Conservation Reserve Program:
Policy Issues for the 1995 Farm Bill

Jeffrey Zinn
Senior Analyst in Natural Resources Policy
Environment and Natural Resources Policy Division

December 19, 1994

95-8 ENR

SUMMARY

The Conservation Reserve Program (CRP), enacted in 1985, enables producers to bid to retire highly erodible or environmentally sensitive crop land for 10 years (or longer under certain circumstances). Successful bidders receive annual rental payments, and cost-sharing and technical assistance to install approved plantings. The program was to enroll between 40 and 45 million acres before 1996. Program goals are to reduce erosion and excess production, and more recently, to provide other environmental benefits. To date, about 36.5 million acres have been enrolled. These contracts will start to expire in 1995.

Congress is expected to consider reauthorization of the CRP as part of the 1995 farm bill debate. Key program questions include whether or not to reauthorize the reserve, its size and what lands should be eligible, the need for incentives to keep currently-enrolled lands out of production after contracts expire, and how to ensure program funding.

BACKGROUND

Before CRP

The CRP is the most recent long-term land retirement program enacted to limit commodity production. CRP emphasizes the resource conservation benefits of land retirement over the earlier program's emphasis on production control benefits. The program that preceded today's CRP, the Conservation Reserve of the Soil Bank Program, left very few enduring resource conservation benefits. The Soil Bank enrolled 28.7 million acres in the peak year, 1960, using contracts for up to 10 years. Almost all contracts had expired by 1969. The 1970s was a boom period for agriculture, and by the mid 1970s, most of the land that had been enrolled reportedly had been returned to cultivation (except that 90 percent of the land planted to trees remains in trees today). The high erosion rates that accompanied this boom, characterized as rivaling those of the 1930s, were used by advocates to define the structure and goals of the current program.

Debate about the reserve concept in the early 1980s centered on the need to control erosion. Supporters argued that the environmental benefits of a program would be supplemented by lower Federal commodity program outlays, and stabilized commodity and land prices. Opponents, perhaps recalling the Soil Bank, worried about overall program costs and transitory benefits that could be lost after the contracts expire. Legislation authorizing a reserve that would have included less than one million acres passed the House in 1984 but was rejected by the Senate because of cost concerns. The very next year, the 40-to-45-million-acre reserve was enacted in the 1985 farm bill.

Conservation Reserve Program

The CRP allows producers who cultivate highly erodible or environmentally sensitive land to retire it from annual production for 10 years (or more in limited instances) in return for rental and cost sharing payments, and technical assistance. The Agricultural Stabilization and Conservation Service (ASCS) administers the program and provides the payments, while the Soil Conservation Service (SCS) provides the technical assistance. (Under reorganization legislation enacted in 1994, P.L. 103-354, ASCS has been incorporated into the newly created Consolidated Farm Services Agency (CFSA), and the SCS is now the Natural Resources Conservation Agency (NRCS).)

CFSA invites producers to bid to enroll land into the CRP during signup periods. CFSA opens the bidding process when annual appropriations will support additional program participation. CFSA decides which bids to accept, based on both the Federal dollars available, and a formula used to compare the costs and benefits of each bid. A county ceiling of 25 percent of the cropland has limited participation in some areas, especially in the Northern Plains.

The legislation's goal was to enroll between 40 and 45 million acres of cropland, about 10 percent of the national total, by 1995. After 12 signups, approximately 36.5 million acres have been enrolled. The last signup was held in June 1992. Congress has not appropriated any funds for further enrollment since FY 1992. Participation is concentrated in the drier portions of the plains; States with the most enrolled acres are Texas (4.2 million acres) and North Dakota (3.2 million acres). Average erosion on all enrolled acres has declined from more than 20 tons to about 2 tons per acre, according to NRCS statistics. Viewed another way, overall erosion nationwide has been reduced by more than 22 percent.

Changes in criteria and procedures have responded to congressional actions since 1985, with significant redirection in the 1990 farm bill, other minor legislative adjustments, and specific directives in some annual agriculture appropriations legislation. Initially, an administrative decision was made at USDA to limit the criterion for acceptance to erosion control. A majority of the participating land, more than 22 million acres, was enrolled in 1986 and 1987 under this criterion.

The program's formula for reviewing bids has been altered since 1988 so that an increasing portion of the enrolled land has greater environmental benefits, such as improved water quality, and less erosion control benefits. Environmental benefits were expanded in the 1990 amendments, and the land enrolled in the three subsequent signups reflect these changes. They include land identified in State water quality areas, land in conservation priority areas, and public wellhead protection areas. These amendments also allowed land to be enrolled in useful life easements of 15 or 30 years for certain uses such as filter strips, wildlife habitat, windbreaks, and shelter belts. Other major changes in the 1990 farm bill:

--Allow contracts to be extended after they expire;

--Protect a producer's commodity program base (which defines the number of acres eligible for certain Federal farm programs) if the land remains in conserving uses after the contract expires;

--Increase incentives for tree planting;

--Add incentives for weed and pest control; and

--Require the USDA to prepare a study of options for protecting these lands after contracts expire.

The CRP also has a goal of planting one-eighth of the land in the reserve to trees. While this goal has not been met, 2.3 million acres have been planted to trees, making this the largest Federal tree planting program in history. Tree acreage is concentrated in the Southeast, with half of the acreage in Georgia and Mississippi.

After a contract expires, Federal payments cease and producers are under no further obligation. However, if they decide to plant annual commodities, and if the land is defined as highly erodible (about 75 percent of the enrolled land meets this definition), they have two years to fully implement an approved conservation plan. Otherwise, they risk losing many farm program benefits. Several incentives were included in the 1990 farm bill to encourage producers to keep the land in conserving practices after the last payment.

The following table shows when contracts will expire.

Acres on Which CRP Contracts Will End, By Fiscal Year

Source: Analysis of the Conservation Reserve Program. Economic Research Service. April, 1994, p. 8.

The most recent large survey of contract holders' plans for enrolled lands after their contracts expire, conducted by the Society of Soil and Water Conservation in late 1993, found that holders intended to return 63 percent of their enrolled acres (about 23 million acres) to crop production and keep 23 percent in grass. Every other use choice attracted less than 5 percent of the responses. Of the land returning to crop production, more than two-thirds would be planted to a crop. Less than one-quarter would be rented or leased. The survey also asked holders how changing commodity prices would alter their current plans. Respondents said that they would return 54 percent of the land to crop production if crop prices were 20 percent lower. But, they would return 74 percent to crop production if crop prices were 20 percent higher.

While these data provide a snapshot of holder intent, changing conditions and individual circumstances and expectations are likely to alter the thinking of many during the several years that contracts expire. Some of these conditions include implementation of trade agreements, and changes in international markets, domestic commodity programs, and policies which encourage continued land retirement (or farm program participation). In general, high prices or expanding markets will attract more interest in cultivating these acres, while shrinking markets or low prices will encourage more producers to keep the land in long-term conserving uses. These decisions are likely to vary from commodity to commodity and region to region, as well as year to year.

POLICY ISSUES

CRP was enacted in the 1985 with bipartisan congressional support, and it continues to enjoy strong support today. It was a program that few opposed because it encouraged farmers to retire highly erodible and environmentally sensitive land, a goal endorsed by environmentalists, and to reduce plantings of major commodities, thus firming up prices and pleasing traditional agricultural groups. It also stabilized land prices and helped defuse a major farm credit crisis. And while analyses showed that the program would be a net expense to the Federal treasury, supporters effectively argued that it also would lower Federal commodity program outlays, diffusing concerns about the magnitude of anticipated Federal expenditures.

Anticipating that the initial contracts would expire before action on the 1995 farm bill was completed, discussions of what to do next started during the 103rd Congress. The House Committee on Agriculture's Subcommittee on the Environment held several hearings on the CRP. Subcommittee Chair Tim Johnson of South Dakota formed a bipartisan group with members from both houses to work for extension of the program after 1995.

An initial concern of these congressional supporters was that the Congressional Budget Office had not included extension of the CRP in its baseline budget estimates. If the CRP is not in the baseline, then all new CRP contracts could be funded only by reducing funding in other Federal farm programs. Provisions in the farm bill allow the Secretary to extend contracts after they expire, but CBO had stated that current budget rules do not allow it to include funds for new contracts unless the Department announces that it plans to extend the program. On December 14, USDA announced several initiatives to extend contracts and to target them to more environmentally sensitive areas. CBO's response to this expression of intent should appear in the first baseline, to be issued by February 15, 1995.

Farm groups in many States and many national farm organizations are recommending continuation of CRP with little modification. The Soil and Water Conservation Society, one of many organizations to issue a policy position favoring reauthorization, convened a meeting on status and options in February 1994. At this meeting, Senator Lugar, incoming Chair of the Senate Agriculture Committee, made a specific set of reauthorization recommendations.

The basic policy question is whether the program is to be continued. If it is not continued, then contracts will end over the next several years and some portion of the land currently retired will return to production. A large portion of the environmental and conservation benefits will likely be lost, and Federal farm program costs will likely decline. If Congress decides to continue the program, three questions are likely to be at the core of the debate: what should be the size and characteristics of the reserve? what incentives should be included to keep land out of production after the contracts expire? and can a more certain funding mechanism be established?

Size and Characteristics of the Reserve

Some, especially farm groups, argue that all or most land currently in the reserve remains eligible in a future program. They would like to have a large reserve, and to emphasize traditional agricultural resource values, especially erosion control, or other closely related environmental values, such as water quality. But various commodity groups may identify different mixes of land to maximize the availability of the program to individuals who produce their commodity. Environmentalists, by contrast, will want to concentrate on lands where the environmental benefits are greatest, such as stream buffers or endangered species habitat. Some of these groups, such as wildlife protection advocates, will have more specific goals, in this case for various bird and animal populations.

Mixes of other alternatives could be considered to provide protection more efficiently, or to protect certain environmental values. Many interests have been exploring options for eligible land in terms of both the total acres and the characteristics of eligible acres. Economic Research Service (ERS) staff, researchers at universities, and others continue to identify various options and to map where eligible lands would be concentrated.

Keeping Reserve Lands Out of Production

There will likely be parallel efforts to continue to protect the benefits to agriculture and to the environment after current contracts expire. Several incentives have been enacted to encourage producers to keep these lands out of production, but few believe that these are sufficient. For example, in the 1993 land owner survey mentioned earlier, only 13 percent of the acres would stay in the program if producers were offered half the current annual rental rates. If current rental rates were extended, the survey indicated that 76 percent of the acres would stay in the program. USDA has examined each of 6 policy options under three commodity demand scenarios. The options include:

--Extending or renewing contracts, or holding additional signups;

--Purchasing easements as permitted under the 1990 farm bill;

--Purchasing land currently in the CRP;

--Purchasing the permanent reduction or exchange of acreage base;

--Encouraging conversion to compatible uses before or after the contract expires; and

--Permitting the return of CRP lands to cropping with enrollment into the Water Quality Incentive Program before the CRP contract expires.

Funding the Reserve

The revised program will need a dependable source of funding. More expensive options to the current program, such as extending all contracts or buying long-term easements on a significant portion of these lands will be difficult because of current Federal budget constraints, especially if new contract funding has to come from other Federal farm programs. Current annual appropriations for the CRP are now about $1.8 billion, more than all other agricultural conservation funding combined, and the current program will cost a total of almost $20 billion by 2002. Furthermore, reauthorization does not insure appropriations; Congress has decided to provide no additional funding for further enrollment in each of the last three fiscal years.

The difficulty in securing funding is not only caused by the budget crunch, but also by broader efforts to gradually reduce the Federal role in producer decisionmaking. To ensure that producers keep conservation reserve lands in the condition established under their contracts, either economic incentives and opportunities will have to be strengthened, such as allowing limited commercial use, or penalties for using the land in ways that are detrimental to conservation and the environment will have to be increased. Program supporters will be looking for low-cost approaches, such as allowing certain compatible commercial uses. Enlarged incentives will be difficult to achieve in the current tight budget climate, and environmentalists may see a major role for disincentives to encourage participation as well.

CRP Reauthorization and the Farm Bill Conservation Title

These generalizations barely capture the outlines of what is likely to be a complex and contentious debate over CRP. The outcome of this debate will likely affect development of other conservation and environmental provisions in the farm bill as well. The reserve is likely to offer the most significant source of funding for conservation efforts. If the reserve is not reauthorized with significant funding, then there is likely to be much less incentive for the disparate interests concerned with environmental issues in agriculture to come together to develop new policies or programs within the farm bill on topics such as water quality or endangered species.