Adoption of Conservation Agriculture in Iowa

This research was prepared on behalf of the Walton Family Foundation: www.waltonfamilyfoundation.org

Datu Research is a consulting firm that provides decision-makers the economic analysis they need to inform strategies that protect natural resources, improve food security, and develop local economies. www.daturesearch.com

Cover photo courtesy of Practical Farmers of Iowa.

AUTHORS Sarah Mine, Sarah Zoubek, Damon Cory-Watson, and Marcy Lowe

ACKNOWLEDGEMENTS The authors are grateful to the many Iowa corn growers and landowners, as well as personnel from industry associations, government, NGOs, and universities, who generously contributed their time and expertise to this project. Special thanks to Ryan Stockwell, Lara Bryant, Julie Sibbing, and Trisha White at the National Wildlife Federation and to Sarah Carlson of Practical Farmers of Iowa for their support and valuable input.

The opinions or comments expressed in this study are not necessarily endorsed by the facilitating partner agencies mentioned or individuals interviewed. Errors of fact or interpretation remain exclusively with the authors. We welcome comments and suggestions. Inquiries can be directed to [email protected].

©December 2014. Datu Research, LLC.

EXPERT REVIEWERS

We thank the following individuals who generously shared their time and expertise to review and provide feedback on this report.

Mahdi Al-Kaisi, PhD, Professor, Soil Management/Environment, Iowa State University J. Gordon Arbuckle Jr., PhD, Associate Professor/Extension Sociologist, Iowa State University Mollie Aronowitz, Land Manager, Peoples Company Todd Barker, Senior Partner, Meridian Institute Lara Bryant, Agriculture Program Coordinator, National Wildlife Federation Sarah Carlson, Midwest Cover Crops Research Coordinator, Practical Farmers of Iowa Keith Collins, PhD, Economist, National Crop Insurance Services; Former Chief Economist, United States Department of Agriculture Ben Gleason, Sustainable Program Manager, Iowa Corn Growers Association Julie Grossman, PhD, Assistant Professor, Department of Horticultural Science, University of Minnesota Jerry Hatfield, PhD, Laboratory Director and Supervisory Plant Physiologist, USDA Agricultural Research Service Bradley Hayes, ‎Agricultural Real Estate Appraiser and Sales Agent, Peoples Company Tim Hoffmann, Director, Product Administration and Standards Division, USDA Risk Management Agency Eileen Kladivko, PhD, Professor, Agronomy, Purdue University Matt Liebman, PhD, Professor of Agronomy and Wallace Chair for Sustainable Agriculture, Iowa State University Claire O’Connor, Agricultural Water Policy Analyst, Natural Resources Defense Council Jamie Ridgely, Chief Operating Officer, Agren, Inc. Joan Stockinger, Co-op Development Specialist, Cooperative Development Services Ryan Stockwell, PhD, Senior Agriculture Program Manager, National Wildlife Federation Trisha White, Senior Agriculture Policy Specialist, National Wildlife Federation Paul Wolfe, Policy Specialist, National Sustainable Agriculture Coalition

ABBREVIATIONS

AIP Approved Insurance Provider APH Actual Production History ARMS Agricultural Resource Management Survey (USDA) BYE Biotech Yield Endorsement CCITF Conservation and Crop Insurance Task Force CSHT Cornell Soil Health Test CSR2 Corn Suitability Rating (2nd version) CTIC Conservation Technology Information Center ERS Economic Research Service (USDA) FCIC Federal Crop Insurance Corporation (UDSA) FMC Farmland Management Company ISU Iowa State University MoE Margin of Error MPCI Multiple Peril Crop Insurance N-BMP Nutrient Best Management Practices NGO Non-governmental Organization NRCS Natural Resources Conservation Service (USDA) PPP Prevented Planting Payments NASS National Agricultural Statistics Service (USDA) NRDC Natural Resources Defense Council NWF National Wildlife Federation RMA Risk Management Agency (UDSA) SARE Sustainable Agriculture Research and Education SOM Soil Organic Matter USDA United States Department of Agriculture WFRP Whole-Farm Revenue Protection

Contents Tables ...... 6 Figures ...... 6 Executive Summary ...... 7 Methods ...... 14 Introduction ...... 16 Adoption of Conservation Agriculture in Iowa ...... 17 Soil Conservation Benefits ...... 18 Reductions in Input Costs ...... 19 Impacts on Yield ...... 20 Effects on Net Revenues ...... 22 Recent Research on Adoption Rates ...... 23 Datu Survey ...... 24 Could Landowners Incentivize Farmers to Adopt? ...... 27 Future Potential of Crop Share and Custom Leases ...... 29 Could Crop Insurers Incentivize Farmers to Adopt? ...... 30 Using 508(h) to Make Incremental Change, and Selecting a Practice ...... 35 Smaller Opportunities: Prevented Planting Payments and Whole Farm Revenue Protection ...... 38 Other Possibilities in the Value Chain ...... 40 Seed Corn Providers ...... 41 Cellulosic Ethanol Producers ...... 42 Recommendations ...... 43 Conclusion ...... 45 References ...... 46

Tables Table 1. Summary of interviews ...... 14 Table 2. Summary of Datu survey response statistics ...... 15 Table 3. Selected evidence that the three target practices maintain or build SOM ...... 18 Table 4. Selected research on changes in corn yield following adoption of the practices ...... 20 Table 5. Selected findings on effect of the practices on net revenues ...... 23 Table 6. Types of land rental arrangements ...... 29 Table 7. Selected research on effect of the practices on drought and excess soil moisture mitigation .... 33 Table 8. Experience with the practices by percent of respondents ...... 38

Figures Figure 1. NRCS-recognized conservation purposes of the three target practices ...... 17 Figure 2. Anticipated effects of the practices on input costs, compared to conventional ...... 20 Figure 3. Characteristics of Datu survey respondents ...... 25 Figure 4. Adoption of the practices by percent of respondents ...... 26 Figure 5. Cover crop acreage by percent of respondents ...... 26 Figure 6. Land rental and crop insurance segments in the Iowa corn value chain ...... 27 Figure 7. Variables considered in Iowa agricultural land valuation ...... 28 Figure 8. Distribution of Iowa farmland by tenure ...... 30 Figure 9. Changes in gross premiums and indemnities for Iowa corn policies ...... 32 Figure 10. Risk mitigation mechanisms between the federal government and AIPs ...... 34 Figure 11. Other potential opportunities to incentivize the practices in the Iowa corn value chain ...... 41

Executive Summary Conservation agriculture is a set of sustainable farming practices that build soil health while reducing erosion and nutrient loss. This study focuses on three practices: cover crop use; crop rotations; and reduced tillage. Used alone or in various combinations, these practices can provide many soil conservation benefits. Their potential to combat erosion and nutrient loss also makes them an important tool for protecting water quality. Agriculture accounts for over 70% of the nitrogen and phosphorus that enters the Gulf of Mexico via the Mississippi River, nutrients that have already created a nearly 5000-km2 low-oxygen, or “hypoxic,” zone that threatens marine life in one of the nation’s largest and most productive fisheries (Alexander et al. 2014). Widespread adoption of conservation agriculture could therefore create far-reaching environmental and economic benefits.

Adoption of Conservation Agriculture in Iowa To what extent are Iowa farmers adopting conservation agriculture? Several observations have emerged from a series of recent surveys, including a Datu survey of Iowa corn farmers and landowners conducted in June 2014. For cover crops, adoption levels remain low, although the number of first-time users is growing across the country, including in Iowa, the focus of this study. The Datu survey found that a sizeable minority (23%) of Iowa respondents were using cover crops, mostly on fewer than 100 acres, suggesting that farmers may be trying them out before committing to adoption on a larger scale.

For crop rotations, when a corn soybean-rotation is included, adoption is highest of the three practices. The Datu survey of Iowa respondents found that 80% rotate their acres yearly between corn and soybeans. It is important to note that the United States Department of Agriculture (USDA) Natural Resources Conservation Service (NRCS) does not consider a corn-soybean rotation to be a “conservation crop rotation”1 (NRCS 2010a). Compared to corn-soybean, evidence suggests that third- and fourth-crop rotations, which include additional crops such as small grains or alfalfa, have greater conservation benefits, including decreased nitrogen fertilizer and herbicide use (Liebman et al. 2008). Our survey found a much smaller group (19%) used a third-crop rotation.

For reduced tillage, the Datu survey found that 70% of respondents were using minimum or conservation tillage (retaining at least 30% of residue). Almost half (47%) reported using no-till (drilling seeds into undisturbed soil), but this number shrank to 21% when respondents were asked whether they had continued the practice over many years. Only 4% used strip till (tilling and planting in only a narrow band).

The available data suggest that an important obstacle to wider adoption of these three practices is that farmers may have to wait several years before they experience an economic benefit. For example, it can take a decade or more for total organic matter to significantly increase after a management change (Lal et al. 2007). Research from Iowa and surrounding states suggests that yields may also moderately decrease in the first several years of adoption, particularly for no-till (see Table 4). The potential lag time

1 NRCS’s definition of “conservation crop rotation” states, “[a] two-crop sequence must contain a warm season and a cool season crop” (NRCS 2010a). Corn and soybeans are both warm season crops (ARS 2012).

7 between adoption and economic benefit means that, for adoption to increase, farmers need additional short-term incentives. This report examines opportunities to provide such incentives via other actors within the Iowa corn value chain.

Value Chain Incentives The purpose of this research is to examine Iowa corn farmers’ existing business relationships to find actors who may themselves benefit from increased adoption of conservation agriculture, and so may be willing to offer incentives to farmers. Such incentives can come from large, powerful entities in the value chain. For instance, the Soil Health Partnership2 is currently leveraging support of seed company Monsanto to identify, test, and measure management practices that improve soil health, with a goal of demonstrating benefits to farmers’ bottom lines (Soil Health Partnership 2014). A 2014 report by Ceres, Water & Climate Risks Facing U.S. Corn Production, identifies ways that top firms in the fertilizer, seed, pesticide, equipment, and other key segments of the agricultural industry can encourage farmers to contribute to a more sustainable value chain (Barton and Clark 2014).

This report seeks to complement these critical efforts. Since no single source will likely be adequate to induce farmers to change their soil management practices, it is worth seeking additional value chain actors to provide further incentives. This analysis focuses on two target value chain actors: owners of farmland, and providers of crop insurance. Each actor is analyzed for its potential to find a “win” for itself in increased farmer adoption of conservation agriculture.

Could Landowners Incentivize Farmers to Adopt Conservation Agriculture Practices? More than half (55%) of farmland in Iowa is rented (Duffy and Johanns 2012). This means that in most cases, land management decisions do not just affect operators, but also non-operating landowners. Since conservation agriculture practices have been demonstrated to maintain or improve the quality and health of soil, we examine whether this can translate into economic benefit3 for a landowner—thus potentially motivating landowners to reward operators for adoption.

Soil quality measures the ability of soil to function as a life-supporting ecosystem, while soil health refers to the vitality of soil organisms. High-quality, healthy soil supports crop production by promoting root development, increasing the nutrient pool, increasing beneficial biota, and decreasing pest and weed pressure (Lal 2012; Lal, Kimble, and Follet 1998). These benefits may be highly valued by some landowners—especially those for whom long-term, sustainable crop productivity is a priority, along with co-benefits such as reduced nutrient loss into waterways. However, Iowa landowners currently have no formal mechanism for translating this into a direct economic benefit, at least not via higher land values. In the current system of land valuation, soil quality and soil health are not among the factors used to

2 According to interviews, the National Corn Growers Association’s Soil Health Partnership seeks to answer many economic questions about reduced tillage and cover crops by conducting 5-year strip trials on 100 or more farms. 3 Although the purpose of this analysis is to identify economic incentives, we recognize that conservation agriculture also provides landowners, tenants, and society with many non-economic benefits that may play a role in adoption.

8 determine land value. Most variables that determine the value of Iowa farmland are structural, and thus cannot be improved through conservation agriculture.

The only accepted land valuation factor that can be affected by conservation agriculture practices is yields. To date, the link between improved yields and two of the three practices—cover crop use and reduced tillage—is unclear. The available data for Iowa suggest that these practices in some instances decrease yields in the short-term, requiring several years to return to previous levels. The time horizon for increasing yields appears even longer—possibly decades—in the case of no-till. Without firm evidence on how and when cover crops and reduced tillage increase yields, it is difficult to link them with land value. Adequate data on the effects of conservation agriculture practices on yields are thus a requirement before landowners would find it in their economic best interest to incentivize operators to adopt conservation agriculture.

In the meantime, until such data are available, could the practices offer landowners some other short- term economic benefit? Under certain lease arrangements, conservation agriculture practices can potentially benefit landowners via savings on inputs. Currently, 14% of leases in Iowa are crop share or custom arrangements, in which the landowner supplies some or all inputs (Duffy and Johanns 2012). These two types of landowners could indeed benefit economically from farmer adoption of conservation agriculture, which reduces, to varying degrees, use of fertilizer, pesticides, fuel, equipment, or labor.

Could Providers of Crop Insurance Incentivize Farmers to Adopt Conservation Agriculture Practices? Federal crop insurance is a critical component of the U.S. farming system, allowing producers to manage risk and withstand declines in yield and changes in price. It is also a multi-billion dollar industry, with approved insurance providers (AIPs) taking in $11.8 billion in premiums and paying out $12 billion in indemnities nationally in 2013 (FCIC 2014d). Severe weather creates costs for insurers via indemnity payments to farmers (RMA 2013). In principle, companies that sell crop insurance would try to reduce indemnities, perhaps by rewarding farmers for adopting risk-reducing practices. In light of evidence that conservation agriculture can increase crop resilience in conditions of drought, flood, and excessive soil moisture, insurers could in theory reduce their risk by encouraging conservation agriculture.

This analysis concludes that ultimately, the data currently available are likely insufficient to build an actuarially-sound case for offering farmers a discount for using conservation agriculture practices. Much more research is needed to link the three practices with reduction in insurers’ risk.

Two added obstacles further limit this opportunity. First, risk sharing with the federal government limits AIPs’ sensitivity to risk, weakening the case for actively rewarding farmers for risk reduction. Second, AIPs are not permitted to incentivize risk-reducing farming practices without approval by the Risk Management Agency (RMA). They are also prohibited from offering discounted rates for existing plans (FCIC 2014a).

Removing these obstacles would require an overhaul of federal policy—which is unlikely to occur, and may not be desirable because of the unique nature of agricultural insurance. Yet in the absence of a

9 federal overhaul, incremental change to reward conservation agriculture adoption is still possible. Section 508(h) of the Federal Crop Insurance Act provides a mechanism for introducing new crop insurance policies, provisions of policies, and rates of premium (75th U.S. Congress 1938).

Two key precedents used the 508(h) mechanism to provide a premium rate reduction based on adoption of a technology or practice. In 2008, Monsanto acted as a co-submitter for the Biotech Yield Endorsement (BYE) pilot program. The Federal Crop Insurance Corporation (FCIC) Board approved a premium rate reduction for farmers using Monsanto’s biotech seeds,4 concluding that the seeds lowered “yield risk” (RMA 2010). In 2003, the Nutrient Best Management Practices (N-BMP) Endorsement pilot reduced rates for farmers who applied only a recommended level of nitrogen and phosphorus (RMA 2003). The BYE pilot was approved only after Monsanto provided years of data, including some 15,000 side-by-side field trials, thousands of pages of documentation, and expert testimony from university professors (RMA 2010). Datu interviews indicate that demonstrating effects of a production practice on either total yield or yield stability is essential.

Food and agricultural policy group AGree is currently leading a first-step effort to more clearly document conservation agriculture’s effects on yields and yield variability. The AGree-led Conservation and Crop Insurance Task Force (CCITF) is engaging with USDA in an effort to integrate and analyze existing data within USDA on conservation practices, yield, variability, soil health, and other key environmental indicators. This effort may help reduce the costs of gathering the data needed for a new product to win approval via 508(h), though it is likely that funding for new research, and in particular side-by-side field trials, will still be necessary.

Before selecting a conservation agriculture practice or practices to include in a 508(h) proposal, advocates need to better understand the potential market for each practice. Based on preliminary investigation into market potential, cover crops seem to be worthy targets of further research. Adoption of cover crops remains low, but interest is growing and barriers to adoption are not insurmountable. Datu survey respondents expressed some experience using them, and proficiency could be improved with more training.

This initial data may be useful to advocates currently testing the waters of a conservation-focused pilot program via 508(h). AGree and the CCITF are presently exploring crop insurance-based opportunities and may eventually identify one or more conservation practices to drive through the 508(h) process. To this effect, the group continues to convene meetings between AIPs, academia, and industry to assess the potential of a possible 508(h) effort and, more broadly, how a data integration and analysis effort could lead to changes in the crop insurance program.5 The group identified at least one AIP that has expressed interest in the idea, recommending a wait-and-see stance at least until new programs in the 2014 farm bill have been implemented, freeing up some USDA bandwidth.

4 An interview with an RMA official indicated the discount also applied to DuPont Pioneer, Syngenta, and Dow stacked traited hybrids. 5 This same data may also help inform industry agricultural sustainability standards (i.e., supply chain sustainability standards) and support emerging markets for ecosystem services.

NRDC is also actively looking for partnerships to start a 508(h) process. The environmental advocacy group is growing their food and agriculture work, including encouraging improved soil health via section 508(h). They have discussed their proposal with actuaries who have prepared submissions for past 508(h) products and are interested in moving forward on the development of a new product.

Two smaller opportunities within crop insurance are also worth monitoring: Prevented Planting Payments (PPP) and Whole-Farm Revenue Protection (WFRP). Prevented planting is a failure to plant an insured crop by the final planting date due to an insured cause of loss that is general to the surrounding area, for instance, sustained rainfall (RMA 2014). Farmers claiming prevented planting will typically receive a payment of 60% of the production guarantee under their revenue protection or yield protection policies, which represented 98% of policies sold to Iowa corn farmers in 2013 (FCIC 2014c; RMA 2014). In PPP situations, cover crops become an attractive alternative to fallow land. A majority of Datu survey respondents felt that cover crops make economic sense in a prevented planting situation, with 67% agreeing with this statement. In addition, 66% of those who received a prevented planting payment had planted cover crops on their prevented planting acres.6

Whole-Farm Revenue Protection is a new insurance pilot program required by the 2014 farm bill, which will be available for the 2015 crop year in most states (FCIC 2014c). WFRP will allow producers to insure the entire value of their operation under a single policy instead of insuring each commodity separately (USDA 2014). Of possible significance for advocates is the premium subsidy WFRP will provide for farmers producing at least two different commodities on one farm (NSAC 2014; Shea 2014). WFRP has some potential to incentivize crop rotation by rewarding producers who grow more than one type of crop. Because a corn-soybean rotation is already very common in Iowa, WRFP may have the greatest potential to increase adoption of third-crop rotations. Full policy details were expected by late 2014.

Additional Possibilities in the Value Chain Our interviews with farmers, landowners, academics, and industry representatives suggested two other actors in the Iowa corn value chain that could potentially incentivize farmers to adopt conservation agriculture practices: seed corn providers and cellulosic ethanol producers. Seed corn providers refer to major seed companies such as Monsanto, DuPont Pioneer, and Syngenta who contract with farmers in Iowa to grow hybrid corn seeds. Our interviews suggest that seed corn operations may be particularly vulnerable to compaction. To combat this challenge and help farmers take advantage of nutrient- and soil organic matter (SOM)-building benefits, seed companies may want to encourage the farmers who grow their products to use cover crops. Our interviews suggest that seed corn companies are beginning to explore the benefits of cover crops. For instance, DuPont Pioneer has started two projects with Practical Farmers of Iowa to investigate use of cover crops on the company’s seed corn plots. The company provided most of the seed needed for farmers to test out cover crops.

6 Because only a subset of our sample had received PPP (N=32), the margin of error for this finding (+/-17.32%) is higher than that for most of our survey findings (+/- 6.72%).

Cellulosic ethanol producers make fuel from corn stover, as opposed to the starch from corn kernels used to make standard ethanol. Corn stover consists of the aboveground corn plant material, excluding grain: the stalks, leaves, shuck, silk, tassel and cobs that remain after harvest (Arora, Licht, and Leibold 2014). Residue removal for cellulosic ethanol production carries the risk of heightened erosion, nutrient removal, and decreased soil quality if carried out at unsustainable rates. Since practices such as cover crop use can help farmers remove more residue sustainably, cellulosic ethanol producers may be willing to incentivize the practice to increase the amount of residue they can sustainably harvest.

Recommendations This report examines several challenges to providing incentives to increase farmer adoption of conservation agriculture. In the process, we also identify some opportunities. Below are our recommendations for next steps:

1) Fully demonstrate the potential of conservation agriculture practices to improve yields. Yield effects are likely the most critical piece of information a farmer, landowner, or crop insurer can have about a management practice. Documenting a clear link between conservation agriculture practices and improvements in yield or yield stability is the most concrete way to increase adoption and reward farmers. To date, the available data on conservation agriculture’s impacts on corn yields in Iowa are mixed. Although initial data for the three practices’ effects on yield stability are promising, more data are needed to fully document the impact on yields, encompassing a wide variety of crops, geographies, and climates.

In the short term, a high priority is to fully harness existing data. This report has referred to a body of research on yield effects. Much more data exists within government agencies that could be integrated, analyzed, and made available to farmers and advocates. The AGree-led CCITF provides an example via its support for a USDA-led effort to integrate and analyze existing data at different government agencies on conservation practices, yield, variability, soil health, and other key topics. A number of active, long-term cropping system studies exist at land-grant universities including University of Wisconsin-Madison, North Carolina State University, and others whose findings could be compiled and systematically analyzed (Posner 1993; NCSU 2014).

Much could be accomplished by conducting new research to document the effects of soil quality and soil health on yields. Conservation agriculture practices have been solidly demonstrated to improve soil quality and soil health, control erosion, and improve availability of water and nutrients in the soil. Additional research is needed to document the effects of healthy, high-quality soils on yields. Tools such as the Haney Test and the Cornell Soil Health Test—which measure more aspects of soil health, including microbial activity—can help researchers better understand the relationship between soil health and yield outcomes.

To fully determine the practices’ effects on yields, it is important to conduct side-by-side field trials. Side-by-side field trials across a wide variety of soil types, geographies, and climates over 10 years are the gold standard for demonstrating yield-boosting or -stabilizing effects. This is the most definitive, but

12 also most expensive, way to determine the extent to which conservation agriculture practices have a positive impact on yields.

2) Inform landowners currently using crop share and custom leases about the cost-saving benefits of conservation agriculture. Since landowners are unlikely to incentivize farmers to adopt conservation agriculture until better documentation is available on the yield benefits, a good interim step is to tap the two land rental arrangements we identified: crop share and custom leases. Although results will vary from farm to farm, conservation agriculture practices are likely to result in reductions in input costs. These reductions can benefit landowners under the lease types mentioned. Currently, these arrangements make up about 14% of leases in Iowa (Duffy and Johanns 2012).

3) Continue to evaluate the potential of a submission under section 508(h) of the Federal Crop Insurance Act, focused on cover crops. In general, crop insurers lack both the motive and the means to incentivize conservation agriculture adoption. Although an overhaul of the current system is unlikely, incremental change is possible. The most promising opportunity is to propose a pilot program through the 508(h) process to offer a “good producer discount.” Among conservation agriculture practices, the likeliest to win approval may be cover crops, although more market research is needed. Two smaller opportunities also exist within the current crop insurance framework: prevented planting payments can encourage first-time use of cover crops, helping spread permanent adoption if farmers have a positive first experience, and Whole-Farm Revenue Protection may encourage crop rotation by providing a premium subsidy for growing more than one crop (the strength of this incentive will be determined after full policy details are released).

4) Conduct research to evaluate the potential of other identified possibilities in the value chain. Preliminary research points to the potential to find market-based incentives within the seed corn and cellulosic ethanol segments, although more research is needed. Seed corn operations may be particularly vulnerable to compaction. To combat this challenge, seed companies may want to encourage the farmers who grow their products to use cover crops. Residue removal for cellulosic ethanol production carries the risk of heightened erosion, nutrient removal, and decreased soil quality if carried out at unsustainable rates. Cellulosic ethanol producers may be willing to incentivize cover crops to increase the amount of residue they can sustainably harvest.

In conclusion, conservation agriculture offers considerable societal benefits that extend well beyond the farm, translating into important economic value and environmental sustainability for future generations. Yet, in general, farmers do not receive a clear, immediate economic benefit from adopting. For adoption to increase, short-term economic incentives are needed. Achieving widespread adoption requires ensuring that a fair share of the economic benefit accrues directly to farmers.

Methods This study examines selected entities in the Iowa corn value chain for their potential to incentivize growers to adopt the conservation agriculture practices of cover crop use, crop rotations, and reduced tillage. To begin the research, we reviewed the existing literature related to the impact of conservation agriculture on soil, yields, and net revenues, as well as current levels of adoption. We confined our search to studies conducted in Iowa and the surrounding Upper Mississippi River Basin states (MN, WI, IL, MO), where climatic conditions are similar to Iowa, also including select multi-state meta-analyses where data were limited. We only included studies that examined grain corn.

Next, in March 2014, we visited four distinct regions of Iowa,7 conducting in-depth, qualitative interviews with 34 farmers, landowners, and other stakeholders. We followed up with dozens of phone interviews with additional industry contacts, government representatives, non-governmental organization (NGO) staff, and academics, conducting over 100 interviews in total. We used NVivo software to code interview data. For a summary of interviews, please see Table 1.

Table 1. Summary of interviews

Stakeholder Type Number Approved Insurance Provider8 6 Corn Grower/Landowner 26 Farm Advisor 2 Farm Credit Provider 3 Farm Management Company 8 Government 13 Industry Association 4 NGO 12 Reinsurer, Private 4 Retailer 3 Risk Modeling Provider 1 Soil Lab, Private 4 University 15 TOTAL 101

In June 2014, we conducted a survey of Iowa corn growers and landowners to better understand present conservation agriculture adoption patterns and investigate concepts raised in interviews— especially regarding the potential of landowners and crop insurers to incentivize farmers to adopt the practices. Using the data service Farm Market ID, we selected a random sample of 1,500 from a total population of 75,337 corn farms of over one acre in the state of Iowa, across all 99 counties. Farm

7 We interviewed farmers and landowners located in the following Iowa Department of Natural Resources Landform Regions: Southern Iowa Drift Plain, Iowan Surface, Des Moines Lobe, and Northwest Iowa Plains. 8 In our conversations with approved insurance providers, we spoke with managers working in sales, research and development, insurance services, claims, and underwriting.

Market ID’s population list was dated from harvest year 2012, using the United States Department of Agriculture (USDA)’s Farm Service Agency9 program participant information, along with other proprietary sources, including satellite imagery to verify what is grown. Farm Market ID estimates that this method accurately identifies 95% of growers and the crops they grow nationwide.

Using a modified Dillman method,10 we mailed a survey and introductory letter to each sampled farmer or landowner, following up with a call when a phone number was available. We received 212 eligible responses, meaning the respondent was a corn grower or landowner and had completed the majority of the survey. Thirty surveys were marked as undeliverable by the post office. Farmers who received a two- dollar bill (with 759 of the surveys) responded at a rate of 21%, with an overall response rate for the survey at 14%. Using the total population provided by Farm Market ID (75,337) and a sample size of 212, the maximum margin of error (MoE) for our survey findings is +/- 6.72% at the 95% confidence level.11 For a summary of response statistics, see Table 2.

Table 2. Summary of Datu survey response statistics

Statistic Value Farmers Randomly Sampled 1500 Eligible Responses (Sample) 212 Ineligible Responses 15 Undeliverable 30 Response Rate – $2 Bill 20.95% Response Rate – No $2 Bill 7.15% Response Rate – Total 14.13% Margin of Error +/- 6.72%

We must note that the random sample drawn did not capture any producers with over 4,500 acres, and the small sample size of 212 responses returned may mean that some counties are over and under- represented. The small sample size also means we must be cautious about drawing conclusions about the larger population of Iowa corn farmers. Therefore, our discussion of findings is related to Datu survey respondents. Because of the subject matter, it is possible that respondents who were more conservation-minded could have responded in higher numbers, potentially skewing results. We compare our results to other surveys with larger sample sizes as a reference point. Before publication, our report was reviewed by a panel of 20 experts in fields ranging from agronomy to economics to policy.

9 The Farm Service Agency oversees federal farm programs, including conservation programs, disaster assistance programs, farm loan programs, and the new Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC). 10 The Dillman Total Design Survey Method instructs surveyors to mail a booklet-type questionnaire, return postcard, and return stamped letter to each desired participant. One week after the initial mail-out, reminder postcards are mailed. Two to six weeks later, replacement questionnaires are mailed (Hoddinott and Bass 1986). 11 In cases where only a portion of participants were instructed to respond to a question, the MoE may be higher than 6.72%. For example, one question began, “If you answered YES to the previous question...” This type of question reduced the sample size, thereby increasing the MoE. In such cases, the actual MoE is reported.

Introduction Conservation agriculture is defined as a set of sustainable farming practices that build soil health while reducing erosion and nutrient loss. Used alone or in various combinations, these practices can provide many soil conservation benefits. Their potential to combat erosion and nutrient pollution also makes them an important tool for protecting water quality. Agriculture accounts for over 70% of the nitrogen and phosphorus that enters the Gulf of Mexico via the Mississippi River, nutrients that have already created a nearly 5000-km2 low-oxygen, or “hypoxic,” zone that threatens marine life in one of the nation’s largest and most productive fisheries (Alexander et al. 2014). Widespread adoption of conservation agriculture has the potential to create far-reaching environmental and economic benefits.

This study focuses on farmer adoption of three conservation agriculture practices: cover crop use; crop rotations; and reduced tillage. These management practices, combined or on their own, can increase soil quality (physical and chemical components) and health (biological functions) while reducing erosion, potentially decreasing the need for fertilizer and pesticide inputs and reducing nutrient loss. Figure 1 illustrates the conservation purposes that, in general, each practice serves, as recognized by the USDA Natural Resources Conservation Service (NRCS).12 Newer soil testing methods like the Soil Health and Nutrient Tool, widely referred to as the “Haney Test,” and the Cornell Soil Health Test (CSHT) measure nutrients made available to crops via microbial activity and may help further document the soil health benefits of conservation agriculture (Haney 2013; Cornell University 2014).13

The soil quality and conservation benefits of the three practices take time to accrue. For example, it can take a decade or more for total organic matter, an important element of soil health, to significantly increase after a management change (Lal et al. 2007). Yet the costs of adoption are immediate: farmers may need to purchase new equipment, seeds, and other inputs and invest the time to learn a new practice. In some cases, they may also experience moderate reductions in yields at the beginning, depending on the practice and how and where it is implemented. This mismatch between short-term costs and longer-term benefits creates a significant barrier to adoption. To overcome it, farmers need economic incentives upfront.

Such incentives can come from large entities in the value chain. The Soil Health Partnership14 initiative is currently leveraging the support of seed company Monsanto to identify, test, and measure management practices that improve soil health, with a goal of demonstrating benefits to farmers’ bottom lines (Soil Health Partnership 2014). A 2014 report by business and sustainability advocacy group Ceres, Water & Climate Risks Facing U.S. Corn Production, identifies ways that top firms in the fertilizer, seed, pesticide, equipment, and other key segments can incentivize farmers to contribute to a more sustainable value chain (Barton and Clark 2014).

12 In the figure, in accordance with the NRCS definition of “conservation crop rotation,” “crop rotation” does not include corn-soybean (NRCS 2010a). See also note 1. 13 Dr. Rick Haney of USDA-ARS developed the Haney Test to measure the effect of soil biology on nutrient availability (Haney 2013). The CSHT assesses a number of soil attributes in addition to those measured via standard fertility tests, including respiration and protein (Cornell University 2014). 14 According to interviews, the National Corn Growers Association’s Soil Health Partnership seeks to answer many economic questions about reduced tillage and cover crops via five-year strip trials on 100 or more farms.

Figure 1. NRCS-recognized conservation purposes of the three target practices

Sources: NRCS 2010a; NRCS 2010b; NRCS 2012; NRCS 2011; NRCS 2013 Photo credits: eOrganic 2013; Pedersen 2004; NRCS 2014

In addition to these critical efforts, it is also worth seeking additional value chain segments that stand to gain by incentivizing farmers to adopt conservation agriculture. Additional actors within farmers’ existing business relationships may be needed, in combination with larger entities, to provide farmers sufficient economic incentive. We highlight two such actors: landowners and crop insurance providers.

This report will first summarize the research on the benefits of conservation agriculture, then assess what is known about rates of farmer adoption in Iowa, and then examine the potential to tap two value chain segments to incentivize farmers: landowners and crop insurers. We will also identify other value chain segments worthy of further study and conclude with recommendations.

Adoption of Conservation Agriculture in Iowa Our farmer interviews indicated that a desire to preserve and improve the land was a primary factor spurring adoption of conservation agriculture practices, whether farmers hoped to benefit in their own

17 lifetime or to pass the gains to their children. Many interviewees had also seen soil loss on neighbors’ farms and, equating soil removed from one’s field to dollars lost from one’s pocket, felt that conservation agriculture just makes sense. Below we examine the reasons farmers adopt the practices, acknowledge the obstacles, and assess the state of current adoption.

Soil Conservation Benefits Chief among reasons farmers adopt conservation agriculture is that it is beneficial to the soil. Cover crops—legumes, grasses, and brassicas planted in the period between cash crops for seasonal cover and other conservation purposes—have a number of specific benefits in addition to the soil-quality, erosion- control, and water-use benefits that all three practices share (see Figure 1 on the previous page). Depending on the plant species, cover crops may also fix atmospheric nitrogen, capture and recycle nutrients, and reduce soil compaction via root growth.

Crop rotation is the practice of growing crops in a planned sequence on the same field. Where possible, this report distinguishes between corn-soybean rotation and rotations of three crops or more, typically including a small grain (such as oats) or alfalfa (used for hay). NRCS does not include corn-soybean in its definition of a “conservation crop rotation”15 (NRCS 2010a). Evidence suggests that third- and fourth- crop rotations have greater conservation benefits, including decreased nitrogen fertilizer and herbicide use, compared to corn-soybean (Liebman et al. 2008). As Figure 1 illustrates, by introducing diverse crop and root phenologies, rotations can help reduce nutrient imbalances. Rotating crops can also reduce weed and pest pressure (see Figure 1).

Reduced tillage can be three types: minimum or conservation tillage, which is the limiting of soil- disturbing activities and retaining at least 30% of residue as surface cover;16 no-till, meaning drilling (planting) seeds directly into undisturbed soil; and strip till, tilling and planting in only a narrow band of earth. Reduced tillage practices can reduce carbon dioxide and particulate emissions (see Figure 1).

Our review of studies on corn in Iowa and surrounding states yielded evidence that each practice may also maintain or build soil organic matter (SOM), defined as the living, decaying, and stable biological material in soil that holds nutrients. The many conservation benefits of SOM include further decreasing erosion, as well as enhancing the microbial community, stabilizing soil structure, increasing water and nutrient holding capacity, filtering pesticides and herbicides, and improving water filtration (Lal 2012; NRC 2010; Blanco-Canqui and Lal 2010; Iqbal et al. 2005; Lal 1995; NRCS 2014). See Table 3 for a list of selected studies providing evidence that each practice improves SOM.

Soil conservation benefits take time to accrue. A measurable increase in organic matter alone may take decades, with the exact rate depending on climate, soil type, and site-specific management (Lal et al. 2007). Providing upfront benefits would help more farmers adopt these practices.

15 NRCS’s definition of “conservation crop rotation” states, “a two-crop sequence must contain a warm season and a cool season crop” (NRCS 2010a). Corn and soybeans are both warm season crops (ARS 2012). 16 Interviews with soil scientists suggest that 30% residue retention is no longer considered sufficient to protect soil quality and health; retention of 60 – 70% may be needed.

Table 3. Selected evidence that the three target practices maintain or build SOM

Practice Study Wander et al. 1994 Cover Crops Wander and Traina 1996 Odell et al. 1984 Third-Crop Al-Kaisi 2001 Rotations Karlen, Hurley, and Andrews 2006 Wander et al. 1998 Needelman et al. 1999 Duiker and Lal 1999 Reduced Wander and Yang 2000 Tillage Al-Kaisi 2001 Al-Kaisi and Licht 2005 Blanco-Canqui and Lal 2008 Syswerda et al. 2011

Reductions in Input Costs Savings on inputs may help bring benefits forward. For example, it is possible that using a leguminous cover crop one year could decrease the need for nitrogen fertilizer for the subsequent crop, cutting fertilizer costs over the span of just one year. Several of the adopters we spoke with described themselves as “low-cost producers.”17 Compared to non-adopter farmers, they used fewer inputs such as fertilizer, pesticides, fuel, equipment, and labor.

Each practice can reduce input use, thereby decreasing the cost of growing corn (see Figure 2). Because they can provide fixed atmospheric nitrogen to crops and help retain soil, cover crops may reduce fertilizer costs for subsequent crops. Research from southwestern Ontario found nitrate levels in corn soil following red clover were 2.8 times greater than without clover (Vyn et al. 1999). As the figure on the following page illustrates, cover crops do entail additional seed costs; planting them, either via aerial seeding or drilling, may also increase fuel, equipment maintenance, and labor costs. Whether growers experience a net reduction in input costs with this practice is likely to vary by operation.

For crop rotation, Liebman et al. (2008) found in their Boone, IA study that three- and four-year crop rotations that included corn, soybeans, a small grain, and either red clover or alfalfa reduced nitrogen fertilizer and pesticide use. A 16-year study at the Rodale Institute in southeastern Pennsylvania also found that a three-year rotation with corn, soybean, and a mix of legumes and small grains reduced pesticide costs (Hanson, Lichtenberg, and Peters 1997). Generally speaking, with less need to apply fertilizer and pesticides, over time equipment maintenance and fuel costs may also decrease (Duffy 2012). Depending on the rotation selected, this practice may reduce input costs the most.

17 Economists use this term to describe producers in any industry who achieve cost savings through economies of scale. Our use here differs.

Figure 2. Anticipated effects of the practices on input costs, compared to conventional

Note: Size of arrows not indicative of size of anticipated effect Sources: Duffy 2012; IDALS, IADNR, and ISU 2013; Vyn et al. 1999; Hanson et al. 1993; Exner et al. 1999; Gibson et al. 2006; Snapp et al. 2005; Stivers-Young and Tucker 1999; Liebman et al. 2008; Smith, Gross, and Robertson 2008; Hanson, Lichtenberg, and Peters 1997; Harper 1996; O’Connor‎2013;‎Uri 2000; Boyle 2006; Davis et al. 2012

A 2006 reduced tillage literature review found that by decreasing the number of passes needed across a field, the practice can lower labor, fuel, and equipment wear-and-tear costs (Boyle 2006). At the same time, reducing or eliminating tillage removes a weed control tool; thus pesticide, including herbicide, costs may increase (Harper 1996).

Impacts on Yield For reductions in input costs to ultimately benefit a farmer’s bottom line, savings must not be offset by the cost of a possible decrease in yield. In general, research on corn yield impacts of conservation agriculture in Iowa and nearby states suggests that no-till has the greatest negative, short-term impact on yields, followed by cover crop use. Both may be able to produce similar, or even greater, yields to conventional methods after a number of years. A properly managed third-crop rotation is not associated with any yield decrease, but rather has the greatest potential to increase yields. A summary of findings on the corn yield effects of the three practices in Iowa and surrounding states can be found in Table 4.

Some research suggests that, in Iowa, corn growers may experience some moderately reduced yields in the first few years of cover crop adoption (Singer and Kohler 2005; Kaspar 2010). In properly managed systems, yields can regain by about the third year: through a meta-analysis of 31 U.S. studies comparing either corn or sorghum under leguminous cover crops to conventional systems, Tonitto, David, and Drinkwater (2006) found, after two to three years, no significant difference in yield. An ongoing Iowa study also found no significant change in corn yield following winter rye adoption by the third year, with the lack of yield difference continuing into the fifth year (ILF and PFI 2014). Evidence from a nationwide survey suggests that cover crops can even have a positive effect on yield—likely over a longer time horizon—finding an average corn yield increase of 11 bushels per acre (CTIC and SARE 2013). This supports the findings of a 2005 meta-analysis of 36 studies conducted throughout the U.S., which found biculture (grass and legume) cover crops increased corn yields by an average of 21% (Miguez and Bollero 2005). Yield effects are very dependent on the type of cover crop as well as factors such as weather, soil type, and management.

Table 4. Selected research on changes in corn yield following adoption of the practices

Study State Crop Species or Length % Yield % Yield Rotation (years) Decrease*+ Increase*+ ILF and PFI 2014 IA Cereal rye 5 No significant difference IDALS, IADNR, and ISU 20131,M UMBR Rye NS 7 IDALS, IADNR, and ISU 20131,M UMBR Oat 3 5 Sawyer, Pantoja, and Barker IA Winter rye 1 6

2009 Singer and Kohler 2005 IA Cereal rye 3 No significant difference Kaspar 2010 IA Winter rye, wheat, 3 6 and triticale

Tonitto, David, and Drinkwater Varied Over-wintering non- 2-3 No significant difference CoverCrops 2006M legumes Tonitto, David, and Drinkwater Varied Over-wintering 2-3 10 2006M legumes Miguez and Bollero 2005M Varied Grass + legume Varied 21 CTIC and SARE 2013 UMBR NS 1 10 IDALS, IADNR, and ISU 20131,M UMBR At least 2 years of NS 7 alfalfa in a 4 or 5 year rotation Nafziger et al. 2013 IL S-W-C or W-S-C 15 30 2 Davis et al. 2012 IA C-S-SG + red clover or 8 4 C-S-SG + A-A Riedell et al. 2009 SD C-S-W + A-A 8 26 Smith, Gross, and Robertson MI C-S-WW + cover crops 3 100

2008 CropRotations

- Mallarino and Ortiz-Torres IA C-C-O-A 26 14 20063

Third Mallarino and Ortiz-Torres IA C-C-O-A or C-0-A-A 10 14 20063 Huggins, Randall, and Russelle MN CRP-C-C-S 8 14 2001 Roth 1996 PA C-A-A 20 11

Erickson 2008 IA C-S 25 14 Erickson 20084, M Varied C-S Varied 9

Lauer, Porter, and Oplinger WI & C-S S Rotation S

- 1997 MN 5 3 C

IDALS, IADNR, and ISU 20131,M UMBR NS Varied 6 Nafziger et al. 2013 IL C-C 15 10

Al-Kaisi and Oneal 2010 IA C-C 5 16 Hoorman et al. 2009 OH NS 5-7 10 Roth 1996 WI NS NS 8 Robertson et al. 2014 MI NS 23 4 Robertson et al. 2014 MI NS 1 21 ReducedTillage Al-Kaisi and Oneal 2010 IA C-C 5 5 UNL CropWatch 20145 NE C-S 24 4 2 Harper 1996 PA NS 4 3

* Percentage indicates the largest difference expressed during the last year of the study. In some cases, studies reported data on different cultivars, rotations, regions, tillage and, nitrogen application rates. Refer to specific studies for details +As compared to conventional methods unless otherwise indicated MMeta-analysis 1Averages based on a review of multiple studies 2Three-and four-year rotations with three or more crops as compared to a two-year corn-soybean rotation. 3Data in study collected from two separate sites, with separate data points 4Average calculated by Datu Research (SD = 8%) 5Fields were in no-till soybean-sorghum for 22 years and converted to corn-soybean in the last two years of the study. Increases and decreases are a result of the multiple tillage methods studied UMBR = One or more Upper Mississippi River Basin state (WI, MN, IL, IA, MO) NS = Not specified C = Corn; W = Wheat; WW = Winter Wheat; S = Soybean; SG = Small Grain; A = Alfalfa; O = Oats; CRP = Conservation Reserve Program; C-C = Continuous Corn

Minimum or conservation tillage adoption in Iowa generally produces corn yields equivalent to conventional tillage (Al-Kaisi and Oneal 2010). For no-till, yield may initially decrease in some cases, and the time horizon for recovery appears somewhat longer than that of cover crops: a 2010 study across 32 sites in Iowa found clear reductions in corn yields on no-till plots, compared to both reduced and conventional till, for the five-year duration of the study (Al-Kaisi and Oneal 2010). Data from Ohio suggest that it can take five to seven years for yields to recover after converting to no-till from conventional (Hoorman et al. 2009). In general, the best evidence that no-till can eventually increase yields likely comes from the W.K. Kellogg Biological Research Station at Michigan State University, which found that no-till corn yields were about 9% to 21% larger than conventional after 26 years (Robertson et al. 2014), suggesting that the yield benefits of no-till may take a particularly long time to accrue.

Crop rotations, especially those involving three or more crops, were generally found to have a positive effect on corn yields in the region around Iowa. A nationwide review of studies examining yield effects of corn-soybean rotation, compared to corn-on-corn, found an average increase of 8%, with one Iowa study showing an increase of 11% (Erickson 2008). However, new research on corn in Iowa suggests that the conventional corn-soybean method may result in yield reductions over time due to depleted SOM (Castellano, Hofmockel, and Rouse 2014). A number of studies documented the yield-increasing effects of rotations with three or four crops; one Iowa study found that three- and four-year rotations involving three crops were more productive and cost-effective than traditional corn-soybean rotations (Davis et al. 2012).

Effects on Net Revenues Given that adoption can affect both input costs and yields, effect on net revenue is particularly difficult to predict. Available data from Iowa and the surrounding region suggest that the effect on corn growers’ net revenues is extremely variable. Some key takeaways can be found in Table 5.

Table 5. Selected findings on effect of the practices on net revenues

Practice Effect on Detail Supporting Evidence Net Revenues Increases soil N and yields Stute and Posner 1995 Returns greater profit and profit Exner et al. 1999 Positive stability compared to mono-cropping Maintains a profit Hanson et al. 1993 Cover Returns may be very dependent on Gibson et al. 2006 Crops species, rotations, and regions Lowers net profits when compared to IDALS, IADNR, and ISU 2013 Negative conventional systems Limits profits in cases where operation Snapp et al. 2005 difficulties are present Returns higher yields with lower inputs, Davis et al. 2012; Liebman et al. suggesting higher or comparable profits 2008; Karlen, Hurley, and Andrews Third- Positive for rotations with three or more crops 2006; Hanson, Lichtenberg, and Crop Peters 1997 Rotations Produces variable, and sometimes IDALS, IADNR, and ISU 2013; ISU Negative negative, profits and returns 2008 Saves resources Duffy 2012 Positive Reduced Reduces costs Harper 1996; O’Connor 2013 Tillage Returns may be limited by Harper 1996 Negative environmental and other constraints

Mixed findings suggest that more tracking is needed on how the three practices affect farmers’ bottom lines. Farmers should already be in the habit of tracking costs and revenues—a necessary part of any business. Newer testing tools that capture more soil features, including microbial activity, can be added, allowing farmers to fully assess the effect of different management practices. The Soil Renaissance, a project of the not-for-profit Farm Foundation and the Samuel Roberts Noble Foundation, is actively evaluating ways to incorporate soil health measures into standardized soil testing (Farm Foundation 2014).

Recent Research on Adoption Rates A number of recent surveys have examined adoption at the national or regional level. In particular, two groups reported important new data on cover crops. The conservation group National Wildlife Federation (NWF) estimated that in 2011, total cover crop acreage in the Mississippi River Basin was between 1.8 and 4.3 million acres, less than 2% of total cropland area (Bryant, Stockwell, and White 2013). In their 2012 – 2013 Cover Crops Survey, promoters of sustainable agriculture research the Conservation Technology Information Center (CTIC) and Sustainable Agriculture Research and Education (SARE) found that first-time cover crop users had increased more than 120-fold since 2001 (CTIC and

SARE 2013).18 Together, these studies suggest that while cover crop adoption levels remain low, the number of first-time users is growing across the country.

A similar trend is occurring in Iowa. Combined, acreage and farmer adoption estimates suggest that a sizeable—and growing—minority of Iowa farmers is using cover crops, on a relatively small number of acres. In 2010, Iowa State University (ISU)’s Iowa Farm and Rural Life Poll found just 12% of respondents had planted cover crops within the previous five years (Arbuckle and Ferrell 2012). In contrast, the 2012 poll found a total of 28% of respondents who indicated either limited (18%), moderate (8%), or heavy (2%) use of cover crops (Arbuckle and Rosman 2014). In terms of acreage, the 2012 Census of Agriculture estimated that only 1% of total Iowa cropland was planted to a cover crop; those who used cover crops did so on an average of 53 acres (USDA NASS 2012).

When a corn-soybean rotation is included, crop rotation is the most adopted practice in Iowa, with corn- soybean the most common by far. To underscore just how common rotation is, the Iowa Farm and Rural Life Poll found that 95% of respondents were using various crop rotations to some degree (Arbuckle and Rosman 2014). In 2010, USDA’s Agricultural Resource Management Survey (ARMS) found that corn was the previous crop on only about 30% of Iowa corn acres; in contrast, approximately 67% had been planted to soybeans the previous year, indicating the prevalence of corn-soybean rotation (ERS 2013). The same ARMS survey estimated that small grains, which can be used as third crops in a rotation, were the previous crop on only about 0.1% of 2010 corn acres in Iowa, suggesting that rotations with greater conservation benefit are much less common (ERS 2013).

Because of varying estimates and definitions, reduced tillage adoption is harder to assess. ARMS estimated about 18% of Iowa corn acres are under no-till, while the census estimated this figure at 23% for all commodity acres (ERS 2013; USDA NASS 2012). Although a portion of the difference may be explained by the observation that ARMS data are just for corn acres while the census figures include all acres, differing practice definitions used by the agencies that oversee the surveys, USDA’s Economic Research Service (ERS) and National Agricultural Statistics Service (NASS), likely played a role. We were unable to compare other types of reduced tillage because the sub-categories differed between surveys.

Datu Survey In June 2014, Datu surveyed corn growers and landowners in Iowa about their use of conservation agriculture practices. Datu survey findings reaffirm several key trends in adoption and help fill in gaps created by a lack of definitional clarity. Figure 3 illustrates key characteristics of survey respondents.

18 Statistical sampling methods were not used for this opt-in survey. Results should be interpreted with caution.

Figure 3. Characteristics of Datu survey respondents

Note: N=212, MoE = +/- 6.72% Source: Datu survey

Figure 4 shows the resulting adoption rates for each practice. Our cover crop findings are in line with national trends, and may suggest that more Iowa farmers are trying them out before committing to adoption on a larger scale. A sizeable minority (23%) of respondents were using cover crops. Respondents tended to grow cover crops on a relatively small number of acres, with the majority of users growing them on less than 100 acres (see Figure 5).

The Datu survey further indicated that most respondents were testing their soil frequently for a limited number of components. More than half (59%) reported testing one or more field every one, two, or three years. Another 29% tested every four or more years. Only 3% indicated they never performed soil testing. Testing for phosphorus, potassium, minor nutrients like zinc, pH, and percent organic matter was most common, reported by 69% of respondents.19 More specialized soil tests were less common, with only 19% using testing that assesses one or more of the following: microbial respiration, nitrate, cation exchange capacity, soil organic carbon and nitrogen, or water-extractable organic carbon and nitrogen.20 At least 49% of respondents were “very interested” in getting additional information, including a soil health score, from their soil tests. More respondents consulted their fertilizer retailer (52%) for interpretation of soil test results than an independent, paid consultant (32%).21

19 This finding (69%) is based on a slightly reduced sample size (N= 204) with MoE = +/- 6.85%. 20 This finding (19%) is based on a slightly reduced sample size (N= 204) with MoE = +/- 6.85%. The Solvita CO2- Burst ppm, PLFA, or FAME tests can be used to assess microbial respiration levels. “Soil organic carbon and nitrogen” refers to the reserve of nitrogen and carbon present in soil organic matter, whereas traditional testing measures consider the inorganic components. “Water-extractable” refers to the testing methodology used to analyze the levels of soil organic carbon and nitrogen. 21 These findings (52%, 32%) are based on a slightly reduced sample size (N= 205) with MoE = +/- 6.85%.

Figure 4. Adoption of the practices by percent of respondents

Note:‎“Don’t‎know”‎and‎unanswered‎responses‎included‎in‎calculations,‎but‎not‎displayed;‎N=212,‎MoE‎=‎+/- 6.72% Source: Datu survey

Figure 5. Cover crop acreage by percent of respondents

42%

9% 8% 6% 1%

0 acres 0.5-50 acres 51-99 acres 100-249 acres 250-499 acres

Note:‎“Don’t‎know”‎and‎unanswered‎responses‎included‎in‎calculations,‎but‎not‎displayed;‎N=212,‎MoE‎=‎+/- 6.72% Source: Datu survey

To increase conservation agriculture adoption, farmers need a market mechanism that brings the long- term economic gains forward to cover the short-term costs. Building on the work of Ceres and others, the following sections examine the potential to tap two entities within farmers’ existing business relationships to incentivize adoption of conservation agriculture practices: landowners and crop insurers. Figure 6 situates these two entities within the Iowa corn value chain.

Figure 6. Land rental and crop insurance segments in the Iowa corn value chain

Sources: Barton and Clark 2014; Lowe and Gereffi 2008

Could Landowners Incentivize Farmers to Adopt? More than half (55%) of farmland in Iowa is rented (Duffy and Johanns 2012). This means that in most cases, land management decisions do not just affect operators, but also non-operating landowners. Conservation agriculture has been demonstrated to have a positive effect on farmland, but is the effect of these practices sufficiently great to entice landlords to pay tenants to adopt them? In other words, do landowners stand to gain from adoption enough that they are willing to help farmers cover the short- term costs?

Conservation agriculture does have a positive effect on farmland: it maintains or improves the quality and health of soil compared to conventional practices, protecting a landowner’s asset from

27 deterioration.22 Soil quality is a measure of soil’s ability to function as a life-supporting ecosystem. Soil health refers to the vitality and diversity of organisms in the soil. High-quality, healthy soil can support crop production in several important ways, including by promoting root development, increasing the nutrient pool, increasing beneficial biota, and decreasing pest and weed pressure (Al-Kaisi 2014; Lal 2012; Bot and Benites 2005; Lal, Kimble, and Follet 1998).

Yet soil quality in itself does not bring economic reward to a landowner; 23 it is not one of the factors that fetch a higher price for land.24 As Figure 7 illustrates, most variables that determine farmland value in Iowa are either structural, and thus cannot be improved through conservation agriculture, or cannot be upgraded for other reasons (e.g. CSR2 components).

Figure 7. Variables considered in Iowa agricultural land valuation

Source: Iowa Department of Revenue 2008b

22 Another way to approach the question of landowner self-interest would be to ask whether and how much an owner stands to lose by failing to incentivize adoption. Dr. Richard Cruse of ISU and others have conducted preliminary work quantifying the productivity loss associated with erosion, which could translate into lost value for a landowner in the future (Cruse 2005). 23 The purpose of this analysis was to identify economic incentives, yet we recognize that there are non-economic benefits associated with conservation agriculture that accrue to landowners, tenants, and society that may play a role in adoption. 24 Trends in Iowa farmland value and cash rental rates appear to be closely linked, rising and falling nearly in tandem. See Edwards and Johanns 2014a and Duffy 2014.

The Corn Suitability Rating (CSR2) is a tool created by ISU for use in land appraisal. It rates potential row crop productivity on a scale of 5 to 100 points (100 being the most ideal) based on soil type, slope, and erosion class. Soil type and slope are static variables and cannot be upgraded. Although conservation agriculture practices do reduce erosion, there is no mechanism through which these improvements can be reflected in erosion class—a factor in land valuation. This is because erosion classes are based on USGS soil survey maps, which are typically updated only every 30 to 40 years; interviews suggest USGS has no current plans to remap them. Changes in erosion levels are thus unlikely to improve land value.

Yields are the only factor used in land valuation that conservation agriculture can have an effect on. To date, the link between improved Iowa corn yields and two of the three practices—cover crops and reduced tillage—is unclear.25 As our literature review demonstrated, these practices may actually decrease yields in the short-term. It can take years for yields to return to previous levels, and the potential to increase yields over a longer time span is uncertain. Without firm evidence that cover crops and reduced tillage increase yields, it is difficult to prove that they improve land value. Thus, monetary land value is not a reward for increased adoption and cannot be used as a selling point for landowners.

Future Potential of Crop Share and Custom Leases Are there other ways to reward landowners in the short term? Savings on inputs can benefit landowners, but only under certain types of lease arrangements. Table 6 illustrates the most common types of rental arrangements in Iowa. In fixed and flexible cash arrangements, the tenant is responsible for supplying all inputs. By contrast, under crop share and custom farming, the landowner must supply a portion or all of the inputs, potentially increasing landowner interest in conservation agriculture adoption.

Table 6. Types of land rental arrangements

Rental Description Arrangement Fixed Cash Land is leased to a tenant for a fixed cash payment. Tenant purchases all Rent inputs, has all management responsibilities, and is full owner of the crop Flexible Cash Rental rate finalized after crop harvest, based on actual prices and/or yield Rent – Cash for that year. Owner share typically based on gross revenue, unless the base Plus rent includes a consideration of the tenant’s cost of production Crop Share Landowner contributes half of the costs of inputs and then receives half of the crop. This 50-50 division is a common permutation in Iowa Custom Operator supplies all labor and equipment, receiving a fixed payment per acre or for each operation. Landowner pays all other expenses and receives all of crop revenue Sources: Edwards 2014; Edwards and Johanns 2014; Leibold 2013

Over the past 20 years, the percent of land under crop share and custom leases in Iowa has been decreasing; currently, these arrangements make up less than 14% of leases (see Figure 8). This shift has

25 As our literature review indicated, crop rotations are demonstrated to improve yields. Since a corn-soybean rotation has already been adopted by the vast majority (67% – 95%) of Iowa farmers, other practices may be a more effective focus of further attention. Challenges of third-crop rotations will be addressed in the next section.

29 corresponded to demographic changes among Iowa landowners, who are generally older and more distanced from the land than they used to be (Duffy and Johanns 2012). In general, these changes mean that landowners are less able to be involved in day-to-day farm operations, contributing to the trend toward cash rent instead of crop share and custom leases, which require more involvement on the part of the landowner.

Figure 8. Distribution of Iowa farmland by tenure

2012 40% 46% 13% 1%

2007 40% 46% 13% 1% Owner-operated

2002 41% 40% 18% 1% Cash rent lease Crop share lease

1992 50% 27% 22% 1% Other type of lease

1982 55% 21% 21% 1%

0% 20% 40% 60% 80% 100%

Source: Duffy and Johanns 2012

In order for use of these lease types to grow, both tenants and landowners need to know more about them. Farmland management companies (FMCs)—who act as brokers between landowners and tenants, representing owners’ interests—currently provide some lease negotiation services and education. One FMC told us these services make up approximately 10% of their land management business, and several mentioned landlords had asked them to serve as arbiters for lease negotiations. Between 2007 and 2012, use of FMCs in Iowa more than doubled from 5% to 11%; if use of FMCs continues to increase, they could play an increasingly important role in educating landowners about crop share and custom leases (Duffy, Edwards, and Johanns 2013).

Could Crop Insurers Incentivize Farmers to Adopt? Federal crop insurance is a critical component of the U.S. farming system, allowing producers to affordably manage risk and withstand declines in yield and changes in price. It is also a multi-billion dollar industry, with approved insurance providers (AIPs) taking in over $11.8 billion in total premiums26 and paying out over $12 billion in indemnities nationally for the 2013 crop year (FCIC 2014a).

26 “Total premiums” include both the portion paid by the producer and the federal subsidy (Carter 2014).

Most (85%) Iowa corn producers carry some type of federal crop insurance (ERS 2013). The program’s popularity is explained, in part, by the government’s role in keeping premiums affordable: in 2013, federal subsidies averaged 62% of premiums, nationally (Shields 2013). The most common type of federally-subsidized farm insurance, Multiple Peril Crop Insurance (MPCI), provides coverage for most natural threats, including drought and excessive moisture.

The private crop insurance market provides coverage for exposure to additional, localized weather events like wind and hail. Because conservation agriculture has no bearing on how well crops withstand these specific weather events, this inquiry focuses on the federal insurance market.

In theory, companies that sell crop insurance should be interested in reducing their risk of making a payment on a claim, referred to as an “indemnity.” Crop insurers can reduce their exposure by rewarding customers who use risk-reducing practices.27 In the automobile insurance industry, companies often reward customers who file fewer claims with a “safe driver discount” on their premium rate. In principle, crop insurance companies might want to provide a similar reduction for farmers whose management practices result in fewer indemnities—a “good producer discount.”28 In its 2013 issue paper Soil Matters, the Natural Resources Defense Council (NRDC) called for such a discount as a way for federal crop insurance to manage weather-related risks (O’Connor 2013a).

Indemnities are important to insurance companies because of their role in determining loss ratios. To determine the loss ratio for an insurance product over a certain period, simply divide indemnities by premiums. In order to break even, insurers need loss ratios to equal 1.0 over the long run, indicating that costs of indemnities are fully covered by premiums.29 To build a surplus for insurance companies that can be used to pay claims in large loss years, the Risk Management Agency (RMA), which oversees federal crop insurance, aims for a loss ratio of 0.88 when it sets rates (according to interviews with former and current RMA officials).

To maintain a favorable average loss ratio, in general insurers can seek to either increase premiums or reduce indemnities. Between 1989 and 2013, average loss ratios for Iowa corn policies spiked above 1.0 four times; three of the four spikes occurred in the last six years (see Figure 9). Premiums have been increasing at an unprecedented rate: as Figure 9 illustrates, although they decreased in 2014, gross premiums on Iowa corn policies nearly tripled between 2006 and 2013. If spikes in indemnities like those witnessed in 2008, 2012, and 2013 continue to occur with the frequency witnessed since 2007, it

27 One way crop insurers are already protected from risk is via the requirement that producers use “good farming practices.” Producers are required to follow practices that would achieve the insurance guarantee but for the effects of an insured peril. If a producer does not use good farming practices, an insurer may deny the claim (RMA 2011). 28 According to interviews, the Federal Crop Insurance Corporation (FCIC) considered the “good producer discount” idea in the mid-2000s and again around 2011—rejecting it both times. FCIC also considers the term “good producer discount” as inappropriate, using instead “good experience discount.” For clarity of concept, we use the term good producer discount, recognizing that this is not the term FCIC uses. 29 According to interviews, insurers cede about 20% of premium every year to FCIC. They need a loss ratio of 1.0 on the 80% of premium that they retain. Retained loss ratio data for Iowa corn policies are not publicly available.

31 is possible that premium increases may eventually be insufficient to maintain loss ratios at or below 1.0. Under these conditions, it makes sense to examine ways to reduce indemnities.

Figure 9. Changes in gross premiums and indemnities for Iowa corn policies

$2000M $1800M $1600M Loss Ratio > 1 $1400M $1200M $1000M $800M $600M $400M $200M

1999 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Gross Premiums Indemnities

Note: 2014 indemnity data not shown because complete data were not yet available Source: FCIC 2014d

Severe weather is a significant source of indemnities. In 2013, AIPs paid out $1.8 billion in indemnities on Iowa corn policies caused by drought, flood, or excessive moisture (RMA 2013). This is about 70% of the total indemnities paid on Iowa corn polices that year (RMA 2013; FCIC 2014a). In theory, farmers using practices that reduce the risk of crop loss in drought or excessive moisture conditions would be good candidates for a good producer discount.

There is some evidence that conservation agriculture may benefit yield stability by increasing crop resilience in drought, flood, and excessive soil moisture conditions. A small number of studies have shown cover crops improve corn and soybean yields in drought years (Gallaher 1977; CTIC and SARE 2013). One study found that water use efficiency was 21% greater for soybeans in a corn-soybean-alfalfa rotation as compared to a corn-corn (Huggins, Randall, and Russelle 2001). Reduced till practices have been shown to decrease soil compaction, which promotes favorable water retention and mitigates pooling, and increase stability of SOM, which helps wet soils drain (Al-Kaisi and Oneal 2010). Table 7 summarizes some of the key research on crop resilience effects of conservation agriculture.

Ultimately, the data currently available are likely insufficient to build an actuarially-sound case for a good producer discount. Based on our experience reviewing studies on corn in Iowa, the amount of research on conservation agriculture’s effect on yield and yield stability appears quite small. Without more research—encompassing a wide variety of crops, geographies, and climates—the link between the three practices and reduction in insurers’ risk is difficult to prove.

Table 7. Selected research on effect of the practices on drought and excess soil moisture mitigation

Practice Study Results Gallaher 1977 Leaving rye mulch resulted in 46% higher yields after 3 Cover Crops periods of moisture stress CTIC and SARE 2013 Yields were 10% higher during a drought year Huggins, Randall, and Water use efficiency was 21% greater for soybeans in Third-Crop Russelle 2001 a corn-soybean-alfalfa rotation as compared to a corn- Rotations corn Robertson et al. 2014 Soybean yields were almost 50% higher during the 2012 drought Reduced Sauer, Hatfield, and Prueger Soil water evaporation reduced by 34% to 50% Tillage 1996 Steiner 1994 Detailed review concluded that crop residues increase water infiltration and decrease evaporation

Yet even if there were stronger evidence that conservation agriculture reduces insurers’ risk, AIPs’ relationship with the federal government would still limit their sensitivity to risk (see Figure 10). AIPs are private companies that signed an agreement to sell federally-backed crop insurance. One process that limits AIPs’ risk is “fund designation,” in which AIPs can place policies into one of two buckets, or “funds.” The government then takes responsibility for up to 100% of losses (or gains) from policies designated to a fund (Shields 2013). The exact percent is determined by the loss ratio for each company, and for each state, for the fund selected; the government retains a smaller share of losses (or gains) for policies in the “Commercial Fund” and a larger share of those in the “Assigned Risk Fund.” Seeking to minimize losses and maximize gains, AIPs told us they generally try to place policies on which they expect to take a loss in the Assigned Risk Fund and those that are “safer bets” in the Commercial Fund. Companies place 100% of their policies in either the Commercial Fund or the Assigned Risk Fund; if they fail to designate a policy, the Federal Crop Insurance Board (FCIC) automatically places it in the Commercial Fund (FCIC 2014b).

AIPs and the government also share risk via a redistributive mechanism involving “net book quota share,” or the portion of a company’s net book of business, equal to 6.5% of overall gains or losses, that must be ceded to the government annually (Shields 2013). In effect, when an AIP experiences a net loss, the government absorbs 6.5% of it. When an AIP experiences net gains, the government keeps 5% and the other 1.5% is redistributed to AIPs operating in 17 “underserved” states,30 providing companies a greater incentive to sell in states that are characterized by low premium and profitability (Shields 2013). Net book quota share provides an additional mechanism through which the federal government buffers some AIP risk.

30 There are 17 “underserved” states: Alaska, Connecticut, Delaware, Hawaii, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Utah, Vermont, West Virginia, and Wyoming (FCIC 2014b).

In addition to formal risk-sharing arrangements, AIPs also receive a payment to cover a portion of the costs associated with selling and servicing policies, called the Administrative and Operating (A&O) subsidy (FCIC 2014b). Payments may total up to $1.37 billion for the 2015 insurance year (Shields 2013). The point of the payment, which FCIC makes “on behalf of policyholders,” is to pass on reduced costs to producers in the form of lower premiums (FCIC 2014b). In practice, the combination of A&O subsidy and underwriting gains also produces sizeable returns for AIPs (Goodwin and Smith 2013). By increasing AIP profits, the subsidy provides insurers with an additional buffer against risk. Figure 10 illustrates the nuanced relationship between AIPs and the federal government.

Figure 10. Risk mitigation mechanisms between the federal government and AIPs

Sources: FCIC 2014b; Shields 2013

AIPs also lack the means to incentivize risk-reducing practices. Not only are AIPs unable to market plans of insurance that have not been approved by RMA, they are generally prohibited from offering discounted rates for existing plans (FCIC 2014b). It is the federal government, not AIPs, that determines which policies the company is able to sell, to which producers, and at what rate. Even if they would prefer to, AIPs are not allowed to compete via federally reinsured MPCI.

Changing the incentives AIPs face and their abilities to offer innovative policies would require an overhaul of federal policy. Such an overhaul is unlikely to occur, and may not even be desirable, because of the unique nature of agricultural insurance. Risks that are relevant to agriculture tend to be

34 systemic—they affect the entire market or market segment. For example, drought and excessive moisture often create yield losses across wide areas (Barnett and Coble 1999). The private insurance market generally views systemic risks as uninsurable, or insurable only at an exorbitant rate (Barnett and Coble 1999). This helps explain why there is a strong private market to cover localized weather events like hail and wind, and not for multiple peril insurance, which covers large-scale weather events. Some have argued that government involvement is needed to keep insurance rates affordable when systemic risks are present (Miranda and Glauber 1997).

Using 508(h) to Make Incremental Change, and Selecting a Practice Though a complete federal overhaul is unlikely, incremental change to reward conservation agriculture adoption is possible. Section 508(h) of the Federal Crop Insurance Act provides a mechanism for introducing new crop insurance policies, provisions of policies, and rates of premium (75th U.S. Congress 1938).31 It allows an entity, “including an approved insurance provider, a college or university, a cooperative or trade association, or any other person,” to propose other crop insurance policies and rates to the FCIC Board (75th U.S. Congress 1938). Advocates can propose a pilot program under 508(h) to provide a premium discount on MPCI policies for farmers using one or more conservation agriculture practice.32, 33

There are two key precedents for using the 508(h) mechanism to provide a premium rate reduction based on adoption of a technology or practice. In 2008, Monsanto acted as a co-submitter for the Biotech Yield Endorsement (BYE) pilot program. The FCIC Board approved a premium rate reduction for farmers using Monsanto’s biotech seeds,34 concluding the seeds lowered “yield risk” (RMA 2010). In 2003, the Nutrient Best Management Practices (N-BMP) Endorsement pilot reduced rates for farmers who applied only a recommended level of nitrogen and phosphorus (RMA 2003). In contrast to the BYE pilot, which was expected to stabilize or even increase yields, the purpose of the N-BMP pilot was to protect farmers from a possible yield decrease.

These two pilots show that the process is expensive. According to one former FCIC board member who was involved in the BYE approval process, “the bar for getting a premium rate reduction for a production practice is extraordinarily high.” Interview and RMA data indicate that the BYE pilot was approved only after Monsanto provided years of data, including some 15,000 side-by-side field trials encompassing a

31 Sections 522(b) and 523(d) also provide avenues to propose changes within in the existing crop insurance structure. Section 522(b) allows for “reimbursement of reasonable research and development costs” of policy concepts developed under 508(h); section 523(d) is specifically intended for pilots that reduce rates of premium on existing policies (75th U.S. Congress 1938). Pilots may be initially submitted under 508(h) and approved under one of the other sections, as was the case with the Biotech Yield Endorsement, approved under 523(d) (RMA 2010). 32 For more details on how the 508(h) process can be used to support conservation, see the NRDC’s issue paper Soil Matters (O’Connor 2013a). 33 There is another existing mechanism within crop insurance to reward farmers for adopting risk-reducing practices. A farmer’s Actual Production History (APH) is his or her average historical yield, based on a 10-year history, that determines the insured value of a crop. If a farmer takes action that increases the crop APH, i.e. by reducing losses, the crop’s insured value increases and the farmer’s premium rate for the crop decreases (Coble et al. 2010). 34 An interview with an RMA official indicated the discount also applied to DuPont Pioneer, Syngenta, and Dow stacked, traited hybrids.

35 wide variety of geographies and climates, thousands of pages of documentation, and expert testimony from university professors showing lower yield risk for farmers using their biotech seeds (RMA 2010).35 Our interviews suggest that solidly demonstrating effects of a production practice on total yield or yield stability is essential. Such research is costly in time and money.

In the case of N-BMP, interviews indicate that determining whether a producer had applied the practice correctly proved complex, leading to a costly process of developing and implementing guidelines for producers and claims adjusters, who determine whether to make payment on a claim. The greater the potential variability in how a practice is implemented, the more difficult (and costly) it becomes to identify the practice, monitor, and loss adjust it.36 These costs can be minimized to the extent that developers of a conservation agriculture-based 508(h) product have options for reducing their costs. Section 522(b) of the Federal Crop Insurance Act allows for partial reimbursement, in advance, of the costs of developing a new insurance product (75th U.S. Congress 1938). To receive this funding, 508(h) developers need enough initial data to convince the FCIC board that the case for a conservation agriculture-based product is compelling, but do not need to have calculated details of the proposed policy, such as the actuarially fair rate, at the outset (according to interviews).

Another way to reduce costs is to make more efficient use of existing data. Food and agricultural policy group AGree is currently leading a first-step effort to more clearly document conservation agriculture’s effects on yields and yield variability. The AGree-led Conservation and Crop Insurance Task Force (CCITF) is working to encourage and support a USDA-led effort to integrate and analyze existing data at different government agencies on conservation practices, yield, variability, soil health, and other key topics. This effort may help reduce the costs of gathering the data needed for a new product to win approval via 508(h), though it is likely that funding for new research, and in particular side-by-side field trials, will still be necessary.

Before selecting a conservation agriculture practice or practices to include in a 508(h) proposal, advocates need to better understand the potential market for each practice. The N-BMP pilot illustrated the importance of knowing the market: despite the product’s availability across four states, only three policies were sold in the first year (RMA 2003). An RMA employee indicated that one policy was sold in the second year, and that the pilot was not continued for a third year. The “market” for conservation agriculture practices is the body of farmers who might adopt.

Examining current adoption is key to assessing the market size for each conservation agriculture practice. Our survey found the least used practices are strip till (4%), a corn-soybean-third crop rotation

35 According to interviews, the BYE was eventually discontinued because adoption was sufficiently widespread that there was no longer any basis for offering a special discount to adopters. This is because the current premium rating method is based on a county’s weighted average historical losses over a 20-year period. As more producers adopt a risk-reducing practice, the practice will eventually be reflected in county losses, and the general premium rate will reflect the change in risks. This means that a premium rate reduction achieved via 508(h) may be temporary. 36 According to interviews, the practice must also be able to be rated for the various plans of insurance, which adds expense. The expense can be lessened to the extent the agronomic research on the practice is thorough.

(19%), long-term no-till (21%), and cover crops (23%).37 Because adoption rates are currently low, the size of the market for these four practices should be relatively large, compared to the other practices. Understanding the reasons for low adoption rates can shed light on the market potential for each practice. More research is needed to fully assess market potential, but we can offer a few insights here.

For cover crops, the challenges interviewees mentioned were primarily related to a lack of inputs and confusing regulation. These problems are solvable. If there is sufficient demand for cover crop seeds, companies may be willing to step in to provide them. The adoption data included in this analysis suggest that cover crop use may be on the rise, which would suggest that demand for seeds is growing. NRCS, the Farm Service Agency, and RMA recently streamlined regulations around cover crop use and crop insurance, and these changes may eventually lessen producers’ concerns (NRCS 2013a). Although a short planting window was also cited as a primary challenge, there is a market-based solution here: producers can pay a bit more for aerial seeding by a custom operator, extending the cover crop planting window. Seed companies may also be able to play a role in developing faster-growing cover crop varieties.

A primary concern about rotations with three or more crops that farmers cited was the lack of a market (i.e., lack of demand). A farmer cannot add a third crop like alfalfa (for hay) for the soil quality benefits alone—he or she needs a buyer who will pay a remunerative price for the crop. Corn and soybeans are the dominant crops grown in Iowa, accounting for 78% of total crop acres (USDA NASS 2014). Hay was once a major crop in Iowa, but now that livestock are primarily corn fed, interviewees told us the hay market has largely disappeared. Without a market for third crops, adoption is unlikely to increase. 38, 39

The practice selected should also have a relatively small margin for operator error. One way to reduce operator error is to select a practice with which farmers are already somewhat familiar. Looking just at the practices from our survey with the lowest adoption rates, respondents indicated having the most experience with corn-soybean-third-crop rotations (26%), long-term no-till (25%), and cover crops (18%) (highlighted in orange in Table 8).

Based on this preliminary investigation into market potential, cover crops seem to be worthy targets of further research. Adoption of cover crops remains low, but there is growing interest in the practice and barriers to adoption are not insurmountable. Survey respondents expressed some familiarity with using them, and proficiency could be improved with more training.

37 Extended corn-soybean rotation, which involves several years of corn-on-corn, was not considered a conservation practice. See note 1. 38 A representative from an Iowa farmer industry association also noted that because a corn-soybean is so common, there is social pressure against growing third crops, and farmers often lack the equipment required for hay production, including mowers, rakes, and balers. 39 Interviewees were not asked about challenges specific to long-term no-till adoption.

Table 8. Experience with the practices by percent of respondents

Note: N=212, MoE = +/- 6.72 % Source: Datu survey

This initial data may be useful to advocates currently testing the waters of a conservation-focused pilot program via 508(h). AGree and the CCITF are presently exploring crop insurance-based opportunities and may eventually identify one or more conservation practices to drive through the 508(h) process. To this effect, the group continues to convene meetings between AIPs, academia, and industry to assess the potential of a possible 508(h) effort and, more broadly, how a data integration and analysis effort could lead to changes in the crop insurance program.40 The group identified at least one AIP that has expressed interest in keeping the idea on the minds of other insurance companies, recommending a wait-and-see stance at least until new programs in the 2014 farm bill have been implemented, freeing up some USDA bandwidth.

NRDC is also actively looking for partnerships for starting a 508(h) process. The environmental advocacy group is growing their food and agriculture work, including encouraging improved soil health via section 508(h). They have discussed their proposal with actuaries who have prepared submissions for past 508(h) products and are moving forward on the development of a new product.

Smaller Opportunities: Prevented Planting Payments and Whole Farm Revenue Protection Two smaller opportunities within crop insurance are worth watching to determine their potential to incentivize adoption: prevented planting payments and Whole-Farm Revenue Protection.

40 This same data may also help inform industry agricultural sustainability standards (i.e., supply chain sustainability standards) and support emerging markets for ecosystem services.

Prevented planting payments (PPP) may encourage producers to use cover crops for the first time. Prevented planting is a failure to plant an insured crop by the final planting date, or during the late planting period, due to an insured cause of loss that is general to the surrounding area (RMA 2014). A good example of an insured cause of loss is sustained rainfall that affects a large area. Farmers claiming prevented planting will typically receive a payment of 60% of the production guarantee under their revenue protection or yield protection policies, which represented 98% of policies sold to Iowa corn farmers in 2013 (FCIC 2014c; RMA 2014).

Cover crops become more attractive as an alternative when farmers are prevented from planting their primary crop. For most farmers faced with a prevented planting decision, the essential choice is between leaving the soil fallow or planting a cover crop. Leaving the soil fallow, or black, can be more expensive. Black soil is exposed to what some growers refer to as “fallow syndrome,” a loss of micro- organisms due to a deficiency of the plant-exuded sugars that feed them. Our interviews with agronomists indicated that micro-organisms like mycorrhizae, symbiotic fungi that colonize the roots of plants, support crop growth in a number of important ways, including by helping plants use phosphorus. If these fungi populations die under black soil because they are unable to get enough plant sugars to “eat,” they may be slow to repopulate the following year, and crops may not get the phosphorus they need. Other costly problems of black soil include erosion and weeds, which, depending on whether herbicide had been applied prior to the prevented planting conditions, may create management problems that are costly in time and labor to deal with.

While there is a cost to planting cover crops—roughly $40 acre, depending on the type of cover crop and planting or seeding method—the cost of cover crops can be balanced by soil benefits, again depending on the type of cover selected and the farm (IDALS, IADNR, and ISU 2013). In this way, not using cover crops on prevented planting acres can be seen as a missed opportunity. A majority of Datu survey respondents felt that cover crops make economic sense in a prevented planting situation, with 67% agreeing with this statement. In addition, 66% of those that received a prevented planting payment had planted cover crops on their prevented planting acres.41

PPP can serve as a jumping off point that spurs producers to use cover crops consistently. Acreage affected by prevented planting is relatively small—just 726,951 acres were affected in Iowa in 2013, of which 619,806 were corn acres (FSA 2014). It is important that farmers using cover crops under prevented planting have a positive first experience so the practice can spread. Tools like the Midwest Cover Crops Council’s Cover Crop Decision Tool can help producers select a cover crop that is right for their farm (MCCC 2014). Dr. Rick Haney, creator of the Haney Test, noted that his test can also provide a cover crop recommendation.

Another opportunity advocates should monitor is Whole-Farm Revenue Protection (WFRP). WFRP is a new insurance pilot program required by the 2014 farm bill, which will launch by 2015 in most states, including Iowa (FCIC 2014c). WFRP will allow producers to insure the entire value of their operation under a single policy instead of insuring each commodity separately (USDA 2014).

41 Because only a subset of our sample had received PPP (N=32), the margin of error for this finding (66%) is +/- 17.32%, higher than that for most of our survey findings (+/- 6.72%).

Of possible significance for advocates is the premium subsidy WFRP will provide for farmers producing at least two different commodities on one farm (NSAC 2014; Shea 2014). WFRP has some potential to incentivize crop rotation by rewarding producers who grow more than one type of crop. For farmers presently growing just corn, for example, the subsidy could entice them to add soybeans, provided it is significant enough. Once farmers are growing multiple crops on a single farm in the same year, it is a simple and natural next step to begin rotating those acres to capture associated yield benefits (see Table 4 above).

WRFP may have the greatest potential to increase adoption of third-crop rotations. As adoption surveys including our own have noted, a corn-soybean rotation is already very common in Iowa (Arbuckle and Rosman 2014). Rotations involving at least three crops are less common. Whether WFRP is able to help farmers overcome the previously-mentioned challenges with third-crop adoption will be determined by the amount of subsidy and whether it increases as additional crops are added. Although the full details of the subsidy had not been released as of this writing, our interviews with agricultural insurance experts suggest it would be logical from an insurance standpoint to increase the subsidy as the number of crops grown increases (up to a point). Full policy details were expected by late 2014.

Other Possibilities in the Value Chain Interviews with farmers, landowners, academics, and industry representatives revealed two additional possibilities within the Iowa corn value chain that could potentially be used to incentivize conservation agriculture adoption (see Figure 11). The following possible opportunities could be examined further for their potential to encourage adoption.

Figure 11. Other potential opportunities to incentivize the practices in the Iowa corn value chain

Sources: Barton and Clark 2014; Lowe and Gereffi 2008; Datu industry interviews

Seed Corn Providers Major seed companies such as Monsanto, DuPont Pioneer, and Syngenta contract with farmers in Iowa to grow hybrid corn seeds on their land. Our interviews suggest seed corn operations may be particularly vulnerable to compaction. To combat this compaction and help farmers take advantage of nutrient- and soil organic matter (SOM)-building benefits, seed companies may want to encourage the farmers who grow their products to use cover crops.

Seed corn acres may be more prone to compaction than other corn acres because of the increased number of passes large equipment must make. Industry interviews indicate that after male inbred rows have pollinated the female inbreds, the male rows are destroyed to prevent seed contamination. The females are harvested after the ears have matured. The need to manage and harvest male and female rows separately increases the number of equipment passes required compared to other corn acres.

Cover crops, particularly those with very deep roots like oilseed radish, may be able to mitigate compaction while providing ground cover for erosion protection (NRCS 2010b). Interviews with farmers and seed companies suggest that producers often view these companies as trusted advisors. Companies

41 may therefore be motivated to recommend practices like using cover crops, which may help mitigate the possible side effects of growing seed, in order to maintain their good reputation with farmers.

Seed corn growers may even find it easier to plant cover crops than other Iowa corn growers. A commonly voiced challenge associated with growing cover crops in Iowa is the narrow planting window. Interviews suggest that Iowa’s harsh winters and cool, wet soils can make it difficult to get a cover crop planted and established after harvest and before frost. Seed corn may alleviate this problem because, depending on the specific hybrid, it may be harvested earlier, extending the cover crop planting window.

Seed corn is grown on a relatively small number of Iowa acres, but endorsement of a practice by a seed company may influence farmers far beyond the actual seed corn acres. Out of 13,348,307 total Iowa acres planted to corn in 2013, Iowa farmers reported planting just 237,503 acres of yellow seed corn (FSA 2014). While not everyone can grow seed corn and companies are often very selective about growers, if seed companies embrace cover crops, this would be a notable signal to farmers that the practice is sound and would likely influence more farmers to try it.

Our interviews suggest that seed corn companies are beginning to explore the benefits that cover crops can provide. DuPont Pioneer has started two projects with Practical Farmers of Iowa to investigate use of cover crops on the company’s seed corn plots,42 and even paid for most of the seed needed for farmers to test out cover crops. To investigate this potential opportunity, further research will need to glean more about the unique challenges of seed corn operations, the nature and content of seed corn contracts, and how to incentivize conservation agriculture practices in a contract.

Cellulosic Ethanol Producers Residue removal for cellulosic ethanol production can heighten risks of erosion, nutrient loss, and soil degradation if carried out at unsustainable rates. Practices such as cover crop use can help farmers remove more residue sustainably. The cellulosic ethanol industry may be willing to incentivize the practice to increase the amount of residue they can sustainably harvest.

Cellulosic corn ethanol is fuel made from corn stover as opposed to the starch from corn kernels, which is used to make standard corn ethanol. Corn stover consists of the aboveground corn plant material, excluding grain: the stalks, leaves, shuck, silk, tassel, and cobs that remain after harvest (Arora, Licht, and Leibold 2014).

Although stover removal offers some benefits—including promoting warming of the soil for planting,43 reducing the need for intense tillage, and eliminating issues with planting interference—removing too much stover can take away nutrients and expose the soil to erosion (ISU 2014). The optimal sustainable level of residue removal is likely to vary by operation (Arora, Licht, and Leibold 2014).

42 A representative from a farmer industry association confirmed that one of these projects is the Benton-Tama Nutrient Reduction Demonstration Project. 43 Some producers are beginning to challenge the long-accepted truism that residue inhibits soil warming, taking the temperature of their no-till and cover crop soils and finding them comparable to or higher than tilled fields (Stockwell 2014).

New research suggests cover crops marry particularly well with corn stover removal. A recent Purdue study found that nearly two tons more stover can be sustainably removed per acre by using cover crops; in general, the cover crop mitigates the effect of increased erosion and SOM loss from removal of residue (Pratt et al. 2014). A study examining five Corn Belt states including Iowa also found that use of cover crops increases the amount of residue that can be sustainably removed (Bonner et al. 2014).

To promote production of renewable fuels, including cellulosic ethanol, the Energy Independence and Security Act of 2007 mandated that 36 billion gallons of biofuels be produced annually by 2022, of which 16 billion gallons were expected to come from cellulosic feedstocks like corn stover (DOE 2013).44 This mandate, the renewable fuel standard (RFS), is helping to spark an emerging cellulosic ethanol industry: in 2012, just 20,069 renewable identification numbers, which track batches of biofuels, had been generated nationally for cellulosic ethanol; by 2013, this number had expanded to 422,740—a more than 20-fold increase (EPA 2014). In Iowa, three new cellulosic plants are set to come online in 2014, with a present total capacity of approximately 52 million gallons per year (Doom 2014; Nunez 2014; DuPont Biofuel Solutions 2014). If cellulosic ethanol producers were to incentivize cover crop use among their stover growers, the visibility and number of cover crop success stories could increase, helping spread adoption.

Recommendations This report has examined several challenges to providing incentives to increase farmer adoption of conservation agriculture. In the process, we have also identified some opportunities. Below are our recommendations for next steps:

44 As of this writing, the U.S. Office of Management and Budget was reviewing a proposed rule that could potentially lower the mandated level of production.

Much could be accomplished by conducting new research to document the effects of soil quality and soil health on yields. Conservation agriculture practices have been solidly demonstrated to improve soil quality and soil health, control erosion, and improve availability of water and nutrients in the soil. Additional research is needed to document the effects of healthy, high-quality soils on yields. Tools such as the Haney Test and the CSHT—which measure more aspects of soil health, including microbial activity—can help researchers better understand the relationship between soil health and yield outcomes.

3) Continue to evaluate the potential of a 508(h) filing, focused on cover crops. In general, crop insurers lack both the motive and the means to incentivize conservation agriculture adoption. Although an overhaul of the current system is unlikely, incremental change is possible. The most promising opportunity is to propose a pilot program through the 508(h) process to offer a “good producer discount.” Among conservation agriculture practices, the likeliest to win approval may be cover crops, although more market research is needed. Two smaller opportunities also exist within the current crop insurance framework: prevented planting payments can encourage first-time use of cover crops, helping spread permanent adoption if farmers have a positive first experience, and Whole-Farm Revenue Protection may encourage crop rotation by providing a premium subsidy for growing more than one crop (the strength of this incentive will be determined after full policy details are released).

4) Conduct research to evaluate the potential of other identified possibilities in the value chain. Preliminary research points to the potential to find market-based incentives within the seed corn and cellulosic ethanol segments, although more research is needed. Seed corn operations may be particularly vulnerable to compaction. To combat this challenge and take advantage of nutrient- and SOM-building benefits, seed companies may want to encourage the farmers who grow their products to use cover crops. Residue removal for cellulosic ethanol production carries the risk of heightened erosion, nutrient removal, and decreased soil quality if carried out at unsustainable rates. Cellulosic ethanol producers may be willing to incentivize cover crops to increase the amount of residue they can sustainably harvest.

Conclusion The benefits of conservation agriculture practices extend well beyond the farmers who use them. Conservation agriculture in Iowa promotes clean water in the Gulf of Mexico by cutting down on fertilizer and pesticide inputs and reducing nutrient loss. The soil-quality, soil-health, and SOM- increasing benefits of the practices can help build or maintain productive soil for future generations. Yet, in general, farmers do not receive a clear, immediate economic benefit from adopting. For adoption to increase, short-term incentives are needed.

The Iowa corn value chain can be tapped for direct incentives. Conservation agriculture practices benefit a variety of stakeholders in the chain, creating opportunities to engage a combination of value chain segments to incentivize adoption. Since no single leverage point is likely enough by itself, it is important to tap several different segments.

This report has examined the potential within two segments: landowners and crop insurers. At present, there is no strong, economic mechanism to reward Iowa landowners for encouraging conservation agriculture adoption. The soil-quality and erosion-reducing benefits of conservation agriculture do not increase the economic value of land. However, reductions in input costs can benefit landlords under crop share and custom leases, which make up 14% of Iowa leases, making this the likelier landlord incentive in the absence of a well-established link between the practices and increased yields.

Within the current crop insurance structure, incremental changes to encourage adoption are possible. Advocates can submit a proposed pilot program to provide a “good producer discount” for conservation agriculture through the 508(h) process. For this effort to be successful, more documentation showing improved or more stable yields is needed. Market research on the practices is also needed; our preliminary investigation suggests there may be a growing market for cover crops. Prevented planting payments and Whole-Farm Revenue Protection are two areas to watch for their potential to increase adoption of cover crops and third-crop rotations, respectively.

We also identified two additional value chain segments that merit further research. Seed corn providers and cellulosic ethanol producers both stand to benefit from increased cover crop adoption. Future research should fully examine the potential of the seed corn and cellulosic ethanol segments to provide incentives for adoption. By continuing to demonstrate and document the economic impact of conservation agriculture, we can ensure that a fair share of the benefits end up where they belong—in farmers’ hands.

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