Cash for Conservation

Late last year the U.S. Department of Agriculture (USDA) reported that during fiscal year 2019, payments totaling more than $1.7 billion were made to land owners under the Conservation Reserve Program (CRP).  Farmers and ranchers enrolled over 22 million acres of land in the program to promote environmentally sound land use.  The conversation program provides for an annual rental payment of sorts for environmentally sensitive land.  The land owners agree to forego agriculture production and instead plant grass, scrub and tree species that improve environmental quality and foster animal habitat. 

The program has been around for decades, getting a start in the 1980s when agriculture experts and environmentalists became worried about ill advised farming practices and soil erosion.  Congress passed a Farm Bill in 1985 authorizing the USDA to enroll up to 45 million acres in the program to encourage better land use practices.  Farmers and ranchers agree to forego plowing and planting of grain or food crops and instead plant drought-resistant shrubs and grass.  The shift in land use conserves and improves water quality by using less water for irrigation and avoiding harmful fertilizer run-off.  It also helps balance wildlife populations by improving habitat for food sources, shelter and reproduction.

Last year the CRP was changed slightly to allow for continuous enrollment.  Thus in December 2019, general and continuous signup was initiated to put acres into conservation.  This would have been a wonderful development were it not for the fact that the Trump administration has engaged in numerous other steps that reduce payments and slow participation in the CRP and other similar programs. 

The last time the Trump administration held a sign-up for the CRP was in 2016.  At that time applications were submitted for 1.8 million acres, but only 400,000 were enrolled.  Thus the impressive number cited in the first paragraph of this post were those built up during previous leadership.  The unfriendly attitude toward the environment for the sake of near-term profits is putting into jeopardy prairie lands as well as riparian buffers between farmland and rivers and streams. 

While the grifters masquerading as professionals in the current administration may think they are helping their business cronies, in the long-run Mother Nature will have her day.  Many companies and even entire industry groups are impacted by environmental factors.  Health care, insurance, banking and lending are just a few of the companies that experience losses due to natural disasters, higher costs associated with pollution, and reduced demand due to societal factors.

What does it mean for investors? It means environmental due diligence must a regular part of every investment decision.  It means knowledge of obscure land conservation programs could mean the difference between a failed long-term position and a successful one.  ‘Cash for conservation’ may sound like a handout.  However, it is a vital link in the fight to protect our environment and by extension asset values and business profits.     

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.