The adapted model was first used to develop a standard baseline scenario reflecting the Food, Agriculture, Conservation and Trade Act of 1990 and production practices as of 1992, the last year for relevant national surveys. This baseline was then extended to take into account alternative production practices and long-term changes in soil productivity. Finally, the extended model was used to test a variety of policies, including different levels of flexibility and green-payment options for improving the environmental performance of agricultural policy.

The results of this study demonstrate that a reduction in agriculture's impact on the environment is both possible and economically advantageous. Only alternative production practices that improve farmers' bottom line are assumed to be adopted, and the alternatives represented are being used by small numbers of farmers or being developed and field tested by agricultural scientists. Many of these practices reduce production costs by improving input-use efficiency. Such alternative production practices could greatly help farmers conserve resources, improve productivity and profits, and reduce fiscal costs. Policy changes that remove the biases against such production practices would allow further improvement and save taxpayers money.

The extended baseline scenario implies that if farmers fully accounted for the cost of long-term soil productivity changes and if alternative production practices were fully available, soil erosion and its off-site costs would go down significantly. In the extended baseline, soil erosion is reduced nationally by 7 percent and damages by 10 percent. Soil depreciation cost estimates are relatively small, compared with other calculated production costs, and they are actually negative for production practices leading to yields estimated to increase over time. The larger effect in the baseline extension comes from including the alternative practices in the set of practices that the model can choose from. Many alternative practices turn out to be very competitive financially and come into the extended baseline model solution based solely on relative profits even though they also provide environmental benefits.

Policy analysis showed that green-payment options to subsidize conservation also help to improve environmental performance, but not all green-payment programs would work equally well, environmentally or fiscally. Targeted subsidies adjusted to account for the value of regional damages achieve lower program costs and have the greatest benefits.

Environmental performance increases with increasing commodity program flexibility. For the scenario we tested with the highest degree of flexibility, the indicators of environmental performance were nearly the same as for the best green-payment case. Two changes account for the environmental results under increased flexibility: both the acreage in production and the use of monocultural practices decline as flexibility increases.

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