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Conservation Policy: Working-Land Conservation Programs

Contents
 

The many and varied resource concerns influenced by agricultural production are often the result of small contributions from many farms over vast areas, and "one-size-fits-all" solutions are unlikely to be effective in addressing them. Policymakers have a wide range of policy instruments (see the Background chapter) to address resource concerns. One tool, land retirement, is and will continue to be an important part of U.S. conservation policy, yet many resource concerns—such as nutrient and pesticide runoff—can be more cost-effectively addressed on the 850 million acres of working cropland and grazing land.

Programs directed at working-lands conservation are growing. Much of the 17 percent increase in funding authorized by the 2008 Farm Act goes toward two programs that pay farmers for conservation efforts on working lands—the Environmental Quality Incentives Program and the Conservation Stewardship Program.

The Environmental Quality Incentives Program—EQIP

EQIP was established under the 1996 Federal Agriculture Improvement and Reform (FAIR) Act, replacing the Agricultural Conservation Program. EQIP's principal objective is to provide producers with assistance that promotes production and environmental quality as compatible goals, optimizes environmental benefits, and helps farmers and ranchers meet Federal, State, and local regulatory requirements.

EQIP provides producers with financial and technical assistance for implementing and managing a wide range of conservation practices consistent with crop and livestock production. Sixty percent of overall EQIP funding is targeted to natural resource concerns related to poultry and livestock production. The remainder is directed toward practices that address conservation priorities on working cropland.

Farmers seeking to participate in EQIP complete an application indicating which land will be enrolled, which resource concerns will be addressed, and what practices will be used. Enrollment decisions are made at the State or local level. Each State or local Natural Resources Conservation Service (NRCS) office ranks applications based on the treatment of priority natural resource concerns; treatment of multiple resource concerns; use of conservation practices that provide long-term environmental enhancements; compliance with Federal, State, local, or tribal regulatory requirements; and the relative cost-effectiveness of the proposed conservation practice. Applications receiving the highest environmental benefit scores based on the ranking criteria are approved for funding.

EQIP uses two types of financial assistance to encourage implementation and management of conservation practices: cost-share and incentive payments. Cost-sharing applies to structural and vegetative practices and payments can be up to 75 percent of installation costs, although a 50-percent cost-share is more typical. Examples of eligible practices are grassed waterways, filter strips, waste storage facilities, and fencing. Incentive payments encourage producers to adopt land management practices they may not have otherwise used. Eligible practices include nutrient management, integrated pest management, irrigation water management, and wildlife habitat management.

Key Changes in the 2008 Farm Act

The Food, Conservation, and Energy Act of 2008 (2008 Farm Act) made some changes to EQIP relating to:

  • increased funding,
  • eligibility requirements,
  • overall payment limitations,
  • payment terms for groups defined by USDA as "traditionally underserved,"
  • offer ranking procedures, and
  • the ground and surface water conservation fund.

Increased funding. EQIP is slated to receive the largest share of new conservation funding under the 2008 Farm Act, a total of $1.15 billion. This increase would bring EQIP spending to about $7.25 billion for fiscal years (FY) 2008-12. Funding authorized in the 2008 Farm Act increases from $1.2 billion in FY 2008 to $1.75 billion in FY 2012.

Eligibility requirements. The 2008 Farm Act provides clarification regarding lands eligible for EQIP participation. Eligible lands include cropland, grassland, rangeland and pasture land, nonindustrial private forestland, and other agricultural land (e.g., cropped woodland, marshes, incidental land that is part of the agricultural operation, and agricultural land used for the production of livestock) on which resource issues could be addressed. Conservation practices related to organic production and transition to organic production are also now eligible for funding. Organic practices are subject to payment limitations of $20,000 annually and $80,000 over 6 years.

Overall payment limitations. Aggregate payment limitations are reduced from $450,000 to $300,000 for any individual or legal entity during the ensuing 6 years. However, the $450,000 cap established under the 2002 Farm Act is maintained for projects of special environmental significance.

Payment terms for groups defined by USDA as "traditionally underserved." Payment terms are improved and expanded for beginning, limited-resource, and socially disadvantaged farmers and ranchers. In the 2002 Farm Act, beginning and limited-resource farmers and ranchers benefited from a provision that provided greater financial assistance (up to 90 percent of the estimated cost of certain conservation practices) than that provided to other farmers and ranchers (up to 75 percent of the cost). The 2008 Farm Act extends the higher payment rates to socially disadvantaged producers as well, and establishes that the rates for these three groups of farmers be increased no less than 25 percent above otherwise applicable rates (up to the 90-percent maximum rate). Another provision eases potential liquidity constraints to conservation program participation. EQIP payments are typically made upon completion of the practice installation. The 2008 Farm Act allows traditionally underserved participants to qualify for advance payments of up to 30 percent for purchasing materials or services. Beginning and socially disadvantaged farmers also benefit from the "Conservation Access" provision, which requires that a total of 10 percent of EQIP funds be initially set aside to enroll these targeted individuals.

Offer ranking procedures. Changes in EQIP's procedures for ranking contract offers under the 2008 Farm Act include consideration of how comprehensively and completely a proposed conservation project would address resource issues and whether the project would improve or complete a conservation system. The legislation encourages the grouping of "similar" contract offers for ranking purposes.

Ground and surface water conservation fund. This fund, established in 2002, is replaced by the Agricultural Water Enhancement Program. The 2008 Farm Act expands the program's purpose from ground and surface water conservation to include improving water quality on agricultural lands. In addition to signing contracts with individuals, the Secretary of Agriculture may enter into agreements with partners, including producer associations or other groups of producers, State or local governments and Indian tribes, to collectively address water quality or quantity concerns on a regional basis.

Features maintained from the 2002 Farm Act. Several changes enacted with the 2002 Farm Act are maintained, including allocating 60 percent of funding for livestock-related practices, relaxing the requirement to maximize environmental benefits per dollar of program expenditure, and disallowing the use of competitive bidding. The latter precludes the Secretary of Agriculture from assigning higher priority to an application based on a producer's offer to accept a lower payment rate for installing a given practice, when comparing contract offers that would provide similar environmental values.

Economic Implications of 2008 Farm Act Changes

The changes made to EQIP have some implications for the economic performance of the program.

Expanded funding for EQIP. The funding increases authorized in the 2008 Farm Act will allow more producers to enroll in EQIP but may not be sufficient to enroll all producers who are interested in participating. Historically, producer interest in enrolling in EQIP has outweighed the available funding by a large margin. Even though EQIP received a significant funding boost in the 2002 Farm Act, so many producers applied that in 2003, the offers exceeded the $691 million in funds obligated that year by an estimated $3 billion. In 2007, $993 million was obligated in EQIP but an estimated $865 million in offers remained unfunded due to budget constraints.

$300,000 payment limitation. The reduction in the limit on EQIP payments from $450,000 to $300,000 over 6 years could reduce the attractiveness of EQIP to some producers. However, the sizes of EQIP payments typically made to individuals or entities suggest that very few producers are likely to be affected by a $300,000/6-year limit. Analysis of EQIP administrative data suggests that less than 0.5 percent of those receiving payments would be directly affected by the reduced limit. About three-quarters of those getting payments over the 2004-07 period received them in a single year, and the vast majority—about 90 percent—received $50,000 or less.

Payment amounts to EQIP participants, 2004-07

Improved payment terms for traditionally underserved groups. Increases in payment rates for certain farmer groups may increase participation of those groups in EQIP. Higher rates reduce the cost to farmers of investing in conservation improvements. Allowing beginning and socially disadvantaged farmers to be eligible for higher cost share rates may encourage some farmers to enroll in EQIP who otherwise might not have participated because they faced financial constraints. Or some participants may make additional conservation investments because they are now less costly. Lastly, participants who become eligible for the higher cost share rate may make the same investments as they would have without the higher rates, but shift a portion of the costs to the Government.

Setting aside of funds for beginning and socially disadvantaged farmers is another way of increasing enrollment. Given the same selection criteria for all farmer groups, setting aside funds (in EQIP) or acres (in CStP) for beginning and socially disadvantaged farmers can increase participation of those farmers if some eligible farmers' applications are unlikely to be accepted without the set aside, and the set-aside funds or acres exceeds the amount currently claimed by eligible farmers.

EQIP contract data suggests a 5-percent set-aside of EQIP funds may have little effect on participation, at least for beginning farmers. Payments to beginning farmers accounted for 12 percent of all EQIP payments in 2006. This suggests the 5-percent set-aside funds would likely go to beginning farmers who are able to participate in EQIP even when funds are not set aside.

EQIP financial assistance payments, 2006

The 5-percent set-aside funds for beginning farmers in EQIP may have more of an impact if administered at the regional level. For example, payments to beginning farmers in the Lake States region (including Michigan, Minnesota, and Wisconsin) totaled less than 5 percent of all EQIP payments in the region in 2006. Some beginning farmers in this region who could not previously participate in EQIP may be able to enroll with a regional 5-percent set-aside. See a listing of the States included in each region.

Share of EQIP payments to beginning farmers by region, 2006

Continuation of ban on competitive bidding. In the 2002 Farm Act, a change in EQIP bid assessment procedures discontinued the option of competitive bidding, and the 2008 Farm Act does not restore the option. Disallowing bidding likely reduced the overall level of environmental benefits per dollar of program expenditure that could be achieved in EQIP. ERS analysis of EQIP contract data revealed that cost-sharing and incentive payments were much lower than the maximum rates when bidding was allowed in 1996-2002. During that period, the average bid on cost-shared structural practices was 35 percent of practice cost, compared with the 50-75-percent rates allowed. For management practices, bids averaged 43 percent of the maximum rate, which was established by practice and by county (see Flexible Conservation Measures on Working Land: What Challenges Lie Ahead?).

Continuation of fund set-aside for livestock practices. The continuing requirement in the Farm Act that 60 percent of EQIP funds be allocated to livestock-related practices could impact the types of practices that get funded, particularly if livestock-related practices would not have received funding in the absence of the set-aside. EQIP has always had a set aside, which makes it difficult to discern if livestock-related practices would have been funded in the absence of a constraint. Over the 1997-2000 period when at least 50 percent of EQIP funds had to be devoted to addressing concerns arising from livestock production, at least 60 percent of funds went to livestock-related practices. In 2002, the set aside was raised to 60 percent. Between 2004 and 2007, 65-68 percent of funds went to livestock-related practices. While the 60-percent set-aside is specified and achieved nationally, not all regions achieve this allocation to livestock-related practices. The Southern Plains, Mountain, Northeast, and Appalachia regions allocated over 70 percent of funds to livestock-related practices in 2007, while the Pacific and Delta regions allocated less than 50 percent. See a listing of the States included in each region.

Allocation of EQIP funds to livestock-related practices by region, 2007

The Conservation Stewardship Program—CStP

The 2008 Farm Act replaced the Conservation Security Program (CSP) with the Conservation Stewardship Program (CStP). Existing contracts, entered into under the old CSP will continue in force. Beginning in 2009, USDA will begin entering into contracts under the new CStP.

Producers can enroll cropland, grazing land, and (within limits) forest land located on their farms. To participate in the new CStP farmers and rancher must, at minimum: (1) have already addressed at least one resource concern throughout their farm and (2) agree to address at least one additional priority resource concern (priorities set by USDA) during the 5-year contract term. Resource concerns can include water quality, air quality, soil quality and other aspects of environmental quality. Producers who have already addressed more resource concerns, or agree to address more resource concerns during the contract term, are more likely to be selected for enrollment. The likelihood of enrollment is also higher when environmental benefits are provided at least cost, although producers cannot improve their chances by offering to take lower payments.

Conservation Stewardship Program payments can compensate producers for installing and adopting conservation activities, improving or maintaining existing conservation activities, or adopting resource-conserving crop rotations. Payment amounts are to be based on out-of-pocket cost of these activities, income forgone by producer, and expected environmental benefits. Total CStP payments to a single producer cannot exceed $200,000 during any 5-year period. Payments cannot be made for expenses associated with animal-waste storage or treatment facilities or related waste transport or transfer devices for animal feeding operations.

To the extent that it can be done, the 2008 Farm Act directs USDA to enroll 12.77 million acres per year in CStP at an average cost of $18 per acre per year. Program acreage is to be allocated to States based primarily on each State's proportion of total national eligible acres, but also taking into account conservation needs, the degree to which CStP can help address these needs, and equity in the distribution of funds. Five percent of acres are to be made available to beginning farmers, and another 5 percent to socially disadvantaged producers.

EQIP and CStP—Different Approaches to Similar Concerns

Both EQIP and CStP are designed to address similar resource concerns on working lands, both are administered by NRCS, and in both, payment levels largely determine which eligible producers are willing to participate. Another similarity is that program managers review producers' proposals and decide which ones to accept for program enrollment. This step allows program managers to gather information on potential environmental performance and benefits (and, perhaps, potential to meet other program objectives) and costs directly from farmers—information that can be critical where determining which proposals best contribute to achieving program objectives. EQIP and CStP are distinguished, however, by the details of program design, including budget, eligibility, enrollment screens (ranking criteria), and participation incentives (see table below).

In combination, these programs provide a very flexible set of incentives for conservation on working lands and on livestock operations. These programs complement land retirement by rounding out the conservation policy portfolio. Many environmental problems, such as pesticide and nutrient runoff, can be cost-effectively addressed on working lands. Because land remains in production, specific environmental benefits can often be achieved at a lower cost per acre than through land retirement.

EQIP and CStP designs
Program feature EQIP CStP
Budget

A total of $7.25 billion is authorized for 2008-12.

"Conservation Access" provision requires that 5 percent of EQIP funds be made available to enroll beginning farmers and ranchers, and another 5 percent to socially disadvantaged farmers and ranchers.

To extent that it can be done, the 2008 Farm Act directs USDA to enroll 12.77 million acres per year at an average cost of $18 per acre per year.

"Conservation Access" provision requires 5 percent of CStP acres be made available for beginning farmers and another 5 percent to socially disadvantaged producers.

Eligibility

Both crop and livestock production (legislation requires at least 60 percent of payments to livestock practices).

Emphasis on assisting livestock operations to comply with Clean Water Act regulations.

No previous conservation effort required. Only practices not started can be funded unless a waiver is obtained at the time of application.

Conservation practices related to organic production and transition are now eligible, but payments to producers or entities are limited to $20,000 annually and $80,000 over 6-year period.

Cropland, grazing land, and (within limits) forest land located on farms can be enrolled

Animal-waste storage or treatment facilities or related waste transport or transfer devices are not eligible.

Producers must, at minimum, have already addressed at least one resource concern throughout their farm. Producers must agree to address at least one additional priority resource concern (priorities set by USDA) during the 5-year contract term.

Requires Secretary to establish means for producers to initiate organic certification while participating in CStP.

Requires Secretary to ensure that outreach and technical assistance are available to organic and specialty crop producers and that program specifications are appropriate for participation of these producers.

Enrollment screen or ranking Performance-based "offer index" based on potential environmental benefits and contract costs. Requests for EQIP finding exceed available budget by at least 3 to 1.

Contract offers to be ranked for program enrollment according to:

  • level of existing conservation treatment on all resource concerns present at time of CStP application, measured as much as possible using conservation measurement tools
  • level of proposed treatment of priority resource concerns, measured as much as possible by conservation measurement tools
  • number of priority resource concerns that would be addressed to stewardship threshold
  • extent to which other resource concerns would be addressed
  • extent to which environmental benefits are provided at least cost (although producers cannot improve their rank by offering to take lower payment)
Participation incentives

Payments are to compensate producers for installing or adopting conservation practices

Cost sharing (typically 50 percent) on structural and vegetative practices; incentive payments for management practices.

Payments are not subject to an annual limit, but the sum of all EQIP payments to an individual or entity cannot exceed $300,000 during a 6-year period ($450,000 for projects of special environmental significance).

Beginning, limited-resource and socially disadvantaged farmers and ranchers qualify for cost-share payments at least 25 percent above otherwise applicable rates, up to 90 percent.

Payments are to compensate producers for:

  • installing and adopting additional conservation activities
  • improving, maintaining, and managing conservation activities already in place

Payment amounts are to be based on:

  • cost of installing, adopting, or maintaining conservation activities
  • income forgone by producer
  • expected environmental benefits as determined by conservation measurement tools.

Total CStP payments to any one person or legal entity cannot exceed $200,000 during any 5-year period.

 

For more information, contact: Roger Claassen and Cynthia Nickerson

Web administration: webadmin@ers.usda.gov

Updated date: December 22, 2008