD-99-12 Alternative Agricultum   Incentives and Opinions
    chapter 4
    Farmers’ Opinions

    show only modest interest in their farming practices. For farmers con-
    sidered to be higher credit risks, lenders may devote greater attention to
    management practices.

    In this chapter, we provided detailed information on a number of topics
    from our interviews with farmers. Several key points are worth summa-
    rizing, and it is important to note that these points correspond to the
    findings presented in chapter 3.

. Farmers viewed federal farm programs, particularly the crop acreage
  bases, to be important in their planting decisions. This was even more
  apparent for our group of specialized farms. Other factors such as
  experience with the crop, market availability, and crop prices were
  important as well.
. Farmers believed that entering the farm programs and, to a lesser
  degree, diversifying with crops were good strategies for reducing farm-
  related risks.
  Participating in the farm programs encourages farmers to grow only
  program crops while making it difficult to switch crops or grow non-
  program crops. The farmers did not show that the programs had much
  influence on other farm practices.
  The vast majority of the farmers expected to continue with their
  existing farm operations and expected no change in input use or in the
  environmental quality on their farms, but they did expect some
  improvement in farm economics.
  The farmers identified many barriers to the adoption of alternative agri-
  culture. The federal farm programs created important restraints, but
  there were also a number of barriers that are not directly related to
  these programs.

    The implications of these findings will be discussed in the next chapter.

    Page 73              GAO/PEMD90-12 Alternative Agricul~   Incentives and Opinions
Chapter 6


                Agriculture in the United States is highly productive. Food supplies are
                abundant and available to consumers at relatively low prices compared
                to prices in other countries. Fewer than half as many farms today farm
                about the same amount of land and produce roughly twice as much out-
                put per acre as farmers did in the 1940’s. Gains in productivity have
                been made possible largely as a result of farm specialization and the
                development and increased use of agrichemical inputs and other techno-
                logical innovations.

                In spite of these achievements, several health, environmental, and eco-
                nomic problems face conventional agriculture today. Concern is growing
                among consumers that harmful residues from agrichemicals are appear-
                ing in the food they eat and the water they drink. At the same time,
                many observers believe that the soil erosion and water pollution caused
                by current agricultural practices are depleting valuable natural
                resources. Furthermore, the long-term profitability and competitiveness
                of farming has come into question as the farming sector struggles to
                rebound from a period of financial stress, reduced export market share,
                and high government farm spending.

                Concerns about conventional agriculture have led to interest in a broad
Farm Programs   range of farming practices, collectively called alternative agriculture,
                that attempt to reduce agrichemical use while maintaining productivity
                and profitability. Although a large number of farmers in the United
                States use one or more alternative practices as part of their conventional
                farming systems, a relatively small number of farmers have signifi-
                cantly or completely reduced their use of agrichemical inputs. Some
                observers have suggested that more farmers have not reduced
                agrichemical inputs because they lack information about workable alter-
                natives, they lack the management skills needed for such reductions, or
                they think profits will be lower. Because the government plays such a
                major role in farm research, extension, price setting, and income sup-
                port, the reluctance of farmers to adopt alternative agriculture has been
                attributed in part to the USDA'S programs. This report has focused
                mainly on the effects of government programs on conventional and
                alternative agriculture.

                In our review of the literature, we found limited information about the
                technical utility and economic viability of alternative agriculture sys-
                tems. Research gaps exist concerning the effects of reducing agrichemi-
                cal inputs. Alternative techniques to replace agrichemical inputs and
                other conventional practices are often not well developed or are not

                Page 74              GAO/PEMIMO-12 Alternative Agriculture: Incentives and Opinions
                       Chapter 6

                       available for different farm situations. Farmers who use alternative
                       practices generally tend to obtain information from other farmers, spe-
                       cialized farm magazines, workshops, and farm experiments rather than
                       from extension specialists or land grant university researchers. Only a
                       few methodologically sound studies are available comparing conven-
                       tional and alternative agriculture systems. These research studies show
                       that alternative agriculture systems are, under certain conditions, as
                       profitable as conventional agriculture. More research is needed, how-
                       ever, before conclusive statements can be made about the relative prof-
                       itability of these farming systems.

                       In chapter 3, we presented the arguments typically raised by proponents
                       of alternative agriculture that the federal farm support system has
                       encouraged the use of intensive farm production practices and discour-
                       aged the use of alternatives. These criticisms suggest that federal farm
                       programs provide incentives for farmers to

                   . grow only program crops;
                   l grow the same program crops year after year, instead of planting
                     diverse crop rotations;
                   l overproduce program crops; and
                   l plant program crops on land better left unfarmed.

                       These incentives, in turn, may lead to even more intensive farming
                       methods and particularly the reliance on agrichemical inputs. In the
                       remainder of this chapter, we will use the farmers’ responses from our
                       case study to further consider these program criticisms.

                       Our interviews support the claims that there are incentives to grow only
Fahers’ Opinions       program crops and to grow the same program crops year after year. The
                       farmers agreed that participating in the farm programs encouraged
                       them to grow only program crops and to keep growing them year after
                       year. The farmers also agreed that participating in the farm programs
                       makes it difficult for them to grow nonprogram crops and difficult to
                       switch crop rotations. The desire to maintain their program crop acreage
                       base and receive farm program benefits both influenced the farmers’
                       decisions about what crops to plant. In addition, more farmers thought
                       that a better way to reduce economic risk was to participate in the farm
                       programs rather than diversifying the selection of crops they grew or
                       purchasing crop insurance.

                       Page 76              GAO/PEMD-90-U Alternative Agriculture: Incentives and Opinions
Chapter 6

The importance of the program crop acreage base system and its influ-
ence on crop choice is demonstrated in several ways. First, the full bene-
fits of the crop programs are available to those who maintain their crop
acreage base. Maintaining crop acreage base generally means that the
farmer must plant the same program crop year after year. But even if a
farmer decides to leave the program, it seems likely, at least for the
farmers we interviewed, that the program crops will continue to be
grown: experience with a crop was the other most important influence
on the farmers’ planting decisions. Second, growing program crops is
less risky for farmers because the programs provide an available market
and a guaranteed minimum price. The farmers in our survey indicated
that the availability of markets and crop prices are also major influ-
ences on their crop choice.

To preserve their crop acreage base, however, farmers do not always
have to plant the program crop on the same field every year. The ability
to maintain a crop acreage base depends both on farm and program
characteristics. In 1989, several program features allowed farmers to
maintain a crop acreage base while planting other crops (for example,
provisions allowing oats and soybeans to be planted in the 1989 pro-
gram) or keep the land idle (for example in set-aside or O/92). The farm-
ers we interviewed showed a strong interest in being able to use such
flexibility in the programs, at least to the extent that they could grow
other program crops. The degree to which farmers can rotate crops and
preserve their base also depends on farm characteristics such as the
mixture of crops currently grown. For example, if a farmer has a spe-
cialized crop system of one or two crops with no rotation, the program
crops must be planted on each field every year in order to preserve the
entire base. The crop acreage base system does not allow a farmer to
expand into a more diverse rotation without losing program benefits.
But if a farmer already has a diversified crop rotation, the base system
does not prevent that farmer from maintaining that rotation.

We found no evidence in our interviews to support the claim that pro-
gram target prices, loan rates, or set-asides increased production or led
to further cultivation of marginal lands, The farmers did not believe
they were given incentives to overproduce program crops through more
intensive farming or to plant program crops on land best left unfarmed.
The farmers in general responded that the farm programs did not influ-
ence their use of agrichemicals or other farm production methods. The
farmers did not believe that they either increased or decreased fertilizer
or pesticide applications because of their participation in the farm pro-
grams. This finding corresponds with the reduced program yield levels

Page 76              GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
Chapter 6

established through the 1985 Food Security Act. Most farmers indicated
that they wanted to grow as much of each crop as they could and that
this desire for high yields was not affected by the farm programs. There
was no suggestion that they increased or decreased their agrichemical
use in response to changes in program requirements.

Three important implications can be drawn from the results of our
study. First, to the extent that federal farm programs make it difficult
for participating farmers to grow other crops and implement diverse
crop rotations, they act as a barrier to alternative agriculture. Diversi-
fied crop rotations are a key element of alternative agriculture, yet the
farm programs provide strong incentives for farmers to specialize in the
production of program crops. The farm programs make it difficult for
farmers to switch to nonprogram or other program crops because of the
loss of financial benefits that would be involved in changing crop

Second, the farmers most specialized in growing program crops are the
ones facing the strongest disincentives. The responses of the farmers
who were already highly specialized in program crops suggest that they
felt “locked in” to the programs: they were encouraged to grow only
program crops, they found it difficult to grow nonprogram crops, and
they thought it was problematic to switch crop rotations, even though
they believed that the farm programs did not encourage them to grow
their best rotation. In contrast, the farmers who were currently more
diversified found the programs to be less restrictive, though they also
agreed that the farm programs did provide disincentives to grow non-
program crops or switch crop rotations.

Third, the federal farm programs have little direct influence on farmers’
behavior, with the exception of crop choice. This exception is critically
important for alternative agriculture, however. Most farm practices,
including input use, are heavily influenced by crop choice. Once the deci-
sion is made to plant a certain mix of crops, the types and amounts of
inputs needed to produce any given quantity of those crops are sharply
defined. Even though the farm programs do not have a strong and direct
effect on the use of inputs, by influencing crop choice the federal farm
programs do have a major indirect influence on agrichemical use. (Fig-
ure 6.1.)

Page 77              GAO/PEMD-WI2   Alternative Agriculturez Incentives and Opinions
                                          chapter 6

Figclre 5.1: Input Use as a Function of
Cro/p Choice
                                              Farm Programs


                                          If the federal government wants to encourage farmers to adopt alterna-
Conclusion                                tive agricultural practices, it will need to change its farm programs. To
                                          give farmers greater flexibility to grow diverse crop rotations, the crop
                                          acreage base system in particular will need to be modified. A different
                                          farm program may not alone be sufficient to bring a widespread adop-
                                          tion of alternative agriculture, however. Although the farm programs
                                          appear to have a strong influence on farmers’ planting decisions and
                                          subsequently on their choice of production methods, other factors play
                                          an important role as well.

                                          Farmers may be reluctant to change until the technical knowledge and
                                          managerial skills to implement alternative agriculture are demonstrated
                                          and, given our review of the literature and our farmers’ responses, we
                                          believe such information is not generally available. Market forces may
                                          also still provide incentives to apply large amounts of agrichemicals on
                                          highly specialized farms. Changing the crop acreage base system by
                                          itself will not alone transform these circumstances, but it is a prerequi-
                                          site if a major move to alternative agriculture is desired. Providing
                                          greater flexibility in the programs to allow farmers the opportunity to

                                          Page 78                 GAO/PEMD-90-12 Alternative   Agriculture:   Incentives   and Opinions
        Chapter 6

        make production changes will be an important step toward increasing
        the use of alternative agriculture methods.


        Page 79             GAO/PEMD-90-12 Alternative Agriculture: Incentives and OpMons
Abpendix I

Farmer Survey Statistical Data

               In this appendix, we provide the statistical measures we used to analyze
               the farmer survey data presented in chapter 4.

               First, we calculated a summary statistic (such as an average or a sum)
               for each set of questions and for each category of farmers. Then we
               identified the responses (or “factors”) that were important to the farm-
               ers. We did this for each question by conducting analysis-of-variance
               tests on a model using all factors jointly for each group of farmers-all,
               specialized, and diversified farmers.1 Any factor with a univariate sta-
               tistic significant at the .Ol level for at least one farmer category
               remained in the model; all other factors were dropped from further esti-
               mations. We then reestimated the model. The univariate statistics for
               each factor, as well as the F statistic for the model, are presented in the
               first three columns of the tables in this appendix.

               The F statistic for the model, located near the bottom of each column,
               shows how likely it is that one or more of the individual responses in
               that column are important; in general, the larger the number, the greater
               the likelihood that at least some of the factors are important. However,
               since our sample of farmers was not randomly selected and assigned, we
               are not using the probabilities that we computed to test statistical signif-
               icance. The reported probabilities, though, can be interpreted as indica-
               tors of the importance of factors cited by the farmers.

               The univariate statistics within the columns suggest how probable it is
               that a particular response is important if considered in isolation; the
               larger this statistic, the higher the probability. We denote important fac-
               tors (that is, those with univariate statistics that exceed the go-percent
               level) with an asterisk.

               A further caution must be given. If all the factors were uncorrelated, the
               univariate F statistics would show their true probability, and they could
               be ranked in order of importance by the magnitude of these statistics.
               (Tabachnick and Fidell, 1983, pp. 253-67) However, some of the factors
               are correlated, As Tabachnick and Fidel1 note, “Although several proce-
               dures are available for assessing the importance of [such correlated fac-
               tors] and interpreting the pattern of results, there is a certain ambiguity
               associated with the use of each.” Consequently, the F statistics should

               ‘For all tables except 1.2,we used the program MANOVA on SPSSto estimate multivariate and
               univariate test statistics; all such statistics have been transformed to F statistics. For table 1.2,we
               used the program NPAR to estimate all statistics; chi-square statistics are used for univaxiate tests
               and Cochran Q’s are used for multivariate tests.

               Page 80                        GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions
                                Appendix I
                                Farmer Survey StatLetical Data

                                serve only as a rough guide in evaluating the significance of individual
                                factors or ranking them in importance.

                                We also tested whether the specialized and diversified farmers were sys-
                                tematically different. The F statistic for this general test, near the bot-
                                tom of column 4 in the tables, indicates the probability that there are at
                                least some real differences between the categories; the univariate statis-
                                tics within the column suggest which individual factors may distinguish
                                the categories.

Table $1: Planting Decisions’
                                                                                                                          Do specialized
                                                                            Is the factor significant for                 and diversified
                                Factor                                  All      Soecielized         Diversified            farms diffeR
                                Desire to keep crop acreage
                                  base                                  69*                   49*                   23                 1.4
                                Experience with the crop                54*                  6.9                   111*                8.2*
                                Farm oroaram benefits                   33*                   19*                   14*                  0
                                Availability of markets                 28*                  3.2*                   44’                4.2*
                                Need to rotate crops                    23*                   16                   8.4*                0.2
                                CroD Drices                             19                   2.4                    24*                4.2*
                                ADDroximate F for model                                                                                2.1
                                Probability of F:
                                  p is greater than                      0                     0                     0               0.07
                                Number of respondents                   68                    35                    33                 88
                                5ee table 4.1, Numbers within cells are the univariate F statistics for those factors.
                                ‘Significant at the go-percent level.

                                Page 81                         GAO/PEMD-9042 Alternative Agricul~               Incentives and Opinions
                                         Appendix I
                                         Farmer Survey Statistical Data

Tat$e 1.2: Farm Risk0
                                                                                                                                   Do specialized
                                                                                     Is the factor significant for                 and diversified
                                         Factor                                  Ail      Specialized         Diversified            farms differ?
                                           Enter farm proarams
                                                           -                     49*                   27*                   22                0.2
                                           Diversify with crops                   26*                 4.8*                   25*               4.6”
                                           Diversifv with livestock              3.2*                 0.3                   4.0*               0.7
                                         Buv crop insurance                      1.1                  0.7                   5.4*               4.1*
                                           Use “extra” fertilizer                 34*                  27*                    9                3.j*
                                            Use “extra”    Desticide              52*                  27*                   25*                 0
                                           Cochran Q for model                   154                   82                    84                       b

                                         Probability of Q:
                                           II is areater than                      0                    0                     0
                                         Number of respondents                    71                   35                    36                 71
                                         %ee table 4.2. Numbers within cells are the univariate Chi-square statistics for those factors.
                                         bNot estimable

                                         *Significant at the go-percent level

Table 1.3: Farm Program Participation,
Personal Encouragement0                                                                                                            Do specialized
                                                                                     is the factor significant for                 and diversified
                                         Factor                                  Ail      Specialized         Diversified            farms differ?
                                           Grow only program crops               23                    12*                   11*                 0
                                           Buy crop insurance                    3.7*                   0                   8.4                3.7*
                                           Use more herbicide                    9.2*                 2.1                   8.4*               0.9
                                           Grow best crop rotation               a.a*                  14*                  0.7                2.8”
                                           Expand farm size                       10                  8.1*                  3.1                0.3
                                           Produce higher yields                  15*                 7.1*                  7.9*                 0
                                           Use more pesticides                    21*                 5.7*                   17*               0.9
                                           Raise crops and livestock              22*                  12*           -       10’               0.1
                                           Borrow more                           49*                   16*                   42*               0.5
                                         Approximate F for model                  11                  4.8                    11                1.1
                                         Probability   of F:
                                           p greater than                          0                    0                     0                0.4
                                         Number of respondents                   69                    35                    34                 69
                                         %ee table 4.3. Numbers within cells are the univariate F statistics for those factors.

                                         ‘Significant at the go-percent level.

                                         Page 82                         GAO/PJZMD-90-12Alternative Agriculture: Incentives and Opinions
                                         APPs-    I
                                         Pamner Survey Statlatical Data

Table 1.4: Farm Program Perticlpatlon,
Gene*1 EncouragemeW                                                                                                                  Do specialized
                                                                                     Is the factor rlanlficant for                   and diversified
      I                                  Factor                                  All      Specialized         Diversified              farms differ?
                                           Difficult to switch rotations          56                    62                    11*                 4.4*
                                           Easier to aet credit                   30                     9                    24*                 0.9
                                           Tough to grow
                                              nonprogram crops                    11*                   18*                  0.5                  4.7*
                                         Disagree                                                                                     -____
                                           More imoortant to aet
                                              insurance         -                 13                     8*                  5.7*                   0
                                           Less important to use
                                              fertilizer                          40                    30’                   13                  0.3
                                           Less important to use
                                              pesticide                           51*                   26                    24*                   0
                                           Less important to use
                                              herbicide                           69*                   41*                   29*                 0.1
                                         Approximate F for model                  23                    12                    10                  1.3
                                         Probability of F:
                                           D areater than                              0                 0                       0               0.25
                                         Number of respondents                    70                    35                    35                   70
                                         %ee table 4.4. Numbers within cells are the univariate F statistics for those factors

                                         ‘Significant at the go-percent level.

Table, 1.5: Farm SustaInabilItya
                                                                                                                                     Do specialized
                                                                                     is the factor significant for                   and diversified
                                         Factor                                  All      Soecialised         Diversified                        ._. _
                                                                                                                                       farms differ?
                                         Environmental effect
                                           Erosion                                19                    12*                    7*                   0
                                           Soil fertility                        8.2’                  8.2*                  1.9                  0.5
                                           Profits                                15*                  5.4”                  9.8*                 0.2
                                           Crop yields                            56*                   29*                   26*                 0.2
                                         Approximate F for model                  14                     9                     6                  0.3
                                         Probabilitv of F:
                                           p greater than                          0                     0                     0                 0.88
                                         Number of respondents                    68                    34                    34                   68
                                         Y3ee table 4.5. Numbers within cells are the univariate F statistics for those factors.

                                         ‘Significant at the go-percent level


                                         Page 83                         GAO/PJND-3@12 Alternative Agricul~                Incentives and Opinions


                       Appendix I
                       Farmer Survey StatLeticaJ Data

Ta$le 1.6: Barriers*
  1                                                                                                               Do specialized
                                                                   la the factor significant for                  and diversified
                       Factor                                  All      Specialized         Diversified             farms differ?
                       Greater management is
                          required                             102                   57*                    45*                 0
                       Yields may decline                      123                  104*                    39                0.6
                       Weeds may increase                       99*                  35*                    69*               2.0
                       Profits may decline                      50’                  36                     17*               0.2
                       Need to maintain crop
                          acreage base                          63*                   64*                   17*               0.8
                       Farm labor is unavailable                73*                   26*                   50*      -1.7
                       Current svstem works well                55*                   30*                   25*               0%
                       Workload may increase                    57*                   22*                   35                1.9
                       Loans more difficult to get              30                    13*                   17*         --    0.4
                       Lack of information                      38*                   17*                   21*               0.3
                       Loss of federal benefits                 13*                  3.3*                   11*               1.3
                       Markets are not available                11*                    9*                  3.4’               0.1
                       Crop rotations are not
                          allowed in farm oroaram               10                    17*                  0.8                3.0*
                       Livestock will be needed for
                          manure                                 6                    12*                  0.1                3.2*
                       Aooroximate F for model                  16                    12                    11                1.2
                       Probability of F:
                          p greater than                         0                     0                    0                0.29
                       Number of resoondents                    65                    34                   31                  65
                       aSee table 4.6. Numbers within cells are the univariate F statistics for those factors

                       *Significant at the go-percent level.

                       Page 84                         GAO/PEMD-9@12 Alternative Agricul~               Incentives and Opinions
Appeqdix II

Major Contributors to This Report

                       Jim Solomon, Senior Assistant Director (202-276-3693)
Program Evaluation     John Oppenheim, Project Manager
and :Methodology       Mark Rom, Social Science Analyst
     I                 Dave Solenberger, Operations Research Analyst
Kar&as City Regional   Claudia Thorpe, Evaluator

                       Page 86             GAO/PEMD-90-12 Alternative Agriculture: Incentives and Opinions

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