Conservation Security Program: Implementation and Termination

Conservation Security Program: Implementation and Termination

Order Code RS21740
Updated June 20, 2008
Conservation Security Program:
Implementation and Termination
Tadlock Cowan
Analyst in Natural Resources and Rural Development Policy
Resources, Science, and Industry Division
Summary
The 2008 farm bill terminates authority for the Conservation Security Program
(except for existing contract holders) and authorizes a new Conservation Stewardship
Program. The Conservation Security Program (CSP), authorized in the 2002 farm bill
(P.L. 107-171), is a voluntary program providing financial and technical assistance for
conservation and improvement of natural resources on tribal and private working lands
within selected watersheds. CSP is administered by USDA’s Natural Resource
Conservation Service (NRCS) and funded through the Commodity Credit Corporation.
Financial assistance is based on three tiers of participation, with each tier representing
a higher degree of resource management standards. Contracts extend from 5 to 10 years.
The first enrollment for CSP was in July 2004 covering 18 watersheds in 22 states.
A second enrollment in November 2005 was implemented in 220 watersheds
nationwide. These two enrollments resulted in 15,000 contracts with landowners on
12.1 million acres of working agricultural lands. A third enrollment period was
announced in February 2006 for 60 watersheds, including ones in Guam and the
Caribbean. In that year, 4,323 contracts were accepted, adding more than 3.6 million
acres. No new contracts were signed in FY2007. A fourth and final CSP sign-up for
eligible farms and ranches in 51 new watersheds period ended in May 2008. This report
will not be updated.
Background
A New Conservation Stewardship Program. The 2008 farm bill (P.L. 110-
246) terminates authority for the Conservation Security Program to make any new
contracts and reauthorizes the program at $2.3 billion in funding only for payments under
the contracts made during 2004, 2005, 2006, and 2008. The farm bill authorizes a new
Conservation Stewardship Program through FY2017 (Section 2301). Similar aspects of
the original CSP will continue in the new stewardship program, although there are
significant changes as well. Rather than the three-tier payment system, payments for new
CSP contracts will be based on meeting or exceeding a “stewardship threshold.”
Payments area based on the actual costs of installing conservation measures, any forgone

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income, and the value of the expected environmental outcomes. Rather than 10-year
contracts, new stewardship contracts will be for 5 years, with the option of an extension
for an additional 5 years. The new CSP also reserves 5% of the funds each for beginning
farmers and ranchers and disadvantaged farmers and ranchers. Monitoring and evaluation
of the stewardship plan to assess environmental effectiveness is also an element of the
new CSP.
The enacted farm bill sets a target of enrolling 12.8 million acres annually under the
new CSP. Individual producer payments are limited to $200,000 in any 5-year period per
entity. Rather than annual sign-ups for the program, CSP enrollment will be done on a
continuous basis. Technical assistance is also be provided to specialty crop and organic
producers, along with a pilot testing of producers who engage in innovative new
technologies or participate in on-site conservation research. Producers may also receive
supplemental payments for resource-conserving crop rotations that provide specific
environmental benefits such as improving soil fertility and reducing the need for
irrigation.

The remainder of this report discusses the Conservation Security Program as
authorized in the 2002 farm bill.
2008 CSP Sign-Up. NRCS announced a final CSP sign-up to run from April 18,
2008, to May 17, 2008, in 51 new watersheds.1 The Federal Register notice stated that
NRCS intends to “deliver a technically enhanced, streamlined version of CSP” for the
sign-up.2 The sign-up will pilot several new “eligibility tools” for soil and water, grazing
lands, and wildlife habitat. Payments will be made uniformly over the five-year contract
period rather than declining over the contract period as they do for current contracts.
There will be no contract improvement modification opportunities or payments for new
practices as with previous CSP contracts. As was the case with the 2006 sign-up, priority
will be given to Tier II and Tier III applications.
CSP in the 2002 Farm Bill. The Conservation Security Program (CSP) is an
agricultural conservation program authorized by the 2002 farm bill (P.L. 107-171, §2001).
CSP is administered by the U.S. Department of Agriculture’s Natural Resource
Conservation Service (NRCS). It provides incentives for farmers to pursue conservation
and helps pay for conservation practices. Unlike some other agricultural conservation
programs, CSP provides payments for conservation on land that remains in production
and makes eligible a wide range of farmland: cropland, pastureland, rangeland, grassland,
prairie land, tribal lands, and forested lands incidental to an agricultural operation. By
statute, CSP payments to farmers are based on three levels or tiers of participation, with
each successive tier obligating the producer to meet higher standards of environmental
management:
! For Tier I, the producer must have addressed soil quality and water
quality to the described minimum level of treatment for eligible land uses
1 A map of the 51 new participating watersheds may be found at [http://www.nrcs.usda.gov/
Programs/csp/CSP_2008/2008_CSP_WS.html].
2 Federal Register, Vol.73, No. 60, pp. 16246-16259. March 27, 2008.

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on part of the agricultural operation prior to acceptance. Contracts for
Tier I last for five years and are capped at $20,000 annually.
! For Tier II, the producer must have addressed soil quality and water
quality to the described minimum level of treatment on all eligible land
uses on the entire agricultural operation prior to acceptance and must
agree to address one additional resource by the end of the contract period.
Contracts for Tier II last for 5-10 years and are capped at $35,000
annually.
! For Tier III, the producer must have addressed all applicable resource
concerns to a resource management system level that meets the NRCS
Field Office Technical Guide standards on all eligible land uses on the
entire agricultural operation before acceptance into the program and have
riparian zones adequately treated. Contracts for Tier III last for 5-10
years and are capped at $45,000 annually.
The 2002 farm bill placed no acreage or funding limits on the CSP, and stated that “in
entering into conservation security contracts ...[NRCS] shall not use competitive bidding
or any similar procedure.” At the time of enactment, the Congressional Budget Office
(CBO) estimated that CSP would cost $2.0 billion over ten years. Later projections
increased the cost (see below). CSP is funded by mandatory spending through the
borrowing authority of the Commodity Credit Corporation.3
CSP Appropriations, FY2002-FY2008. During the 2002 farm bill debate, some
raised concerns about the potential costs of CSP and the wisdom of devoting unlimited
funding to a new, unproven program, but pressures to complete action on the farm bill
overcame those concerns. CSP received no funding in FY2002. In 2003, CBO revised
its estimate of CSP costs to $6.8 billion over ten years, and the FY2003 Consolidated
Appropriations Resolution limited spending for CSP to $3.7 billion through FY2013 to
offset the cost of farm disaster assistance.4 The FY2004 Consolidated Appropriations Act
eliminated this 10-year cap but established an FY2004 CSP one-year funding limit of
$41.4 million.5
In March 2004, CBO revised its estimate of CSP costs to $8.9 billion over 10 years
(2005-2014). CBO’s January 2007 baseline budget estimated CSP would cost $7.6
billion over the next ten years (FY2007-FY2016).6 In October 2004, Congress limited
3 The CCC, a wholly owned government corporation, is essentially the financing institution for
the USDA’s farm price and income support programs and, more recently, conservation programs.
It derives its funding through a $30 billion line of credit with the U.S. Treasury, and receives an
annual appropriation of such sums as necessary to cover its operating losses and to repay its debt.
4 P.L. 108-7, Division N, Title II, §216.
5 P.L. 108-199, Division A, Title VII, §752.
6 For a discussion of the changing cost estimates of the CSP Conservation Security Program:
Despite Cost Controls, Improved USDA Management Is Needed to Ensure Proper Payments and
Reduce Duplication with Other Programs, GAO-06-312, April 28, 2006.

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CSP to $6.037 billion for the 10-year period of 2005-2014.7 This allowed appropriators
to direct the resulting $2.9 billion in budget savings to offset the cost of agricultural
disaster assistance. The FY2005 Consolidated Appropriations Act (P.L. 108-447) placed
an FY2005 limit on CSP of $202.4 million (Division A, Title VII, § 741). For FY2006,
appropriators limited CSP funding to $259 million. P.L. 110-5 also limited FY2007
funding to $259 million and provided no funding for new contracts. For FY2008,
approximately $382 million is available to support the existing 19,375 contracts signed
in previous years.
Implementation of CSP. On January 2, 2004, NRCS published a proposed rule
describing how it would prioritize the limited FY2004 funding. It proposed to implement
CSP in certain watersheds on a rotating basis; to require producers to meet strict eligibility
criteria; to sort producers’ applications into enrollment categories; and to reduce certain
CSP payments (69 Federal Register 194). This proved controversial, since the farm bill
included broad eligibility criteria and did not include prioritizing funds. NRCS received
over 20,000 specific comments on the proposed rule. On May 4, NRCS published a
notice stating it would proceed with its proposed approach for the 2004 CSP signup, and
detailed how it would select watersheds (69 Federal Register 24560). On June 21, 2004,
NRCS published an interim final rule (69 Federal Register 34502) finalizing its
prioritization process for the 2004 CSP signup. NRCS accepted comments on the interim
final rule through October 5, 2004, and published an amended interim final rule on March
25, 2005. A final rule has not been issued and is unlikely to be issued before the 2008
farm bill is enacted. An additional 202 watersheds nationwide were selected for the
second CSP enrollment in 2005. For 2006, 60 more watersheds were selected, including
ones in the Caribbean and Guam. For the 2008 sign-up, 51 new water sheds were added,
bringing the total number of participating watersheds to 331.8
Eligibility Criteria for the FY2004-FY2008 Enrollments
The CSP enrollment process is currently guided by the interim final rule issued on
March 25, 2005. Enrollment requirements include strict eligibility criteria and prioritize
CSP funding by watershed area and by enrollment categories. NRCS calls this approach
“rewarding the best and motivating the rest.”
Producer Eligibility Requirements. The 2002 farm bill set fairly general
guidelines for eligibility in the CSP. Producers must share in the risk of production,
contribute to farm operations in a manner commensurate with revenues received, develop
an approved Conservation Security Plan that details conservation activities to be
implemented, and sign a Conservation Security Contract. The interim rule mandates the
following further steps.
Producers Must Inventory Natural Resources. The interim rule (§1469.7(a))
requires producers to complete a self-assessment, including a “Benchmark Condition
Inventory,” prior to applying to CSP. This details the type of agricultural operation, land
uses, existing conservation practices, resource concerns, and the producer’s willingness
7 Division B, §101, of the FY2005 Military Construction Appropriations Act (P.L. 108-324).
8 Maps of these participating watersheds may be found at the following link:
[http://www.nrcs.usda.gov/Programs/csp].

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to do additional conservation in the future. NRCS uses this to determine the producer’s
eligibility, place the producer in an enrollment category (see below), and determine the
appropriate CSP tier of participation. Producers must submit two years of documentation
to show past stewardship, including fertilizer, pesticide, and nutrient application
schedules, and tilling and grazing schedules.
Producers Must Treat Both Soil and Water. While the farm bill required
producers to treat at least one resource under CSP, the interim final rule requires
producers to treat two resources — soil and water quality — before applying to the
program.9 Additional eligibility criteria were included in the 2005 and 2006 enrollment
notices.
CSP Applications Prioritized. The interim final rule established two methods
of prioritizing applications, neither of which was mentioned in the farm bill statute. The
first includes ranking watersheds nationwide by various criteria and selecting certain of
those watersheds to be eligible for CSP. The second involves placing applications into
various “enrollment categories” based on the applicant’s current conservation efforts and
willingness to do additional conservation.
Criteria for Selecting Eligible Watersheds. For the 2004 signup, NRCS
ranked over 2,000 watersheds nationwide. Through National Resources Inventory data,
NRCS ranked watersheds based on concentrations of eligible land uses; intensity of
pesticide, fertilizer, and manure use; and prevalence of historic and recent conservation
efforts. Once watersheds were ranked, NRCS prioritized them further by selecting those
it considered to be “improving” according to these criteria. NRCS estimated in 2004 that
by 2012 CSP could rotate through all 2,264 watersheds.
NRCS Places Applications in Enrollment Categories. For the FY2006
enrollment, there were five categories (A-E) and five groups (1-5) within each tier.
Acreage is enrolled based on the ranking of grazing and cropping systems on various soil,
water, and wildlife habitat quality indicators and performance/management levels.
Categories were funded nationally in priority order (beginning with category “A”) until
funding was exhausted. The FY2006 notice also specified that if subcategories cannot
be fully funded, applicants would be offered the FY2006 CSP contract payment on a
prorated basis.10
Stewardship or “Base” Payment. This is a payment tied to the number of acres
enrolled in CSP. The stewardship component is calculated separately for each land use
by multiplying the number of acres times the tier factor (5%-15%) times the stewardship
payment rate established for the watershed (based on land rental rates) times the tier
reduction factor (25%-75%). This reduction factor was not authorized in the original
legislation and reduces this part of the CSP payment.
9 According to the NRCS, determining soil quality involves evaluating the amount of organic
matter in the soil, its fitness as a seedbed, and other factors. Assessing water quality involves
evaluating the level of pesticides, nutrients, turbidity or other contaminants in water.
10 The Federal Register announcement for the FY2006 enrollment provides detailed information
on the criteria of different enrollment categories. See 71 Federal Register 6250-6263, February
7, 2006.

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Payments for New and Existing Practices. The farm bill restricts payments
for new and existing practices to not more than 75% of the practice cost (this rises to 90%
for beginning farmers and ranchers). For FY2006 contracts, existing practice payments
were calculated as a flat rate of 25% of the stewardship payment, and new practice
payments were made at not more than 50% cost-share rate. For FY2006, all new practice
payments were limited to a $10,000 cumulative total for the contract.
Enhancement Payments. The farm bill lists five activities a participant can
carry out that qualify for enhancement payments, including implementing multiple
conservation practices; addressing local conservation priorities; participating in on-farm
research; participating in a watershed or regional conservation plan; and assessing and
evaluating conservation activities. The interim final rule specified only two types of
enhancement components as “available” in the FY2004 sign-up. For FY2006, the
enhancement payment was calculated at a variable payment rate for activities that were
part of the benchmark inventory. The total of all enhancement payments to an individual
producer in any one year ranges from $13,750 to $28,125, depending on the tier.
Issues for Congress
With termination of CSP, further implementation issues may be minimal. Some
existing Tier II and Tier III contracts could run until FY2018, but the new stewardship
contracts are likely to involve greater acreage. Currently, 15.4 million acres are under
CSP contracts from the 2004-2006 sign-ups. The new stewardship program authorizes
up to 12,769,000 acres annually for FY2009-FY2017. While implementation of the
stewardship program may raise new issues, the experience with CSP could attenuate other
concerns. With CSP, congressional authorizers crafted an entitlement program with
unlimited funding, but congressional appropriators limited that funding. Authorizers
specified broad eligibility criteria in the farm bill, but due to funding limits NRCS created
strict procedures that applicants had to follow in order to qualify. NRCS argues that
because the farm bill placed a statutory 15% limit on CSP technical assistance, CSP
implementation will be constrained. The newly authorized Conservation Stewardship
Program could avoid similar concerns, although technical assistance concerns may persist
under the potentially greater acreage enrollment.
CSP’s potential status as a “green box” program under the World Trade Organization
(WTO) structure is an issue, although the program is comparatively small. While CSP’s
“green box” status is arguably a possible advantage to the program, others have raised the
concern that current CSP base and enhancement payments might be considered trade-
distorting under WTO guidelines.11 In WTO parlance, “green box” programs (which pay
producers for environmental services) are not subject to reductions under the WTO. CSP
payments through 2005 have been notified to the WTO as “green box.” Some CSP
spending, however, may not conform to WTO criteria, although the program has not been
formally challenged. Given that the program’s authority to make new contracts is now
terminated, the chance of potential challenges may have been minimized. The new
payment structure of the stewardship program was designed to minimize similar
challenges under WTO regulations.
11 See CRS Report RL34010, WTO Compliance Status of the Conservation Security Program
(CSP) and the Conservation Reserve Program (CRP).