-------------------------Indexing Terms------------------------- 
REPORTNUM:   RCED-93-132						        

TITLE:     CONSERVATION RESERVE PROGRAM: Cost- Effectiveness Is Uncertain

DATE:   03/26/1993 
				                                                                         
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RCED-93-132

CONSERVATION RESERVE PROGRAM

Cost- Effectiveness Is Uncertain

GAO United States General Accounting Offlce

Washington, D. C. 20648 Results in Brief

Resources, Community, and Economic Development Division

B- 252621 March 26,1993 The Honorable Richard J. Durbin Chairman,
Subcommittee on Agriculture,

Rural Development, Food and Drug Administration, and Related Agencies
Committee on Appropriations House of Representatives

Dear Mr. Chairman: The Conservation Reserve Program (cup), authorized by the
Food Security Act of 1985, is costly. Under this program, the U. S.
Department of Agriculture (USDA) will spend about $19.2 billion between
fiscal years 1987 and 2093 to temporarily remove 36.5 million acres of
cropland from production. We previously reported that although CRP was
achieving substantial reductions in soil erosion, it could be less costly
and more effective. ' We also found that in managing the program, USDA was
focusing primarily on meeting the mandated acreage enrollment requirement
and only secondarily on fulfilling CRP' S environmental objectives.

In your January 21,1993, letter and in subsequent discussions with your
office, we were asked to determine whether the performance of CRP provides a
balance between the cost of the land enrolled and the environmental benefits
received. We were also asked, to the extent practicable, to profile other
USDA conservation initiatives- such as the conservation compliance
provisions and the Agricultural Conservation Program, the Small Watershed
Program, and the Great Plains Conservation Program- that are designed to
reduce the environmental impact of agriculture.

We cannot definitively determine whether there is a balance between the
costs and environmental benefits of CRP for two principal reasons. First,
the dollar value of the program' s environmental benefits cannot be
precisely assessed. Second, USDA has not quantified the effect on the
environment of removing the enrolled acres from production. However, CRP is
an expensive way to reduce the environmental problems linked to agricultural
production. Under lo- year contracts, USDA will pay more than $19 billion to
remove 36.5 million acres from production. Through these

‘ Farm programs: Conservation Reserve program Could Be Less Costly and
More Effective (A 48 million acres).

Page 1 GAO/ RCED- 93- 132 Conservation Reserve Program

B- 262621 contracts, USDA has achieved some environmental benefits by
temporarily removing land from the pressures of cultivation. However,
according to USDA officials, it is important for CRP to meet its target
enrollments to satisfy the program' s other objectives, including curbing
the production of surplus commodity crops and supporting farmers' incomes.
As a result, USDA allowed land with fewer environmental benefits into the
program. Furthermore, CRP postpones rather than resolves environmental
problems associated with agriculture. Additional costs may be incurred to
maintain the program' s objectives when the contracts begin to expire in
1996.

Other USDA conservation initiatives use strategies that cover more acres of
cropland, cost less, and provide more enduring benefits. Although we have
not evaluated the effectiveness of all of the initiatives or the value of
their environmental benefits, they have several structural advantages over
CRP. First, without taking land out of production, they require or help
farmers to reduce erosion and minimize other environmental impacts on about
170 million acres of cropland. Second, in fiscal year 1993, these
initiatives will cost an estimated $630 million, about 40 percent of the
current annual cost of CRP. Third, they provide technical and/ or financial
assistance to make changes to the land and farming practices that are
designed to result in sustainable environmental benefits. For example, the
conservation compliance provisions require farmers with highly erodible
cropland to adhere to conservation plans in order to continue receiving
their federal farm program payments and benefits, worth billions of dollars,

Background Cropland accounts for more than half of the estimated 5.4 billion
tons of soil that are eroded each year on nonfederal land. This erosion
reduces the

land' s productivity and increases the need for chemical fertilizers.
Furthermore, eroded soil, accompanied by runoff containing fertilizers and
pesticides, contributes to water quality problems in the nation' s b
streams, lakes, and other water bodies.

Concerned about these problems, the Congress included several conservation
initiatives, including CRIB, in the Food Security Act of 1985. Participation
in CRP is voluntary and is designed to address erosion and environmental
concerns, curb the production of surplus commodities, and support farmers'
incomes. Earlier national farm legislation had established a conservation
reserve program under which land was retired to achieve multiple objectives.
Specifically, the Agriculture Act of 1956 had established a soil bank that
combined acreage reductions with conservation objectives. Between 1957 and
1972, up to 29 million acres

Page 2 GAO/ RCED- 93- 132 Conservation Reserve Program

B- 252621 were idled in an effort to help farmers reduce surplus commodity
production and shift less productive cropland into conservation uses. No
conservation criteria were used to determine eligibility for the program,
and farmers decided which land they wanted to enroll.

The Food, Agriculture, Conservation, and Trade Act of 1990 continued CRP by
authorizing total enrollments of 39 million to 44 million acres by 1996 and
encouraged participation in areas where agriculture harms water quality. In
particular, the Congress gave priority to enrollments in the Chesapeake Bay,
Long Island Sound, and Great Lakes regions and in other areas as designated
by the Secretary of Agriculture.

CRP is authorized in all 50 states, Puerto Rico, and the Virgin Islands.
USDA carries out the program through its state and local committees. In
response to a USDA sign- up solicitation, farmers decide what eligible
cropland to offer (bid) for enrollment. Farmers whose bids are accepted
enter into a contract (generally for 10 years) with USDA to remove the laud
from production and establish a cover crop that protects soil and other
natural resources and to take a proportionate reduction in their commodity
programs' base acreage. In return, farmers receive annual rental payments
and a portion of the cost to establish a cover crop to reduce erosion.

I CRP Is Expensive and For a total expenditure of about $19 billion between
1987 and 2003, USDA Has Uncertain Benefits

has purchased some environmental protection through CRP. However, the
precise dollar value of CRP'S environmental benefits cannot be determined,
and USDA has not determined exactly how removing the land contributes to
environmental protection. We do know that much of this protection is
temporary. After the IO- year contract expires, the land may be returned to
4 production, and additional actions and expenditures may be required to
maintain the desired environmental benefits. In addition, USDA'S
implementation strategies have reduced the effectiveness and increased the
costs of the program. Because USDA continues to place a high priority on
meeting acreage targets, it has broadened its basic eligibility criteria to
include land with fewer environmental benefits.

Program Costs Have Been As of March 1,1993, USDA had enrolled 36.5 million
acres of the minimum High targeted 39 million acres in CRP (94 percent). 2
The Department expects that

“Of the 36.6 million acres, 1.1 million acres had been tentatively
enrolled, but their contracts had not been filed with the Department.

Page 3 GAO/ WED- 93- 132 Conservation Reserve Program

B- 262621 budget outlays will be $19.2 billion through fBcal year 2003, or
$17.3 billion in 1992 dollars (see table 1). 3

Table 1: USDA' s Costs for Existing CRP Contracts Dollars in billions

Fiscal years 1987- 1992 1993- 2003 (est.)

Initial Rental cost- share Total payments payments payments

$6.93 $0.91 $7.84 11.34 0.05 11.39 Total $18.27 $0.96 $19.23 Source: GAO
analysis of USDA budget data.

To meet the minimum authorized 39- million acre target, USDA must enroll
another 2.5 million acres in fiscal years 1994 and 1995. We estimate that
the cost of this enrollment will add about another $1.8 billion to the
program' s budget outlays and bring the program' s total to about $21
billion, or $18 billion in 1992 dollars.

USDA' S enrollment practices have increased the costs of CRP' S rental
payments. In 1989, we reported that USDA had entered into IO- year contracts
that resulted in rental payments to some CRP participants that were 200
percent to 300 percent higher than local IJSDA officials' estimates of the
prevailing local rental rate. 4 Since then, IJSDA has aausted its bid
acceptance system to increase competition among bidders (see app. I).

Concerned about the high rates being paid in many parts of the country, the
Congress, beginning with USDA' S appropriations act for fiscal year
1988,” and annually thereafter, has included a proviso concerning CRP
rental payments. The proviso states that “none of the funds in this
Act may be 1, used to enter into new contracts that are in excess of the
prevailing local rental rates for an acre of comparable land.” IJSDA
has interpreted this

“CRP' s costs are offset to some extent when farmers enroll acres in
the program that would otherwise be used for growing crops covered by USDA'
s annual price and income support programs. Enrolling acreage in CRI'
instead of in annual commodity programs reduces crop production, crop
surpluses, and the costs of USDA' s commodity programs. Estimating the
extent of CRP' s effects on commodity crop production and, in turn, CRP' s
offsetting costs, depends on a variety of assumptions. Because of the range
and complexity of these assumptions, a simple estimate is unlikely ta be
accurate. In 1990, USDA' s Economic Research Service estimated that the net
government costs of a 46- million- acre CRP were $2.0 billion to $6.6
billion over the life of the program.

“In our 1989 report, we used local rental rate data provided by IJSDA.
We did not know the extent to which these data reflected rates on IO- year
leases rather than on shorter- term leases.

KRural Development, Agriculture, and Related Agencies Appropriations Act,
1988 (P. L. 100- 202, 101 Stat. 132% 322,132X347 (1987).

Page 4 GAO/ RCED- 93- 132 Conservation Reserve Program

8.262621 proviso as allowing for consideration of the “nature of the
contract” used- i. e., CRP' S rental rates must take into account the
participant' s risk of entering into a lo- year contract (prevailing local
rental rates are generally for 1 year), the cost of idling farm resources,
and the cost of planting and maintaining an approved cover crop. While these
factors may be necessary to encourage enrollment to curb excess production,
meet income support objectives, and enroll land with environmental benefits,
our analysis of recent enrollments indicates that these adjustments continue
to increase CRP' S costs but not by as much as we previously reported.

Value of Environmental Benefits Is Uncertain Although CRP' S direct budget
costs are known, a precise determination of

the dollar value of the program' s environmental benefits is not feasible.
Some benefits have undoubtedly been achieved. However, because of the high
priority that USDA has placed on meeting predetermined acreage goals, these
benefits are not as great as they might have been if the cost- effective
achievement of environmental benefits had been the primary objective.

IJSDA' S Economic Research Service (ERS) has assessed the economic impact of
CRP, including the value of the program' s environmental benefits, but the
ERS analysis has limitations for the purposes of this report6 ERS officials
estimated that the present value of CRP' S environmental benefits ranged
between $6 billion and $13.6 billion; they estimated the present value of
rental payments alone at $19.5 billion. Their estimate projected benefits on
the basis of a 45- million- acre enrollment and reflected 25.5 million of
the 36.5 million acres currently enrolled in CRP.

Following the issuance of our report and the enactment of the 1990 farm
legislation, USDA broadened its eligibility criteria to include land whose
enrollment would provide water quality benefits. USDA ranks eligible bids on
the basis of a formula that calculates the ratio of an environmental
benefits index to the value of the bid. While USDA officials believe the
index is the most practical measure that could be devised to evaluate the
relative conservation and environmental benefits of the land submitted for
enrollment, they acknowledge that they cannot quantify the dollar value of
the environmental benefits to be gained from removing a particular parcel of
land from production. Furthermore, USDA cannot use the index to

‘ The Conservation Reserve program: An Economic Assessment, Economic
Research service, Agricultural Ekonomic Report No. 626, Feb. I%@. Pyle 6
GAO/ BCED- 93- 132 Conservation Beserve Program

. ,I, 1

B- 282821 determine the extent to which removing the new land will actually
affect environmental quality.

Although their dollar value is unquantified, some environmental benefits
have been achieved by retiring land from the pressures of production and by
planting cover vegetation that reduces erosion. USDA estimates that trees
will have been planted on about 2.5 million acres and that the enrollment of
36.5 million acres in CRP will reduce soil erosion on cropland by 696
million tons a year. The program has already decreased sedimentation in
reservoirs and streams, protected natural resources, and helped preserve the
land' s long- term productivity. The quantity of damaging chemicals washed
into streams and lakes has also decreased. Likewise, fmh and wildlife
habitat has improved with the increased planting of trees and grasses and
the reduced use of chemicals. Other benefits have also been achieved through
CRP: The production of surplus commodities receiving federal price and
income support payments has declined, and farmers have received additional
income support.

Despite these benefits, we found in our 1989 report on CRP that USDA could
have done more to address the program' s environmental objectives. IJSDA
focused primarily on meeting mandated acreage enrollments rather than on
enrolling the most highly erodible cropland and the land that contributed
most to polluting surface water and groundwater. Although USDA had enrolled
28 million acres by 1989, we found that CRP protected only about 30 percent
of the 9.1 million acres of the most highly erodible cropland. USDA
officials told us that they are not necessarily able to enroll the most
environmentally sensitive lands in the program. This is because the program
is voluntary and the Department evaluates only the lands for which bids are
submitted.

Acreage targets remain important to the program. Because CRP is designed '
also to reduce the production of surplus commodities and to support farmers'
incomes, USDA maintains that meeting acreage targets remains an important
objective. For example, to meet a 1.1~ million- acre enrollment target in
1991, USDA accepted every bid that did not exceed what the Department would
pay. USDA received so few eligible bids that it did not have to restrict
enrollments to the cropland with the greatest environmental benefits and
accepted all of the bids. As a result, land was enrolled that might have
been rejected in enrollments for which relative rankings were needed.
Although this emphasis on meeting acreage targets has reduced excess
production and provided income support to farmers, it has also reduced the
cost- effectiveness of CRP'S environmental benefits.

Page 6 GAO/ RCED- 93- 132 Conservation Reserve Program

B- 262621 CRP Postpones Environmental Solutions The environmental problems
that CRP is designed to address will resume if

the land is returned to production because few permanent conservation
improvements have been made to the land. Although some long- term physical
changes, such as the installation of field windbreaks and snow fences, have
been made to 0.5 percent of the CRP acreage and about 2.5 million acres will
have been planted to trees, higher immediate costs have generally
discouraged further permanent improvements. Instead, most of the program' s
resources have been spent for short- term measures- paying farmers to
temporarily retire cropland and sharing farmers' expenses to plant
relatively inexpensive cover crops, such as grass.

Nobody knows how much CRP land will be returned to crop production; however,
contracts will begin to expire in 1996, and by the end of 1999, nearly 34
million acres will again be eligible for production. At this point, if
production resumes, 75 percent of the land in CRP must have a USDA- approved
conservation plan to participate in farm programs. Additional federal
assistance may be necessary to solve other environmental impacts that may
recur with production.

Other USDA Other USDA conservation initiatives- such as the conservation
compliance Conservation provisions and the Agricultural Conservation
Program, the Small

Watershed Program, and the Great Plains Conservation Program- use
Initiatives Offer strategies that cover more acres of cropland, cost less
than CRP, and Alternative achieve similar but more sustainable environmental
benefits. These Approaches That Cost alternatives require participants (or
provide financial assistance to

participants) to make changes to the land or farming practices to reduce
Less soil erosion, improve water quality, and achieve other environmental

benefits. The conservation compliance provisions and the other programs
affect about 170 million acres and will cost the federal government an b
estimated $630 million in fiscal year 1993. Although this cost is high, the
average cost per acre for these initiatives is far lower than for CRP.
Furthermore, although we have not recently evaluated USDA'S implementation
of these initiatives and their impact on environmental quality, we believe
that their design has advantages over CRP' S temporary, largely untargeted
approach. These initiatives address demonstrated erosion or water quality
problems on actively farmed lands, and participants are eligible for other
federal farm payment programs.

CRP'S environmental counterpart, also authorized under the Food Security Act
of 1985, is the conservation compliance provisions. Unlike CRP, which

Page 7 GAO/ WED- 93- 132 Conservation Reserve Program

B- 262621 encourages farmers to remove highly erodible land from production,
the conservation compliance provisions require farmers, as of September
1991, to practice conservation on 135 million acres of highly erodible land
that remain in production. In return, farmers who develop and comply with
such plans retain eligibility for USDA farm programs that provide billions
of dollars in benefits. USDA estimates that it will spend $245 million under
the conservation compliance provisions in fiscal year 1993 to provide
technical assistance to help farmers plan and implement conservation
measures and to reduce soil erosion. Although we have recommended
improvements to USDA' S implementation of these provisions, the provisions
themselves are generally acknowledged to have generated soil conservation
benefits7

Other USDA conservation programs include the Agricultural Conservation
Program, the Small Watershed Program, and the Great Plains Conservation
Program. These programs provide technical assistance as well as cost- share
payments to participants to install conservation measures intended to
permanently reduce soil erosion and achieve other environmental objectives
on land that remains in production. The Agricultural Conservation Program
and the Small Watershed Program target areas identified by a consortium of
federal, state, and local conservation agencies, and others. USDA estimates
that in fiscal year 1993, these programs will cost $385 million and affect
over 36 million acres of cropland.

Conclusions CRP is an expensive way to reduce the environmental problems
linked to agricultural production. The program will require budget outlays
of about

$19 billion to take 36.5 million acres out of production; however, not much
is known about the dollar value of the environmental benefits purchased or
about the extent to which removing the land from production will a alleviate
environmental problems associated with agriculture. Furthermore, CRP
postpones rather than resolves these problems, and additional costs may be
incurred to maintain the program' s objectives when the contracts expire.
Other IJSDA conservation initiatives use less costly strategies to achieve
lasting environmental objectives; however, unlike CRP, these other programs
are not intended to curb excess production, and they only indirectly support
farmers' incomes.

‘ In 1990, we issued a report raising concerns about USDA' s
implementation of the conservation planning and other early compliance
requirements under the Food Security Act of 1985 (Farm Programs:
Conservation Compliance Provisions Could Be Made More Effective, GAO/ RCED-
90- BOG, Sept. 24, lNO). We are reviewing USDA' s current management of the
conservation compliance provisions.

Page 9 GAO/ RCED- 93- 132 Conservation Reserve Program

B- 262621 Agency Comments We provided USDA with a statement of facts on the
findings of this report.

We met with the Acting Deputy Administrator for State and County Operations,
Agricultural Stabilization and Conservation Service (ASCS), and with other
officials responsible for administering CRP. These officials generally
agreed with the facts and offered clarifying comments and suggested changes,
which we have incorporated as appropriate. However, at the request of your
office, we did not obtain written agency comments on a draft of this report.

Scope and Methodology

We conducted our review from February 1993 through March 1993 in accordance
with generally accepted government auditing standards at USDA headquarters
in Washington, D. C., and at the USDA Office of Inspector General in Kansas
City.

To understand changes made to CRP since 1989, as well as the costs and
benefits of the program, we reviewed relevant literature. We also spoke with
ASCS program officials and Economic Research Service economists in USDA
headquarters. We visited a USDA county office in Missouri to discuss the
program with the county' s ASCS executive director and the Soil Conservation
Service' s district conservationist. We used USDA budget materials to obtain
information on other USDA conservation initiatives, and we used acreage and
rental data provided by USDA to estimate the cost of enrolling additional
acres in CRP.

__-----__. As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report until 16
days after the date of this letter. At that time, we will send copies to the
appropriate Senate and House committees; interested Members of Congress; the
Secretary of Agriculture; the Administrator, Agricultural Stabilization and
Conservation Service; the Director, Office of Management and Budget; and
other interested parties. We will also make copies available to others upon
request.

Page 9 GAOiRCED- 93- 132 Conservation Reserve Program

B- 262621 Please contact me at (202) 612- 6138 if you or your staff have any
questions. Major contributors to this report are listed in appendix II.

Sincerely yours, John W. Harman Director, Food and Agriculture Issues

Page 10 GAO/ RCED- 93- 132 Conservation Reserve Program

Page 11 GAO/ WED- 93432 Conservation Reserve Program .”

Appendix I Conservation Reserve Program (CRP) Enrollment Process

Since we issued our 1989 report on CRP and the 1990 farm legislation was
enacted, the U. S. Department of Agriculture (USDA) changed its bidding
system to enhance competition and enroll those lands whose retirement from
production would most improve soil resources and water quality. These
changes have so far affected the enrollment of 2.5 million acres in 1991 and
1992.

USDA follows a three- step process for accepting non- easement bid offers:
1. At the local level, county Agricultural Stabilization and Conservation
committees review each bid and determine for the national USDA office
whether the bid meets basic eligibility criteria and is consistent with
prevailing local rental rates.

2. For all remaining bids, the bid rental rate is compared with a bid cap
that is determined by IJSDA'S national office. This bid cap is calculated
for each bid and is based on the following:

. the relative productivity of the predominant soil on the bid, as
determined by the Soil Conservation Service, . the prevailing local rental
rate, l the participant' s cost to establish and maintain permanent cover,
and l the rate of inflation and the cost of idling farm resources (such as

equipment). All bids exceeding the bid cap are rejected. 3. Each remaining
bid is further evaluated by an environmental benefits index calculation. All
bids are ranked according to their environmental benefits per federal dollar
cost to enroll them. Bids are accepted in rank . order until the
predetermined acreage enrollment goal is achieved. The total cost for each
bid is its rental rate plus the estimated government cost- share to
establish a cover crop. The environmental benefits calculation and ranking
for each bid are based on estimated improvements in the following seven
areas:

l surface water quality, . ground water quality, . soil productivity, .
conservation compliance assistance, l tree planting,

Page 12 GAO/ RCED- 93- 132 Conservation Reserve Program

Appendix I Cauwvadon Rorcrve Program (CRP) Enrollment Proceru

l assistance to designated state water quality impairment areas, and 0
conservation priority areas.

Various data are considered for each bid in each of these seven areas. Some
data provide specific soils- related information for each tract. However,
many data are derived from the tract' s proximity to population areas,
watersheds, and conservation priority areas.

Page 13 GAO/ RCED- 93- 132 Conservation Reserve Program

Appendix II Major Contributors to This Report

Resources, Community, and Luther L. Atkins, Jr., Assistant Director

Carolyn R. Kirby, Assignment Manager Economic Paul A. Dommel, Evaluator- in-
Charge Development Division, Washington, D. C.

Kansas City Regional F. John Schaefer, Jr., Staff Evaluator Office Jerry D.
Hall, Systems Analyst

(150631) Page 14 GAO/ RCED- 93- 132 Conservation Reserve Program ,: ,‘
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