The Permanent Cover Program - Is Twice Enough?

History and Background

The Canadian Prairie Provinces (Figure 1) contain about 82 percent of Canada's agricultural land (Statistics Canada, 1992). The agricultural portion of these provinces is primarily a Central Plains ecoregion comprised of two ecozones: Prairie and forested Boreal Plains. The Prairie ecozone to the south is composed mainly of agricultural cropland and remaining grasslands while the agricultural and forested Boreal Plains Ecozone lies to the north. Agriculture occupies about 56 million hectares of the 121 million hectare Central Plains.

Agricultural operations are relatively recent, being less than 100 years old in most of the Prairie Provinces. Much of the land settlement occurred between 1900 and 1913 although some farming had been initiated along Manitoba watercourses almost 100 years earlier (Acton, 1995). By 1931, 60 percent of the vast Canadian grasslands (originally about 500 000 square km) were under annual cultivation. Use of farm practices more suited to the moister conditions found in eastern Canada and Europe, along with the prolonged drought of the 1930s, and settlement patterns based on location rather than suitability for agriculture resulted in almost a decade (1930s) of continuous soil erosion events. Thousands of farms were abandoned across the prairies even in the moister Dark Brown soil zone that overlaps much of the Moist Mixed-Grassland Ecoregion of the Prairie Ecozone.

In response to the drought, Canada's Parliament created the Prairie Farm Rehabilitation Administration (PFRA) in 1935 "to promote within the soil drifting areas of Manitoba, Saskatchewan and Alberta, systems of farm practice, tree culture and water supply that would afford greater economic security". This sustainable development initiative was complimented by intensive research efforts at federal Experimental Farms and other research institutions to integrate soil conservation into production practices.

Although more suitable methods for dryland farming were developed from the 1940s to the 1960s, the cycle of droughts continued and soil health continued to deteriorate, especially in areas where much of the land was summerfallowed. Summerfallow, in the Prairie Provinces context, is the practice of not cropping for the spring to fall growing season to conserve moisture and regenerate soil fertility. It usually involves mechanical cultivation of the soil to control weeds. The commonly practised wheat-summerfallow rotation is now believed a major contributing factor for decline in organic matter, increased soil erosion and increased risk of salinity (Standing Senate Committee, 1984). As shown in table 1, the practice increased between 1941 and 1961 and has declined steadily since then.

Another change has been an intensification of Prairie agriculture. Since the 1950s there has been increased numbers of crops, increased production, increased use of inputs, and larger more mechanized farms. At the same time, the number of farms has decreased dramatically.

1980-1990 - A Decade of Program Response

The 1980s saw not only a new cycle of prairie drought but also a new environmental thrust with enhanced focus on soil conservation and sustainability. In 1984, Canada's Senate Committee on Agriculture, Fisheries and Forestry released "Soil at Risk - Canada's Eroding Future". This document, combined with intensive communication effort by Senator H. Sparrow, then Committee Chair, resulted in increased public awareness of soil quality issues. Soil degradation has been estimated to cost Canadian agriculture $500-700 million¹ (Dumanski et al 1986 reported in Government of Canada 1991) per year in reduced yields and increased input costs. This risk to prairie soils is primarily caused by moderate to severe wind erosion, water erosion, and salinization.

The 1980s were a period of increasing Federal-Provincial cooperation in an effort to address environmental issues, particularly soil degradation. Both partners contributed resources to conservation programming. Examples include:

• ERDAs: In the mid 1980s, the Government of Canada signed Economic and Regional Development Agreements (ERDAs) with provincial governments. The ERDAs were a joint federal-provincial approach to economic strategies and coordinated financial action in specific areas. In Manitoba and Saskatchewan these 5 year Agreements (1984/85 - 1988/89) included a soil conservation component, amounting to $4.5 million and $8.0 million respectively over the period. PFRA also assigned some resources - $150,000 annually - to Alberta for complimentary programming in that Province.
• NSCP: Canada initiated the National Soil Conservation Program (NSCP) in 1989. Three year agreements were signed between the federal and provincial governments under Accords on Soil and Water Conservation and Development. NSCP provided assistance to producers to help address specific soil degradation problems in each province. NSCP also encouraged new partnerships among government and non-government organizations. In the Prairie Provinces, assistance amounted to a total of $7.5 million, cost shared between the federal and provincial governments.

  In Manitoba, Saskatchewan and Alberta one component of the NSCP was the Permanent Cover Program (PCP), which is discussed more thoroughly in latter sections of this paper.

  In both the above programs, conservation activities were targeted to soil degradation issues associated with annual crop production. Most resources involved the demonstration and piloting of soil conservation activities and were delivered with and through local agricultural organizations.

  The experience gained in these programs contributed to the recognition that conservation involved more than just soil and more than just agriculture. The next round of federal-provincial programming involved a wider range of partners and a wide range of activities associated with primary agricultural production.
• Green Plan: In 1990, Canada released a $3 billion environmental action plan "Canada's Green Plan" which included $170 million to expand environmental sustainability in the agricultural sector. Eight key issue areas were identified: soil conservation, water quality, water quantity, habitat conservation, air quality and climate change, energy use, pollution / waste management and conservation of genetic resources. Approximately three quarters of the Agricultural Green Plan resources were delivered through federal-provincial agreements, which expire in March 1997. In the prairie provinces, the targeted issues were soils, water quality and quantity, and wildlife with a total resource allocation of $60 million.

The Permanent Cover Program

The Permanent Cover Program is an example of a program implemented primarily for soil conservation reasons, that has significant benefits for other environmental issues. It was delivered by the Government of Canada, through PFRA, within four provinces - Manitoba, Saskatchewan, Alberta and British Columbia.

Description:

The PCP was first announced in 1989 as a 3 year program in Manitoba, Saskatchewan and part of Alberta. The primary objective was to reduce soil degradation on marginal lands that had high erosion risk under annual cultivation. Marginal lands, classes 4, 5 and 6 under the Canada Land Inventory, were targeted for conversion to alternative sustainable uses under permanent cover.

The program provided a seeding payment of $50/ha ($20/acre) to convert eligible lands from annual crops to perennial forage or tree cover. Farmers who chose to sign long term contracts subsequently received a one-time payment based on a bid price (based on the market value of similar land) after cover was established and after signing a 10 or 21 year land use agreement. No further payments were made. A caveat was registered on the PCP land to safeguard Canada's interests over the contract years. Producers continue to use the land, primarily for cattle grazing or forage production. The program was very popular and was fully subscribed within the first few months. It converted 168 000 hectares (416,000 acres) from annual crop to forage.

An extension to the first program was announced in July, 1991. Bid prices were replaced with fixed prices based on the norm of acceptable bids from the first program, and all participants were obliged to sign a long term contract. More opportunities for partnerships with environmental organizations were included. PCP II was expanded to include eligible land in the Peace River Region of British Columbia and Alberta. Initial payments of $50/ha ($20/acre) for seeding were followed by a one-time payment after the cover was established. The contract payments were as follows: $50/ha ($20/acre) for a 10 year contract, ($75/ha ($30/acre) in Alberta and British Columbia); $125/ha ($50/acre) for a 21 year contract ($160/ha ($65/acre) in Alberta and British Columbia). Applications were accepted until the summer of 1992, resulting in long term contracts for the conversion of an additional 354 000 hectares (874,000 acres).

Table 2 shows that, together, PCP I and II included some 15 000 contracts and 522 000 hectares of marginal land. Most of the land was converted to alternative productive uses under long term contracts of which 64 percent were for 21 years. The two programs cost Canada $74 million in payments.

Although there were many reasons for a producer to take the longer term contract, the decision partly reflected a desire for good stewardship and a belief that forage production would be a more sustainable use for this land than annual crops.

Continuing Obligations and Issues:

The PCP was a relatively short term program (1989 to 1992 sign-up) with long term implications. There is an on-going commitment to monitor land under PCP contracts. Procedures involve the annual inspection of a sample of PCP sites to ensure that the land continues under permanent cover. The number selected varies according to the total sites in a district and the perceived risk.

There is also an obligation to manage any early withdrawals from the program. Recognizing that circumstances change, all contracts contain "buy-out" provisions. The amount of liquidated damage depends on the number of months remaining in the contract, and declines as the contract gets closer to the end. Withdrawal within a short period of contract signing results in liquidated damages exceeding the original contract payment. Towards the end of the contract, the liquidated damages are much less than the contract payment. The formulas used are described as follows:

• 10 year contract: original payment x 1.25% x number months remaining = liquidated damage
• 21 year contract: original payment x 0.60% x number months remaining = liquidated damage

The first of the 10 year contracts will begin to expire in 1998. This generates an obligation to manage Canada's withdrawal. It also opens the question of whether farmers will maintain their forage stands of their own volition. In land under 21 year contracts, forage rejuvenation will be required to keep the stands productive. This process also needs to be managed.

Benefits of PCP:

PCP resulted in a number of benefits to Canada and to landowners.

Benefits to Canada

PCP resulted in a wide variety of benefits, some of which accrued to government and some to society:

• Reduced federal government payments under former acreage based programs targeted at annual crop production. Total savings to Canada from these programs (Guaranteed Revenue Insurance Program, Net Income Stabilization Account and Crop Insurance) were estimated to be $11.8 million in 1993, from the 522 000 hectares enrolled in PCP. (PFRA 1993).
• Reduced soil degradation. In 1994, PFRA conducted an analysis of the economic value of environmental benefits gained from wind erosion reduction (PFRA, 1994). Using models for residue and erosion (CanHelp), a model on productively loss, (Greer et al, 1992) the Wind Erosion Equation, and crop yield data from provincial Crop Insurance, PFRA estimated between two and five million dollars of soil productively were saved by putting 320 000 hectares of land into permanent cover. This saving will accrue to the recipients of the soil in the future.
• Improved water quality in nearby surface water due to reduced soil sedimentation and associated chemical residues.
• Enhanced wildlife habitat.
• Increased carbon sequestration. In 1994, the Working Group on Agriculture and Greenhouse Gases economical opportunities to reduce net greenhouse gas emissions in Canada. They project that an increase of 1.5 to 2 million hectares in perennial forages in Western Canada would equate to between 0.9 and 1.2 million tonnes of carbon sequestered per year.
• Reduced expense by local governments for removing wind and water borne sediments from road ditches and drains.

Benefits to Participants

In 1994, PFRA commissioned an "after establishment" study to determine landowner attitudes to the Permanent Cover Program (Western Opinion, 1994). A sample of 500 clients who had seeded PCP land were interviewed. Impacts identified were as follows:

• Decreased soil erosion, (74 percent of respondents)
• Decreased operating costs (70 percent),
• Increased wildlife habitat (65 percent),
• Increased size of livestock herd (64 percent),
• Decreased need for purchased feed (60 percent)
• Increased net farm income (56 percent).

With regards to operating costs, the survey indicated both savings and increases. There were fewer costs on annual cropland resulting from reduced need for gully repair and rock picking, and reduced fertilizer costs. There were also extra costs related to fencing, moving livestock or forage, water supply development, labour, wildlife damage and travel time. However, a majority of respondents reported increased net farm income.

A significant benefit of PCP, from the participants' perspective, is their ability to continue using their PCP land and thereby continue generating income from their resource. The uses were as follows:

• Haying - 79 percent of respondents said that their farm operation involved haying on lands enrolled. The estimated average annual hay yield from the PCP land was 4.0 tonnes per hectare (1.8 tons per acre) and those who hayed PCP land did so on an average of 60 hectares (152 acres).
• Feeding - 85 percent fed their PCP hay to their own livestock, while 12 percent sold the hay to other livestock producers or dehydrated forage operators (1 percent).
• Grazing - 64 percent indicated that livestock graze on their PCP land, most commonly beef cattle (96 percent).

For the future, most respondents (93 percent) planned to keep the forage stand as long as possible. Half the respondents said they planned to increase livestock production (54 percent), seed more annual crop land to forage (52 percent) or shift PCP hay land to pasture use (48 percent). Just 18 percent indicated they planned to return PCP land to annual crop after their contract expires.

In summary, most respondents felt that the PCP was a good program.

Other Conservation Efforts

Agricultural sustainability, including resource conservation, is an issue in many other countries. Some countries have taken significant initiatives, as discussed elsewhere in these proceedings. Some, perhaps many, of the programs, such as the American Conservation Reserve Program and the Canadian Permanent Cover Program, have significant wildlife benefits.

The linkage between agriculture and the environment is also recognized by environmental interests. Some private agencies such as Ducks Unlimited and the Nature Conservancy make arrangements with private landowners and operators to influence their land use decisions in favour of wildlife. Ducks Unlimited, for example, offers annual payments to farmers for leases and delayed hay cut, to increase cover on prairie cropland.

Environmental programs such as the North American Waterfowl Management Plan (NAWMP) have similar targets. This 15 year agreement between Canada and the United States, and most recently Mexico, targets the protection and management of lands for waterfowl benefits. A significant target area is the prairie pothole region of Canada, most of which is private agricultural land. The Prairie Habitat Joint Venture (PHJV), the largest program under NAWMP, has secured 366 000 ha (906,000 acres) via lease, land management agreement, flood easement and purchase for habitat - 25 percent of the original objective - between 1986 and 1996. Total PHJV contributions for that period equal $186 million (Knutson, 1996).

The NAWMP was one of the first programs to recognize that prairie landowners have few if any methods of capturing economic benefit from the wildlife or the habitat produced on their land. In contrast to some other nations, farmers in the prairie provinces cannot sell hunting rights or access, or otherwise earn a return from habitat land. While the habitat is owned by the landowner, the wildlife is owned and managed by provincial and federal governments. The wildlife sector of the prairie economy is highly regulated and many landowners view this as an obstacle to economic development. Because there are few economic gains to be made from conserving habitat, it is often viewed as a liability. Given the availability of alternative economic opportunities, the "public good at private cost" issue will continue as an impediment to habitat conservation.

Acceptability of PCP Today

Would PCP be accepted today? We do not know. Some factors suggest no; others suggest yes.

International Factors:

The General Agreement on Tariffs and Trade (GATT) was completed in 1994 and is being implemented by the World Trade Organization (WTO). Reduction of commodity based support mechanisms, required through the agreement, was expected to dampen the propensity of prairie farmers to grow wheat and provide farmers some additional inclination to diversify to other crops or raise cattle. The grazing benefits of PCP would be expected to remain attractive. However, current high wheat prices may mask the expected impact.

International environmental responses, such as the Convention on Biological Diversity, were expected to generate support for initiatives such as PCP. Canada ratified this Convention in December 1993, and responded with the 1995 "Canadian Biodiversity Strategy". The strategy recognizes that "optimizing the use of agricultural lands is not only an essential element of agricultural sustainability, but also can significantly contribute to the conservation of biodiversity...". As PCP supports biodiversity, it would be expected to be favourably received under this convention. However, fiscal constraints limit economic options of governments, while producers continue to need a return from their land base.

Domestic Factors:

In 1996, many governments face significant fiscal constraints. Canada is no exception. One result is a significant decrease in resources available for incentive payments for conservation activities, including the conversion of land that is marginal under annual crop production to other uses.

In 1995, Canada eliminated the Western Grain Transportation Act (WGTA) partially in response to international trade requirements to reduce commodity based support, thereby eliminating the transportation assistance in moving grain to export position. The anticipated results were an incentive to use grain locally, primarily in the livestock industry, and consequently an incentive to keep PCP lands producing hay and forage. Current higher grain prices appear to have reduced or offset this expected impact, at least in the short term.

Other policy changes are also reducing an implicit bias in favour of grain. The Canadian Wheat Board quota system has been dismantled in favour of contract deliveries based on the ability to produce crops. A federal-provincial Guaranteed Revenue Insurance Program (GRIP) is being discontinued across the prairie provinces. The Net Income Stabilization Account (NISA) is being broadened from a commodity specific approach to one that includes all farm income. Crop Insurance, which is alleged to encourage the cultivation of marginal land, is currently under review.

Public opinion surveys suggest that environmental issues, while still relevant, are no longer at the top of the public agenda. Instead, economic issues - jobs and growth - are receiving the most attention. This suggests that programs directed to adaptation or economic growth will be more accepted than those targeted to strictly environmental issues.

Local Factors:

PCP was implemented to protect parts of the soil resource in western Canada that are at risk of degradation under annual cultivation. The cultivation of marginal land is a function of several factors including: the relative profitability of grains, livestock or forage, costs of machinery operation and policy and program emphasis of the day. However, the main cause for the cultivation of Class 4, 5 and 6 marginal land over the last 20 to 30 years has been the world price of grain.

In the late 1980s, wheat prices were relatively low and prices for beef calves were relatively high (Figure 2). In the mid 1990s the situation had reversed itself. Economists speculate that even with higher costs of only $5.50 per tonne (15 cents a bushel) from 1975-80, wheat and beef prices of $165 /tonne ($4.50 /bu) and $1.10 /kg ($0.50 /lb) would likely have resulted in conversion of forage to grain (Ward, 1996). Therefore, today's higher grain prices would likely make PCP unattractive.

A second factor is drought. Initial funding for PCP was secured during the 1988 drought. The droughts of the 1980s, associated dust storms, and strong awareness campaigns by agriculture agencies and the news media helped create an environment that made farmers very receptive to soil conservation programs. In the 1990s precipitation improved (Figure 3). The need to convert marginal lands to permanent cover, therefore, would likely seem less immediate.

In the 1994 landowner attitude survey, PCP clients indicated their main reasons for enroling in the program were that the land entered was marginal and would not support grain. This was exacerbated by low grain prices. The program provided a return from land which had no other productive use.

Future Directions in Canada

The gains made in conserving soil, water and wildlife habitat have occurred against a back drop of (1) public expenditures for environmental benefits; (2) a willingness by farmers to supplement their income through direct payments for soil and water conservation; and (3) low commodity prices and poor demand for grain.

Farmers will always perceive the need for the land to produce a positive cash flow, regardless whether the product is grain, livestock, forage or recreation. However, on-farm costs resulting from conservation practices outweigh on-farm benefits. Benefits to society from conservation are likely greater than benefits accruing to individual farmers (Perlich 1992).

We have learned that we can't buy the factory - it's just too expensive, and it's not socially acceptable. Some, but not all, have learned that you can't force farmers to act in the public interest at their own cost. Some policy studies (Gray et al 1995; Sopuck 1993) concluded that governments would save money if agricultural subsidies were directed to more positive land use programs. Governments chose another course of action. Subsidies were not only decoupled from commodities, but were eliminated all together.

Today, public interest in environmental issues has given way to a preoccupation with job creation, growth of the economy and deficit reduction. In Canada, the public purse continues to shrink. Funds for environmental enhancement are being cut and will probably continue to be cut.

Under PCP in Canada, NAWMP, and CRP in the United States, land cover in North America has increased with benefits for society, the environment and for the landowner. However, our environmental gains over the past decade could be wiped out by one or two years of high grain prices and an ability to sell those commodities.

We face new challenges to the sustainability of soil, water and biodiversity. Farming technology has improved. Prices and demand for grain are rising - even soaring. China is moving up the food chain - from a traditional menu where rice provided 70 percent of calories, to a more diverse fare including meat, milk, butter, eggs and cheese.

Despite these changes, sustainable development is increasingly recognized as being the objective for society. Since the Brundtland report, Our Common Future, was released by the World Commission on Environment and Development in 1987, the concept has received increasing acceptance.

In Canada, all federal departments including Agriculture and Agri-Food Canada are working on Sustainable Development Strategies which must be presented to Parliament by December 1997. The objective is to integrate environmental sustainability objectives into our policies, programs and activities. The private sector is also looking at environmental issues from much broader perspectives. Environmental issues are relevant for the primary production, processing and retail components of the agriculture and agri-food sector. In the National Environment Strategy for Agriculture and Agri-Food (1995), environmental issues and opportunities are identified in production, management, and marketing and trade.

While there is no single solution, the key to sustainable land use lies in the three pillars of environmental, social and economic sustainability (Figure 4). We must learn how to integrate environmental sustainability with economic viability and social acceptability for truly sustainable development. If any of these three pillars is missing, resource management will not be sustainable.

The challenge is to find ways for landowners to capture the benefits from the products and uses of the land, whether they are canola or corn, wheat or ducks, moose, photographs, tourism, campers, trees, native fruits - whatever. The challenge for the conservation community, and for policymakers, is to turn our attention from agricultural policy, which has largely been changed, to other, more integrated land use policies. We simply have to find new ways for farmers to make a living from all products of the land and water.

Footnote

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