Denying farm program benefits to operators con- 

 verting wetlands would not be effective when 

 market prices are high. Farm program benefits are 

 more important to operators when commodity 

 prices are low. Only 23 percent of total cropland 

 was enrolled in farm programs in 1982, before com- 

 modity prices dropped, but 56 percent of cropland 

 was enrolled in 1984 [47). 



Farm programs may not be important to many of 

 the farmers who could convert wetlands. Only 27 

 percent of eligible farms enrolled in the programs 

 in 1984. Participation varies by crop, ranging from 

 a low of 14.5 percent of eligible oat acreage to 87.5 

 percent of eligible rice acreage. Wheat and corn 

 accounted for more than 75 percent of enrolled 

 acreage. The extent of farm program participation 

 by operators who have converted wetlands in the 

 past, or who currently own wetlands that could be 

 converted, is not known. Soybeans, one of the 

 major crops for which wetlands have been con- 

 verted, have no deficiency payment program, and 

 recent loan rates have been well below market 

 prices. 



Other Farm Programs 



Several farm programs do not directly support 

 prices, but reduce costs or risks of crop produc- 

 tion. Among these programs are subsidized in- 

 terest rates on loans from the Farmers Home 

 Administration (FmHA), crop insurance under the 

 Federal Crop Insurance Corporation or its rein- 

 surance programs, and Agricultural Stabilization 

 and Conservation Service disaster payments. 



Subsidized interest rates for FmHA operating 

 loans in 1982 were 2.4 percentage points lower 

 than unsubsidized rates, resulting in operating 

 loan subsidies ranging from $0.16 to $3.57 per 

 acre, depending on differences in operating capital 

 between crops and regions. Farm ownership and 

 storage facility loans, when available, affect the 

 entire farm operation and cannot readily be iden- 

 tified with newly converted cropland. Likewise, 

 emergency loans, available only in designated 

 disaster areas, cannot be directly associated with 

 new cropland. 



Although crop insurance is gradually replacing 

 disaster payments, substantial payments were still 

 being made in recent years. Disaster payments for 

 cotton were as high as $16 per acre in Georgia 

 and were $11 per acre in Texas (29). These pro- 

 grams reduce risks associated with crop produc- 

 tion, thereby raising the expected revenue from 

 farming and providing an incentive to bring land 

 into production. 



It is not just farm program benefits, but also 

 Federal income tax treatment of land development, 

 that subsidize clearing and draining land for M 



agriculture (see box). Other researchers have ana- 

 lyzed tax subsidies for farmland development. 

 Analysis of restrictions on use of cropland deduc- 

 tions in the Internal Revenue Code shows that 

 benefits are disproportionately available to larger 

 operators (39). Thus, profitable farms, with suffi- 

 cient net farm income to write off the maximum 

 land-clearing expense and to deduct soil and water 

 conservation expenses in fewer years, have greater 

 incentives to convert land. 



Watts, Bender, and Johnson (56) calculated the 

 value of tax incentives for converting rangeland to 

 cropland in Montana. They estimated that capital 

 gains treatment and investment tax credits reduced 

 the break-even resale price of plowed rangeland $27 

 to $85 per acre from the break-even price without 

 such tax treatment. At low tax rates, investment 

 credits were more valuable incentives than capital 

 gains provisions, but at high tax rates capital gains 

 treatment was worth three times as much as the in- 

 vestment credit. 



Leitch and Kerestes [21] studied land drainage costs 

 and after-tax returns in Minnesota. Assuming a 

 40-percent tax bracket, tax savings on ditch ■ 



drainage were estimated at $57 per acre, while 

 credits and depreciation on tile drainage saved be- 

 tween $68 and $93 per acre. These tax savings 

 amounted to 18 percent for tile drainage and 40 

 percent for ditch drainage. The effect of capital 

 gains was not estimated, and the tile was 

 depreciated using straight-line methods over 8 years 

 rather than accelerated cost recovery in 5 years; 

 therefore, estimated tax incentives are probably low. 



Barrows, Henneberry, and Schwartz (5) simulated 

 wetland conversions for representative dairy and 

 vegetable farms in southeastern Wisconsin. The 

 1981 tax returns for families with farm incomes of 

 $6,000, $12,000, and $20,000 were calculated for 

 least favorable, most favorable, and average condi- 

 tions for drainage. Calculating after-tax net income 

 for the first 3 years of the drainage investment, 

 they showed that tax subsidies rise with increasing 

 income, ranging from zero for the $6,000-income 

 farmer to $23 per acre for the $20,000-income 

 farmer. Tax incentives for drainage increased net 

 income for unfavorable and- average conditions 

 more than for favorable situations, since higher 

 taxes on incremental income from draining good ^ 



land overshadowed benefits of the special provi- ^ 



sions applying to wetland drainage. Capital gains 

 were not considered and no attempt was made to 



