The Agriculture Improvement Act of 2018 continues operating agricultural conservation programs in the United States designed to conserve and protect a valuable natural resource base. Two major pieces of this legislation are the Conservation Reserve Program (CRP) and the Environmental Quality Incentives Program (EQIP). The CRP pays landowners to retire environmentally sensitive land from production for a period of 10-15 years. This means that a producer who enrolls land in the CRP agrees to not produce anything on the land in exchange for an annual payment. EQIP provides financial incentives to individual farmers who adopt conservation practices on their farm. For example, EQIP will provide a farmer with roughly $500 per acre to install buffer strips (a strip of land planted with grass/legumes on the edges of fields to mitigate soil erosion and chemical runoff) on farmland.
For more information check out the following:

Claassen, R., D. Hellerstein, and S. Wallander. 2019. “2018 Farm Act Retains Conservation
Programs but Could Reduce Payments for Land Retirement”. U.S. Department of Agriculture Economic Research Service (ERS). Amber Waves.

1.Define the concept of opportunity cost. Briefly discuss the opportunity cost of enrolling an acre of farmland in the CRP. Briefly discuss the opportunity cost of enrolling an acre of farmland in EQIP. (2 points)

2.When the government is evaluating farmer proposals to enroll land in CRP, the different proposals are ranked according to an Environmental Benefits Index to combine measures of the expected environmental benefits and the costs of the contract (Claassen et al. 2019). These rankings help determine which contracts are awarded. Using one (or more) of the key principles of economics discussed in class, explain why the government might use such a ranking system? Hint: Think about the government’s objectives and goals when implementing these programs. (2 points)

3.Suppose a corn farmer is potentially interested in enrolling acres in the CRP. They have yield monitor data from the previous agricultural year showing how many bushels each acre of land produced. Discussing the incentives facing the farmer, how should they decide which acres and how many to enroll in the program? (2 points)

4.Discuss the incentives (i.e. costs and benefits) farmers face when deciding to adopt a conservation practice like buffer strips. Why might there be less adoption than the government wants? How does a program like EQIP change the incentives faced by farmers? (2 points)

Sample Solution

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