Conservation Reserve Program: Status and Current Issues

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The Conservation Reserve Program (CRP), enacted in 1985, provides payments to farmers to take
highly erodible or environmentally sensitive cropland out of production for ten years or more. It
is the federal government’s largest private land retirement program. The program is administered
by the Farm Service Agency (FSA) of the U.S. Department of Agriculture (USDA), with
technical assistance provided by USDA’s Natural Resources Conservation Service. The CRP also
has several subprograms, the best-known of which is the Conservation Reserve Enhancement
Program (CREP).
The 2008 farm bill (P.L. 110-246) reauthorizes CRP through FY2012 but lowers the maximum
acreage level to 32 million acres, down from the previous cap of 39.2 million acres. Haying and
grazing conditions on CRP land are amended, and incentives are authorized to assist socially
disadvantaged and beginning farmers in leasing or purchasing land under a CRP contract.
December 2008 national enrollment stands at 33.6 million acres, a decrease of approximately 1.1
million acres from August and 3 million acres from September 2007. Most of the decreased
acreage was in North Dakota and South Dakota. There was no CRP general sign-up in FY2008,
although there was a continuous sign-up. A sign-up for critical feed use (CFU) haying and grazing
was announced by USDA in May. A U.S. District Court issued a permanent injunction in July
against the CFU except for those who applied before a temporary restraining order issued on July
8. The CFU exemption expired in November. Between 2007 and 2010, 27.8 million acres under
CRP contracts will expire. Contracts for approximately 23 million (83%) of these acres have been
renewed or extended. This report will be updated periodically.

CRP General Background...............................................................................................................1
Enrolling in CRP.............................................................................................................................1
General Sign-up........................................................................................................................1
Environmental Benefits Index (EBI)..................................................................................2
Continuous Sign-up (includes Bobwhite Quail and Non-Floodplain Wetlands).......................2
Conservation Reserve Enhancement Program (CREP).............................................................2
Farmable Wetlands Program (FWP).........................................................................................3
Other CRP Programs.................................................................................................................3
Current Issues..................................................................................................................................3
CRP Provisions in the 2008 Farm Bill......................................................................................3
Managed Haying and Grazing..................................................................................................4
Haying and Grazing for Critical Feed Use (CFU)....................................................................4
Expiring CRP Contracts and Reenrollment and Extension Policy............................................5
Contract Termination and Penalty Fees.....................................................................................6
Tax Status of CRP Payments.....................................................................................................6
Effects of the CRP on Local Economies...................................................................................6
Program Costs and Benefits............................................................................................................7
Rental Rates for CRP Acreage..................................................................................................7
CRP Environmental Results......................................................................................................7
Table 1. CRP Initiatives and Acreage Enrollment...........................................................................3
Author Contact Information............................................................................................................8

The Conservation Reserve Program (CRP) is the federal government’s largest land retirement
program for private land. It was first enacted by Congress in 1985 to help control soil erosion,
stabilize land prices and control excessive agricultural production. Since then, program purposes
have been expanded to include environmental goals. The program is administered by USDA’s
Farm Services Agency (FSA), with technical assistance from USDA’s Natural Resources
Conservation Service (NRCS) and funding from USDA’s Commodity Credit Corporation (CCC).
The FSA makes annual rental payments based on the agriculture rental value of the land, and
provides cost-share assistance for up to 50% of the participant’s costs in establishing various
approved conservation practices (e.g., planting a cover crop on the land to reduce erosion).
Participants enroll in CRP contracts for 10 to 15 years.
Participants bid to retire land from production for 10-15 years. Contracts are awarded by FSA
based on their assessment of the land’s environmental value using an Environmental Benefits
Index (EBI). If the land is accepted, the landowner may enroll the land, receive annual rental
payments for it, and maintain the land under an approved conservation plan. After a CRP contract
expires, federal payments cease. If the land in question is “highly erodible” (about 75% of the
land enrolled in the CRP meets this definition) and participants decide to return the land to
production, they must manage this land under a NRCS-approved conservation system if they wish
to be eligible for some federal farm programs (including commodity payments).

There are two types of sign-ups for enrolling land in the CRP: general and continuous. As of
December 2008, there were 744,041 CRP contracts nationally on 417,754 farms (approximately
20% of all farms) under all CRP programs. These data compare to 788,118 CRP contracts on

443,615 farms in September 2007.

Land eligible for CRP enrollment must be either (1) cropland that is planted or considered planted
to an agricultural commodity in four of the previous six crop years from 1996 to 2001, or (2)
certain marginal pastureland that is enrolled in the Water Bank Program or suitable for use as a
riparian buffer or for similar water quality purposes.
General sign-ups are specified enrollment periods during which landowners compete nationally to
enroll their land in the CRP. Approximately 88.7% of CRP acreage (29.5 million of 33.6 million
acres) is enrolled through general sign-up. Applicants must meet certain eligibility criteria,
evaluate their land according to FSA’s Environmental Benefits Index, and submit bids to FSA for
enrollment. FSA accepts applications that demonstrate the highest environmental benefits. These
general sign-ups are always competitive. For the CRP’s most recent general sign-up (number 33),
which ran from March 27 to April 28, 2006, USDA selected 1 million acres of the 1.4 million
acres offered. This most recently enrolled acreage includes about 673,000 acres of land located
within conservation priority areas, about 629,000 acres with an erodibility index of eight or
greater (highly erodible), and about 265,000 acres to be restored to rare and declining habitats.

As the CRP has been expanded to include broader environmental goals, FSA has adjusted the
categories and points awarded under the EBI. For example, FSA announced in June 2003 that, for
the first time, it may award points to projects which have the potential to sequester carbon
(reducing greenhouse gas emissions). Other factors include wildlife habitat benefits from planted
cover crops, water quality benefits from reduced erosion, and whether benefits will endure
beyond the contract period. Offers that included a willingness to accept less than the maximum
rental rate for acreage as well as offers to reenroll land, may have received additional points. FSA
ranks all applications nationally, and then sets an EBI score cutoff above which applications will
be accepted.
Environmentally desirable land devoted to specific conservation practices with high
environmental benefits may be enrolled in the CRP at any time for 10-15 years under continuous ¹
sign-up. Offers are automatically accepted (provided the land and producer meet certain
eligibility requirements) and are not subject to competitive bidding. Contracts usually include
additional incentive payments. Within the continuous sign-up program there are some options
tailored to certain conservation needs, such as restoring floodplain wetlands and native hardwood
trees in wetlands. On August 4, 2004, the Administration announced two more initiatives: a
250,000-acre initiative to restore bobwhite quail habitats in the Midwest and the Southeast, and a
250,000-acre initiative to restore wetlands located outside floodplains (including Great Plains
playa lakes). There are currently (December 2008) 4.1 million acres enrolled under continuous
sign-ups (including CREP acreage, discussed below). The 2008 continuous sign-up (number 36)
added 282,000 acres to the CREP total, bringing the total to CREP to 380,000 acres. In December
2008, there were approximately 7 million more contracts under continuous sign-up than under the
general sign-up.
This is a joint federal-state continuous sign-up program available in parts of 28 states. CREP
targets geographic areas with agriculture-related environmental problems, such as Maryland’s
Chesapeake Bay and Florida’s Everglades. Some states (e.g., New York and Ohio) have multiple
CREPs, each targeting a different area of the state. USDA provides 80% of the funding, and a
non-federal entity (typically the state) contributes the remainder. States may automatically enroll
up to 100,000 acres. Unlike the general sign-up, CREP both encourages landscape-scale
conservation efforts and offers the flexibility to address locally identified needs. As of December
2008, over 1.1 million acres were enrolled in CREP, nearly 100,000 acres more than in September

2007.

¹
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As authorized under the 2002 farm bill, farmable wetlands—those wetlands that have been
partially drained, or are naturally dry enough to allow crop production in some years, but
otherwise meet the definition of a wetland—may be enrolled in the CRP on a continuous basis.
Up to 100,000 acres may be enrolled from any state (this may be increased to 150,000 acres after
three years). The farm bill reserved one million acres for farmable wetlands enrollment. In
December 2008, there were 184,348 acres enrolled, approximately 12,000 acres more than in
September 2007.
Several other CRP initiatives support additional specific conservation practices. These include
acreage in upland bird habitat buffers, bottomland hardwood trees, non-flood plain and playa
wetlands, longleaf pine plantings, the Prairie Pothole duck nesting habitat, and state acres for
wildlife enhancement. Table 1 provides acreage data for these programs as of December 2008
and cumulative acreage totals for each program.
Table 1. CRP Initiatives and Acreage Enrollment
^{(December 2008)}
^{CRP Initiativ}^{e and Ac}^reage^Goal^{Acreage a}^{dded in 2008}^{Cumulative Acreage}
^{Farmable wetland progra}^{m (up}^t^o^{1 milli}^{on acres)}^2,27⁰^184,³⁴⁸
^{Upland bird ha}^{bitat bu}^ffers⁽²⁵^0,0^{00 ac}^res)^2,07⁶^201,¹⁹³
^{Bottomland hardwood trees (500,00}^{0 acres)}⁷⁸²^42,8¹⁹
^{Non-flood plain and playa wetlands (250,0}⁰⁰^acres)²³³⁷^47,5⁸³
^Floo^{d-plain wetlands (500,00}^{0 ac}^res)^2,03³^118,⁸⁸⁸
^{Long-leaf pine planti}^{ngs (2}^50,0⁰⁰^acres)^3,64⁰^64,5⁸³
^{Prairie Pothole duck nesting ha}^{bitat (100,0}⁰⁰^acres)^3,34⁶^41,7⁹⁷
^{State acres for wildlife enhance}^m^{ent (5}^00,0^{00 ac}^res)^39,3⁶²^117,³⁰⁸
^Source:^{Farm Service Age}^ncy.

The 2008 farm bill (46) reauthorizes the CRP with a maximum acreage cap of 32 million acres,
down from a cap of 39.2 million acres established in the 2002 farm bill (P.L. 107-171). The farm
bill further directs the Secretary of Agriculture to give priority (where environmental benefits are
equal) in contract bids to producers who reside in the county where the CRP acreage is located.
The farm bill also amends the pilot program for wetland and buffer acres in CRP. Each state can
enroll up to 100,000 acres, up to a national maximum of 1 million acres. This maximum may be
raised to 200,000 in each state following a review of the program. Eligible lands for the program

include (1) wetlands that have been cropped in three of the immediately preceding 10 crop years;
(2) land on which a constructed wetland is to be developed to manage fertilizer runoff; and (3)
land that has been devoted to commercial pond-raised aquaculture.
The farm bill permits 50% cost-share payments on land used for hardwood trees, windbreaks,
shelterbelts, and wildlife corridors for contracts entered into after November 1990. Contracts
extend from a minimum of two years up to four years. Funding of $100 million also is authorized
to cover cost sharing for the thinning of trees to improve the management of natural resources on
the land.
The 2008 farm bill modifies the criteria for evaluating CRP contract applications. Evaluation
criteria include the extent to which a CRP contract application would improve soil resources,
water quality, or wildlife habitat. The bill also allows the Secretary to establish different criteria in
various states or regions that lead to improvements in soil quality or wildlife habitat. Preference
in new CRP contracts will be given to land owners and operators who are residents of the county
or a contiguous county in which the land is located.
The legislation also establishes incentives to increase the participation of beginning and socially
disadvantaged farmers and ranchers. It authorizes CRP contract modifications to assist these
producers in leasing or purchasing land under a CRP contract from a retired or retiring farm
owner or operator. The provision authorizes $25 million for assistance in making these land
transfers.
Other CRP provisions in the 2008 farm bill include redefining the Chesapeake Bay region as a
priority area without limiting the region to the states of Pennsylvania, Maryland, and Virginia.
While the new program apples to all watersheds draining into the Chesapeake Bay, the
Susquehanna, Shenandoah, Potomac, and Patuxent Rivers will get funding priority.
Managed haying and grazing are permitted activities under certain conditions. A disaster
declaration, for example, may permit contract holders to harvest hay or to graze their cattle for
certain periods. Where such activity is permitted, contract payments may be reduced. The 2008
farm bill modifies the managed haying and grazing regulation (Section 2108) to permit routine
grazing to control invasive species under specific conditions and also permits the installation of
wind turbines under certain conditions. Where routine harvesting is permitted, state technical
committees are required to coordinate to ensure appropriate environmental management. When
such activities are permitted, rental payments will be reduced by an amount commensurate with
the economic value of the authorized activity.
On May 27, USDA announced that 24 million acres of CRP land could be used in 2008 for a
critical feed use (CFU) program of managed haying and grazing following primary bird nesting
season. This contract modification is restricted to the least environmentally sensitive land and will
limit the scope and frequency of any managed haying and grazing. The National Wildlife
Federation (NWF) and six state NWF chapters sought an injunction against USDA for failure to
conduct an appropriate environmental review of the proposed CFU program. On July 8, the U.S.
District Court for the Western District of Washington issued a temporary restraining order (TRO).

On July 24, the court issued a permanent injunction suspending the CFU provision except for
those who had been approved by or had applied to FSA prior to the TRO, or who had invested at
least $4,500 toward haying or grazing equipment and preparation prior to the TRO. Where the
application was approved prior to the TRO, haying and grazing had to be completed by
November 10. For subsequent approvals, haying and grazing had to end by September 30 and
October 15, respectively. There have been no stated plans to authorize a CFU exemption for
FY2009.
Approximately 28 million acres under CRP contract will expire between 2007 and 2010.
Contracts covering 5.9 million acres expired in 2008, with 3.4 million more acres expiring in
2009, and 1.6 million acres in September 2010. Approximately 83% of this expiring acreage has
been reenrolled or had contracts extended as of August 2008. Of the 15.7 million contract acres
that expired September 30, 2007, 13.6 million (86.6%) were approved for extensions or new
enrollment contracts. Approximately 4.8 million of the 5.9 million acres expiring in 2008 also
have extensions or new contracts (81.6%). Contracts were extended or renewed based on the ²
Environmental Benefit Index (EBI) score and the land’s location within national priority areas.
FSA ranked individual contracts into one of five tiers based on the environmental benefits of the
original EBI score. Eligible participants ranking in the first tier (81%-100%of the EBI) could
reenroll their land in new 10-year contracts. Farmers and ranchers in this top tier with wetlands
enrolled were eligible for 15-year contracts. Only acreage under general sign-up contracts is
eligible.
Contract extension ranges from two to five years. Eligible participants ranking in the second tier
(61%-80% of the EBI) could extend their contracts for five years. Third-tier participants (21%-
40% of the EBI) could receive three-year extensions. Eligible participants in the bottom tier could
extend their expiring contracts by two years.
Participants with contracts expiring between 2008 and 2010 were also notified by FSA that they
could choose to reenroll or extend by June 30, 2006. Of the 12.1 million acres expiring in 2008-

2010, 9.6 million (80.3%) had been approved for reenrollment or extension as of December 2007.

The high commodity prices in 2008 potentially discouraged some eligible producers from
reenrolling or extending their contracts. Other producers, however, may have judged the high
commodity prices as a temporary phenomenon and decided to reenroll or extend their contracts.
Approximately 75% of the acreage expiring in 2010 has been reenrolled or extended. This
compares to approximately 82% reenrollment and extension for acreage expiring in 2008 and
2009. Continuing lower commodity prices could remove some of the incentive for eligible
producers not to renew contracts going forward.

²
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High grain prices in the first half of 2008 appeared to make contract terminations attractive to
some producers. Under current law, however, a producer wishing to terminate a contract early
faces a penalty fee of 25% on rent payments paid, plus repayment, with interest, of all the funds
already paid to the producer. This includes any cost-share payments. CRP acreage is also seen in
some quarters as a potential resource for renewable fuel feedstocks.
In July 2008, Secretary Schafer stated that there would be no penalty-free terminations. Penalties
would apply to any contract holder who reenrolls or extends acreage and then decides to
terminate the contract. An expiring contract that is extended and then later terminated would have
penalties based on the original contract, not just the period since contract extension. Expiring
acreage that is reenrolled is under a new contract and would incur penalties only on the period
covered by the new contract.
CRP rental payments are regarded by the Internal Revenue Service (IRS) as income from the
business of farming. As such, they are subject to self-employment Social Security taxes.
Producers, however, would like to treat CRP payments as rental income not subject to the self-
employment tax of 15.3%. The IRS position was supported by the Sixth Circuit Court in March

2000 in Wuebker v. Commissioner, 205 F.3d897. In December 2006, the IRS issued Notice 2006-

108 reinforcing its position that CRP payments are subject to self-employment taxes. Section

15301 of the 2008 farm bill exempts CRP payments from self-employment taxes for disabled and ³

retired contract holders after December 31, 2007.
Retiring land in rural, largely agricultural economies could result in fewer farmers and fewer
farming-related jobs in these areas. A USDA report found that, although high CRP enrollment
was associated with some job loss in rural areas between 1986 and 1992—the years the CRP was
first underway—this was generally not the case during the 1990s. However, the report noted that
national trends could mask regional adjustments, and that “local economic adjustments might be ⁴
sizeable.” Losing existing CRP acreage or halting new enrollments may also have effects on
local economies where hunting and fishing are important economic activities.
According to FSA data, the CRP had 33.6 million acres enrolled in CRP as of December 2008,
including the various subprograms (e.g., Conservation Reserve Enhancement Program, Farmable
Wetlands). This is a decline of about 3 million acres over the total acreage enrolled in September
2007. By statute, CRP enrollment is capped at 25% of a county’s cropland. Approximately 130
counties have at least 22.5% enrolled, although this can include counties with very small total

³
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acreage of cropland. Of these 130 counties, 80 have at least 25% enrolled. The farm bill exempts
CREP from the county total cap.

Acres enrolled in CREP, continuous enrollments, or the farmable wetlands program are generally
eligible for higher payments than acres enrolled under general sign-ups because of their higher
environmental benefits, location and prevailing rental rates, and additional financial incentives for
participation. However, such contracts involve much smaller acreage on average. CREP payments
average $127 per acre and $117 for the FWP, versus an average per-acre payment of
approximately $44 for the general sign-up acreage.
CRP payments under all programs in FY2008 were approximately $1.8 billion. The
Congressional Budget Office estimated CRP contract obligations would cost $1.92 billion in
FY2007 and $2.4 billion annually through 2017. NRCS estimated that, prior to 2003, monetized
CRP benefits (such as increased wildlife habitat and small game hunting) averaged about $1.4
billion per year. This figure does not include non-monetized benefits such as improved
groundwater quality and wetland restoration.
The average rental rate for all CRP land was $51.12 per acre as of December 2008. Rental rates
range from an average of $44 for general sign-up acreage to nearly $128 for CREP acreage. CRP
rental rates are based on the three-year average of local dry-land cash rental rates. An up-front
signing incentive payment (SIP) of $100 to $150 per acre (depending on contract length) is
available for eligible participants who enroll certain practices. The one-time SIP is made after a
contract is approved and all payment eligibility criteria have been met. A practice incentive
payment (PIP) equal to 40% of the eligible installation costs is also available for eligible
participants who enroll certain practices on their acreage.
The 2008 farm bill (Section 2110) directs USDA to conduct an annual survey of per-acre
estimates of the average market dry land and irrigated land cash rental rates and to post these
rates on a publicly accessible USDA Website.
FSA estimates that, compared with 1982 erosion rates, the CRP has reduced erosion by more than

454 million tons per year on the 34.6 million acres enrolled in the program. Through April 2006,

CRP had also restored two million acres of wetlands and 2.5 million acres of buffers. Other
conservation benefits NRCS has documented on these lands include the sequestration of more
than 48 million metric tons of carbon annually; more than 3.2 million acres of wildlife habitat
established; and a reduction in the application of nitrogen (by 681,000 tons) and phosphorus (by
104,000 tons). Also, participants have planted about 2.7 million acres to trees, making it the
largest federal tree-planting program in history.

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