Cover crops, a subject of considerable interest and debate

Cover crops are a subject of considerable interest and debate. Proponents view them as a cultural practice that sequesters carbon and improves soil health and water quality.

Current evidence largely suggests that cover crops do not increase yields or yields in the early years of adoption. It is unclear whether they will increase returns or reduce risk over time.

The adoption of a practice requires an incentive. Public subsidies will therefore be needed to encourage the planting of cover crops. The grant should cover planting costs and provide an incentive to practice. The experience of US crop insurance policies is used to provide perspective on practice incentive subsidies.

Cover crops and the risk of crop return

It is currently unclear whether cover crops improve yield or reduce risk. For example, agricultural data from Illinois for 2016-2020 suggests that yields are not higher after cover crops and may be lower. Most of these farmers planted cover crops for only a few years.

Over time, it is assumed that cover crops improve soil properties, including water retention, and thus may reduce yield loss due to drought. However, given that crop weather in the United States has generally been benign in recent years, the hypothesis awaits a year of testing.

The interpretation of existing studies is compounded by the wide variability of results, which is not surprising given the variability of farms, farmers, lands and agroclimates,

The absence of clear evidence of higher return or lower risk means that public subsidies will have to be paid to encourage the planting of cover crops. Subsidies should provide an incentive to practice beyond paying the cost of practice, a policy implication supported by the history of crop insurance.

Incentive to practice crop insurance

Since 1980, the United States has had a policy of providing government subsidies to encourage farms to use crop insurance. Congress increased subsidies several times as it sought sufficient subsidy to generate widespread use of crop insurance.

This policy experience can be summarized as a practical incentive relationship between the ratio of area insured to area planted for barley, maize, cotton, oats, groundnuts, rice, sorghum, soybeans and wheat and the ratio of the premium subsidy to the premium paid by farms to insure these crops.

The first ratio measures the adoption of crop insurance relative to the area planted. The second ratio measures the incentive to insure (ie the subsidy) relative to the cost that farms paid to insure these crops.

These 9 crops have received subsidized premiums since at least 1989. Ratios are calculated using data from USDA, Risk Management Agency (2022) and USDA, NASS (National Agricultural Statistics Service) (2022) for agricultural campaigns 1989-20.

The relationship in Figure 1 is based on knowing the cost of using a practice.

Regression analysis finds a strong statistically significant relationship of 99.9% (see Figure 1). The ratio of premium subsidy to premium paid by the farm explains 85% of the year-to-year variation in the ratio of area insured to area planted. On the available data, the relationship is linear. Every 10 percentage point increase in the premium subsidy/premium paid by farm ratio is associated with a 3.48 percentage point increase in the insured area/planted acre ratio.

The relationship suggests that in the absence of the subsidy, the area insured would be 29% of the area planted. This estimated intercept is significant at 99.9% statistical confidence and is consistent with crop insurance reducing the risk of low yields. Risk reduction has economic value, especially for risk-averse farmers and farms located in high-risk production areas.

Cover crop planting cost

The relationship in Figure 1 is based on knowing the cost of using a practice. The cost of crop insurance for a farm is the policy premium paid by the farm (total premium less premium subsidy). The cost of a cover crop for a farm is at least the cost of planting seeds, equipment and labor. This cost assumes no change in pesticide program or row crop yield, experiences generally consistent with cover crops planted in corn stubble switching to soybeans. If adopting a cover crop decreases yields or increases pesticide use, our estimate of the cost of the practice would be low.

According to the 2017 U.S. Census of Agriculture, the average U.S. cost of cover crop seed is $17/acre.

According to the 2017 U.S. Census of Agriculture, the average U.S. cost of cover crop seed is $17/acre (see Figure 2). This varies depending on the seed mix. According to the Illinois Cover Crop Budget, the equipment cost is $15/acre. This varies depending on the sowing method. We assign a labor cost of $5/acre, but that’s a guess.

With modern equipment, planting an acre requires little work. But, cover crops are often planted during harvest season when the opportunity cost of a farmer’s time is high. Delayed harvesting increases crop losses, drying costs and possibly quality loss. Total planting cost is estimated at $37/acre. This estimate should be taken as the mean of the distribution of cover crop planting costs.

A subsidy of less than $37/acre provides no incentive to practice, which would likely be a significant disincentive to planting cover crops. A $50/acre subsidy is often mentioned in discussions of cover crops.

It is similar to the average subsidy of $54/acre provided by the state of Maryland. Maryland had the highest share of land grown in cover crops in the 2017 Census of Agriculture. A $50/acre grant provides a cover crop incentive of $13/acre and a 35% return on cost of cover cropping ($13/$37).

Cover crop incentive relationship

Currently, the incentive relationship for cover crops is probably not the same as for crop insurance. In particular, given the inconclusive evidence at present on whether cover crops reduce risk, the intercept of the incentive relationship is likely to be close to zero. In other words, without a subsidy, little use of cover crops is likely at present. The expected intersection would increase if cover crops were found to reduce risk.

The practical incentive relationship for crop insurance clearly suggests that the subsidy needed to obtain a large planting of cover crops will have to be large and will have to increase as the target cover crop acres increase.

A final problem in estimating cover crop acreage is the uncertainty surrounding the number of potentially feasible cover crop acres. Unanswered questions include: “With which rotations and before and after which crops do cover crops work best and don’t?” and “How far from the onset of winter can cover crops be planted and provide consistent benefits?”

Summary observations

  • An incentive is needed to adopt a practice.
  • Current evidence is inconclusive as to whether cover crops improve yield or reduce risk to succeeding crops.
  • A subsidy will therefore be needed to incentivize farmers to plant cover crops.
  • The grant should cover practice costs and provide an incentive to practice.
  • For cover crops, the cost of the practice is at least the cost of planting seeds, equipment and labor. We estimate it to average at least $37/acre starting in 2021. It will vary by farm, farmer, land and agroclimate.
  • It is not known what the incentive-to-practice relationship curve is for cover crops.
  • Policy experience with crop insurance suggests that the incentive to practice cover crops will need to be significant and will need to increase as the targeted share of acres planted for cover crops increases.
  • Crop insurance policy experience also suggests that Congress will likely revisit the issue of subsidies for cover crop practices several times before settling on a subsidy it is comfortable with.
  • Cover crop policy can be improved by improving estimates of the cost of planting cover crops and the cover crop incentive relationship curve, as well as improving the understanding of how these two policy inputs are influenced by the characteristics of the farm, the farmer, the soil and the agroclimate.
  • The importance of these unanswered questions means that good cover crop policy also requires the funding of an extensive research program to answer the outstanding questions with clarity.

Zulauf works in the Department of Agricultural, Environmental and Development Economics at The Ohio State University and Schnitkey in the Department of Agricultural and Consumer Economics at the University of Illinois.

Jessica C. Bell