A Shortage of Agricultural Land?

Concern about the supply of agricultural land is not new in the United States, but it mounted steeply in the 1970s, and with apparent justification. Responding to sharply rising demand for exports during the decade, farmers brought almost 60 million additional acres under crops, reversing the declining trend of the previous twenty years. At the same time, agricultural land continued to be converted to urban and other uses, which for practical purposes removes it permanently from agriculture. Many people concluded that these trends in demand and supply portend a looming crisis of agricultural land.

Responding to this sense of impending crisis, then Secretary of Agriculture Bob Bergland and Charles Warren, chairman of the Council on Environmental Quality, agreed in 1979 that their agencies jointly would undertake a National Agricultural Lands Study (NALS). Other federal government agencies also participated.

The Final Report of the NALS was published in January 1981 to considerable fanfare for a government report. Accounts of the report appeared widely in the national press, and editorialists commended it to legislators and the general public. At a follow-up conference, held in Chicago in February, former Secretary Bergland spoke warmly of the report, as did former Secretary of the Interior Cecil Andrus and other notables. New Agriculture Secretary John R. Block addressed the Chicago conference by telephone and stated that the NALS had made a strong case for a national policy to protect agricultural lands.

The NALS clearly had a major impact on discussion of agricultural land issues in 1981, and many states and local jurisdictions are using it as the basis for proposals to slow or prevent the conversion of agricultural land to other purposes.

Results of the NALS

According to the Final Report of the NALS, the study was designed to answer three questions. How much agricultural land is being converted to nonagricultural uses and why? What are the economic, environmental, and social consequences of conversion? And what are the methods for slowing conversion, if these are found necessary?

The study concludes that trends in demand for food and fiber plus likely growth in crop yields per acre combine to indicate sharply increasing pressure on the nation's agricultural land, with rising economic and environmental costs of production the consequence. In this perspective, continued conversion of land to nonagricultural uses at current rates threatens capacity to produce at acceptable economic and environmental costs. While not now of crisis proportions, it is argued, conversion poses serious long-term risks to the nation. The study draws an analogy between the agricultural land preservation issue as it now stands and the energy conservation issue as it appeared at the beginning of the 1970s, before the Arab oil embargo and the first of the massive price hikes. The conclusion is that the federal government should actively support state and local government efforts to preserve agricultural land. And federal agencies should take steps to assure that their activities do not needlessly result in its conversion to other uses.

Two questions may be asked about the study's conclusions. What is the evidence for an emerging serious capacity problem? And is preservation of agricultural land the best way to deal with the problem, if there is one?

Examining the evidence

The argument for an emerging serious problem is based on analysis of three trends:

• Foreign demand for grains and soybeans and domestic demand for corn to produce gasohol
• Yields of grains and soybeans
• The amount of agricultural land converted annually to non agricultural uses.

The export projections used by the NALS, prepared by the U.S. Department of Agriculture (USDA), show annual growth of from 4.5 to 6.5 percent between 1980 and 2000. These are one and a half to two times as high as the projections made by others, including RFF researchers. This, of course, does not make the NALS-USDA projections wrong, but there are good reasons for suspecting that they may be. First, the projections are based heavily on experience in the 1970s, when U.S. exports "took off," in large part because of the sharp decline in the value of the dollar after 1971. This greatly increased the competitiveness of U.S. exports in world markets, and comparable devaluation is unlikely in the future.

Second, the USDA projections assume no increase in the real (inflation-adjusted) prices of U.S. crop exports. In fact, however, the NALS concludes that increasing pressure on the land and rising prices of fertilizer, water, and other production factors will force real crop prices higher, which tends to depress U.S. exports.

Third, the USDA projections assume increasing U.S. shares of world trade in grains and soybeans. It is not obvious why this should happen, even if the real prices of U.S. exports remain constant. If prices rise, as the NALS concludes is likely, the United States would be hard put to maintain its shares of trade, let alone increase them. On these grounds some skepticism about the NALS export projections is justified.

This is true also of the study's projection of the demand for corn in gasohol production. The study uses a figure of 4 to 6 billion gallons of ethanol (the mostly corn-derived ingredient of gasohol) in 2000, which would require a net addition of some 7 to 11 million acres of cropland. But Fred Sanderson (Resources, No. 67) has shown that by the 1990s gasohol is unlikely to be competitive with alternative liquid fuels, suggesting that the NALS projection of the demand for corn as a gasohol feed-stock is high.

The NALS uses three projections of crop yield growth rates: .75 percent, 1.25 per-cent, and 1.5 percent (annual rates, 1980 to 2000). These numbers are in line with those currently used by other analysts, although most probably would feel that .75 percent is too low. The yield projections are divided into the projections of crop output to get projections of the amount of land needed to produce main crops (mostly grains and soybeans) in 2000. The low rate of yield increase indicates that, compared with 1980, an additional 113 million acres would be needed, while the high rate would require 78 million more. The net increase in demand would be less because some land now in nonexport crops, such as hay, likely would be converted to grains and soybeans. Nonetheless, the NALS projections indicate net increases of at least 65 to 100 million acres in demand for cropland by 2000.

The conversion controversy

Against these prospects for increasing demand, the NALS points out that urban and other nonagricultural uses will continue to bid away cropland and potential cropland over the next several decades, reducing the supply available for crop production. This is the third key trend supporting the NALS conclusion of a capacity problem, and is the most controversial aspect of the study. Critics charge the study with careless, if not deceptive, use of numbers on the amount of agricultural land converted in the past and likely to be converted in the future.

The NALS leaned heavily on a USDA study showing that, on average, about 3 million acres of agricultural land were converted to nonagricultural uses each year from 1967 to 1975, considerably more than the annual rate in the preceding decade. But "agricultural land" is a broad category that includes not only cropland and potential cropland but also covers marginal lands that never have been used for crops and never will be. Agricultural land and cropland sound like interchangeable generic terms to the public but they are not, and the difference is critical. Of the total 3 million acres, for example, only 675,000 acres were cropland, with perhaps another 200,000 acres classified as potential cropland.

The NALS Final Report distinguishes between the conversion of cropland and potential cropland—the real issue—and conversion of all agricultural land. But somehow in press reports about the study the distinction usually was lost, and the 3 million acre figure now is firmly embedded in the popular literature as the key measure of the conversion problem. Those responsible for the NALS perhaps were not as careful as they might have been in assuring accurate reporting on this issue.

How large a problem; how apt a solution?

Does the study make its case that mounting pressures on the land and other resources presage an emerging capacity problem? If one accepts the study's projections of production and yields, the answer almost surely is yes, even if the rate of conversion of agricultural lands declines. Efforts to bring an additional 65 to 100 million acres under crops by 2000 almost surely would encounter rising economic and environmental costs (especially those associated with erosion). As suggested, the NALS projection of crop demand may be high. However, a forthcoming RFF study using lower demand projections concludes that trends in demand and yields nonetheless imply rising costs of agricultural land and production over the next two to three decades. There is cause for concern about a capacity problem, although the NALS probably overstates its severity.

But is slowing the conversion of agricultural land the best way to deal with the problem? Here the answer surely is no. Despite the press fascination with the million acres per year figure, the NALS does not give a specific projection of cropland conversion from 1980 to 2000. But Robert Gray, director of the NALS, stated separately that 20 to 25 million cropland acres likely will be converted over the next two decades. A background study prepared for the NALS suggests that these figures are high. But even if they prove correct, much the greater part of the increased demand for cropland would come from the demand for crop production (65 to 100 million acres), not for nonagricultural uses (20 to 25 million acres). Thus, even if conversion to nonagricultural uses were halted completely, which not even the most ardent conservationists think is possible, the contribution to solving the emerging capacity problem would be small.

High costs and equity

Moreover, significantly slowing the conversion of agricultural land would exact high economic costs and raise potentially divisive equity issues. Land shifts from agriculture to urban and related uses because it is economically more productive in those uses: the economic return to society is higher than if the land stayed in agriculture. Since the difference between the value of land in agriculture and in nonagricultural uses typically is large, significantly slowing conversion would exact a high cost in income foregone.

Those urging retention argue that the land market does not give proper weight to future demands for agricultural land, thus understating its present value in agriculture relative to its value in nonagricultural uses. This is the point of the analogy between agricultural land and energy. But no evidence is presented to support this argument for overriding the market. It rests simply on the assumption that those making it can perceive the future more accurately than can the market.

Restricting conversion of agricultural land also causes shifts in income. If farmers are not free to sell their land to whomever they wish, including developers, they are deprived of the capital gains they otherwise would reap, and owners of nonagricultural land benefit because the supply of such land is less than if conversion were permitted. Those who subsequently rent or buy nonagricultural land pay more for it than they would otherwise. In some areas, government bodies purchase development rights from farmers, on condition that the land remain in farming. In these instances the farmer enjoys a capital gain, but taxpayers bear the burden. And owners of nonagricultural land benefit, as indicated above. Another approach permits developers to purchase development rights from farmers. The farmer receives a capital gain and agrees to keep his land in farming. The developer uses the purchased right to develop other land not thought necessary for farming. This approach, when it works, defuses the equity issue, but typically increases costs because it forces development onto inferior land.

Poor strategy

Restricting the conversion of agricultural land holds little promise as a national strategy for dealing with emerging pressures on its supply. Even if highly successful, the policy would make little contribution to solving the problem, it would come at high cost, and it would cause arbitrary—and therefore divisive—redistribution of income. Emerging pressures on agricultural land may well present a national problem justifying a federal government response. But the road mapped out by the NALS does not appear the way to go.

An alternative

A far more effective set of strategies would aim at the larger and more tempting target—the growing demand for land for crop production. In the past the United States has eased growing pressures on its resources by developing technological substitutes for them. This strategy yielded spectacularly successful results in reducing the demand for cropland from the end of World War II until the early 1970s. It can be done again if we will increase the resources devoted to research for development of higher-yielding, less-erosive technologies. The private sector can contribute to this, but much of the needed research is in the basic sciences—for example, how to enhance photosynthetic efficiency—for which the federal government should take prime responsibility. "More research" may not compete with "save our farmland" as an attention getter, but it is almost certainly a more effective investment of national time and treasure.