A recent report completed by Dr. Chad Lawley, a professor of Agribusiness and Agricultural Economics at the University of Manitoba and Bob McLean outlined the use of Term Conservation Easements (Term CE’s) in the United States and how compensation is decided for each program. From this report, we can take the experience that United States has had with different approaches to Term CE compensation and gain insight on determining compensation for the Saskatchewan Stock Growers Foundation (SSGF) Term Conservation Easement program.
There are a variety of way in which compensation of Term CE’s can be determined. The report describes various ways 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. Regardless of how the agencies determine compensation, it has to be fair for both the agency and the landowner.
Problems can arise when landowners feel they aren’t being adequately compensated for the restrictions placed on their land associated with the easements. It can be a tricky balance to ensure program uptake while still conserving and protecting ecologically sensitive landscapes such as native grasslands. Typically, land that is at higher risk for conversion is more greatly compensated than grassland and wetlands that are on marginal soil types and ultimately, lower risk for conversion.
“Landowners prefer higher easement prices; prices above the minimum acceptable price will also incentivize the landowner to enroll land in an easement. From the perspective of the conservation agency, lower prices allow the agency to protect more grassland on a fixed budget. That said, an “appropriate” or “fair” price can be well above the private opportunity costs of the easement”, states the report findings.
Currently in the United States, the Term CE programs available derive their compensation from estimates of the fair market value of the land. Perpetual conservation easement payments are calculated as a percentage of fair market value, and term easement payments are calculated as a share or percentage of the perpetual easement payment. The percentage can vary by agency.
One program example the report looks at 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. These minimally restrictive easements are similar to the Term CE’s that the SSGF are looking to sign to conserve native grasslands.
“Payments correlated with true opportunity costs are more likely to enroll conservation easements from land across the full distribution of land values. The fact that 40 to 70% of easement offers are accepted is informative. It implies that a large share of the compensation offers made by the USFWS are below the anticipated net private returns to conversion”, reports Dr. Lawley.
Tom Harrison, Program Manager for the SSGF comments on the difference between term conservation Easements and perpetual easements, “I think the key is to understand the relationship between the length of the easement and the percentage of a perpetual easement payment that is offered. Their relationship is not linear and at some point, the value of a perpetual CE is equivalent to a Term CE.”
With such a successful and similar program to the SSGF Term CE’s, we can look to their program for guidance on compensation structure or explore comparable compensation structure for application in Canada. Term CE’s can be vital to conserving Saskatchewan’s native grasslands while allowing for increased landowner flexibility and this report helps us by learning about other successful programs. To view the full report, click here.