Improving the Effectiveness of Conservation Programs through Innovative Reverse Auctions and Sensible Enrollment Restrictions
Agricultural conservation programs provide cost-shares or subsidies to incentivize farmers’ voluntary adoption of key conservation practices, and are a leading policy instrument to curb nutrient loading. However, some studies have shown that certain characteristics of conservation programs can hinder the ability to deliver water quality improvements at a low cost. Programs that offer fixed payments or cost shares may not be cost-effective if the payments exceed the level needed to induce farmers to opt into the program. Or poorly designed conservation programs may buy less than anticipated.
This project will assess the value of reverse auctions and enrollment restrictions in improving the cost-effectiveness of conservation programs offered to Iowa farmers. Standard conservation programs offer a flat incentive or cost share to farmers. In a reverse auction, landowners submit bids to enroll in the conservation program, which could lower program costs while maintaining water quality improvement targets. Enrollment restrictions have the goal of reducing unintended consequences in current programs.
A key component of this project will be a mail and online survey of Iowa farmers in the Boone and Raccoon River watersheds. The survey will collect information on currently adopted practices, practices farmers plan to adopt, and current conservation program enrollments and subsidy levels. Next, each farmer will be presented one of the four versions of a hypothetical conservation program that varies in two dimensions — how they receive payments or submit bids, and whether there are enrollment restrictions. By comparing the practices farmers report they will adopt with and without enrollment in the conservation program, the net effects of the program can be assessed.
We find that farmers prefer guaranteed-price cost shares to reverse auctions that require competitive bidding. To induce the same number of interested parties, a reverse auction would need to offer a higher maximum payment than a similar cost share program. However, this does not mean that the reverse auction would definitely be more expensive, as we also observe substantial bidding below the maximum allowable payment, with only ~40% of farmers making the maximum bid and ~25% of farmers bidding less than half of the maximum bid.
Related activities and accomplishments
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The survey used for the study was developed by the principal investigators in cooperation with staff from the Iowa State Center for Survey Statistics and Methodology (CSSM). It consisted of approximately 70 questions. Respondents were sent a letter to invite them to complete a web survey. To allow for an economic experiment, dozens of different scenarios were programmed. A paper copy of the survey was mailed to non-respondents. Forty different versions of the paper survey were developed, each with different variations of the economic experiment. The survey included questions related to the farmer’s current and anticipated land use and conservation practices to reduce nutrient loss. The economic experiment section contained questions about hypothetical voluntary conservation contracts. Selected farmer demographic questions were also included.
In collaboration with the principal investigators, CSSM staff drafted the web survey invitation letter, survey cover letter and reminder postcard, mailed the survey packets and followed up with contacts to non-responders. The letters explained the purpose of the study, requested the farmer’s participation and assured complete confidentiality of all information provided. The CSSM toll-free phone number was included so that sampled farmers could call to ask questions or express concerns about the project. The Iowa State University Institutional Review Board approved the survey as exempt in September 2018. An invitation letter was sent to the 1800 sampled farmers on March 11, 2019, including a $2 bill cash incentive. Further contacts with the sampled farmers took place between April 9, and August 2, 2019 (178 returned completed paper surveys and 194 completed online). Surveys that were returned by the US Post Office marked as undeliverable were also recorded.
Survey Outcomes and Response Rates. The sample consisted of 1800 farmers.
- A total of 377 completed surveys were received. Response rates are calculated as a ratio of the completed surveys to eligible sample. The response rate for this study is 30.0% (377/1452).
- A total of 327 cases (18.2% of 1800) were classified as not eligible. (Most of these were farmers who reported that they did not intend to operate a farm in 2019 and 2020, were deceased or reported their farms were not located in the sampled watersheds). This resulted in an eligible sample of 1452 farmers.
- Thirty surveys were returned by the USPS as not deliverable. (2.1%) Refusals were received from 8 people (0.6% of the eligible sample), either by phone calls or blank surveys returned with notes. Another 32 respondents accessed the web survey but only answered the first few questions. These farmers were sent the paper copy of the survey and did not respond, so were included as part of 1058 non-respondents, which comprised 72.9% of the eligible sample (1058/1452).
An agreement was signed to work with ISU Center for Survey Statistics and Methodology (CSSM) to conduct a hybrid survey of online and mail surveys of 1,800 crop farmers in Boone and Raccoon River watersheds. Friends of the Boone River watershed were contacted for feedback on the survey questionnaire, and researchers are working to develop and improve an eight-page survey questionnaire.
Over the last quarter, the co-PIs finished the final draft of the survey questionnaire, which includes the full experimental design of the choice experiment sections of the surveys. In particular, 40 blocks of conservation program scenarios have been designed that will be randomly distributed to producers. These include ten distinct blocks of conservation programs consisting of different requirements for no-till, cover crops or split N application, as well as variations on standard cost-share payments or reverse auction payment requests. Stakeholders such as the Friends of the Boone River Watershed have been contacted and their feedback will be incorporated.
Researchers obtained Institutional Review Board (IRB) approval for the survey protocol and survey questionnaire and almost finalized an 8-page survey questionnaire that has four versions: 1) standard cost-share with no enrollment restrictions; 2) reverse auction payment format with no enrollment restrictions; 3) standard cost-share with enrollment eligibility restrictions; and 4) reverse auction payment format with enrollment eligibility restrictions.
The[RAY key section asks farmers to “Consider a hypothetical situation where a government agency or conservation group is offering multiple voluntary conservation contracts with different lengths starting the 2020 growing season (from after-harvest in the fall of 2019 until harvest in the fall of 2020). All contracts include the adoption of one or more management practices you are not already using or planning to use in the 2019 growing season, as well as an annual per-acre cost share payment. The practices, as well as the per-acre cost share, apply to the acreage of the entire field.” In particular, we focus on three conservation practices on working lands: no-till, cover crops and split nitrogen (N) application.
Here is an example of how reverse auction payment works compared to the standard cost-share: “What is the minimum cost-share payment amount you would be willing to request for your preferred conservation program? Please note, lower cost-share requests that ensure large nutrient reductions are more likely to be accepted and approved.”
Work continues on the survey design. Separate questions are being developed for in-field conservation practices (cover crops, no-till) and one edge-of-field practice (filter strips). The team is working with the ISU Center for Survey Methodology and Statistics on the most cost-effective option to conduct these farmer surveys, and has narrowed the areas of interest to the Boone River watershed and the Raccoon River watershed.
Over the last quarter, the team has developed sample choice experiment designs for both the standard cost-share formats, plus reverse auction mechanisms. A decision has been made to focus on three conservation practices: cover crops, no-till and edge-of-field filter strips.
Investigators are reviewing literature and preparing to develop protocols for surveys and lab experiments, which will be conducted in spring and fall of 2018.