Originally published Vol.
1, Issue 5 (November 2003)—Updated July 2006
Emphasis Shifts in U.S. Conservation Policy
To address the negative
impacts and enhance the positive outcomes that some
farming practices can have on natural resources,
policymakers have both increased conservation program
funding and shifted its emphasis.
Roger
Claassen
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This
article is drawn from . . . |
The
2002 Farm Bill: Provisions and Economic Implications,
USDA, Economic Research Service, May 2002.
Flexible
Conservation Measures on Working Land,
by Andrea Cattaneo, Roger Claassen, Robert
Johansson, and Marca Weinberg, ERR-5, USDA,
Economic Research Service, June 2005
Agri-Environmental
Policy at a Crossroads: Guideposts on a Changing
Landscape, by Roger Claassen, LeRoy
Hansen, Mark Peters, Vince Breneman, Marca
Weinberg, and others, AER-794, USDA, Economic
Research Service, January 2001.
Economic
Valuation of Environmental Benefits and the
Targeting of Conservation Programs: The Case
of the CRP, by Peter Feather, Daniel
Hellerstein, and LeRoy Hansen, AER-778, USDA,
Economic Research Service, April 1999.
Environmental
Quality Incentives Program: Benefit Cost Analysis,
by USDA, Natural Resources Conservation Service,
May 2003. |
Recognizing the potential 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 conservation policies
and programs. From the mid-1980s until 2002, the
bulk of USDA conservation funds went toward land
retirement: paying farmers to remove environmentally
sensitive land from crop production for a time period
specified under contract. As of February 2006, almost
36 million acres were retired from crop production—about
10 percent of U.S. cropland.
With the passage of the 2002 Farm
Security and Rural Investment Act (2002 Farm Act),
Congress substantially increased conservation funding
and made changes in program emphasis. The 2002 Act
directed the largest share of new spending to programs
emphasizing financial assistance for conservation
on working lands—lands used for crop production
and grazing—and livestock-related issues.
Between 1986 and 2001, funding for working land
programs that emphasize financial assistance accounted
for about 9 percent of conservation-related financial
and technical assistance to farmers, with the remainder
allocated to land retirement programs (69 percent),
Conservation Technical Assistance (CTA) (22 percent),
and other programs (less than 1 percent). Between
2002 and 2006, however, working land programs accounted
for 25 percent of funding while land retirement
programs accounted for 54 percent of funding, CTA
for 18 percent, and other programs for 4 percent.
Meanwhile, the Conservation Reserve Program (CRP)—the
largest U.S. land retirement program—has increasingly
funded practices that complement or support working
agricultural lands, including edge-of-field filter
strips, riparian buffers, and grassed waterways.
While not prompted by the 2002 Act, this trend is
part of the movement toward support for conservation
on working land.
A second point of greater program
emphasis in the 2002 Act is wetland restoration.
While the Act modestly increased funding for land
retirement, a large portion of the increase was
directed to the restoration of wetlands, largely
through a major expansion of the Wetland Reserve
Program.
A third—more subtle but
nonetheless notable—change in program emphasis
is reflected in the way funds are awarded through
these programs. On balance, the Act decreased the
use of decisionmaking tools that increase environmental
cost effectiveness (i.e., the level of benefits
per dollar of program cost). Certainly, funding
increases will expand the amount of land enrolled
in 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
By 2002, land retirement programs
had already succeeded in improving environmental
quality by removing much of the more fragile land
from production. The remaining land available for
retirement was likely to produce fewer overall environmental
benefits and come at a higher cost than land already
in the program. If true, conservation program funding
may be better spent on land in production.
Moreover, working land program
incentives could encourage conservation practices
by some producers who are unlikely to retire land.
Smaller operations—those with sales of less
than $250,000 per year—produce roughly one-third
of U.S. agricultural output. Households operating
these farms often receive a large share of their
income from land retirement payments and nonfarm
sources, rather than from crop or livestock production.
Larger farms, on the other hand, produce two-thirds
of U.S. agricultural output. These farms are generally
more commercially oriented, and the households that
operate them depend less on income from nonfarm
sources, and are less likely to participate in land
retirement programs. The increased funding for conservation
on working lands, and the focus of these programs
on livestock-related issues, may have increased
conservation participation by farmers who are not
interested in land retirement.
Funding for the Environmental
Quality Incentives Program (EQIP), the largest working
lands program, was $3.95 billion for the 5 years
2002 through 2006, an average of almost $800 million
per year. Annual funding under the 1996 Act (1996-2001)
was limited to $200 million per year. Through this
program, crop and livestock producers can get technical
and financial assistance to plan and implement conservation
practices on land in production. Since 2002, at
least 60 percent of EQIP spending has been slated,
by statute, for livestock-related resource concerns,
up from 50 percent under the 1996 Act. Limits on
the size of participating livestock operations and
on maximum payment levels per operation were also
loosened in the 2002 Act. In 2004, livestock-related
practices accounted for 63 percent of EQIP funding.
The Conservation Security Program
(CSP) was created by the 2002 Farm Act and first
implemented in 2004. Overall, about $500 million
was allocated for CSP for 2004-06. Unlike EQIP,
CSP provides payments to eligible producers based
on ongoing environmental performance or “stewardship,”
rather than just for newly installed or adopted
practices. Before they can enroll land in CSP, producers
must first address soil quality and water quality
concerns. CSP stewardship payments (and “existing
practice” payments) are based on local land
rental rates and the extent of conservation on the
entire farm, rather than on conservation costs or
benefits (see box “Major USDA
Conservation Programs”).
CSP is similar to EQIP in the
sense that it seeks to improve environmental performance
on working agricultural lands. The large majority
of CSP funds—about 80 percent in 2005—support
environmental “enhancements.” Enhancements
include addressing additional resource concerns,
such as air quality, or going beyond basic conservation
standards (collectively referred to as “nondegradation”
standards) to a higher level of conservation effort.
For example, meeting a nondegradation standard on
soil quality involves maintaining soil conditions
while CSP soil quality enhancement payments support
producer efforts to improve soil condition.
The Conservation Reserve Program,
although primarily a land retirement program, also
funds buffer practices associated with working land
(e.g., edge-of-field filter strips, riparian buffers,
and grassed waterways). At the beginning of 2006,
about 20 percent of CRP funding was devoted to these
practices, up from about 10 percent at the beginning
of 2002. While these practices cover only 10 percent
of CRP acreage, their impact is arguably larger
than this percentage would suggest because buffer
practice acreage is strategically located to intercept
sediment, nutrients, and other pollutants before
they leave the farm.
While the expansion of conservation
on working lands has significant advantages, implementing
it poses additional challenges. Payments for a broader
range of conservation practices, available to a
wider range of producers, 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 increase the challenge in
making programs work together seamlessly for producers
while keeping the cost of program administration
low. And producers participating in conservation
programs need conservation planning services and
technical assistance. To help handle the increased
workload, the 2002 Act included authorization for
producers to directly contract with NRCS certified
third-party technical service providers (TSPs) to
supplement USDA’s Natural Resources Conservation
Service (NRCS) field staff.
Wetlands Restoration Coming
of Age
While the expansion of working
lands programs was the big story in the conservation
portion of the 2002 Farm Act, a 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. By the end of 2005,
WRP acreage was up to 1.8 million acres, compared
to roughly 1 million acres in 2002. Up to 500,000
acres of the 2.8-million-acre rise in the CRP acreage
cap could be specially earmarked for restoration
of currently farmed wetlands. As of March 2006,
CRP included 2 million acres of wetland. The shift
toward wetlands restoration is significant because
of the relatively high environmental benefits per
acre provided by wetlands.
De-emphasizing Cost-Effectiveness?
In addition to increasing the
amount and scope of conservation funding, policymakers
changed how conservation program managers decide
which producers receive funds through the various
programs. The 2002 Act reduced the use of traditional
targeting tools: competitive bidding and environmental
benefit-cost indices. Payments based on past conservation
efforts—stewardship payments—may not
leverage the same level of environmental gain as
payments that support new practices. On the other
hand, a new environmental targeting tool—performance-based
payments—has been used to implement some CSP
enhancements.
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.
The elimination of competitive
bidding in EQIP may have resulted in lower environmental
benefits 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 of a local (usually
county) maximum for management practices, such as
integrated pest management. Between 1996 and 2001,
the overall national average cost-share rate for
structural practices in EQIP was 35 percent. For
management practices, payments averaged 43 percent
of local maximums. For 2003-05, the average EQIP
cost-share rate for structural practices has been
about 60 percent (although rates can be as high
as 75 percent for high-priority practices) while
management practice payment rates have been fixed
at the local level, usually a county.
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 payment 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 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.
EQIP program managers can continue
to use environmental benefit-cost indices to determine
which proposed contracts they will accept, although
many States have altered the way cost is considered.
Environmental benefit-cost indices are point systems
used to rank conservation practices according to
expected environmental benefits and costs. Using
these rankings, program managers can identify farms
and fields where conservation practices on working
lands would yield relatively high environmental
benefits (see box, “Tools
for Cost-Effective Conservation”). At
this time, some state-level EQIP program managers
use environmental benefit-cost indices to determine
which proposed contracts they will accept, others
make cost effectiveness part of the ranking score,
and some States no longer use costs in the ranking
process. NRCS is currently field testing a web-based
EQIP ranking tool—that includes cost effectiveness
as one of the ranking criteria—in all States
and will require its use for ranking all EQIP applications
effective October 1, 2006.
Performance-based payments are
just what they sound like—payments that vary
with the level of environmental performance achieved.
Performance-based payments direct the largest participation
incentives to those producers who can achieve environmental
improvement at a low cost. Producer payments for
some CSP enhancements are established using performance
indices. For example, payments for soil quality
and water quality enhancements depend on the condition
of the soil and the potential for water quality
improvement, respectively. Those producers who can
take actions necessary to achieve high index scores
at a relatively low cost have the greatest incentive
to undertake soil and water quality enhancements.
Finally, stewardship and existing
practice payments are unlikely to produce a significant
level of new environmental gain because they do
not directly fund new practices. By reducing the
overall level of environmental gain leveraged per
dollar of expenditure, these payments may reduce
the cost effectiveness of environmental gains. Nonetheless,
these payments do offer some opportunity for environmental
gain. Producers who receive stewardship and existing
practice payments may be more likely to maintain
existing practices, particularly those producers
who installed practices without government assistance
(practices that are not subject to ongoing maintenance
requirements). These payments could also encourage
other producers to seek assistance for basic conservation
treatment through other programs (e.g., EQIP), particularly
for soil quality and water quality, in the hope
of qualifying for CSP at some future date. Finally,
in the absence of payments for good stewardship,
there is some concern that producers may be reluctant
to adopt conservation practices on their own. If
stewardship payments encourage some producers to
install conservation practices where they would
have otherwise hesitated to do so, environmental
gain would be realized.
Opposing Directions?
The net effect of the seemingly
opposing directions of the increased emphasis on
working land conservation and reduced emphasis on
cost effectiveness is difficult to discern. The
emphasis on working lands, wetlands, and performance-based
payments pushes toward increasing the overall cost
effectiveness of conservation policy in producing
environmental benefits. On the other hand, moving
away from competitive bidding and toward stewardship
payments may pull in the opposite direction by decreasing
the environmental gains per program dollar.
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). For 2002 through 2006, total CRP funding
has been $7.3 billion. As of February 2006,
about 36 million acres are covered by CRP
contracts.
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 1.1 million acres to 2.3 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. For 2002 through 2006,
total WRP funding has been $1.3 billion. As
of 2005, a cumulative total of roughly 1.8
million acres were under contract through
WRP.
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. EQIP funding
has been $3.95 billion for the 5 years 2002
through 2006. Additional CCC funding of $300
million has been available for ground and
surface water conservation. EQIP’s focus
on livestock increased in 2002, with 60 percent
of funding slated for livestock-related issues,
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. For
2002-06, WHIP received $171 million, an average
of $35 million per year, compared with just
over $62 million during the 1996 Farm Act,
1996-2001, an average of about $9 million
per year.
The Conservation
Security Program (CSP) focuses on
good stewardship, but also provides incentives
for improving conservation performance. Producers
become eligible for one of three CSP “tiers”
only after treating nationally significant
resource concerns—soil quality and water
quality – on at least a part of their
farm. To qualify for tier I, soil and water
quality concerns must be addressed on at least
part of the farm. Producers who have addressed
soil and water quality concerns throughout
their farm are eligible for tier II. Tier
III participants must have treated all resource
concerns present on their farm—not just
soil quality and water quality.
CSP offers several types
of payments. “Stewardship” and
“existing practice” payments are
based, roughly, on a percentage of the county
average rental rate for the specific type
of land involved. In some situations, new
practices can be cost-shared through “new
practice” payments. Payments for environmental
“enhancements” accounted for about
80 percent of CSP payments in 2005. For the
2005 CSP signup, two enhancements were available:
producers may (1) address local resource concerns
(e.g., resource concerns other than the nationally
significant concerns of soil quality and water
quality) and (2) adopt practices or engage
in activities that improve or enhance resource
quality beyond the minimum (nondegradation)
standard. In a number of cases, enhancement
payments are based not on cost but on environmental
performance as measured by indices like the
soil condition index. Payments are to be based
on the improvement in index values, ensuring
that payments reflect a measure of potential
environmental gains.
CSP was first implemented
in 2004. For 2004-06, total CSP funding is
$502 million. While CSP is available nationally,
it is being offered only in selected watersheds
for any given signup. For 2004-05, CSP was
available in 220 watersheds. Producers in
60 watersheds are eligible in 2006 (different
from the 2004-05 watersheds). Part of the
USDA Natural Resources Conservation Service
(NRCS) strategy is to make every watershed
eligible for CSP enrollment once over the
next 8 years. In limiting (signup-specific)
eligibility by watershed, NRCS is focusing
first on those watersheds where producers,
on whole, have demonstrated a high level of
stewardship.
Other Conservation
Programs
Through Conservation
Technical Assist-ance (CTA), USDA
provides ongoing technical assistance to agricultural
producers who seek to improve the environmental
performance of their farms. CTA funding was
about $3.5 billion for 2002-06.
The Farm and Ranch
Lands Protection Program (FRPP) provides
funds to State, tribal, or local governments
and private organizations to help purchase
development rights and keep productive farmland
in agricultural use. For 2002-06 FRPP funding
totaled $426 million. In contrast, its predecessor,
Farmland Protection Program, received just
over $50 million total during 1996-2001.
The Grassland Reserve
Program (GRP) is designed to improve
and conserve native-grass grazing lands through
long-term rental agreements (10, 15, 20, or
30 years) and 30-year or permanent easements.
While normal haying and grazing activities
are allowed under GRP, producers and landowners
are required to (1) restore and maintain appropriate
grasses, forbs, and shrubs; (2) address all
relevant resource concerns (e.g., soil erosion);
and (3) refrain from converting the land for
crop production, development, or other uses.
For rental agreements, annual rental payments
equal (up to) 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 the value of a permanent easement.
Cost sharing is provided for up to 75-90 percent
of the restoration and maintenance costs,
depending on the type of grassland. GRP enrollment
is limited to 2 million acres of grassland.
Funding of up to $254 million is authorized
over the 6-year life of the 2002 Farm Act.
During FY 2003-06, $236 million in financial
assistance has been made available to producers
through GRP. |
Tools
for Cost-Efffective Conservation
Competitive bidding—A
process in which producers submit bids on
the conservation practices they are willing
to adopt (or the type of cover they are willing
to establish on retired land) and the level
of payment they would be willing to take in
exchange for taking these actions. Bids are
selected for program participation based on
potential for environmental gain and the level
of payment requested by the producer. Thus,
producers can improve bids by offering to
install more environmentally beneficial (but
more expensive) practices or by reducing the
level of payment they are willing to accept.
Environmental indices—A
point system 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. The use of an environmental benefit-cost
index in the CRP (land retirement program)
has resulted in increased public benefits
of the program, according to ERS research.
By using these tools to identify land for
retirement, public benefits from water-based
recreation, pheasant hunting, and wildlife
viewing have increased by at least $370 million
per year, while program acreage and costs
have remained virtually unchanged.
Performance-based
payments—Payments that vary
with the level of environmental gain attributed
to the action that triggered the payment.
For example, payments could be commensurate
with water quality gains attributed to the
use of practices that reduce nutrient and
sediment loss to water. To maximize environmental
gain performance-based payments, the payment
per unit of environmental change (e.g., ton
of soil erosion reduction) would have to equal
the value of the environmental gain attributed
to the last unit of change (e.g., the water
quality gain attributed to the last or marginal
ton of soil erosion reduction). Because these
values are rarely known, however, environmental
indices may be used as proxies. |
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