Regional Update (July-September 1997)

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Cover Story - Georgia Landowners Face Decision on Conservation Reserve Program Acreage

Economic Shifts Cause Florida's Major Cities to Interact Differently

Georgia Landowners Face Decision on Conservation Reserve Program Acreage

W hile the United States is one of the most agriculturally rich nations in the world, a large portion of the country's farmland is unusable for growing crops. To landowners, "uncroppable" land presents a problem unless the federal government decides those lands are eligible for inclusion in the Conservation Reserve Program (CRP).

As one of the nation's largest conservation programs, the CRP, created by the Food Security Act of 1985, was originally targeted by the U.S. Department of Agriculture (USDA) to provide subsidies to private landowners to plant vegetation or ground cover on their lands to reduce soil erosion, farm surpluses and overplanting. To replace crop income, the landowners in the CRP receive yearly rental rates, through 10- to 15-year leases with the USDA, to plant grasses or trees on their erodible lands. In the Midwest, most landowners planted grasses on their CRP acreage, while in the Southeast the landowners mostly planted pine trees.

"In Georgia, the CRP has provided many landowners good income for lands that were really only suited to grow timber," said Tom Cunningham, research officer in charge of the regional group in the Atlanta Fed's research department. "But the CRP subsidy may be coming to an end for many landowners because of changes to the program."

The 36 million acres enrolled in the original CRP represented approximately 8 percent of the nation's farmland, based on 1992 census data. However, by the end of 1997, original CRP contracts will expire on 21 million acres nationwide, about 58 percent of the original CRP contracts, according to the USDA.

The story in Georgia is similar; in 1996 CRP contracts expired on 260,000 acres, or 4 percent of Georgia's total farmland. Contracts on approximately 176,000 additional acres in Georgia will expire from the CRP in 1997, followed by about 160,000 acres in 1998. The expiration of the contracts means that Georgia landowners are facing a new problem — what to do with their lands now.

Georgia Landowners Face Complicated Options

For Georgia landowners, the answers are not as cut and dried as for the landowners in other parts of the country who planted grasses on their CRP acreage. Nationally only 2.5 million acres, or 6.8 percent, of the total CRP lands were planted in trees as of 1996, according to the USDA. Georgia, the state with the largest number of program acres in the Southeast, had approximately 706,500 acres enrolled in CRP at the end of 1996; 91 percent of that acreage was planted in trees.

Landowners in the Midwest and other areas with CRP lands planted in grasses have three basic options: they can reapply their lands to the CRP, leave the lands planted in grasses or convert their acreage to farmland again. On the other hand, landowners like most of those in Georgia with acreage planted in trees have more complex options to consider since their CRP timberlands are still years away from reaching maturity.

"While the landowners in Georgia do have a more complicated decision making process, they are fortunate in that they have several good options, including forestry, to choose from," said Dr. Coleman Dangerfield Jr., forest economist at the University of Georgia's School of Forestry Resources. "It's really an enviable situation, like having several job offers and getting to select the best one. All of the choices for Georgia's landowners can be beneficial to them."

One option is to reapply the lands for inclusion in the CRP, but the criteria for land eligibility are more difficult in today's program, which was reauthorized under the Federal Agricultural Improvement and Reform Act of 1996. Operating under the new CRP, a tougher erodibility index is being used to review the lands because the USDA wants to ensure that the program is used only for environmentally sensitive areas.

What do the new criteria mean for Georgia landowners in the CRP? First and foremost, fewer acres nationally will be included in the CRP. While contracts on approximately 21 million acres expire in 1997, only 16 million acres will be accepted into the program this year. In Georgia, about 47 percent of the state's acreage enrolled in the CRP at the end of 1996 will not qualify under the new, stricter criteria, according to the University of Georgia. Additionally, based on USDA estimates, the average subsidy under the revised program will be approximately $39 per acre beginning in September of this year as opposed to approximately $50 per acre previously.

According to Bob Izlar, director of the Georgia Forestry Association, "If Georgia landowners do not reapply their lands to the CRP, they can return the land to crop harvest programs such as cotton, corn, peanuts or soybeans, or they can pasture livestock. But to do these things, they must cut the timber planted on the former CRP acres. The pine trees are currently only about halfway to full maturity, and right now they won't bring as much money from pulp and paper companies."

Most of the trees originally planted in the program in 1985 and 1986 will not reach maturity until at least 2005 for pulpwood usage and until 2018 for use in products like lumber, veneer or structural panels. Some landowners may choose to clear-cut the trees on their land beginning immediately even though they will not realize the full potential of their long-term investment.

By clear-cutting their trees now, landowners could expect to receive approximately $1,050 per acre for half-mature loblolly pines, the main variety of trees planted in the CRP in the South. By waiting until the trees reach maturity, however, landowners could receive, based on current values, approximately $1,700 per acre at 20 years for pulpwooding and approximately $2,500 per acre at 33 years for mixed-use products.

There are risks associated with waiting, however. Trees could be destroyed by natural disasters, such as fire, ice storms or tornados. But a more realistic threat is that the price for timber could drop. Since hundreds of thousands of acres of trees on the CRP lands in Georgia will begin to mature at approximately the same time in 10 years, a market glut is a possibility to be considered.

When landowners begin to cut their trees, Georgia's agricultural economy will also benefit. According to a 1996 University of Georgia study, as CRP trees begin to be harvested in Georgia they will provide total average annual agricultural income of $98.4 million, create 364 jobs per year and increase total personal income by $10.8 million annually.

A final option for Georgia landowners is to lease the trees planted on their former CRP acreage to a timber company until the trees reach maturity. Landowners receive lease payments typically in one lump sum or on an annual basis. A landowner who chooses to lease the property must consider many potential issues. For instance, he or she may want to retain hunting lease rights to the property and pine straw harvest rights for additional income and ensure that the lessee be responsible for loss of crop to natural disaster, paying ad valorem taxes and paying marketing and harvest rights.

"Based on the investment the landowners have made in moving from row crops to a more sustainable product, we believe that most landowners will wait to harvest the trees when they reach full maturity," said Dangerfield. "Some will probably reapply for the new CRP. But, like the original CRP, the landowners will not rush into the program. Instead, we believe they will wait to determine how the new CRP sign-up will work and when they can get the best price for their property rent."

For landowners throughout the nation, the end of the original CRP program provides the opportunity to grow crops again, which could potentially earn more money than the subsidy provided by the USDA. For Georgia landowners, however, who must decide whether or not to cut their trees, the issue is more complex and requires careful consideration by each landowner.