benefits and tax subsidies can also be analyzed. 

 Two extremes are analyzed: a large-scale, expensive 

 conversion of pocosin wetlands in North Carolina 

 and a small, inexpensive conversion of prairie 

 pothole wetlands in North Dakota. 



Converting Pocosin Wetiands in North Carolina. 



Wetland conversion in this area is typified by large 

 operations developed through previous wetland 

 conversion (7). Expansion is continuing, with con- 

 version in half-section or whole-section blocks in- 

 volving costly excavation for V-ditches and canals 

 and expensive pumping stations to remove drainage 

 water. Much of the conversion has been done by 

 corporate subsidiaries of large, nonfarm corpora- 

 tions or foreign consortiums [32). Farm program 

 participation in this area is low, with only 7.5 per- 

 cent of North Carolina corn farmers and 20 percent 

 of corn acreage base enrolled in 1984. 



The farm analyzed here assumes a 1,000-acre cash 

 grain operation growing corn and a soybean-wheat 

 double-crop rotation. An individual tax return with 

 substantial off-farm income ($100,000) is assumed. 

 Revenue from the rotation, including deficiency 

 payments, is $410 per acre; variable and fixed costs 

 of production total $288 per acre. 



A 320-acre wetland conversion is planned, with 

 conversion costs of $1,979 per acre, partly financed 

 out of nonfarm income, and production costs 

 similar to those for existing cropland. Revenues on 

 the newly drained land are $234 per acre in the 

 first year of production and approach revenues 

 from existing acreage in the third year as drainage 

 becomes fully effective. The conversion is assumed 

 sold after 10 years, so that capital gains from ap- 



preciation are included in the analysis. Details are 

 presented in appendix 2. 



Prospects for the conversion are considered in 

 terms of the present value of projected revenue, 

 cost, and taxes over the 10-year planning period, 

 discounted at an assumed 5-percent real interest 

 rate. Three situations are shown in table 11: the 

 current situation without the conversion but with 

 deficiency payments; with the conversion and defi- 

 ciency payments; and with the conversion but with 

 price supports denied to the whole operation under 

 swampbuster sanctions. 



Converting an additional 320 acres of wetland with 

 deficiency payments increases the present value of 

 farm cash income by 5.5 percent. Taxable net farm 

 income drops because conversion costs are written 

 off as land clearing and soil and water conservation 

 investments, and because of interest on debt in- 

 curred to undertake the conversion. Therefore, ad- 

 justed gross taxable income drops by 35 percent 

 and taxes decrease by the same percentage. 



After-tax income is the sum of farm and nonfarm 

 cash income, less taxes paid, and capital gains 

 realized from sale of the conversion, less any debt 

 remaining from the investment. After-tax income 

 with the conversion and with deficiency payments 

 is just equal to after-tax income before conversion if 

 the 320 converted acres can be sold for $2,315 per 

 acre at the end of 10 years. 



The cost of swampbuster sanctions against wetland 

 conversion can be estimated by comparing (a) the 

 present value of the operation (with the conversion) 

 with deficiency payments and (b) the value of the 



Table 11 — Discounted present value of wetland conversion with and without deficiency payments, North Carolina 

 pocosins* 



N/A - Not applicable. 



•Conversion of 320 wetland acres on a 1,000 acre corn-soybean-wheat operation with deficiency payments, sold after 10 years and dis- 

 counted at 5 percent real interest rate. See text and appendix 2. 

 'Farm cash income plus nonfarm income plus capital gains less taxes owed and debt service on the conversion. 



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