Risk Management Subsidies, Production System Switching Costs, and Native Grassland Conversion

Hongli Feng, David Hennessy and Ruiqing Miao

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Native and unimproved grasslands are critical habitat for many North American duck, shorebird and songbird species, and also for some increasingly rare insects. These habitats coexist with agriculture and the agricultural production environment is changing. A variety of evidence suggests that the rate of native sod conversion to cropland in the United States has increased since the 1990s, and especially in the Dakotas. There may be many reasons for cropland expansion in a historically marginal and yield risky area. Growing demand for commodities in international markets and for fuel has made crop farming more attractive. Innovations in seed technology have reduced non-seed costs, relieved farmers from some environmental compliance constraints, and made crops more drought tolerant. Our concern is with the role of crop insurance subsidies, where subsidy amount varies directly with production riskiness.

Date: 2014-01-01
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