The Future of Conservation: Market-Based Approaches

As prepared for delivery

Remarks by Bruce I. Knight, Chief Natural Resources Conservation Service, at North South Basin Summit II Sand County Foundation

New Orleans, LA
February 2, 2006

What can we do today—and in the years ahead—to reduce the more than 1 million tons of nitrates flowing from the Mississippi River into the Gulf of Mexico every year? What role will the market play? What about the next farm bill?

The health of the Mississippi and the Gulf are critical to our Nation. Improving their health won’t be easy. But we’ve addressed other difficult environmental issues, and working together we can tackle this one.

Helping People Help the Land

My agency, the Natural Resources Conservation Service, was created to address a tough problem. In 1935, huge dust storms swept across the central U.S. in the wake of severe drought in our Great Plains region. Keeping the soil on the land was the focus for the Soil Erosion Service, which became the Soil Conservation Service, our predecessor agency.

Today, NRCS has a broader emphasis:
• conserving the soil,
• increasing the quality and quantity of water,
• preserving air quality and
• expanding habitat for fish and wildlife.

Even more simply, we help people help the land.

We partner with farmers, ranchers and others to safeguard our Nation’s natural resources on private, working agricultural land. Our strategy is locally-led, cooperative conservation.

Watershed Approach

We work with individual landowners, but we do so with a view toward the overall landscape. More and more we are focusing not just on fields or farms, but on the watershed. A watershed approach, using nature’s boundaries, is essential if we want to improve the environment.

Someone recently said that conservationists have moved from protecting the resource base and enhancing productivity to environmental management. And I think that’s true.

Environmental management involves a broader view, looking at the landscape instead of focusing on the farm. When we cost-share conservation practices on private lands, we need to view that work within the context of the watershed to ensure that there is an environmental benefit for the public.

We have a long history of involvement at the watershed level. P.L. 566 and P.L. 435 and the original erosion control projects were based on watersheds, such as Coon Creek in Wisconsin.

Today, our premier conservation effort, the Conservation Security Program, is offered on a watershed basis. CSP recognizes and rewards those producers who are meeting the highest standards of conservation and environmental management on their operations within the context of a watershed. The program encourages them to go even further in environmental stewardship.

Currently, 80 watersheds in the Mississippi River Basin are participating in CSP.
We anticipate another 29 watersheds that drain into the Mississippi will be added in 2006.

Expanding our Investment in Conservation

Since passage of the 2002 farm legislation, the U.S. has made significant investments in conservation. Last year alone, NRCS served nearly 100,000 farmers and ranchers and invested $3.3 billion in voluntary, incentive-based conservation.

In addition to the funding we provided, we have an army of volunteers who donate their time to the cause of conservation. In 2005, more than 32,000 volunteers on the Earth Team gave nearly 900,000 hours of service to increase conservation.

More recently, Secretary Johanns announced last week that we will be spending an additional $300 million in Emergency Watershed Program appropriations to help the Gulf States recover from the damage from Hurricanes Katrina, Rita and Wilma.

The money will pay landowners and landusers up to 75 percent of the cost of

• removing debris from stream channels
• reshaping and protecting eroded banks
• correcting damaged drainways
• repairing levees and structures, and
• reseeding damaged areas.

Even with the additional funds from the last farm bill, we still have a long list of worthwhile conservation projects that landowners would like to invest in, and that we would like to support. It’s apparent that the funds simply can’t keep pace with the demand, especially when budgets are tighter, as they are now and likely will be in the years ahead.

It’s easy to look at this as a black and white situation—good news and bad news. It’s good that so many landowners want to preserve natural resources—and bad that we can’t help them all.

The roots of our agency have been in knowledge-based conservation, technical assistance. I believe we will be focusing more on those roots in the days ahead—developing and fostering the technologies and innovations that will enable farmers and ranchers to make the best decisions for their land—decisions that are both economically and environmentally sound.

Precision Conservation

We’re moving into an era of precision conservation. By precision conservation, I mean the dynamic nexus of precision agriculture and cooperative conservation. This is where high technology and conservation join.

As someone said, it’s putting the right practices in the right place at the right time and at the right scale. Precision conservation focuses on the field, the farm and the watershed.

Conservation technology is advancing rapidly. Yield monitors, combined with Global Positioning Systems (GPS), for example, can produce maps that provide feedback to measure the effects of managed inputs such as fertilizer, lime, seed and pesticides, as well as cultural practices such as tillage, irrigation and drainage.

Precision conservation involves optimizing resources. Auto-steer is an excellent example. GPS plumbed into the steering mechanism of a tractor “reads” the field on the first pass-through. Then, an on-board computer directs each succeeding pass so it will match up perfectly with implement width. The technology can reduce the overlap on each pass for tillage, fertilizer or pesticide application from 18 to 24 inches to 3 to 6 inches.

By controlling the traffic, this technology can reduce traffic-compaction, thus reducing runoff and erosion. Auto-steer can save up to 16 million pounds of fertilizer nationwide and reduce environmental loading by ensuring that more nutrients go on the most productive portions of the field and less on the less productive areas.

Similar savings—and reductions in environmental loading—are possible for the livestock sector. We can determine the best rations for cows or sows to avoid feeding them excess nutrients, thus reducing phosphorous loading.

Precision conservation focuses on measurement and management. It zeros in on specific, measurable results rather than simply counting practices.

What role does NRCS play in precision conservation? First, we will continue to encourage producers to adopt minimum and no tillage practices. We will also continue developing—and encouraging farmers to use—tools that support precision conservation.

We are building an enabling information technology platform to support virtually all facets of precision conservation. For example, the NRCS Web Soil Survey has digitized soil maps that a few years ago were only available on paper. Now anyone can download them 24/7 from the NRCS webpage at www.nrcs.usda.gov.
Any cooperative that requires data can now send out a fertilizer tender with the precise information needed on the underlying soil capability.

Similarly the NRCS PLANTS database will enable producers to access information on the characteristics of plants and how they can best be used—or in the case of an invasive, controlled.

In addition, NRCS practices and standards are now available on our website, accessible to anyone with a computer with Internet access. Of course, NRCS is still available to help with conservation technical assistance, but much more information is now at the fingertips of those who want to move forward on their own.

NRCS will be continually expanding its Internet offerings to better enable precision conservation. We want to help landowners make better decisions in the face of changing market, climatic, environmental and technological conditions. Of course, those who don’t have Internet access are always welcome to come into one of our more than 2,800 offices.

Encouraging Innovation

Another way that we’re pushing forward on conservation technology is through our grant and partnership programs. We recently announced $20 million for Conservation Innovation Grants in 2006. This is a great way to test innovative conservation approaches and technologies with a view toward sharing them with farmers and ranchers who could benefit.

We are looking for proposals that merge
markets and conservation. The deadline for proposals is March 20.

Similarly, we have $4 million available under our Cooperative Conservation Partnership Initiative with a deadline of March 7. Grants under this initiative go to state and local governments and agencies, Indian tribes and non-governmental organizations involved in agriculture. For 2006, we have a two-pronged focus: conservation priorities and rapid watershed assessments.

These forward-looking programs help bring precision conservation to farmers today and in the near future. More and more we’re going to be focusing on transferring cutting edge technology into the real world and encouraging farmers to use it.

Emphasis on Energy

I want to also mention the work we’re doing on energy. During the farm bill listening sessions last year, farmers shared their number one concern: the high cost of fuel and fertilizer.

In early December, Secretary Johanns announced the USDA Energy Strategy, a concerted effort to look at both reducing demand for oil and natural gas and increasing supply through bio-fuels. As part of that strategy, NRCS developed an Energy Estimator tool that helps farmers and ranchers determine how much they could save by switching from conventional tillage to no-till or another reduced tillage system.

In the next two weeks, we will release a nitrogen component that will enable producers to predict their savings from switching from fossil fuel fertilizer to manure. A third component, focusing on more efficient irrigation, is next.

There’s a really important point there that I don’t want to miss. It’s this:
the market is driving changes in agriculture and conservation. A voluntary approach, coupled with market forces, can make a significant difference.

According to United States Geological Survey data, about 13 billion pounds of commercial nitrogen is applied to crops in the Mississippi basin. In addition, just over 7.5 million pounds of nitrogen produced in the basin are associated with livestock manure.

The USGS believes that commercial nitrogen application accounts for just over half the nitrogen in the Mississippi River and the commercial nitrogen and livestock manure combine to account for about 80 percent of the total nitrogen in the River.

With today’s high fertilizer prices, farmers won’t add extra nitrogen—it’s not cost-effective. Most farmers are closely analyzing this fertilizer use, needs and application.

In fact, data from Iowa State University indicates that for many Iowa corn farmers, reducing nitrogen fertilizer application rates by 10 percent would have minimal effects on yields. If producers reduced their fertilizer application rates and/or use by using
• precision agriculture equipment;
• better timing and placement of fertilizer;
• and better use of animal manure, legumes, and green manure

in accordance with a nutrient management plan, they can reduce nitrogen application rates without affecting crop yields.

If we assume a 10-percent gain in nitrogen use efficiency through improved nutrient management, farmers could save 1.3 billion pounds of nitrogen, with a value of about $300 million.

Market-Based Conservation

This is just one aspect of the role of the market in conservation. There are many opportunities for farmers to increase productivity and improve environmental stewardship at the same time, and we want to explore them. We know that markets are more efficient at allocating resources than government regulations or bureaucracies.

Market-based conservation is an evolving concept. It doesn’t replace our current approaches, but it offers the opportunity to expand what we’re doing.

Market-oriented approaches to conservation can include:

• Using economic approaches, such as auctions and environmental credit trading

• Applying business practices, such as precision marketing or fostering customer loyalty

• Encouraging competitions, such as bidding for grants or offers to pay for a greater share of the cost

• Providing data to better inform the conservation investment decisions of others

• Focusing on monetary and non-monetary incentives

• Implementing performance-based conservation—enhancement payments

• Fostering knowledge-based conservation

Funding for Ecosystem Services

One aspect of market-based conservation is developing markets to pay for ecosystem services—such as climate regulation and water filtration and regulation.
Historically, these services have been largely taken for granted and not considered public goods.

But the truth is, these services come at a cost to private landowners and should be valued. When the public or corporations or nonprofit groups benefit from conservation on private lands, it makes sense for them to contribute to the cost of maintaining or enhancing these environmental services.

In the U.S., 70 percent of the land is privately owned. In the past, farmers, ranchers and timber producers have provided vital environmental benefits for the public to enjoy.

USDA Policy on Market-Based Environmental Stewardship

We are committed to helping develop the markets for ecosystem services. At the White House Conference on Cooperative Conservation last summer, Agriculture Secretary Johanns announced a new U.S. Department of Agriculture Policy on Market-Based Environmental Stewardship. The goal is to broaden the use of markets for environmental and ecosystem services through voluntary market mechanisms.

These mechanisms may include
• environmental credit trading,
• insurance,
• mitigation banking,
• competitive offer-based auctioning,
• eco-labeling—and more.

We believe that market-based environmental stewardship can encourage competition, spur innovation and achieve environmental benefits, while helping landowners—and others—comply with environmental regulations. The intent of this new policy is to make a deliberate, determined effort to help bring producers and consumers together and to develop innovative tools to quantify environmental impacts.

Our Strategy

As we move forward, our goal is to

• encourage broader participation in market-based efforts,
• build the infrastructure to support expansion of this approach, and
• develop measurement tools that demonstrate the effectiveness of various conservation practices.

NRCS is committed to facilitating and increasing the flow of information and making our own programs and approaches as transparent as possible. We are developing fact sheets that discuss key issues and solutions to engaging in market trades to help our customers with frequently asked questions about such issues as water quality credit trading, greenhouse gas sequestration and wetland or endangered species habitat banking.

We’re also working with a private sector partner to create a handbook that specifically focuses on environmental credit training. We will be strengthening our own Performance Results System—a database that we now use to report results of conservation practices installed under our conservation programs.

And we hope to enable and encourage others in the private and NGO sector who complete conservation projects using our standards and practices to share their results through this system so that we have a national record of accomplishments in conservation.

Our database can help others manage conservation projects and provide reports of activity. It’s another way we can facilitate the market for environmental services.

The key to market-based incentives is that they are voluntary and transparent. Our goal is to help establish the infrastructure that provides information to willing buyers and sellers that can be used as a mechanism to help them find each other so they can make the deals that bring environmental benefits to both parties—and others as well. We are looking at expanding our understanding of the incentives that encourage conservation and studying how the principles of the marketplace can support voluntary conservation.

2007 Farm Bill

I want to turn now, just briefly, to the next farm bill. In the last half of 2005, Secretary Johanns and other top USDA officials held 53 listening sessions in 48 states to determine what our customers want to see in the 2007 farm bill. And conservation was clearly important to farmers and ranchers who shared their thoughts in those sessions.

The 2007 farm bill offers us an additional opportunity to foster market-based incentives for conservation. As USDA Under Secretary for Natural Resources and Environment Mark Rey has said, “One thing we’re interested in pursuing is a mechanism for a flow of funding for private sources for ecosystem services.” The idea is to have some of the work of NRCS and the Forest Service underwritten in part by private sector funding.

There are other ways we hope to improve as well—
• better integrating our programs,
• making them more transparent,
• ensuring that programs work for all producers, including limited resource and underserved farmers.

We also know we need to emphasize results—preferably outcome-based measures, not miles of streams buffered or acres of land treated.

Conclusion

As we look ahead, it’s clear that conservation is changing, just as agriculture is changing. NRCS is helping people help the land in new and different ways. Thanks to technology, we’re able to make and implement more sophisticated land use decisions using the precise level of resources to make the optimum impact.

Our vision is productive lands and a healthy environment. We’re committed to working with partners—up and down the Mississippi—and throughout the Nation toward that end. We look forward to working with you—and with farmers and ranchers—in the days ahead.