Office of the Chief EconomistOffice of the Chief Economist
Rob JohanssonChief Economist USDA
Chicago November 2019
Enhancing environmental and financial performance on Midwestern farms
1
Office of the Chief Economist
Real net farm income is projected to fall
0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Billion dollarsBillion dollars
Nominal Net Farm Income
Real Net Farm Income (2009$)
Data USDA-ERS
2
Office of the Chief Economist
Agricultural export values projected to rise slightly in 2020 China share to remain down significantly
Data USDA
02468101214161820
- 20 40 60 80
100 120 140 160
Canada Mexico China Other of China Share
Billion dollars
3
Office of the Chief EconomistOffice of the Chief Economist
Least US Corn Harvested
by November 101995-2019
1 2009 422 2019 663 2008 72
Source USDA NASS Crop Progress Data
Office of the Chief Economist
0
10
20
30
40
50
60
70
80
90
100
12-A
ug
19-A
ug
26-A
ug
2-S
ep
9-S
ep
16-S
ep
23-S
ep
30-S
ep
7-O
ct
14-O
ct
21-O
ct
28-O
ct
4-N
ov
11-N
ov
18-N
ov
25-N
ov
2-D
ec
9-D
ec
16-D
ec
23-D
ec
30-D
ec
Perc
ent
Date
US CORN Percent Harvested
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Based on NASS crop progress data
2019
Source USDA NASS Crop Progress Data
Office of the Chief Economist
Fewest US Soybeans Harvested
by November 101995-2019
1 2009 792 2019 853 2018 87
Source USDA NASS Crop Progress Data
Office of the Chief Economist
0
10
20
30
40
50
60
70
80
90
100
2-S
ep
9-S
ep
16-S
ep
23-S
ep
30-S
ep
7-O
ct
14-O
ct
21-O
ct
28-O
ct
4-N
ov
11-N
ov
18-N
ov
25-N
ov
2-D
ec
9-D
ec
Perc
ent
Date
US SOYBEANS Percent Harvested
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Based on NASS crop progress data
2019
Source USDA NASS Crop Progress Data
Office of the Chief Economist
Wheat corn and soybean prices
8
Dollars per bushel
Data USDA
3
5
7
9
11
13
15
200910 201112 201314 201516 201718 201920 202122 202324 202526 202728 202930
Corn
Soybeans
Wheat
Office of the Chief Economist
Farmersbull Recreationbull Uses clean air water clean
waterbull Profitabilitybull Liability
Publicbull Recreationbull Uses clean air water clean water
So why focus on environmental performance now First most everyone cares a lot about farm and food production and the environment
9
ldquohellipEvery year American consumers spend more on outdoor recreation [$887 billion] than they do on pharmaceuticals and fuel combined In fact the impact of outdoor recreation on Americas economy is almost as big as that of hospital carehelliprdquo
gt Roughly $170 billion in the Midwest
httpsoutdoorindustryorgwp-contentuploads201704OIA_RecEconomy_FINAL_Singlepdf
Americans spent about $16 trillion on food at home and away from home in 2017httpswwwersusdagovdata-productsfood-expenditure-series
Americans farms created value added of roughly $400 billion in 2017
Office of the Chief Economist
But secondly because we can focus on improving the financial performance of farms and limiting their environmental impacts
1 Technology and innovation2 USDA programs
3 Remaining challenges
10
httpsoceanservicenoaagovnewshistorical-hurricaneshttpsoceanservicenoaagovfactsdeadzonehtml
httpswwwcanrmsueduresourcesmanagement_of_nitrogen_fertilizer_to_reduce_nitrous_oxide_emissions_from_fi
Office of the Chief Economist
Technological innovations have helped push up agricultural productivity
050075100125150175200225250275300325350375400425
TFP Output InputUS Index Year 1929 = 100
Anhydrous ammonia injection becomes predominant
No-till starts to become popular
Robotic milking introduced
Satellites used for precision ag
Big data applications
Weed and pest resistant biotech
First automated irrigation system field tested
Widespread adoption of hybrid seed begins
Rubber tires on tractors introduced
Herbicide 24-D introducedWidespread adoption of inorganic nitrogen fertilizer begins
Consumer-focused biotech traits
Drought tolerant biotech
Source USDA-OCE using data from USDA-ERS and historic USDA data (pre-1948)
11
Office of the Chief Economist
Technological innovations have helped push up agricultural productivity
0
30
60
90
120
150
180
210
240
1960 1970 1980 1990 2000 2010 2020
World Crop Production
Corn
Soybeans
Rice
Wheat
Data USDA BLS
2005=100
Corn output has risen 435 since 1960 soybeans by 1190 rice by 225 and wheat by 215
12
0
30
60
90
120
150
1960 1970 1980 1990 2000 2010 2020
US Meat and Milk Production
Beef
Chicken
Pork
Milk
Beef output has risen 87 since 1960 pork by 143 milk by 77 and chicken by 1050
2005=100
Office of the Chief Economist
Example Rising corn yields through technological innovation
Data USDA ERS Agricultural Resources and Environmental Indicators 2019 httpswwwersusdagovwebdocspublications93026eib-208pdfv=23483
Office of the Chief Economist
Recent trends and policies have generally led to falling food prices and growth in trade
020000400006000080000100000120000140000160000180000200000
020000400006000080000
100000120000140000160000180000200000
1960 1970 1980 1990 2000 2010 2020
Corn Oilseed Soybean
Global corn and soybean exports (1000 mt)
Data USDAhttpwwwamis-outlookorgindicatorspricesen
14
Office of the Chief Economist
Example Nitrogen Application Quantity Corn
15
Source USDA Economic Research Service based on Agricultural Resource Management Survey (ARMS) data for 2005 2010 and 2015 httpswwwusdagovoceoeepUSDA_Conservation_Trendspdf
Productivity also can drive environmental performance
gtgtgt increasing lbsper acre application
Office of the Chief Economist
Example Nitrogen Application Quantity Corn
16
Source USDA Economic Research Service based on Agricultural Resource Management Survey (ARMS) data for 2005 2010 and 2015 httpswwwusdagovoceoeepUSDA_Conservation_Trendspdf
Productivity also can drive environmental performance
gtgtgt increasing lbsper acre application
The quantity of nitrogen applied on corn acres are increasing
Office of the Chief Economist
Nitrogen Application per Bushel Corn
17
Source USDA ERS based on ARMS data for 2005 2010 and 2015 httpswwwusdagovoceoeepUSDA_Conservation_Trendspdf
But declining excess nitrogen applications
gtgtgt decreasing lbsper bushel
Office of the Chief Economist
Nitrogen Application per Bushel Corn
18
Source USDA ERS based on ARMS data for 2005 2010 and 2015 httpswwwusdagovoceoeepUSDA_Conservation_Trendspdf
But declining excess nitrogen applications
gtgtgt decreasing lbsper bushel
But nitrogen applications per bushel are decreasing This demonstrates increasing efficiency of production
Office of the Chief Economist
New focus on intensification can improve productivity and environmental outcomes
19
06070809
1111213141516
1985 1990 1995 2000 2005 2010 2015 2020 2025
Lbs N
Bus
hel C
orn
Prod
uced
Year
Pounds Nitrogen Applied per Bushel Corn Produced in Illinois 1990-2020
Source USDA-NASS Quick Stats
Office of the Chief Economist
Cow numbers have been falling since the mid-20th century while milk per cow has increased steadily
20
0
5000
10000
15000
20000
25000
0
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20000
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30000
Thou
sand
cow
s
Number of cows (left axis)
Milk per cow (right axis)
Poun
ds
Data USDA-NASS
Office of the Chief Economist
Focus enhancing productivity and the environment
Enteric methane emissions in dairy has dropped 55 from 31 g methanekg milk in 1924 to 14 g methanekg milk in 2014
Source Global Research Alliance httpsglobalresearchallianceorgwp-contentuploads201511USA-national-dairy-CH4pdf
Office of the Chief Economist
Voluntary Programs
Generally there will be positive private benefits to conservation practices but there could be underinvestment
USDA and other similar programs can provide incentives to boost investments to achieve private and public benefits
Farming will generate externalities How can we achieve MC = MB
22
Office of the Chief Economist
On-Farm Economic Benefitsbull Certain practices can have
financial and environmental benefits
bull Reduced tillagebull Reduced N applicationsbull Precision agriculturebull Cover crops
Incentive Programsbull USDA offers a variety of programs
to incentivize adoption of conservation practices
bull CRPbull EQIPbull CSP
How can we promote conservation adoption
23
Office of the Chief Economist
Reduced Tillage
Reduced Nutrients
Precision Ag Tech
Break-even prices for conservation adoption
Range in incentive prices from $0-$100 Source ICF and USDA 2016
httpswwwusdagovoceclimate_changeWhite_Paper_WEB_Final_v3pdf
Office of the Chief Economist
Reduced Tillage
Reduced Nutrients
Precision Ag Tech
Break-even prices for conservation adoption
Range in incentive prices from $0-$100
Reduced tillage using precision ag and reducing N applications can pencil out for farmers
Source ICF and USDA 2016 httpswwwusdagovoceclimate_changeWhite_Paper_WEB_Final_v3pdf
Office of the Chief Economist
Conservation Tillage Benefits
bull Reduces soil erosionbull Reduces runoffbull Improves water
managementbull Improves soil healthbull Reduced timefuel
use
Source USDA NRCS httpswwwnrcsusdagovInternetFSE_DOCUMENTSnrcs144p2_066824pdf
Office of the Chief Economist
Mulch till and no-till adoption vary by region
27
More farmers are using mulch till than no-till in the Heartland
Source USDA Agricultural Resource Management data for wheat (2017) corn (2016) and soy (2012) httpswwwersusdagovwebdocspublications90201eib-197pdfv=17838
Fewer farmers are using conservation tillage in the NortheastLake States
Office of the Chief Economist
No-Till Adoption Corn
28Source USDA ERS based on ARMS data for 2005 2010 and 2015httpswwwusdagovoceoeepUSDA Conservation Trendspdf
No-till adoption on corn acres in the Corn Belt is slightly decreasing and is around 20(2005-2016)
Office of the Chief Economist
No-Till Adoption Soybeans
29Source USDA ERS based on ARMS data for 2006 and 2012 httpswwwusdagovoceoeepUSDA_Conservation_Trendspdf
No-till adoption on soy acres in the Corn Belt is slightly decreasing but relatively highndash around 50 (2005-2016)
Office of the Chief Economist
Cover Crop Benefits
bull Reduce soil erosionbull Reduce runoffbull Improve water
managementbull Improve soil healthbull Provide additional
nutrients bull Suppress weeds
Source USDA NRCS httpswwwnrcsusdagovInternetFSE_DOCUMENTSstelprdb1082778pdf
Office of the Chief Economist
Cover Crop AdoptionmdashAll Crops
Source USDA ERS based on ARMS data for 2010 2011 2012 and 2015 httpswwwusdagovoceoeepUSDA_Conservation_Trendspd
Cover crop adoption is increasing but still low overall (about 5)
Office of the Chief Economist
Cover Crop AdoptionmdashAll Crops
Cover crop adoption is increasing but still low overall (about 5)
The Corn Belt and Lake States are at about 5 adoption but the Northeast is much higher (around 20)
Source USDA ERS based on ARMS data for 2010 2011 2012 and 2015 httpswwwusdagovoceoeepUSDA_Conservation_Trendspd
Office of the Chief Economist
Source USDA ERS analysis of 2017 Census of Agriculture Summary Data USDA NASS
Percent of acres using cover crops in 2012
Office of the Chief Economist
Source USDA ERS analysis of 2017 Census of Agriculture Summary Data USDA NASS
Percent of acres using cover crops in 2017
Increased adoption in the Eastern and Midwestern States
Office of the Chief Economist
Source USDA ERS analysis of 2017 Census of Agriculture Summary Data USDA NASS
Change in cover crop acreage 2012-2017
Bright green represents a 5-39 increase
Dark blue represents a 5-35 decrease
Office of the Chief Economist
Cover crops can provide yield returns
Source SARE Cover Crop Economics 2019 httpswwwsareorgLearning-CenterBulletinsCover-Crop-Economics
Office of the Chief Economist
USDA encouraged cover crop planting on prevented plant acres this year
Source USDA httpswwwfarmersgovmanageprevented-planting
Office of the Chief Economist
Precision Agriculture
Benefits bull Apply fertilizer and
other inputs in the right place and right rate
bull Maximize nutrient benefits while minimizing overapplication
bull Financial benefits by reducing inputs
Source USDA ERS httpswwwersusdagovamber-waves2016decemberprecision-agriculture-technologies-and-factors-affecting-their-adoption
Office of the Chief Economist
Variable Application Rate Technology Adoption (1998-2016)
VRT adoption especially on corn (blue line) rapidly increased from 2005-2016
Data USDA ERS Agricultural Resources and Environmental Indicators 2019 httpswwwersusdagovwebdocspublications93026eib-208pdfv=23483
Office of the Chief Economist
Variable Application Rate Technology for Fertilizers Corn
40
In 2005 around 5of corn farmers used VRT in the Corn Belt
By 2016 almost 40of corn farmers used VRT in the Corn Belt
Source USDA ERS based on ARMS data for 2010 2011 2012 and 2015 httpswwwusdagovoceoeepUSDA_Conservation_Trendspd
Office of the Chief Economist
USDArsquos broadband programs support precision ag adoption
bull USDArsquos ldquoA Case for Rural Broadbandrdquo report found that meeting rural broadband needs could provide $18 billion in additional economic benefits
bull The USDA ReConnect Program offers grants and loans for broadband infrastructure
bull USDA has invested over $51m to date
41
Office of the Chief Economist
Targeting resources applies to both a farm level and a programmatic level
Acres with high leaching potential in the Western Lake Erie Basin
Source USDA CEAP Data 2015
Office of the Chief Economist
Example Enhanced Efficiency Fertilizers (EEFs)
bull Reduce nitrogen losses to water and airbull Nitrous oxide emissions from fertilizers are the largest
source of greenhouse gas emissions from the ag sector (almost 50 of ag emissions)
bull Improve nitrogen use efficiency and yield
New technologies will continue to drive efficiencies in production
43
Office of the Chief Economist
Enhanced Efficiency Fertilizers bull Coated fertilizersbull Double inhibitors
(nitrification and urease inhibitors)
bull Nitrification inhibitorsbull Urease inhibitors
Impact of Enhanced Efficiency Fertilizers on Nitrous Oxide Reductions
Source ICF and USDA 2019 Draft memo Data from Akiyama et al 2010 Kim et al 2012 Li et al 2018 Shcherbak et al 2014 Zhang et al 2019
Office of the Chief Economist
Enhanced Efficiency Fertilizers bull Coated fertilizersbull Double inhibitors
(nitrification and urease inhibitors)
bull Nitrification inhibitorsbull Urease inhibitors
Impact of Enhanced Efficiency Fertilizers on Nitrous Oxide Reductions
Nitrogen inhibitors can reduce nitrous oxide emissions by over 40
Source ICF and USDA 2019 Draft memo Data from Akiyama et al 2010 Kim et al 2012 Li et al 2018 Shcherbak et al 2014 Zhang et al 2019
Office of the Chief Economist
Enhanced Efficiency Fertilizers bull Nitrification inhibitorsbull Urease inhibitorsbull Double inhibitors
(nitrification and urease inhibitors)
bull Coated fertilizers
Impact of Enhanced Efficiency Fertilizers on Nitrogen Use Efficiency
Source ICF and USDA 2019 Draft memo Data from Akiyama et al 2010 Kim et al 2012 Li et al 2018 Shcherbak et al 2014 Zhang et al 2019
Office of the Chief Economist
Enhanced Efficiency Fertilizers bull Nitrification inhibitorsbull Urease inhibitorsbull Double inhibitors
(nitrification and urease inhibitors)
bull Coated fertilizers
Impact of Enhanced Efficiency Fertilizers on Nitrogen Use Efficiency
Nitrogen inhibitors can also increase nitrogen use efficiency by almost 50
Source ICF and USDA 2019 Draft memo Data from Akiyama et al 2010 Kim et al 2012 Li et al 2018 Shcherbak et al 2014 Zhang et al 2019
Office of the Chief Economist
bull USDA makes significant investments through Farm Bill programs (EQIP CSP CRP etc)
bull These investments have led to reductions in soil loss runoff and sequestered carbon
USDA has a role to play in incentivizing conservation adoption
48
Office of the Chief Economist
0
1
2
3
4
5
6
7
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Billi
on
Working lands Cons Reserve Ag Conservation Easements
Note Data expressed in 2018 dollars Working lands includes Environmental Quality Incentives Programs Conservation Stewardship Program and Conservation Technology Assistance Conservation Reserve Program Agricultural Conservation Easement Program All programs include these and their predecessors
USDA investments in conservation (2009-2018)
Working lands programs have made up a higher share of USDA conservation spending over time
Office of the Chief Economist
Expenditures on top 5 EQIP practices 1998-2015
Cover crops account for more of EQIP spending over time
Data USDA ERS Agricultural Resources and Environmental Indicators 2019 httpswwwersusdagovwebdocspublications93026eib-208pdfv=23483
Office of the Chief Economist
Total US Spending 20186187 Million
USDA conservation spending by state in 2018
Source NRCS RCA Reports
Note Data expressed in 2018 dollars Includes these programs and predecessors Environmental Quality Incentives Programs Conservation Stewardship Program Conservation Technology Assistance Conservation Reserve Program Agricultural Conservation Easement Program
Office of the Chief Economist
Working lands ProgramsConservation Reserve ProgramAgricultural Conservation Easements
Total US Spending 2018
6187 Million
Working lands programs include Environmental Quality Incentives Program Conservation Stewardship Program
Distribution of USDA conservation spending by program 2018
Source NRCS RCA Reports
Office of the Chief Economist
Average Sediment Loss Reduction 2017ndash18252 million tons
Average Wind Erosion Loss Reduction 2017ndash18313 million tons
Outcomes from USDA conservation investments
Source USDA CEAP Data
Office of the Chief Economist
Average nitrogen runoff 2017ndash18down 535 million lbs
Average phosphorus runoff 2017ndash18down 891 million lbs
Outcomes from USDA conservation investments
Source USDA CEAP Data
Office of the Chief Economist
Source ERS Working Lands Conservation Contract Modifications Patterns in Dropped Practices
Comparing successful EQIP participation to additionality
Office of the Chief Economist
Comparing successful EQIP participation to additionality
Conservation tillage is not as additional but very likely to be completed as planned
Structural practices are additional but less likely to be completed as planned
Conservation tillage probably pencils out for farmers
Source ERS Working Lands Conservation Contract Modifications Patterns in Dropped Practices
Office of the Chief EconomistOffice of the Chief Economist
Current CRP Enrollment and Expirations
bull Current CRP enrollment is at 22 million acres The 2018 Farm Bill increased the cap to 27 million acres by 2023
bull Expiring CRP Acresbull 536 million acres in FY 2020bull 301 million acres in FY 2021bull 401 million acres in FY 2022
470
256345
066
045
056
536
301
401
000
100
200
300
400
500
2020 2021 2022
Expirations (Million Acres)
Continuous
General
Source USDA
Office of the Chief Economist
58
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1986
1987
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1989
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2015
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2018
Mill
ion
Acr
es
Fiscal Year
CRP Enrollment at End of Fiscal Year (Acres))
General
Continuous
Continuous Enrollment Has Expanded Relative to General Enrollment
Source USDA