Established in the 2008 Farm Bill and re-authorized in the 2014 Farm Bill, the Sodsaver Provision aims to dis-incentivize converting native grassland to cropland by restricting crop insurance coverage or premium subsidy to cropland that is newly converted from native sod. We recently published a study in the Journal of Agricultural and Resource Economics that attempts to quantify Sodsaver’s effects on grassland protection. It estimates that Sodsaver can reduce grassland conversion by 0.4 percent to 6.9 percent of total grassland area, largely depending on crop prices.
The Sodsaver under the 2008 Farm Bill was very limited. It applied only to certain counties in the Prairie Pothole Region (PPR) of five states: Iowa, Minnesota, Montana, North Dakota, and South Dakota; it went into effect only upon the requests of the governor of the state. If implemented, it would make land converted from native sod ineligible for crop insurance coverage during the first five years of production. However, it was never implemented because no governor requested it.
The provision underwent significant change in the 2014 Farm Bill. First, a governor’s request is no longer necessary for the implementation of Sodsaver. Second, all counties in Iowa, Minnesota, Montana, Nebraska, North Dakota, and South Dakota are subject to the revised Sodsaver. Third, unlike the 2008 version which precluded any crop insurance coverage for newly converted cropland in the first five years of agricultural production, the 2014 version reduces crop insurance premium subsidy rate by 50 percentage points during the first four years of production. It also fixes actual production history (APH) yield at 65 percent of county-level transitional yield (i.e., T-yield) and precludes yield substitution during the first four years of production on newly converted cropland. These changes increase the cost of insuring newly converted cropland and reduce the effective coverage of crop insurance for such land, which will consequently disincentivize grassland conversion in the six states covered by Sodsaver.
By focusing on 17 counties in the PPR in South Dakota where waterfowls and other wildlife species are abundant and where grassland conversion is a major environmental concern, the study estimates how much grassland can be saved under the 2014 edition of Sodsaver. It finds that the protective effects of Sodsaver on grassland are significantly influenced by crop prices. The study reveals an inverse U-shaped relationship between Sodsaver’s effects and crop prices. That is, Sodsaver’s effectiveness in protecting grassland tends to be limited whenever crop prices are either very low or very high, and to be stronger whenever the crop prices are intermediate. For instance, if crop prices were to be constantly as high as those in 2008 then Sodsaver can only protect about 0.4 percent of the grassland in the studied area from converting. On the other hand, if crop prices were to hover around 2006 levels then Sodsaver can save about 7 percent of grassland in the area. The reason for this inverse U-shaped relationship, as explained in the study, is that when crop prices are very high then landowners may find it profitable to convert grassland anyway even with the disincentives from Sodsaver. When crop prices are very low then landowners will not convert grassland whether or not disincentives from Sodsaver are in place. Therefore, Sodsaver’s effect is small under either of these cases. The effect would be greatest when crop prices are at levels that make converting marginally profitable. In this case Sodsaver becomes pivotal to influencing landowners’ conversion decisions and hence its effect is large.
The study also quantifies the land-use effect of crop insurance subsidies while accounting for the agriculture risk coverage (ARC) and price loss coverage (PLC) payments. ARC and PLC are the two main commodity programs established in the 2014 Farm Bill. Consistent with previous studies, it finds a small effect of insurance subsidies on grassland-to-cropland conversion.
In sum, given that agricultural commodity prices have recently declined from the historical highs that occurred over 2008-2011, the results in this study indicate that Sodsaver’s impact may presently be quite strong in influencing landowners’ conversion decisions and hence in determining the extent of America’s grasslands.
Miao, Ruiqing, Hongli Feng, and David A. Hennessy. 2016. “The Effect of Crop Insurance Subsidies and Sodsaver on Land Use Change.” Journal of Agricultural and Resource Economics 41(2): 247-265.