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The idea of Term Conservation Easements (Term CE’s) is relatively new in Canada but has been implemented in the United States through various conservation programs in recent years. The Saskatchewan Stock Growers Foundation (SSGF) is working to sign Term CE’s to provide added flexibility for landowners. One point of contention for Term CE’s in Canada seems to be how much landowners should be compensated for a Term CE compared to a perpetual CE. A recent report completed by Chad Lawley, a University of Manitoba Agribusiness and Agricultural Economics professor, and Bob McLean explores the experiences that the United States has had with their Term Conservation Easement programs.
When a landowner is considering placing an easement on their land, it can have a large impact on the future use of that land and hold important financial implications as well. The landowner has the choice to leave the land as is with the option to convert in the future or to place an easement on the land and abide by the agreement and restrictions in exchange for a one-time payment. The choice to enter into an easement can largely come down to how much compensation landowners receive in comparison to the restrictions associated with that easement.
When it comes to easement compensation, there are numerous ways to determine a price such as reverse auctions, uniform price per acre, price per acre by land value or alternative uses, before and after appraisal approach or based on a percentage of the land’s value. It’s important that whatever approach the agency uses can be easily applied and is fair to both the landowner and the agency itself.
In the US conservation easements programs that are examined within the report, it is summarized that overall, the compensation is derived from estimates of the fair market value of the land. Perpetual easement payments are calculated as a percentage of fair market value, and term easement payments are calculated as a share of the perpetual easement payment.
For example, the Natural Resource Conservation Services (NRCS) easement program allows for term easements of 30 years, where the payment is equal to 50 to 75% of the price paid for a perpetual easement. This adjustment uses a ‘discount rate’ to reflect the value of money over time and adjustments associated with shorter duration easements. If you assume a 2% to 5% discount rate, a 20-year term easement payment can range from 30% to 53% of the perpetual easement payment and a 40-year term easement payment ranges from 68 to 85% of the perpetual easement payment.
It’s important to remember that grasslands on non-productive soils that are not worth converting to annual cropping will be priced lower than grasslands that can be converted and successfully grow crops. Grasslands that hold significant ecological value and are at risk of conversion should be targeted for grassland conservation programs. They can hold greater significance for long term conservation goals than land at less of a risk of conversion. Although, with the increasing loss of native grasslands, anything left intact is important to conserve.
Another program example is the United States Fish and Wildlife Service (USFWS), which aims to purchase approximately 500 minimally restrictive conservation easements on wetland and grassland in the Prairie Pothole Region of the United States every year. Restrictions for these easements include the prohibition of converting the land but they can still be used for grazing or haying. Typically, the restrictions of this type of easement are expected to have minimal impact on the value of the land.
The USFWS utilizes “administratively determined payments (ADP)” to determine compensation for their easements and it has proven to be both fast and transparent way of determining price. ADP is calculated by the agency estimating the market value of the land by comparing recent land sales to assessed land values in the same area. This estimated land market value is then multiplied by a set percentage, or index, which is set to achieve a 40 to 70 percent acceptance rate. As the land value increases, so do the indices. This system is a quick way to determine compensation without exhausting resources.
Dr. Lawley reports, “In the US programs we studied, easement payments are anchored to assessed land values. One reason for this approach is that land values provide market-based estimates of the potential returns to land in alternative uses. For example, grassland that can be profitably converted to cropland typically sells at a premium. Easement payments scaled to land values will tend to be higher for the high-risk grassland, and lower for marginal grassland that is less profitable to convert to annual crops. Correlating payments with risk of conversion allows the agency to make easement payments that are attractive to owners of both high-risk and low-risk grassland.”
The Saskatchewan Stock Growers Foundation has been working to explore different options to compensate landowners. By reviewing what programs in the US have tried, it can help us to narrow down the best option that benefits both the landowners and our long-term conservation goals. Regardless of what method is used to determine Term CE compensation, the payment cannot exceed the full value of the land or it makes more sense for the agency to simply buy the land. The Saskatchewan Stock Growers Foundations is working to keep ranchers on the land by trying to find appropriate compensation for the ecological goods and services the grasslands provide for generations to come while keeping ranchers in charge of their land.