The U.S. Department of Agriculture could potentially spend part of its budget for water quality improvements seven to 12 times more cost effectively than it does now. A new WRI analysis shows how, explains why USDA isn’t already doing so, and proposes ways to make a complex policy a reality.
Tighter U.S. budgets are a constant threat to funding for farm practices that reduce water pollution linked to agriculture, so it’s important to put federal dollars where they can do the most good. USDA has been successfully providing voluntary financial and technical assistance to farmers who wish to address water quality concerns on their own fields. Currently, though, funds are not concentrated in places with the greatest potential for achieving water quality benefits, nor are they allocated in the most cost-effective way. A modeling analysis by WRI using the best available data and models from the U.S. Department of Agriculture (USDA) finds that combining geographic with benefit-cost targeting holds great promise for stretching taxpayer resources. However, technical, institutional, and political barriers make attaining these modeled results difficult.
The Water Quality Challenge
American farmers are among the most productive in the world. Unfortunately, fertilizer runoff and soil erosion from farms also pollutes U.S. waterways. Excess nutrients—nitrogen and phosphorus—from synthetic and manure fertilizers are the primary source of pollution that runs off of farm fields and robs over 15,000 rivers, streams and lakes of the oxygen needed to sustain aquatic life.
To address this problem, USDA provides limited voluntary financial and technical assistance to farmers who want to lessen their environmental impact. WRI’s analysis found that of the $5 billion spent on average every year by federal conservation programs, only about $335 million is spent on controlling fertilizer runoff and soil erosion. The rest of the funds address other important agricultural concerns: water quantity, wildlife habitat, air quality, and soil fertility, etc.
What We Found
WRI explored how cost effective the current approach was at using this $335 million budget and how outcomes might improve with targeting. We explored three targeting approaches (geographic targeting, benefit-cost targeting, and a dual targeting approach that combined the two) to reduce nitrogen, phosphorus, and sediment pollution.
Using farm survey data, program payment information, and scientific and economic modeling techniques, WRI found that about 91 million pounds of nitrogen pollution was cut annually from 2006 to 2011 at an average cost of about $3.65 per pound. Applying targeting models to find the cropland acres and conservation practices that could achieve the greatest nitrogen reductions per dollar spent resulted in 12 times greater cost effectiveness than the current approach: 1.1 billion pounds of nitrogen reductions at just $0.30 per pound.
We did this analysis for phosphorus, sediment, and soil carbon, too, and found that, depending on which of these environmental benefits was being optimized, that combining geographic with benefit-cost targeting could achieve seven to 12 times more environmental benefits for the same conservation budget as the current approach.
Why the Modeled Results Aren’t Yet Occurring
Significant technical, institutional, and political barriers prevent USDA from being able to match the model’s predictions. Technically, the agency does not yet have the information and tools it needs to easily find these most cost-effective acres amongst the 304 million acres of U.S. cropland. If these most cost-effective acres can be identified, it may be an institutional challenge for USDA and its partners to convince the producers managing these cropland acres to participate given the voluntary nature of the conservation programs. Politically, shifting funds from where they are now to where the model predicts they will do the most good also is likely to upset stakeholders who benefit from the current system.
If the political hurdles to improving state funding allocation formulas are too high to overcome, we found a second-best solution. By keeping funds in place under the current approach but targeting the money differently within those locations, we found benefit-cost targeting could provide four to nine times the water quality benefits per dollar spent than the current approach. This second-best solution could yield significant results if the associated technical and institutional challenges can be surmounted. More options for overcoming the various barriers to targeting are discussed in our third paper in this series.
4 Steps Toward Turning Estimates into Reality
USDA and the conservation community—including farm and environmental organizations, state and local agricultural and water quality agencies, and university extension experts—could realize some of these estimated improvements in cost effectiveness by taking four key steps.
Quantify the environmental benefits of program spending. Currently the agency only reports programmatic outputs like dollars spent, contracts awarded, or practices adopted. USDA may already be on its way to achieving this first step with the development of a new “field office planning tool,” a scientific model that can estimate nitrogen, phosphorus, and sediment reductions for a farmer from the conservation practices being considered. The agency should accelerate development of this and other benefit-estimating tools. Then, the agency should commit to aggregating the benefits estimated at the field to the overall conservation program and report on the programs’ environmental successes. Other methods of estimating program environmental benefits should also be explored, such as monitoring improvements in water quality in streams and lakes within targeted watershed projects.
Incorporate benefit-cost principles into conservation planning tools and use these principles in the application ranking criteria systems. By integrating cost data in these tools, decision-making by farmers will be more robust than when considering practices based on environmental benefits alone. The cost effectiveness of an application (e.g., the dollar value per pound of phosphorus reduced or alternatively, pounds of phosphorus reduced per dollar spent) could be incorporated into the application ranking systems so that the most cost-effective applications can be selected. Because some water quality conservation applications also address other resource concerns, these ranking systems should be designed to account for co-benefits and trade-offs during the selection process.
Conduct pilot projects that combine geographic with benefit-cost targeting principles to “road test” these ideas and work out the kinks. In addition, the agency and its partners should include benefit-cost criteria in current geographic targeting initiatives like the Mississippi River Basin Healthy Watersheds Initiative (MRBI).
Revisit the state funding allocation formulas, and inform those formulas with newer and better data and modeling techniques to achieve both geographic and benefit-cost principles. After investing the resources needed to pursue the first three recommendations, the agency and the conservation community will have laid the ground work needed to improve the funding formulas so that greater water quality benefits for every dollar spent may be realized in the future.