Recognizing the negative impact that some farming practices (excess
fertilization and manure, for example) can have on our Nation’s
natural resources, policymakers have been devoting more attention
and funding to agri-environmental policies and programs. Until
2002, the bulk of conservation funds went toward land retirement:
paying farmers to remove environmentally sensitive land from crop
production for a time period specified under contract. In recent
decades, this program has retired from crop production up to 35
million acres—about 10 percent of total U.S. cropland.
With the passage of the 2002 Farm Security and Rural Investment
Act (2002
Farm Act), policymakers have substantially increased conservation
funding and made changes in program emphasis. The goals are to expand
the amount of U.S. land and the number of farmers covered by conservation
programs. The new Farm Act authorizes increases in conservation
funding to levels that by 2007 will be double those of the last
decade, with about two-thirds of the new funds going to programs
emphasizing conservation on working lands—lands used for crop
production and grazing. With the slated increases, conservation
programs for working lands will move from less than 15 percent of
Federal expenditures on agricultural conservation over the past
15 years up to about half of the much larger total conservation
spending by 2007.
A second point of greater emphasis in the new Act is wetland restoration. While
the Act modestly increases funding for land retirement, a large portion of
the increase is directed to the restoration of wetlands.
A third—more subtle but nonetheless notable—change in emphasis
in the new Farm Act relates to the way funds are awarded through these programs.
In this case, the Act decreases (rather than increases) the use of decisionmaking
tools to target program participants and increase environmental benefits
per dollar of program cost.
Certainly, these policy and program changes will expand the amount of land
covered by conservation programs and the number of participating producers.
What isn’t so certain, however, is whether these changes will add up
to more cost-effective conservation overall.
Expanding Conservation on Working Lands
Working lands represent a largely untapped source of potentially cost-effective
agri-environmental gains. Land retirement programs have succeeded in improving
environmental quality by removing the most fragile land from production,
but these benefits come at a high cost to taxpayers. Moreover, now that the
most
fragile land has already been retired through programs like the Conservation
Reserve Program (CRP), the remaining land eligible for retirement may have
higher production potential than the retired land and, therefore, may be
more costly to retire. Keeping the land in production and funding conservation
practices
on that land may be a more cost-effective option. For example, it may be
less expensive to improve water quality affected by nutrient runoff through
widespread
changes in management practices on working lands than through paying farmers
to take land out of production to achieve the same benefits.
Funding for the Environmental
Quality Incentives Program (EQIP), the major working lands program,
jumps fivefold with the 2002 Farm Act, to the tune of nearly $5.8
billion for 2002-07. Through this program, crop and livestock producers
can get information and technical and financial assistance in designing
and implementing conservation practices (such as conservation tillage
or nutrient management) on their land. The program now provides
more incentives for livestock producers to participate. About 60
percent of the program’s funding is earmarked for livestock
producers, up from 50 percent in the 1996 Farm Act. Limits on the
size of participating livestock operations and on maximum payment
levels per operation have been loosened.
Also, a new working lands program, the Conservation Security Program (CSP),
has been authorized in the 2002 Farm Act. When fully implemented, the CSP
will pay producers to adopt or maintain appropriate land-based practices
that address
one or more resources of concern, such as soil quality, water quality, or
wildlife habitat.
While the CSP, like EQIP, funds conservation on working lands, it differs
in important ways. Through the CSP, producers can receive annual payments
based
on conservation practices they had installed on their land before enrollment
in the CSP. These payments serve as a reward for achieving a high level of
conservation and as an incentive to maintain and improve that level of conservation
performance. Also, through CSP’s three-tiered system of participation,
producers receive larger annual payments for higher levels of participation,
encouraging them to develop comprehensive, whole-farm conservation plans
(see “Major USDA Conservation Programs”).
With these expanded and new working lands programs come new rules for the
CRP, USDA’s major land retirement program. These new rules will permit
managed haying and grazing (with appropriate reductions in payments to
landowners) on land that has been retired, in essence converting retired
land into working
land.
The increased funding for conservation on working lands is intended to
provide greater flexibility to address the diversity of U.S. agricultural
land and
agricultural producers. Most producers who are dealing with different agri-environmental
problems and resource settings and whose operations vary in size and management
structure will have options for receiving Federal funds for conservation.
Smaller operations—those with sales of less than $250,000 per year—produce
roughly one-third of U.S. agricultural output but include nearly three-quarters
of all producer-owned land. These farms often depend heavily on land retirement
payments and nonfarm sources of household income, rather than on income from
crop or livestock production.
Larger farms, on the other hand, produce two-thirds of U.S. agricultural
output while accounting for only one-fourth of the land. These farms are
generally
more commercially oriented and depend far less on nonfarm sources of income.
The increased funding for conservation on working lands, along with the greater
focus on livestock operations and the higher maximum payment levels, is expected
to raise conservation participation by larger farms.
While the expansion of conservation on working lands has significant advantages,
implementing it may pose additional challenges. Payments for a broader range
of conservation practices, available to a wider range of producers, will
complicate both conservation planning and the monitoring of practice implementation
and
maintenance. This is particularly true for some conservation management practices,
such as crop nutrient management, which are less visible and thus more difficult
to monitor than changes in tillage or contour cropping. Multiple conservation
programs for working lands could also increase the challenge in making programs
work together seamlessly for producers while keeping the cost of program
administration low. And producers participating in new and newly expanded
conservation programs
will need conservation planning services and technical assistance. To help
handle the increased workload, the new legislation includes funding for certification
of third-party technical service providers to supplement USDA’s Natural
Resources Conservation Service field staff.
Major USDA Conservation Programs
Land Retirement Programs
The Conservation
Reserve Program(CRP)
offers annual payments and cost sharing to establish long-term,
resource-conserving cover, usually grass or trees, on environmentally
sensitive land. The 2002 Farm Act increased the acreage cap
from 36.4 million acres to 39.2 million acres. Funding is
through the Commodity Credit Corporation (CCC). The Congressional
Budget Office (CBO) estimates increased spending of $800 million
for 2002-07.
The Wetlands
Reserve Program (WRP)provides cost sharing and/or long-term or permanent easements
for restoration of wetlands on agricultural land. The 2002
Farm Act increased the acreage cap from 1.075 million acres
to 2.275 million acres. The legislation requires the Secretary
of Agriculture (to the greatest extent practicable) to enroll
250,000 acres per year. Funding is through the CCC. CBO estimates
increased spending of $1.5 billion for 2002-07.
Working Lands Conservation Programs
The Environmental
Quality Incentives Program (EQIP) provides technical
assistance and cost-sharing or incentive payments to assist
livestock and crop producers with conservation and environmental
improvements on working lands. Under the 2002 Farm Act, EQIP
is authorized to receive $5.8 billion from CCC funds to cover
fiscal years (FY) 2002-07 and an estimated $11 billion total
for 10 years. Annual funding is phased up to $1.3 billion
by FY 2007, compared with annual funding of roughly $200 million
per year under the 1996 Farm Act. Additional CCC funding of
$310 million is authorized over FY 2002-07 for ground and
surface water conservation.
EQIP’s focus on livestock will increase, with 60 percent of funding
earmarked for livestock producers, up from 50 percent in the 1996 Farm Act.
Moreover, much of this funding could be used to cost-share nutrient management
on large, concentrated animal feeding operations (CAFOs) that will be required
to comply with new Clean Water Act regulation of manure handling and disposal.
Previous limits on the size of participating livestock operations, which
excluded operations with more than 1,000 animal units, were eliminated in
the 2002 Farm Act. Payment limits previously set at $50,000 total per operation
were raised to $450,000 per operation over the 6-year life of the 2002 Farm
Act.
The Wildlife
Habitat Incentives Program (WHIP) provides cost
sharing to landowners and producers to develop and improve
wildlife habitat. The 2002 Farm Act mandates funding of $360
million total from CCC over FY 2002-07, ranging from $15 million
in FY 2002 to $85 million in FY 2005-07. WHIP received just
over $62 million during the 1996 Farm Act, 1996-2001.
The (New) Conservation Security Program (CSP) will pay producers
for adopting and maintaining appropriate land-based practices on working
lands that address one or more resources of concern, such as soil, water,
or wildlife habitat. The program is designed to encourage broad participation,
help ensure a high level of conservation throughout the farm, and reward
producers for exemplary conservation efforts. Toward that end, most cropland
and grazing land are eligible. Although CSP was initially approved as an
entitlement program with no fixed budget, appropriation legislation for FY
2003
limited the program to $3.77 billion for 2003-13.
The USDA Office of Budget and Policy Analysis estimates
that $1.39 billion of that total will be spent over the 6-year
life of the 2002 Farm Act.
Producers can choose among three levels or “tiers” of
participation. Higher tiers offer larger annual payments
during the contract period but require greater conservation
effort. Conservation effort is measured by the number of
resource concerns addressed and the extent to which the whole
farm is included.
• Tier I: Producers must address (to the “nondegradation” standard)
at least one resource concern on at least part of the farm.
Contracts are for 5 years. Tier I contract renewal requires
broadening scope of practices or portion
of the farm covered.
• Tier II: Producers must address (to the “nondegradation” standard)
at least one resource concern on the entire farm. Contracts are for 5-10 years
and can be renewed.
• Tier III: Producers must fully address (to the “nondegradation” standard)
all resource concerns on the entire farm. Contracts are for 5-10 years and
can be renewed.
Payments include three components: base payment, cost-share payment, and enhancement
payment. The base payment is a percentage of the national average land rental
for the specific land use, or another appropriate rate that ensures regional
equity: 5 percent for tier I, 10 percent for tier II, and 15 percent for tier
III. The cost-share payment can be up to 75 percent of the cost of adoption or
maintenance of conservation practices. Finally, enhancement payments can be provided
for taking additional actions, such as implementing or maintaining practices
that exceed minimum requirements. Total tier I payments are limited to $20,000
annually per farm, while base payments cannot exceed 25 percent of that amount.
The payment limit for tier II is $35,000 annually per farm, with a base payment
limit set at 30 percent of that amount. Tier III payments are limited to $45,000
annually per farm and 30 percent of that amount for the base payment.
Agricultural Land Preservation Programs
The Farmland Protection Program (FPP) provides funds to State,
tribal, or local governments and private organizations to help purchase development
rights and keep productive farmland in agricultural use. The 2002 Farm Act mandates
funding from CCC of $597 million over FY 2002-07, ranging from $50 million in
FY 2002 to $125 million in FY 2004-05. In contrast, FPP received just over $50
million total during the last Farm Act, 1996-2001.
The (New) Grassland
Reserve Program (GRP) is designed to preserve
and improve native-grass grazing lands through long-term (10-30
years) contracts and easements. While normal haying and grazing
activities will be allowed under GRP, producers and landowners
cannot crop the land and will be required to restore and maintain
native grass, forb, and shrub species. For contracts, annual
rental payments equal 75 percent of grazing value. Permanent
easements are to be purchased at fair market value, less grazing
value, while 30-year easements are to be purchased at 30 percent
of fair market value, less grazing value. Cost-sharing is
provided for up to 75-90 percent of the restoration and maintenance
costs, depending on the type of grassland. GRP will protect
up to 2 million acres of grassland. Funding of up to $254
million over the 6-year life of the Farm Act is available
from the CCC.
Wetlands Restoration Coming of Age
While the expansion of working lands programs is the big story in
the conservation portion of the 2002 Farm Act, the greater emphasis
on wetlands restoration in the modest expansion of land retirement
programs is also significant. The legislation augments authority
for land retirement in the CRP
and the Wetlands Reserve Program (WRP)
by 4 million acres, up about 11 percent. While wetlands restoration
accounts for about 3 percent of current land retirement, 40 percent
or more of the authorized increase may be devoted to wetlands restoration.
In addition to the 1.2 million acres added to WRP, the CRP routinely
enrolls farmed wetlands that are restored to wetlands condition.
Up to 500,000 acres of the 2.8-million-acre rise in the CRP could
be specially earmarked for restoration of currently farmed wetlands.
The shift toward wetlands restoration is significant because of
the relatively high environmental benefits per acre provided by
wetlands.
Program Targeting Tools
Competitive bidding—A process
in which producers submit bids on installation
of conservation practices
and the percentage level of USDA cost
sharing they are
willing to accept. Cost-share payments
to producers cover a specified
portion of the cost of installing, implementing,
or maintaining a conservation (structural
or land management) practice.
Bids are selected for program participation
based on
potential for environmental gain and the
level of payment requested
by the producer.
Environmental indices—A
point system is used to rank the proposed
application of conservation practices
according to expected
environmental
benefits. Points may be awarded
for the use of particularly
effective practices, the environmental
sensitivity of the land where practices
are to be applied,
or proximity to particular resources
such as lakes or
streams.
De-emphasizing Targeting Tools
In addition to increasing the amount and scope of conservation
funding significantly, policymakers have also changed how conservation
program managers decide which
producers receive funds through the various programs. To maximize the environmental
benefits from limited conservation funds, program managers typically use two
tools—environmental indices and competitive bidding—to target and
apply funds to the most cost-effective conservation projects, or installations.
Environmental indices are point systems used to rank conservation practices
according to expected environmental benefits. Using these rankings and the
proposed costs of practices, program managers can identify farms and fields
where land retirement or conservation practices on working lands would yield
relatively high environmental benefits (see “Program Targeting Tools,” at
right).
Competitive bidding is a process in which producers submit bids on installation
of conservation practices and the proposed level of cost sharing in percentage
terms (that is, the percentage of total installation or implementation cost
paid by the Government). Through comparing the submitted bids, program managers
can identify farms and fields where the costs of retiring land or installing
conservation practices are relatively low.
While policymakers have not yet announced program details for the new CSP,
they have specified that these targeting tools will not be used in deciding
which producers get contracts for conservation practices. CSP eligibility will,
instead, be based on installing, adopting, or maintaining practices that address
national and local priority resource concerns. Targeting tools are still used
in the CRP (land retirement program), but competitive bidding is no longer
used in the EQIP.
The use of targeting tools in the CRP (land retirement program)
has resulted in increased public benefits from three environmental
objectives of the program, according to ERS
research. By using these tools to identify land appropriate
for water-based recreation, public benefits from pheasant hunting
and wildlife viewing have increased by at least $370 million per
year, while program acreage and costs have remained virtually unchanged.
The elimination of competitive bidding in EQIP will likely result
in lower environmental benefit per dollar of program spending.
EQIP
data show that producers have often been willing to accept cost-share
rates (what
the government pays) well below the pre-2002 Farm Act maximums
of 75 percent of cost for structural practices, such as terrace
installation, and 100 percent for management practices, such as
integrated pest management. Since 1996, the overall national average
cost-share rate was 35 percent for structural practices and 43 percent
for management practices.
Now, producers implementing practices under EQIP receive the
maximum cost-share rate of 50 percent unless they are located
in States that have received USDA
approval to accept a higher rate for specific practices. Local program managers,
however, can still consider potential environmental benefits in deciding
which producers’ contracts to accept.
Lowering the maximum cost-share rates may mean that some producers who might
have participated in EQIP will no longer be interested, even if they could
provide environmental benefits that would justify a higher cost-share rate.
That is, some producers who may be able to make a cost-effective contribution
to environmental protection would be effectively excluded from the program.
On the other hand, producers who would be willing to adopt conservation practices
at a lower cost-share rate could receive payments that exceed the level necessary
to induce their participation, leading to higher than necessary contract costs.
In other words, the environmental benefits gained may be obtained at a higher
than necessary cost.
Opposing Directions?
The net effect of the seemingly opposing directions of the increased emphasis
on working lands over land retirement and reduced emphasis on targeting is
difficult to discern. While the emphasis on working lands and wetlands pushes
toward increasing the overall cost effectiveness of agri-environmental policy
in producing environmental benefits, moving away from environmental targeting
and competitive bidding may pull in the opposite direction by limiting the
environmental gains per program dollar. Without competitive bidding in working
lands programs, cost-share payments will likely be higher than what a large
share of producers would have bid to participate. And without environmental
benefit indices to steer programs to higher benefit-producing situations, overall
benefits may be less than would otherwise be achieved.