Break-Even Analysis of the Conservation Reserve Program: The Virginia Case

The Conservation Reserve Program (CRP), was established under the Food Security Act of 1985.' The CRP has as its objectives supply control, farmer income support, and improvements in environmental quality. These objectives are achieved by providing compensation to farmers for substituting permanent vegetative cover (cover) for row crops on highly erodible land.2 Cover on former cropland, and consequent reductions in erosion-related pollution, should lead to onand off-farm improvements in water quality (surface and groundwater), wildlife habitat, soil productivity, and air quality. In turn, improved environmental quality will potentially enhance wildlife-based and water-based recreational opportunities and lead to increased expenditures on recreational activities. While the CRP was not designed to achieve specific regional economic objectives, there has been a great deal of interest in the economic impacts of the CRP on rural communities. These impacts include the negative effects of CRP-induced reductions in crop production and the partially offsetting positive effects of payments to farmers and the economic activity generated by establishment, maintenance, and harvest (in the case of trees) of cover. Previous studies of the economic impacts of the CRP have ignored the positive regional economic impacts of CRP-induced increases in recreational activity. These increases in recreational activity have the potential to offset some of the economic disadvantages caused by reduced crop production (Harmon 1988). It is important to explore the economic trade-offs between agricultural production and environmental quality-based amenities like recreation. Due to their higher income elasticity, the demand for environmental quality-based amenities is growing faster than the demand for agricultural products in the U.S. (Runge 1987; Crosson 1990). This differential rate of growth will have important implications for future land-use patterns and property rights arrangements. Furthermore, this study carefully considers the appropriate treatment of compensation paid to farmers for participation in the CRP. Previous economic impact studies of the CRP have treated the compensation paid to farmers inconsistently, resulting in overor under-estimation of the program's impacts. Given the considerable interest in economic impacts of the CRP, it is important that accurate and consistent bases for analysis be established. CRP-induced increases in recreational activity are anticipated but, to date, their precise magnitude is unknown. The critical issue in such cases is whether it is reasonable to expect the beneficial impacts to offset the negative impacts and leave the regional economy no worse off. A break-even approach is used in this study to quantify the level of beneficial activity needed to ex-