Conservation Reserve Program:
Status and Policy Issues

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

Updated February 24, 1997

96-760 ENR

Background

Before CRP

Agricultural exports expanded rapidly through the 1970s to record levels, and producers responded by bringing additional land into production. Excessive rates of erosion, characterized as rivaling those of the 1930s dust bowl, were one byproduct of this expansion. When the boom ended in the early 1980s, producers were left with excess capacity and insufficient markets. Compounding woes for farmers was a widespread farm credit crisis with deflating land values. Federal programs at that time allowed annual set asides, but did not include any multi-year efforts that could provide more enduring benefits for either conservation or the producer's bottom line.

The CRP Before the 1996 Farm Bill

Congress enacted the CRP to fill this void. Program proponents sought to reduce excessive erosion, stabilize land prices, and slow chronic excess production. Of these benefits, erosion control was the most prominent. CRP allows producers who cultivate highly erodible or environmentally sensitive land to bid to retire it from annual production for 10 years (or longer in limited instances). Participants receive rental and cost sharing payments from the Farm Services Agency (FSA) and technical assistance from the Natural Resources Conservation Service (NRCS).

In administering the program, FSA has allowed enrollment only through signups during specified time periods. It has held a total of 14 signups, but only two since 1992. FSA decides which bids to accept, based on both the federal dollars available, and a comparison of the costs and benefits of each bid.

The 1985 legislation's goal was to enroll between 40 and 45 million acres of cropland, about 10% of the national total, before 1995. By 1990, almost 34 million acres had been enrolled in 9 signups. The 1990 farm bill did not change the acreage goal but included within this total lands to be enrolled in the Wetland Reserve Program (1 million acres). Enrollment since 1990 has brought the total as high as 36.4 million acres. During this period, the enrollment cap was lowered to 38 million acres to create a budget savings in reconciliation legislation.

Congress has repeatedly mandated that USDA change criteria for participation and procedures for program operation, with significant redirection in the 1990 farm bill, minor adjustments in other legislation, and directives in appropriations legislation. Initially, FSA limited the criterion for acceptance to erosion reduction. More than 22 million acres were enrolled in 1986 and 1987 under this criterion.

Since 1988, FSA has repeatedly altered the program's formula for accepting bids with a growing emphasis on various environmental benefits. Congress endorsed this changing emphasis in amendments in the 1990 farm bill. The land enrolled in more recent signups reflect these changes. Since the 10th signup, bids have been compared using a formula called the Environmental Benefits Index (EBI). Factors considered in the initial EBI included:

· Surface water quality improvement;
· Potential ground water quality improvement;
· Preservation of soil quality;
· Assistance to farmers most affected by conservation compliance;
· Tree planting;
· Enrollment in identified hydrologic unit areas; and
· Enrollment in conservation priority areas.

Until the contracts started to expire, new signups could be held only when Congress appropriated the necessary funds, which has not happened since FY1992. The Department used existing authority in 1995 to allow producers to terminate their contracts prematurely, then replace the terminated acres. Approximately 684,000 acres were replaced in the 13th signup. In 1996, it again offered an early-out option. Holders of contracts on an estimated 605,000 acres chose this option. Enrolled lands with especially high erosion rates or that provide certain environmental benefits, totaling about 14 million acres, were not eligible for the early-out option. Many more producers had been expected to use the early-out option, given high commodity prices and generous federal commodity payments.

The CRP Today

CRP participation currently is concentrated in the drier portions of the Great Plains; states with the most enrolled acres are Texas (about 4 million acres) and North Dakota (about 3 million acres). As the EBI is applied and older contracts concentrated in arid areas expire, the center of participation may move toward the East. The 1985 law set a participation ceiling at 25% of the cropland in a county, capping participation in numerous plains counties. Also, participants have planted 2.4 million acres to trees, making the CRP the largest federal tree planting program in history. Tree acreage is concentrated in the Southeast, with half of the acreage in Georgia and Mississippi.

The CRP has been effective in reducing erosion and providing other benefits. Average erosion on all enrolled acres has declined from more than 20 tons to about 2 tons per acre per year, according to NRCS statistics. Viewed another way, this program has reduced overall erosion nationwide by more than 22% (an estimated 700 million tons per year) although less than 10% of the cropland is enrolled in the program. Other conservation benefits NRCS has documented include 8,500 miles of filter strips, 1.7 million acres of wildlife practices, and more than 30 million acres devoted to grassland cover.

After a contract expires, Federal payments cease and producers are under no further obligation to maintain the conservation values established under the contract. The Department allowed participants to extend expiring contracts for one year in 1995 and again in 1996, pending implementation of the reauthorized CRP. As a result, contracts will expire on nearly 23 million acres on September 30, 1997. Language in the FY1997 agriculture appropriations legislation prohibits another extension. Past participants who decide to plant annual commodities on land that is defined as highly erodible (about 75% of the enrolled land meets this definition) risk losing farm program benefits if they do not fully implement an approved conservation plan in two years.

The CRP is a costly program. Current annual costs are slightly below $2 billion. Cumulative costs, before changes in the 1996 amendments, were estimated to be slightly below $20 billion. Proponents argue that these costs are offset by its conservation and environmental benefits. Estimates of the annual value of these benefits have ranged from slightly less than $1 billion to more than $1.5 billion. Some analysts estimate that the value of the benefits approach or exceed program costs in some areas.

Given both the large federal investment made in the CRP and the extensive benefits this investment has purchased, what contract holders plan to do on these lands is of great interest. The most recent large survey of these plans, conducted in late 1993, found that holders intended to return 63% of their enrolled acres (about 23 million acres) to crop production. These data provide a snapshot of holder intent, but changing conditions and expectations may alter the thinking of many during the several years that contracts are expiring. High prices or expanding markets will attract more interest in crop production, while shrinking markets or low prices will encourage more producers to retain conserving uses. These decisions will vary by commodity, by region, and by year.

The 1996 Farm Bill

Discussions of what to do next began during the 103rd Congress in anticipation that the earliest contracts would expire before a 1995 farm bill could be enacted. 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 to work for reauthorizing the program after 1995.

Most interest groups that expressed a view on CRP during these hearings and throughout the farm bill debate supported reauthorization. Groups differed, however, as to the exact form that a continued program should take. Farm groups in many states and many national farm organizations recommended that modifications be minimal. Environmental groups generally sought to add more acreage that would provide water quality and other environmental benefits, while wildlife groups sought larger blocks of land for habitat. The only opposition to CRP came from a coalition of large grain processors and related businesses who sought to maximize grain supplies and lower market prices.

Some interests expressed concern that if the program was not reauthorized, a substantial portion of the land currently retired would return to production, negating many of the environmental and conservation benefits and lowering some commodity prices. Many in Congress shared these concerns, and the decision to continue the program was never in doubt. As finally enacted in the 1996 farm bill, the Congress made several changes, but left decisions on priorities for future enrollment largely to the Department. The changes include:

· Making the CRP an entitlement financed by the Commodity Credit Corporation and extending program authority through 2002,
· Limiting maximum enrollment at any time to 36.4 million acres,
· Allowing contracts on land that does not contain high environmental values or high erosion potential and that has been enrolled at least 5 years before enactment to be terminated with 60 days' notice, and
· Limiting conservation requirements for land returning to production to those that are placed on similar lands.

Congress set a 90-day deadline for issuing rules; they should have been issued in early July. It set a tight deadline because many farmers will make basic farming decisions based on their ability to participate in the CRP program. The Department missed the July deadline, but issued interim rules, generally making adjustments to the existing program, on August 27, 1996. One major change under these rules replaced enrollments during signup periods with continuous enrollment for lands that offer specified high environmental benefits, including filter strips, riparian buffers, shelter belts, living snow fences, field windbreaks, grassed waterways, salt tolerant vegetation, and shallow water areas for wildlife.

The Department's delay in the rule-making process has troubled many in Congress. Members of the House Agriculture Committee expressed their concerns at a September 19, 1996 oversight hearing. Proposed rules to implement provisions in the 1996 farm bill were released four days after the hearing, on September 23, 1996. Final rules went into effect on February 12, 1997. This program attracts considerable interest; almost 3,500 comments were submitted in response to the proposed rule, and the Department was lobbied intensively in anticipation of decisions that were made public in the February announcement of the final rule.

Implementation Issues

Eligible Acres

The final rule makes an estimated 230 to 240 million acres eligible for the Reserve. Eligible acres must have been planted or were considered to have been planted in at least 2 of the past 5 years. Eligible land also includes certain marginal cropland. Eligible land must also meet at least one of the following criteria:

· Have an Erosion Index (EI) greater than 8, or be considered highly erodible land under the conservation compliance provisions;
· Be considered a cropped wetland;
· Be devoted to a highly beneficial environmental practice, such as filter strips, riparian buffers, grass waterways, shelter belts, or wetland protection areas;
· Be subject to scour erosion;
· Be located in a national or state priority area for the CRP; or
· Be cropland associated with or surrounding non-cropped wetlands.

While national priority areas have been used before, state-designated priority areas are being used for the first time. NRCS has already designated them for the Environmental Quality Incentives Program (EQIP). States may designate up to 10 percent of their cropland as priority areas. In addition, three national priority areas were designated in farm legislation, including drainages that feed into Long Island Sound, Chesapeake Bay and the Great Lakes. The Department then designated the Prairie Potholes as a fourth national priority area.

Accepting Bids

The characteristics of land in the reserve will be largely determined by application of an environmental benefits index to compare the benefits of bids. This index will decide the future shape of the program in the 15th signup, to be held during March 1997, as contracts on about 22 million acres will end September 30, 1997. (New contracts for acreage under contracts that expire on September 30, 1997 will take effect on October 1, 1997; for other contracts, each participant can choose an effective date of October 1, 1997 or 1998.) The index includes:

· Cost to enroll the acres;
· Wildlife habitat benefits;
· Water quality benefits;
· On-farm benefits from reduced erosion;
· Likely long-term benefits beyond the contract period, such as from planting trees;
· Air quality benefits from reduced wind erosion; and
· Benefits of enrollment in conservation priority areas help to improve adverse water quality, wildlife habitat, or air quality.

The Department has assigned point totals to each of these categories. Excluding cost, a total of 400 points is theoretically possible, with up to 100 points for wildlife habitat, water quality and soil erosion, up to 50 points for benefits beyond the contract period, and up to 25 points for air quality benefits and enrolling land in priority areas. Costs do not have a points scale, although lower costs and higher benefits will receive a higher rating, and 10 points will be credited for sites that do not need cost-sharing assistance to meet the CRP contract requirements. States also have the option of developing their own ranking process to address particular concerns. Four states, Colorado, Missouri, Nebraska, and Oregon, chose this alternative for the 13th signup. States choosing this option would determine which bids to accept based on the ranking and the allocation to the state.

The 1996 farm bill requires that rental rates be limited to local market values. FSA has prepared state maps that show the maximum acceptable county rates. These rates can be adjusted for site-specific productivity factors. In addition, the rental rate can include an incentive of up to $5 per acre per year to perform certain maintenance obligations. A review of some of the rental rate maps, which were prepared at the local and state levels, show some apparent inconsistencies across state boundaries. The availability of these maps should give each bidder a clear indication of the upper boundary of an acceptable bid. There is a widespread concern that these rates will be less than many producers will be willing to accept.

For the first time, all eligible land will no longer receive the same treatment. Continuous enrollments will give certain lands that provide these specified benefits much easier access to this program. Continuous enrollments would be halted only if the enrollment ceiling is exceeded. Every acre enrolled in this process will be an acre that can not be added during signup periods. High interest in continuous enrollment may squeeze out opportunities for others. While the continuous enrollment has been available for several months, FSA does not have data on participation. An FSA representative stated that participation has been limited, but that participation will increase rapidly after the farm community learns of it.

Soil erosion will be considered in a different way than in earlier signups. All eligible acreage under the erosion criteria must exceed an erodibility index of 8 or be considered highly erodible and subject to conservation compliance. Land currently enrolled that would not be eligible in the future is estimated to total more than 8 million acres, and is concentrated in a few states. For example, 600,000 acres in Kansas and 1 million acres in North Dakota would not be eligible. But the program will still have a large pool to draw on as, nationwide, more than 140 million acres will be eligible under the erosion criteria.

Congressional Interest in Implementation

Congress will closely monitor implementation of the CRP. While the CRP, as a concept, continues to enjoy bipartisan support, several specifics about implementation seem likely to attract congressional scrutiny. One is what priorities will be given in deciding which land can participate, and how might the characteristics of participating lands change from earlier enrollments. While the release of the EBI and the publication of rental rates by county provide some basis for comparison, only about 15% of the eligible land can be enrolled before the CRP reaches its ceiling. A second one is the way the Department maintains the size of the reserve in the future; the 1996 farm bill set the 36.4 million acre ceiling. The Department has stated that it anticipates that the reserve will drop to about 30 million acres, then gradually increase to the maximum allowable size by 2002.