As Prices Rise, Farmers Spurn Conservation Program

www.nytimes.com/2008/04/09/business/09conserve.html?ref=science

April 9, 2008
The Food Chain
As Prices Rise, Farmers Spurn Conservation Program
By DAVID STREITFELD
Out on the farm, the ducks and pheasants are losing ground.

Thousands of farmers are taking their fields out of the government’s biggest conservation program, which pays them not to cultivate. They are spurning guaranteed annual payments for a chance to cash in on the boom in wheat, soybeans, corn and other crops. Last fall, they took back as many acres as are in Rhode Island and Delaware combined.

Environmental and hunting groups are warning that years of progress could soon be lost, particularly with the native prairie in the Upper Midwest. But a broad coalition of baking, poultry, snack food, ethanol and livestock groups say bigger harvests are a more important priority than habitats for waterfowl and other wildlife. They want the government to ease restrictions on the preserved land, which would encourage many more farmers to think beyond conservation.

Kerry Dockter, a rancher in Denhoff, N.D., has about 450 acres of grassland in the program. “When this program first came about, it was a pretty good thing,” he said. “But times have definitely changed.”

The government payments, Mr. Dockter said, “aren’t even comparable anymore” to what he could make by working the land. He plans to devote some of his conservation acres to growing feed for his cows and some to grazing. He might also lease some land to neighbors.

For years, the problem with cropland was that there was too much of it, which kept food prices low to the benefit of consumers and the detriment of farmers.

Now, because of a growing global middle class as well as federal mandates to turn large amounts of corn into ethanol-based fuel, food prices are beginning to jump. Cropland is suddenly in heavy demand, a situation that is fraying old alliances, inspiring new ones and putting pressure on the Agriculture Department, which is being lobbied directly by all sides without managing to satisfy any of them.

Born nearly 25 years ago in an era of abundance, the Conservation Reserve Program is having a rough transition to the age of scarcity. Its 35 million acres — about 8 percent of the cropland in the country — are the big prize in this brawl.

Groups like Ducks Unlimited and Pheasants Forever want the government to raise rental rates to keep the same amount of land in the program or even increase it. While offering more money to farmers might be a difficult sell in a year of record farm profits, Jim Ringelman of Ducks Unlimited said, “There are overriding environmental issues here.”

The bakers and their allies have a different set of overriding issues: high commodity prices. The rising cost of feed is hurting ranchers, the rising cost of corn is hurting ethanol producers and the rising cost of wheat is hurting bread makers.

“We’re in a crisis here. Do we want to eat, or do we want to worry about the birds?” asked JR Paterakis, a Baltimore baker who said he was so distressed at a meeting last month with Edward T. Schafer, the agriculture secretary, that he stood up and started speaking “vehemently.”

The Paterakis bakery, H&S, produces a million loaves of rye bread a week. The baker said he could not find the rye flour he needed at any price. That gives him two unwelcome options: close half of his operations starting in July, or experiment with a blended flour that will yield a different and possibly less-than-authentic rye bread.

Such problems were never contemplated when the Conservation Reserve was conceived as part of the 1985 Farm Bill. Participants bid to put their land in the program during special sign-ups, with the government selecting the acres most at risk environmentally. Average annual payments are $51 an acre. Contracts run for at least a decade and are nearly impossible to break — not that anyone wanted to until recently.

“Older farmers put their land in the program rather than renting to a younger farmer or selling,” said Dale Schuler, who grows wheat in Fort Benton, Mont. That made it difficult for farmers who wanted to expand as well as farm equipment dealers, supply co-ops and other services, which suffered declines in business.

“It’s certainly been a polarizing issue,” Mr. Schuler said. “Half the people love it and half the people hate it.”

While few urban dwellers ever heard of Conservation Reserve, it found support among two important constituents: hunters had more land to roam and more wildlife to seek out, with the Agriculture Department estimating that the duck population alone rose by two million; and environmentalists were pleased, too. No one disputes that there are real environmental benefits from the program, especially on land most prone to erosion.

The program peaked late last summer, with more than 400,000 farmers receiving nearly $1.8 billion for idling 36.8 million acres. Put all that land together and it would be bigger than the state of New York.

The group doing the most to undermine this amiable coexistence is the farmers themselves. Last fall, when five million acres in Conservation Reserve came up for renewal, only half of them were re-entered. While the program has gained some high-priority land in the last few months, in part from an initiative to restore bobwhite quail habitats, the net loss is still more than two million acres.

That is just the beginning, warns Ducks Unlimited, a politically potent organization with more than half a million members in the United States. Ducks Unlimited is concerned about the three-quarters of a million acres of grassland that were removed from the program last year in the so-called duck factory in the Upper Midwest.

“We foresee a dramatic reduction,” said Mr. Ringelman, a conservation director for the association.

Ardell Magnusson, a farmer in Roseau, Minn., shows the changing mood. He said the program was “a godsend” when he put 300 of his 2,300 acres into it eight years ago. “I needed some guaranteed income or my banker was going to tell me to find another occupation,” Mr. Magnusson said. It is not exactly a bonanza: he gets about $12,000 a year.

He calculates he can make more than that by farming sunflowers or wheat or soybeans. When his contract expires in two years, he plans to withdraw about half his land. It would not be a shock if the Agriculture Department cut him loose sooner. “Another nine months of wheat at today’s prices and there will be political pressure on this program like you wouldn’t believe,” Mr. Magnusson said.

That pressure is exactly what the bakers and their allies are aiming for, saying the Conservation Reserve costs taxpayers and hurts consumers.

“This program is taking money out of your pocket twice a day,” said Jay Truitt, vice president for government affairs for the National Cattlemen’s Beef Association. “Do you think it’s right for you to pay so there’s more quail in Kansas?”

The cattlemen and bakers argue that farmers should immediately be allowed to take as much as nine million acres out of the Conservation Reserve without paying a penalty, something they say would not harm the environment.

“The pipeline for wheat is empty,” said Michael Kalupa, a bakery owner in Tampa, Fla., who is president of the Retail Bakers of America. Mr. Kalupa said the price he paid for flour had doubled since October. He cannot afford to absorb the cost and he cannot afford to pass it on. Sales have been falling 16 percent to 20 percent a month since October. He has laid off three employees.

Among farmers, the notion of early releases from conservation contracts is prompting sharp disagreement and even anger. The American Soybean Association is in favor. “We need more food,” said John Hoffman, the association’s president.

The National Association of Wheat Growers is against, saying it believes “in the sanctity of contracts.” It does not want more crops to be grown, because commodity prices might go down.

That is something many of its members say they cannot afford, even with wheat at a robust $9 a bushel. Their own costs have increased, with diesel fuel and fertilizer up sharply. “It would decrease my profit margin, which is slim,” said Jeff Krehbiel of Hydro, Okla. “Let’s hurt the farmer in order to shut the bakers up, is that what we’re saying?”

Mr. Krehbiel said his break-even last year was $4 a bushel. This summer it will be $6.20; the next crop, $7.75.

In the struggle between those who would shrink the program and those who would bolster it, the Agriculture Department is leaning toward the latter. When Mr. Schafer spoke recently before wildlife and hunting groups in Phoenix, he opened the door to significantly raising rents on new land.

Randy Schuring, a dairy farmer with 200 acres in the program, said there was no possible solution that would make everyone happy.

“If the government lets the land out and then crop prices fall, that’s going to hurt a lot of farmers,” said Mr. Schuring, whose farm is in Andover, S.D. “If it doesn’t let the land out and prices keep going up, that will hurt a lot of consumers. If only we had a crystal ball.”