10019946 v.2

             Draft: For Discussion Purposes Only
                    1995 Farm Bill
                 Policies to Integrate

         Agriculture and  the Environment
            U.S. Environmental Protection Agency

                     September 9, 1994
                                        L Printed on Recycled Paper

                          Farm  Bill Policy Papers

 1.    Financial  Support and Incentives

 2.    Farming Systems

 3.    Land Retirement

 4.    Marketing

 5.    Research, Extension, and Education

 6.    Forestry

These papers are intended to provide a spectrum of options that can help advance
environmentally and economically sustainable agriculture policies in the 1995 Farm
Bill   These options are provided for discussion purposes only, and they do not
represent official EPA policy or positions.


                           FARM POLICY TEAMS
Andy Manale
Brad Crowder

Dov Weitman
Robin Dunkins
Steve Ainsworth
Jeanne Melanson
Stacey McVicker
Russ Lafayette
Joe Ferrante
Clay Ogg
Peter Kuch
Ron Bergman
Dave Brussard
Joe Hogue
Rob Esworthy



Roberta Parry
Carol Peterson
Jeanne Melansen
Andy Manale
Dov Weitman
Robin Dunkins
Steve Ainsworth
Dave Brussard
Stacey McVicker







Joe Ferrante
John Simons
Harry Wells
Laura Smith
Joe Ferrante
George Gibson
Amy Leabey
Susan Marcy
Roy Simon
Ron Bergman
John Simons
Clay Ogg
John Kosco
Joe Ferrante
Rob Esworthy
Sherry Sterling
Steve Winnett
Tom Peterson
John Cannell
Russ Lafayette










                                                                      9/2/94 draft
                          FARM BILL POLICY OPTIONS
The following  options for financial support and  incentives  are provided as possible
replacements for the existing program of producer support under the current Commodity
Programs, the dairy program,  the export enhancement program, or the crop insurance
programs. They would serve as a linkage between the financial resources allocated under
the Farm Program and environmental objectives, as identified in the Clean Water and other
environmental acts.

We have decided to use the following policy taxonomy, which leads to two types of policy
options: 1) modifications to the existing system and new concepts that can stand alone and
2) policies that do  not stand alone but complement options in the first  category. Clearly
within each  category, there can be  dozens, if not hundreds, of versions of each option
depending upon policy preferences.  Listing so many options, however, is impractical.  To
keep the number to a manageable set, we have used our judgement up to a certain point-
that point being where a clear divergence of opinion became apparent across Offices and
where a decision is needed of the policy makers.


The criticisms of the existing financial incentive programs are that they 1) reward  producer
behavior for adopting practices, land uses or methods that are inherently environmentally
risky or unsound, such as monoculture, cropping on marginal lands, and destruction of
wildlife habitat; 2) encourage  overproduction and and excessive  use of inputs, such as
manure,  pesticides,  and   land; 3)  cost the  taxpayer  funds  that  could  be  spent  on
environmental amenities; and 3) lead to inequities. Some of the criticisms of the programs,
such as the assertion that they lead to excessive use of inputs, may or may not be valid for
all major commodity crops, given the changes and corrections that have occurred in previous
Farm  Bills. The validity of the charges is being investigated in the ongoing policy research
that will be available late this calendar year.

Deficiency Payment Program

Current basic price-supported commodities are wheat, peanuts, feed grains, cotton, and rice.
Farmers who have established base acreage (acres that would have grown a program crop)
are eligible for deficiency payments.  Crop acreage base is based upon a producer's five-year
moving average of production for feed grains and wheat. It is a 3-year moving average for
cotton and rice.  However, program yields  for  program crops were  frozen in 1985.
Deficiency payments  are paid on the number of bushels produced on 85% of base acreage
minus the acres in  the acreage reduction program (which varies from year to year). The


payment represents the difference in price per unit of output between the market price, the
five month average price around harvest, or loan rate (explained below) and the target
price, the output price goal, which is set by Congress.  Farmers can grow whatever feedgrain
or oilseed crop they wish on the remaining 15% without losing base. However, they do not
receive deficiency payments on this production.  Farmers must grow program crops  each
year to maintain base. Furthermore, growers cannot build a new crop base if he or she was
eligible to receive deficiency payments for any crop produced on the farm. They hence  must
drop out of the program to establish a new base.

Subsidies related to agricultural commodities (feed grains, wheat, soybeans,  cotton,  rice,
dairy, disaster payments, export programs):

       o     1992:  $9.74 billion
       o     1993 (est.): $17 billion
       o     1985-1992: $115 billion

Deficiency payments (difference between subsidized price and market price):

       o     1992:  $5.7 billion
       o     1993:  $8.94 billion

The deficiency payment program benefits a large number of farmers, but a small percentage
of farmers disproportionately because payment is tied to production. 73% of  the program
benefits go to the largest 15% of the farms. A major criticism of the Commodity Program
is that it encourages production  regardless of demand.  It may also encourage the adoption
of environmentally  and agronomically risky agricultural practices, such  as monoculture.
Inefficiencies caused by the program [Chang, McCarl et al estimate that the program results
in roughly a $5 billion deadweight loss to society.],  amount to some $5 billion. A more
efficient design could allow up to an equivalent amount  to be better spent on positive
externalities or "joint products."  On the other hand, many moderate size producers believe,
rightfully or not, that the commodity programs  are  the only  hedge they have against the
large grain dealers actually setting "market prices" through their influence on grain markets.

       Non-Recourse Loans

There are the following  nonbasic commodities for which producers receive different forms
of income supports: soybeans, peanuts, tobacco, milk,  sugar beets, and sugarcane. Producers
of soybeans, for example, are eligible for a nonrecourse loan price support rate, the price
at which USDA will provide loans to enable farmers to hold their crops for later sale.  It
is based upon 85% of the five year moving average of producer prices, excluding high and
low years. If market prices are higher than the loan  rate, producers can pay back the  loan
and sell the crop at the  higher market price.  If the  market price is below the announced
loan rate, producers can repay  the loan at less  than the announced rate.  Tobacco and
peanut prices are supported through marketing orders and quotas; sugar through tariffs and

import restrictions; and dairy producers are supported through a system of marketing quotas
on fluid milk that, together with federal purchases of storable  surplus dairy products,
maintain a floor for milk prices.

Crop Insurance Program

The  current voluntary crop insurance program is based upon an individual farmers' annual
yield and not the likelihood of crop loss within a production  area.  Premiums, which are
federally subsidized, depend upon the level of protection desired.  Total paid for premiums
amounts to about $500 million per year with the Government share about $200 million.
Total Federal funds paid out to farmers for crop insurance amounts to about $1 billion per
year.  Utilization of the program by  producers tends to be  concentrated in  certain
geographic areas.  Anticipation of disaster relief, for which producers pay nothing, works
against participation in other areas. Disaster relief, an off-budget Federal expense, averages
about $1 billion per year.

There is currently a proposal under consideration on Capitol Hill to reform  the Federal
Crop Insurance Program.  The outlook for this Bill is  relatively favorable — passage is
anticipated some  time this summer. The proposal has three components:

        1)    Removal of ad hoc disaster assistance -- making crop insurance  the primary
             source of compensation,

        2)    Catastrophic coverage offered to growers for a processing fee of $50/crop up
             to $100/farm.  This plan will cover yield losses in excess of 50 percent at a
             payment   rate  of 60  percent (additional  coverage  can  be  obtained).
             Participation in this program will be required to participate in other farm

        3)    The Non-insured Assistance Program (NAP) covering any food and fiber crop
             -- this would apply when there is a 65 percent yield  loss at the county level.
             Levels of protection would be similar to those under the catastrophic coverage

Export Enhancement Program

Under the Export Enhancement Program, the USDA pays cash to exporters (as bonuses)
which enables them to sell U.S. agricultural products in targeted countries at prices that are
below the exporters cost of acquisition. Targeted countries are those countries in which U.S.
sales have been non-existent, displaced or reduced due to competition from subsidized
exports from other countries. The program was initiated in 1985 and was reauthorized in
the 1990 FACTA. Under the 1990 legislation, the Commodity Credit Corporation (CCC)
is  to disburse  (at a minimum) $500 million per year to implement the program.  The
following commodities are covered under the program: wheat, wheat flour, semolina, rice,
frozen poultry, barley, barley malt, table eggs and vegetable oil. Similar programs are being
implemented that cover dairy products, sunflower seed and cottonseed  oils.  Exporters of
the above commodities must meet specific criteria to participate in the  program.

                              OPTION SUMMARY


Option 1: Baseline  Plus   The  baseline-plus  option  is a  modification of the  existing
Commodity Program that would  strengthen the existing stewardship components and result
in greater environmental benefits. It would contain the following provisions: 1) increase the
percentage of base acreage upon which alternative crops can be grown without losing base;
2) continue the  current Cross-Compliance program  for soil erosion, as well  as the
Swampbuster and Sodbuster programs; and 3)  require compliance with CZARA or Clean
Water Act management measures where they apply.  It also contains one of the following
"add-on"  programs:  A) introduction of the program  of Stewardship Payments  (annual
payments for positive environmental activities resulting in measurable benefits) or B)
Management Measure Cost-share   (one-time or annual payments that would be made to
farmers to offset the cost of meeting regulatory management measures, cross-compliance
costs, or other mandatory program requirements); or C) Super-Compliance (an expansion
of current cross-compliance programs to cover the use of factor inputs, such as nutrients and
pesticides, through nutrient, pest management, or even irrigation plans).

Additional incentives to remain in the program could be made through creative use of set-
aside requirements.  Farmers would be  excused from set-aside requirements,  or some
portion thereof in exchange for the  adoption of stewardship practices or management
measures.   Alternatively, set-aside acreage  could  be targeted to provide maximum
environmental benefits. This provision would allow farmers in the commodity program with
environmentally sensitive land to sell their "production rights" on base acres to farmers in
the commodity program with less sensitive land.  In essence, this provision would take
environmentally sensitive base acres out of production in exchange for production on set
aside acreage that is not environmentally sensitive.

Implementation Issues

 The stewardship component would be relatively politically palatable to keep producers in
the program and to encourage the adoption of sustainable agricultural systems,  rather than
specific practices  that address  only single objectives.  It also  has the benefit of being
consistent with the negotiated GATT text regarding agricultural subsidies. A management
measure cost-share would more  closely link Farm Income Support to the meeting of EPA
water quality objectives. The program would be more closely targeted towards impaired
watersheds with clear water quality problems associated with agriculture. However, it would
be a redirection of  funds away  from income support and hence would not be politically
popular among producers, particularly  those not in targeted watersheds.  A cost-share
program  could  effectively  reimburse  the capital costs  of implementing  management
measures, but may not perform as well as a stewardship program at reimbursing other costs
(e.g., opportunity costs, and forgone revenue). It can also lead to problems of moral hazard-
-incentives for producers to wait for cost-share before implementing management measures

rather than independently adopting them where  necessary at their  own  expense.   A
Supercompliance would more broadly tighten the environmental requirements for income
subsidies, not just for producers in targeted watersheds as under a management measure
cost-share program. However, it would also lead to a diminution in the number of program
participants.    EPA  would likely  have  less  influence in the  implementation  of a
supercompliance program than  a  targeted program of sharing the  costs  from  the
implementation of CZARA  or  CWA  management measures.    The provisions  for
environmental uses of set-aside would become moot if GATT mandates the elimination of
the set-aside provision therein removing incentives to participate in the program.

Option 2: Stewardship  Payments (Alone).  Payment would represent the opportunity cost of
providing the positive externality (e.g., wildlife habitat  benefits, soil conservation, wildlife
beneficial crops, winter cover crops, tree  planting, and water-quality-related benefits).  If
structured properly, the payments could provide farmers with more autonomy than the other
options (and hence encourage greater involvement in issues of environmental protection and
agricultural production).   They  could thus provide  the incentive to look  for creative
solutions more in line  with principles of ecosystem management than one-time payments to
cover regulatory costs. It can be designed to meet multiple objectives, such as habitat and
qroundwater protection and surface water protection. Payments could also be related to the
implementation of  more limited-focus management measures under CWA or CZARA.
Stewardship payments would apply to producers both in  and outside the existing Commodity
Program.   One component  of  this option  could be payments for energy  feedstock
production (biofuels).  A Biofuel Reserve Program would deliver production  incentives
through a bidding system whereby farmers needing smaller incentives are accepted into a
subsidy program earlier than farmers submitting higher cost proposals.

At  least  a portion  of the cost of a stewardship payment program, particularly for  the
adoption of safer pest management practices, could be offset by a chemical pesticide fee,
as well as a similar tax on chemical fertilizers.

Implementation Issues

      This option presupposes a new administrative structure for determining what benefits
would be purchased and the price that would be paid.  Also, any redistribution of existing
funds away from current recipients would be politically difficult.  The biofuels component
could be administratively difficult, but would support the administration's Global Climate
Change Initiative.   Any taxing scheme, particularly if the tax is borne by producers, to
provide an alternative source of funding would be resisted by the Congressional committees
that traditional deal with agricultural issues.

Option 3: Revenue Assurance/Insurance Farmers in the current Commodity Programs  are
assured a percentage, such as 70% (the revenue target), of the  running  average of their
previous five year revenue or of per acre returns. Assurance means that the farmers do not
pay for coverage. With an insurance option,  they would be required to pay a (subsidized)

premium for coverage. As a condition of either program, they are required to implement
pesticide,  nutrient and soil management plans, as under the Supercompliance option.  It
would remove disincentives to rotate crops (resulting in certain environmental benefits) and
could lead to a streamlining of deficiency, disaster, and crop insurance programs.  To
strengthen this option environmentally, federal crop insurance could be made available to
underwrite farmers' financial risk  of undertaking production practices  which mitigate
pollution or risk relative to typical practices.  This option assumes that financially sound
sustainable practices have been (or could readily be) defined on a crop specific basis.

Implementation Issues

      Revenue assurance would be more expensive for the Government  than insurance;
hence, budgetary concerns would need to be resolved.  The revenue insurance option raises
the question of actuarial soundness and at what level premiums should be subsidized.  Cost
of the program, arid hence the political support from producers, depends on what level of
income  support it would provide. Also, farmers are generally opposed to "welfare-type"


Option 4:  Export Enhancement Program Targeting.  In meeting  our obligations under the
GATT,  the  U.S.  will have to reduce export  subsidies  over the  implementation period.
USDA could target these reductions at most environmentally damaging crops (i.e., sugar,
milk, peanuts and cotton).  This  option could also be  stated as: continuation of export
subsidies for crops that have been produced in an environmentally sound manner. Political
and implementation issues (such as monitoring  arid enforcement) would need to be resolved.
Option 5: Cross-Compliance for the Dairy Program.  This option assumes that the Clean
Water Act will be reauthorized with "CZARA type" requirements for management measures
in targeted watersheds.   Participants in the Dairy Subsidy Program would receive price
supports only on condition that  their operations  are in compliance  with management
measures for nutrients.  The incentive would be lost in years when milk prices exceed the
support price.

Option  6:  Underwriting  Risk  of Pesticide Use/Risk-Reduction options.   The Federal
Government underwrites farmers' financial risk of undertaking production practices which
mitigate  pollution or risk relative  to typical practices. Two suboptions  are proposed: one
where the risk would be reduced through underwriting of crop insurance by private insurers
and the other through guaranteed loans for the purchase of necessary equipment.  Both
suboptions presuppose existence of sustainable practices that are financially sound.  The
eligible production practices would include a) sustainable agriculture practices, b) crop/pest-
specific use of area-wide IPM, and c) crop/pest-specific use  of safer pest management
practices, which mitigate pollution or risk relative to typical practices. The program could

be difficult to set and administer initially. Costs at the outset would likely be greater than
later on.

Option 7: "Green Loans" to Farmers to Purchase Technology That Achieves Pollution or Risk

This option would make more capital available for loans by direct government loans for the
purchase of promising new, "greener," technologies or would underwrite the risk of loans
made by private banks for such technologies. Traditional sources of funding, such as banks,
are averse to providing funds for technologies  that  are not  standard farming practice
because  of the perceived added risk to the collateral (i.e., the  farmer's  crop).  A new
program that does not have clear or powerful constituency could be politically difficult to
establish given current budget constraints.


The  policy options that  were considered by the workgroup range from stand-alone
modifications to the existing program to major redirection of agricultural policies-new
programs. We describe and evaluate the various options below.


1) Baseline Plus

The baseline-plus is a modification of the existing Commodity Program to make it greener.
It could serve as a transition program from the current deficiency payment (entitlement)
program to a program that compensates farmers for the costs of providing environmental
amenities-a transition that could take place over one or more Farm Bill periods.  Baseline
Plus cushions the transition away from an entitlement program for production of commodity
crops to  a  budgeted  agricultural  and  environmental joint-product  program.   It  is
characterized by the following:

      o Increase base acreage  flex.  Producers would be paid a deficiency payment on a
      smaller percentage of the existing 85% of base, such as 75%. The advantage would
      be  a  removal of any  further disincentive to rotate crops and  a creation of an
      incentive  to produce according to  market demand.  It would also reduce total
      deficiency payments. Alternative would be to have 100% flex with payments on 75%
      of whatever combination of commodity crops are grown.

      o Requirement for adoption of CZARA or Clean Water Act management measures,
      where they apply.

In addition, it contains any of the following add-on programs.

      1A) Introduction of the  program of Stewardship Payments  or Incentives  (annual
      payments for positive environmental externalities or benefits).

            -As here  defined, stewardship payments are  not cost-share payments for
            implementation of  mandatory  management measures  to meet regulatory
            standards. Instead they are payments that cover at least the opportunity cost
            (income foregone) of the adoption of stewardship practices or management

            - Stewardship  Payments would  serve as compensation for environmental
            benefits  beyond  those  represented  by  CZARA or  Clean  Water  Act
            management measures (MM). They could be in the form of either cash or
            program equivalents.  Program equivalents could be credits for set-aside
            acreage or crop acreage credits for adoption of management measures that

             involve idling land, such as fallow in a crop rotation. They cover at least the
             opportunity cost of implementing farming systems that protect water quality,
             improve soil quality, and provide other environmental benefits as well, such
             as wildlife habitat and reduced human exposure to pesticides.

             -  Funds that are freed  up by  reductions in the  cost of the program of
             commodity deficiency payments (such as  through  changes in the payment
             formula) could serve as the basis for the Stewardship Payment program.

       Pros and Cons

       Environmental benefits

Baseline Plus would tend  to correct some of the remaining distortions  of the current
Commodity Program that adversely affect the environment.  At the same time, it would
target  funds towards the purchase of positive externalities.  On the other hand, as the
conditions on receiving deficiency payments increase, farmers could opt out of the program.
Nevertheless, farmers who opt out would still be subject to CZARA or Clean Water Act
MMs.  The Stewardship Payment provision could apply to producers both in the program
and without.


The Stewardship Payment provision must have clearly defined and measurable products and
assumes an administrative structure for determining products.  There is precedence for a
Stewardship Payment program.  A number of states are  now  providing a Stewardship
Payment to producers to provide environmental benefit, such as a set-aside of crop acreage
for migratory bird habitat. There is also the administrative  precedence in the ASCS, local
soil conservation districts, or Great Lakes or Chesapeake Bay cost-share programs, whereby
local authorities must determine the merits of cost-sharing structural improvements. In this
case, the focus would be on farming system improvements rather than structures.  See the
description and discussion of the Stewardship Payment option.

       Political feasibility

Politically, this would be the most palatable  environmental option from the perspective of
producers, though, depending how the program were implemented, it could lead to a shift
away from an entitlement program.  Baseline Plus could represent a gradual shift and not
one that would cause major discomfort in the farm community  if the  bulk of the funds
remain with the current recipients. In fact,  conservative  ag staffers have mentioned a
version of  Baseline Plus  as  a  possible  compromise  for  a  greener Farm  Bill.
Environmentalists, who generally support the general concept of Stewardship Payments,
would  see Baseline Plus as a shifting over towards a greener agricultural policy.


The option would not likely result in a major change in revenue to farmers in general,
depending upon how the Stewardship Payment option is constructed and how much money
is available, though it could cause a redistribution of funds.  A program that paid farmers
in program credits would have little direct budget impact.  Nor would it lead to major
government  expense since  OMB sees commodity payments, CRP, Wetlands  Reserve
Program or even a future Stewardship Program as constituting one larger pot of money.
Conception of the Stewardship Program as a variation in the entitlement program could
provide a stronger OMB or Hill argument for continuation of the existing budget.
Nevertheless, the notion that it would shift ag payments away from an entitlement program
to a budget line item that is controllable is  more of perceived problem from the point of ag
interests than a real problem from the perspective of OMB.

      I.B. Management Measure Cost-share

             - One-time or annual payments would be made to farmers to offset the cost
             of meeting regulatory management measures, cross-compliance costs, or other
             mandatory program requirements.

             - Funds would be targeted to impaired watersheds.

             - The MM cost-share would be made available in lieu of a Stewardship
             Payment program.

             - Reduction in the Commodity Program Acreage Set-Aside Requirement or
             a planted acreage credit could substitute for a dollar amount.

      Pros and Cons

      Environmental benefits

Cost-share funds would be targeted towards meeting explicit environmental objectives in a
few areas rather than broad-scale. The result is that farmers in the targeted areas would
be  more likely to  implement the measures, with  corresponding greater site-specific
environmental benefits.  However,  the existence of a cost-share  in impaired watersheds
could lead to the problem that economists call Moral Hazard. Farmers decide to wait to
implement more environmentally sound management measures, if they cost more, rather
than doing them on their own, in anticipation of  federal funds to offset their cost.  The
result could be an actual worsening of the environment in watersheds which do not receive
the cost-share. Cost-share generally work better for management measures that involve one-
time capital costs.


The existence of a pot of money contingent upon the organizational structure for deciding
and enforcing management measures could provide a strong incentive for the states and
local authorities to develop  the necessary watershed planning bodies.  There is also the
administrative precedence in the ASCS, local soil conservation districts, or Great Lakes or
Chesapeake Bay cost-share programs,  whereby local authorities must determine the merits
of cost-sharing structural improvements.

       Political feasibility

Agricultural interests and powerful Hill legislators are not likely to support a cost-share
program to support CWA non-point source implementation where the bulk of funds come
from the traditional commodity income support program. Particularly since it could lead
to a major redistribution of funds away from their districts. Farm organizations, such as the
National Corn Growers, Pork Producers' Association, or National Farmers Union will not
support a "reward" for polluting since it  could lead to conflict  within those within their
organizations. The conflict would arise between those producers who benefit because their
farms  are located in impaired areas and  those who are being pressured by  state and
community interests to change their practices but who would not get the cost-share because
of where they are located.


The option would not likely result in a major change in revenue to farmers in general,
depending  upon how the cost-share  program  is constructed and  how much  money is
available, though it could cause a redistribution of funds.  Nor would  it lead to major
government expense  since OMB  sees commodity payments,  CRP, Wetlands Reserve
Program or even a future Stewardship Program as constituting one larger pot of money. It
could provide a stronger OMB or  Hill argument for continuation of the existing budget.
The notion that it would shift ag payments away from an entitlement program to a budget
line item that is controllable is more of perceived problem from the point of ag interests
than a real problem from the perspective of OMB.   Cost  sharing  is generally  more
appropriate where capital costs are involved, rather than income foregone. This is because
the opportunity cost of a farming system, such as a sustainable crop rotation, may be greater
than its increased cost over the more conventional practice.

      1C. Super-Compliance

This option represents a higher quid pro quo for recipients of federal commodity subsidies.
It would expand the Conservation Compliance Program, which  is now a component of
Baseline Plus, to include requirements for nutrient and/or pesticide and/or irrigation plans
and  recommendations, as specified in our management measures,  in addition to current
environmental requirements. The Soil Conservation Service would expand their duties from
development and  enforcement of soil conservation  plans on highly  erodible land to
development and enforcement of total resource management plans.

      Environmental Outcomes:

The  environmental benefits would depend upon the nature of the management measures
specified, the percentage of producers who opt to remain in the commodity program despite
the increased costs associated with doing so,  and the ability of authorities to enforce.  The
more measures to  which a producer is likely to be  subject, the less likely he or she will
continue in the program without an increase in the commodity payment.  Currently, the
most specific, and therefore, strongest management measure  is for nutrients,  which
represents the most pervasive water quality and health risk from agriculture, and adds to
global gas emissions into the atmosphere. Pesticides currently  represent a more complex
and costly problem to address, as reflected in the less specific management measure.  The
irrigation  management measure  is stronger, but  many irrigated crops are not in farm
programs and therefore might not be influenced by this farm bill option.  However, there
could be a tradeoff in adverse environmental effects from production by producers who opt
out of the program.


This option would produce budget savings, rather  than costs, as some farmers might drop
out of the program rather than comply.

      Farmer Costs:

The  impact on  farmer costs will  depend upon which  management measure he or she is
subject to.  The nutrient management measure for  fertilizer use could  reduce  costs and
increase net income, if implemented in concert with well designed research and education
programs. On the  other hand, the measure for manure is likely to decrease farm income.
Reporting requirements could be particularly burdensome despite farmers complaining
about existing burdens.

      Administrative Feasibility:

As with set-asides and stewardship payments, this option would need to specify management
measures that can be easily tracked to verify compliance; entire  erosion and chemical


management plans tend to be quite difficult to enforce.  Denial of payments represents a
heavy  hammer,  which will put  more  pressure  on administrators  to  come up  with
effective/equitable  enforcement  procedures.    There  is  little confidence  that  Soil
Conservation Service are able or willing to become environmental police.  The reporting
requirements could cause administrative problems.

       Political Feasibility:

Powerful commodity and industry groups presumably would oppose this option, although it
might be favored by some farm bill players as a budget cutting measure. USDA would not
be interested in assuming EPA's role in enforcing environmental regulations if the benefits
are not clearly seen to lie with producers. On the  other hand, if regulations are  inevitable,
they would prefer that they, rather than EPA, have the responsibility for enforcement. The
environmental community, however, would not trust USDA to develop and implement an
effective enforcement  program.



This program replaces the current program of income support and presupposes termination
of the existing commodity program.  The stewardship payments would cover the opportunity
cost (income foregone) and possibly also a premium high enough to induce producers to
agree to adoption of an agricultural practice or system that produces a positive externality.
 Examples of positive externalities include habitat benefits,  soil conservation, wildlife
beneficial crops and practices, winter cover crops, and water-quality-related benefits.  An
additional benefit could be food with fewer pesticide residues.  If structured properly, the
payments could provide farmers with more autonomy than the other options (and hence
encourage greater involvement in issues of environmental protection and agricultural
production).  They could thus provide the incentive to look for creative solutions more in
line with principles of ecosystem management than one-time payments to cover regulatory
costs. The service could be related to a management measure under CWA or CZARA. It
can  be designed to  operate so as  to meet multiple  objectives, such as  habitat and
qroundwater protection and surface water protection.

(This option could also serve as a pilot program in a identified watershed or production

In the Stewardship Payment option, producers are paid an annual fee according to the
environmental service they  provide.   In general, the service  supports the watershed
protection  or production area plan for water and environmental quality.  For certain
services, which are national or regional in scope, such  as migratory bird habitat, the fee is
determined nationally. The service must be demonstrable, such as habitat or cover.  The
fee would be determined on the basis of the opportunity cost of providing the service over
conventional practices in the area or region.

The contracts for Stewardship Payments must be established prior to the Federal budgetting
cycle.  The same budget or a complementary budget  would  be established for annual
purchases of set-aside.  Thus, with funds from the set-aside budget, local authorities could
decide either to use  the funds to purchase  set-aside rights or to pay farmers for use of
practices that reduce total production by a commensurate amount.

There are two conditions for  receipt of stewardship payments: 1)  the existence of regional
or national plan for  protection of  a  environmental resource,  animal or  bird species of
national value,  or other ecological good; and 2) a watershed protection plan that includes
areawide land use or required management measure under CWA or CZARA.  The program
is voluntary and serves to compensate farmers and landowners for services and goods that
benefit the public domain. These benefits are both environmental and economic.

For example, in an area of essential, non-renewable and declining groundwater resources,


the service is a practice that, in comparison to conventional practices, reduces the draw upon
the ground water supply or serves to protect recharge. The producer must demonstrate that
the practice provides environmental benefit and costs more than  the  average  cost of
conventional practices in the area for the production of the same or  similar crops.

In a second  example, a national or regional  plan is established to increase the numbers of
an endangered species. A farmer agrees to  change his cropping practices, as compared to
conventional practices in the area or region, to provide for habitat for the species.  State
Extension determine the opportunity cost of the new practice.  At the beginning of or end
of the year, demonstration of the utility of the practice in benefiting the species can come
through certification by wildlife experts.

There could be at least two payment options:

             (A) payments would be made directly to farmers per benefit unit in grants-
             like review process

             (B)  payments would be made to local watershed-level or other decision-
             making authority, such as a ASCS council or soil conservation district as part
             of or contigent upon watershed, resource-management plan. Payments could
             also go directly  (rather than through  local authority) to farmers where
             watershed management plans  specify responsibilities of farmers.

At  least  a portion  of the cost of a stewardship payment program, particularly  for the
adoption of  safer  pest management practices, could be offset by a chemical pesticide fee.
A similar tax  on  chemical fertilizers could also  be used  to finance the program.  This
modification of the stewardship program for financing through taxes on inputs is described
in greater detail in the appendix.

Pros and Cons

      Environmental Benefit

The environmental  benefits, particularly to  all media, can be the greatest of all  options
because  Stewardship  Payments  allow  purchase of the most preferred behavior with
maximum environmental benefit.  For example, if more habitat  for such-and-such a  bird
species is desired and a farming  system would provide more habitat, the option allows
annual purchase  of the farming system.   The option can  be made  to  complement
environmental legislation by making an Stewardship Payment conditional upon a CWA or
CZARA watershed plan.   Measurability of the benefits would depend upon how the
program  is implemented.  The problem of measurability applies to all other options that
attempt to influence agricultural practices rather  than just taking land out of production.
Stewardship  Payment allows the possibility of future payments being made conditional upon
the meeting  of performance standards that are designed to be measurable.


      Ease of Implementation

Enforceability is difficult for any option that seeks to bring about a change in practices that
are not entirely structural. Certain practices, however, are readily observable. For example,
intercropping can be readily observed by an agent from a road or from the air. Fertilizer
or pesticide record-keeping can be cross-checked with sales information.  Pesticide record-
keeping is already a requirement for restricted use pesticides. In targeted watersheds, a
similar requirement could be set.

      Political  Feasibility

At national forums, both Republican and Democratic Congressional ag staff members have
expressed support for a Stewardship Payment-like option as an alternative to or supplement
for the current Commodity Program.  Farm organizations, such as National Corn Growers
Association and National Farmers' Union have expressed cautious interest in the concept,
but are concerned about the ability to ensure future funding for the program.

The Stewardship Payment program could complement the watershed-based administrative
structure envisioned for the Clean Water Act.   Moreover,  it would give  the  watershed
concept the economic carrots to realize the implementation of a watershed plan.


The cost of the program would more  controllable than the current Commodity Program
because the amount available for Stewardship Payments would be budgeted whereas the
existing Commodity Program works as an  entitlement.  Future funding could be assured
through establishment of a tax on selected agricultural inputs (though this is not part of the
current proposal), such as chemical fertilizers or synthetic pesticides.

Farm income could actually  increase under Stewardship Payments.   Analyses of the
elimination of the current Commodity Program for corn suggest that, with land retirement
kept the same, feed grain producers would lose only about $1 billion in revenue from a loss
of the current $3-4 billion deficiency payments. A $2 billion Stewardship Payment program
could, depending upon the cost of the services for which they  are paid,  actually make
producers just as well off financially as they are now.  It could be a plus to producers by
improving the land investment and hence increasing its economic value.


There is new interest in  the Administration in promoting  bioenergy  as an  important
component of the nation's energy mix.  Developing  a reliable  supply of "Agri-power"
products are an important part of this effort. The Farm Bill provides a vehicle to encourage
and support the production of bioenergy feedstocks from farm land through Stewardship
Payments or through a bidding system like that  used  in land retirement programs.  As


bioenergy feedstocks are currently not competitive with fossil fuels in most cases, incentives
will be needed to affect market penetration.

The Farm Bill could support energy feedstock production by adding that activity as an
eligible farming practice to receive Stewardship Payments.  Both woody and herbaceous
biofuel crops can be supported under these vehicles, on the basis of a subsidy per kwh.

Pros and Cons


      Political feasibility.

There is high interest within the White House and the Executive Offices of the President
for a bioenergy program. They will likely support such a program in Congress and with the
various agencies and departments involved.  Farm communities may resist the concept of
Stewardship Payments, seeing existing crop support payments as an entitlement. USDA may
resist the  concept  to  some extent, although they  are involved  in the current White
House/OSTP process.  Significant limitations exist in terms of targeting biofuels options:
herbaceous and woody  crop delivered  prices  are  very sensitive to hauling distance.
Proximity to potential energy facilities is important and likely to influence the design of the

      Administrative ease

The Farm Bill process would have to produce an act that included a Stewardship Payments
program which would  include  biofuel production  as  an eligible practice.   Sufficient
experience with this type of program exists within USDA to make the program successful.
USDA can call upon its Office of Energy to support the program, in addition to its offices
that traditionally run its land management programs.

      Likelihood of other Federal agencies  supporting the option

DOE and USDA are already involved in exploring bioenergy options, and both have a lot
to gain from participation in such an initiative.

      Degree of regional flexibility

Implementation may be targeted to lands most  suited to producing high yields of the
targeted  crops, and that are within a given distance of energy facilities that can use the
crops. The North Central, Northeast, South Central and Southeast regions are likely to be
targeted first. Regions with existing wood resources may also be targeted as these resources
can be used by energy facilities awaiting harvest of the dedicated fuelstocks.


       National budgetary implication

Costs should be negative or neutral with regard to current federal budget outlays. Funding
would come from a percentage of existing annual Farm Bill subsidies re-allocated in to the
new programs.  Administration costs are likely to be slightly higher than existing costs for
program delivery, at least until the programs are well established.

       Cost to farmers

Farmer outlays may be slightly higher initially for establishing both types of crops but costs
will fall thereafter as maintenance costs for woody crops are low and re-establishment of
herbaceous crops unnecessary.

       Environmental impacts to all media

Feedstock production will be very effective in reducing soil erosion and reducing nitrogen
loads in streams.   Woody  crops  are managed on rotations of six or more years, while
herbaceous crops  (like switchgrass) are harvested every year after an initial 2-3  year
development period, but maintain and build on their extensive root systems in between
harvests. In addition, carbon sequestration reduces net greenhouse gas emissions and the
biofuels replace  some  percentage of fossil fuel burned for energy, further reducing net
greenhouse gas emissions and reducing air pollutants associated with burning coal and oil.
Since at least some  biofuels are more resistant to periodic flooding, there would not be the
need for levees as exists now for the growing of conventional commodity crops.

       Extent to which results can be measured

A measurable result will be the acres of land put into biofuel production, and the number
of acres that remain in those  uses after the first harvest of those crops. In addition, water
quality, soil erosion rates, carbon sequestration, and fossil  fuel  displacement can be


Farmers in the current Commodity Programs are assured a percentage, such as 70% (the
revenue target), of the running average of their previous five year revenue or of per acre
returns.  Assurance means that the farmers do not pay for coverage.  With an insurance
option, they would be required to pay a (subsidized) premium for coverage. As a condition
of either program, they are required to implement pesticide, nutrient and soil management
plans, as under the Supercompliance option.  It would remove disincentives to rotate crops
(resulting in certain environmental benefits) and could lead to a streamlining of deficiency,
disaster, and  crop insurance programs. To strengthen this option environmentally, federal
crop insurance could be made available to underwrite farmers' financial risk of undertaking
production practices which mitigate  pollution or risk  relative to typical practices.  This
option assumes that financially sound sustainable practices have been (or could readily be)
defined on a crop specific basis.

Pros and Cons


The option would help remove the existing disincentives to the rotating of crops with its
associated benefits of the current commodity program.


Streamlines deficiency, disaster, and crop insurance programs. According to ERS, assurance
would be more expensive to the Government than insurance. However, insurance raises the
question of actuarial soundness and at what level it should be subsidized.


It could  streamline existing  programs into  an integrated program, yet pose no greater
difficulty in implementation than current crop insurance programs. It would provide more
flexibility for farmers and hence result in less resistance on their part.

       Political feasibility

A number of growers' associations support a revenue assurance or insurance program. A
major  grower association representing Iowa, for  example,  has  succeeded in  coercing
Congress to  put pressure on  FAPRI and hence CARD  to conduct the  economic-
environmental analysis, ahead of Congressional debate, of the revenue assurance plan.
There are a number of other well-thought out plans. Farmers,  for example, might prefer
that net returns be assured rather than revenue.  The idea of setting of a pilot project in the
Midwest has been suggested within USDA. A number of details, including the percentage
of revenue that would be  assured, has to be worked out before it is clear whether farmers


themselves would support the concept.  Environmental groups have been neutral on the
option and would not likely oppose it, though they are more likely to favor a stewardship
payment option.


/. Cross Compliance for the Dairy Program

This option makes the benefits of participation in the dairy program conditional upon
compliance with management measures for animal waste.   Since dairy farmers do not
directly receive the subsidy,  the option does require some ingenuity in assuring that the
benefits are passed onto  the producers in a way that holds them  accountable  for the
environmental requirements. One possible way would be to make fluid (Class A) allotments
conditional upon certification that the cooperative producers are in compliance with the
requirements.  The assumption is that a Clean Water Act will be passed with CZARA type
requirments for management measures in targeted watersheds.

Pros and Cons

       Environmental benefits

Pros: The participants in the  dairy program are not subject to environmental requirements
as a condition for program financial support.   The option would  provide  a powerful
inducement to develop nutrient management plans.  Cross compliance could serve to raise
the cost of production in areas where land for proper disposal of land is scarce which in turn
could damper  the amount of production in those areas. On the other hand, areas where
land is available are likely to increase production.

Cons:  Not all dairy producers participate in the dairy program.


As compliance costs increase, there will be a call to increase the dairy subsidy from some
areas   of  the  dairy  industry where  dairy  production  is  particularly  concentrated.
Nevertheless, the costs of compliance will likely be less in less congested areas. The result
could well be a call for greater funding of the program unless Congress is willing to accept
a  falling out of the industry resulting in less  overall  production that would  drive up
consumer prices.


Small and mid-size diary producers in certain areas of the country, such as the Southwest
are likely to be hurt  more and hence oppose more strongly cross-compliance.  However,
areas that have lately been losers in the dairy wars are likely to benefit and hence to support
the program.  On balance  the industry  would oppose  it.   A  financial sweetener can
overcome opposition.


This option would  require more administrative resources in developing and reviewing
producer plans. However, this is presupposed in andy case with a CZARA-like Clean Water
2) Export Enhancement Program Targeting (modification to the existing export enhancement

In meeting our obligations under the GATT, the U.S. will have to reduce export subsidies
over the implementation period. One option could be to target these reductions at most
environmentally damaging crops. This option could also be stated as: continuation of export
subsidies for crops that have been produced in an environmentally sound manner.  An
alternative formulation would  be  to  condition the subsidies on certification that the
producers of the commodity have made some progress towards implementation of reduced
pesticide use/risk measures in the production of the commodity.

Pros and Cons

The proposed program would  now have the combined effect of trade promotion and
enhancement of environmental quality. Theoretically, a reduction in the subsidy would alter
growers production decisions, since they would not have as lucrative a (if any) market for
all of their crops.  This could create an  incentive to produce less environmentally damaging
crops, or to enroll in a land retirement program. In meeting the above (dual) objective, we
would also be moving towards meeting  our GATT obligations in a manner that  makes good
environmental sense.  This option also reduces budgetary outlays, and potentially wasteful
practices that can result from subsidization.


Political acceptability may be a problem, given that the program has been set up for trade
promotion. To achieve GATT objectives, some people may want to continue the EEP for
those commodities most in need of subsidization to compete in the world market -- without
consideration for the environmental effects.  Also, lack of subsidies will prompt production
in other countries which could have a disproportionately negative effect on the environment
(e.g. biodiversity and climate change).
3) Underwriting of Risk of Pesticide Use/Risk-Reduction Options

This option would involve underwriting farmers' financial risk of undertaking production
practices, such as a)       sustainable agriculture practices, b) crop/pest-specific use of
area-wide IPM, c) crop/pest-specific use of safer pest management practices, which mitigate


pollution or risk relative to typical practices.  The reduction in producer financial risk could
occur through either guaranteed loan program for the purchase of necessary equipment or
through a modification of the crop insurance program.

Pros and Cons

       Environmental outcomes
             Scale -       Potentially applicable to many  crops, geographic areas and
                          farmers.    Participation rate  is  unknown,  but  could  be
                          considerably higher than for current crop insurance which pays
                          for  losses due to  natural causes and  for which  reliance on
                          disaster payments is a substitute.

             Magnitude - Variable,  but could result in significant reductions in pesticide
             use/risk, chemical fertilizer use, and soil erosion for participants.  Could
             greatly curtail the use of many pesticides which are often used to guard
             against relatively rare but potentially costly pest outbreaks.

             Government  - Potentially large cost,  but cost commensurate with risk
             reduction benefit. Some cost should be offset  by premium payments; offset
             would be dependent on dollar amount and number of participants. (Must take
             into account requirements of the budget agreement and  deficit reduction).
             Farmer - Cost offset by financial benefit if implemented properly.

             Enforceability - Crop  insurance mechanism is currently operable but this
             would be a significant change. Medium to high difficulty in demonstrating that
             some safer practices were actually adopted and did not systematically increase
             Administrative ease - Difficult job in defining specifically what changes in
             what practices would qualify for coverage, as well as  in developing formulas
             for quantifying applicable losses.

       Political feasibility
             Non-government - No strong opponents.
             Government - Feasible unless  perceived as  ineffective.

4) "Green  Loans" to Fanners to Purchase  Technology That Achieves Pollution or Risk

Farmers need access to  capital to purchase new, greener technology.  Traditional sources
of funding,  such as banks,  are averse to providing funds for technologies that are not
standard farming practice because of the perceived added risk to  the collateral (i.e., the


farmer's crop).   This option would  make  more  capital available for loans by  direct
government loans for the purchase of promising new, "greener," technologies or would
underwrite the risk of loans made by private banks for such technologies

Pros and Cons

       Environmental outcomes

       scale:   Potentially applicable to  all geographic regions  for all  crops  and for  all
       farmers.  Participation rate in the loan program is unknown but can be limited by
       putting financial eligibility restrictions in place for farmers and on technologies.

       Magnitude:  To the extent that promising technologies are implemented through
       purchases facilitated through the loan program, this program could achieve significant
       reductions in pesticide use/risk, chemical fertilizer use and soil erosion.


       Government:  For the first suboption, costs would depend upon how financially risky
       the technologies are for which  loans would be underwritten.  Costs for the second
       suboption are a function of the number of defaulted loans required to be guaranteed
       plus administrative  costs.  This could be resolved by limiting the range of eligible
       technologies to those which have  proven track records.
       Farmers:   Cost of technology  should be more than offset by enhanced financial
       return if implemented properly. Farmers should achieve cost reductions in  terms of
       pesticide  and fertilizer costs.


Adequate loan documentation and contractual clauses are necessary.

       Administrative ease

There  would  have to be a process for  approving acceptable technologies.

       Political Feasibility

Non-government: No  strong opposition apparent.

Government: OMB must be convinced that  the program would not pose a strain on the



 la) Baseline plus suboptian: marketable set-aside (acreage reduction program) acreage for
 maximum environmental benefits --the Illinois plan.

 To become eligible for deficiency payments for program crops, growers are required, to
 reduce their planted acreage of a program crop by a federally specified proportion of the
 crop acreage base. By reducing domestic supplies, the ARP rate serves to stabilize domestic
 prices.  The ARP rate for corn was 5% in 1992/93,  10% in 1993/4 and  will  be 0% in
 1994/5.   No  deficiency payments  are  paid  for the  acres set aside, nor are program
 participants allowed  to grow program or other crops on the land.  It is required that the
 land be maintained, though not for environmental benefits.

 The rental value of lands  set aside range  from half a billion to  several billion dollars,
 depending on whether  the set-aside is 5,  10,  or 20 percent of crop acres and on the amount
 of program participation by farmers. Excusing farmers from small set-asides or part of large
 set-asides would provide well over half a billion dollars of incentives.

 Farmers in the commodity program with  environmentally sensitive land (soil erosion,
 habitat, floodplain, wetlands, etc.) would be  allowed to sell or lease  their production (base)
 acres to farmers in the commodity program with less sensitive land.  Farmers would be
issued production certificates, the acreage in  production in a normal year, that could be sold.
 Thus farmer A (or farmers) with x acres of land to be set aside would  be allowed to
 purchase x acres of non-setaside base acreage of farmer B with designated  sensitive land.
 All or some of the deficiency payments tied  to the purchased acres would accrue to farmer
 B, to whom the production certificates had been issued. Federal regulations could stipulate
 that all purchases of certificates for production on set-aside acreage on sensitive lands would
 have to be for a minimum number of years.  The marketplace would determine the value
 of the production certificates.

 Pros and Cons

      Environmental outcomes

 Pro: The proposal would allow multiyear removal of designated environmentally-sensitive
 lands, such as in floodplains or critical wildlife habitat, from production. Roughly 20 million
 base acres were idled in 1992. If even half of these 20 million base acres were on  lands that
 were not environmentally sensitive (or relatively less), then some 10 million acres of highly
 productive lands could be exchanged for 10 million environmentally important land at no
 increased cost to the Government.  By allowing some economic activity to occur on the
 setasides, the market price  of the setasides could be lowered and hence lowering the risk


to purchasers that, in any one year, there could be no set-aside requirement and hence no
benefit to the purchaser.

For example, roughly 1.8 million acres contained in the Missouri floodplain is used for row
crop agriculture (most of which is devoted to program crops; some 700,000 acres in the
upper Mississippi floodplain are used for agriculture.  Exchange of set-aside acreage for
production rights in the 2.5 million acres in the two floodplains could allow diminution of
agricultural activities in the floodplains and thus reduce the need for levees and allow for
wetlands and flood storage and other environmental benefits.

Con: The set-aside program is designed to control the annual supply of commodity goods
to stabilize prices.  For maximum environmental benefit, sensitive lands should be retired
for prolonged periods of time.  However, on occasion, the set-aside rate is zero, in which
case, the sensitive  land would be allowed to go back into production.

Pro: The option would be relatively inexpensive for the government. However, to the extent
that marginal land is traded for more productive land, supply could increase, market prices
would fall, and government deficiency payments would increase.  This problem could be
resolved by anticipating increased supply in establishing set-aside requirements.  Otherwise,
existing administrative resources could be focussed on facilitating the trades.

Con: If set-aside production  rights are purchased for extended number of years, the
purchaser, farmer A, would have  purchased a right from farmer B which would, in such
years, provide no financial benefit  in years in which the set-aside rate is zero.  Government
budget  expenditures  for deficiency payments  could  increase.   Increased acreage in
production would lead to lower market prices.  Thus, deficiency payments could actually
increase substantially. The size of the set-aside requirements would have to be expanded,
when necessary, as some farmers opt for an environmental plan instead of a set-aside.


Pro: Readily enforceable and would  not require  more  administrative resources  than
currently exist.  ASCS has acknowledged that the program is doable.

Con: There would be transaction  costs associated with  the trading. Computer technology
could bring these  costs down.  USDA experience in developing and taking CRP bids could
help in overcoming  the difficulty in setting up the markets.


There appears to be strong Hill opinions for and against this option. Some Senate staff are
sympathetic, some Hill staff who have voiced an opinion opposed.

2. Indexing Yields in the Price Support Payment Formula

This is option is included only for the purpose of informing upper management with regard
to options that will be on the table.  Since it does not entail environmental benefits nor lead
to economic efficiency, it would not be an option that EPA would likely support.

Farmers have clamored to reestablish program payment yields used in calculating price
support payments to major commodity farmers because yields have increased since the early
eighties' five year period, currently used in payment formulas. However, because payments
are now based upon the lower formula yield, there is no longer the incentive to improve
yield such that higher highers would generate greater price support payments.  This option
would substitute an index of yield increases for a region instead to allowing each farmer to
reestablish his payment yield-or continue the freeze.

Pros and Cons

       Environmental Outcomes

There would not be any environmental benefit. Reestablishing base yield to a higher 1980's
yield  average  would result in greater input  use  and  hence environmental  problems
associated with commodity production. Farmers currently apply inputs on the basis of the
lower market price,  not the target price.  Changing the base yield upward would likely
increase the likelihood that farmers apply inputs at the higher target price and thus use


Budget outlays would likely increase if reestablished base yields are higher than historical
base because difficiency payments would
have to be paid on more bushels.

       Farmer Cost.

Research suggests that farmers would benefit from this option  if only the yields were to
change.  However, OMB would likely change the formula so as to keep the towards cost
of the program the same. The result could be a redistribution of subsidies which could make
some producers very unhappy.

      Administrative Feasibility.

Clearly, updating yields using payment formulas is much simpler than allowing farmers to
reestablish yields on every farm. Nevertheless, establishing new payment formulas by region
is still more administratively burdensome than the current system of frozen yields.

      Political Feasibility.

Any attempt to increase base acreage so as to increase the total cost of the program would
be heavily fought by OMB, let alone the environmental community. Any redistribution of
funding merely  as a consequence of indexing would not be politically palatable in the
farming community.

3. Stewardship payments for safer pest management practices financed by chemical pesticide fee

Farmers would receive direct annual payments to subsidize the cost of undertaking safer
pest management practices and/or using safer pesticides.  Use of pesticides with relatively
high risk or  environmental  insult would be charged a user fee.  Such a fee would serve to
both internalize  the  cost  of  the  resultant risk/pollution  imposed  on society, thereby
discouraging "risky" use, but also could pay for the subsidies which are incentives for safer
use. Safer practices, safer pesticides, and high risk/pollution pesticides would  all have to
be well defined, but an oversimplification could have the safest 1/3 of all pesticides being
subsidized, along with safer practices, and the riskier 1/3 of pesticides would require a fee.

Pros and Cons

      Environmental outcomes
             Scale - Very broad because it affets many different risks, pollution endpoints,
             and routes of exposure.
             Magnitude - Depends entirely on size of subsidy and  fee, but could be  large
             if the incentive is large enough.

             Government - Low cost if funds from fees are enough to offset subsidies. If
             fee is based on a per pound basis it is important to note that 1/3 --1/3 split
             may not be equated to similar pounds used.
             Farmer  - Farmers retain the freedom of choice in pest management, but
             financial advantage moves toward safer pest controls.  There would be  some
             winners  and some losers.

      Enforceability - Low to medium difficulty.
      Administrative ease - Implementation would expected to be difficult. Drawing
      the lines between subsidized controls, taxed controls, and all others would be
      difficult and contentious.

Political feasibility
      Non-government - Many farmers involved in production agriculture may be
      opposed; sustainable agricultural producers and environmentalists would favor.
      Government -  General opposition to fees is strong;  some politicians may
      favor given target  and effect  of  fee  and the self-funding nature  of the
      program. Because  of the taxation aspect of this  option, the Congressional
      finance  committees would be  involved  along with the  ag committees.
      However, the ag committees would be  reluctant to share jurisdiction in part
      because  involvement  by the  finance  committees  would likely lead to
      considerable delays.


                                                         DRAFT September 7, 1994


       Farming systems are a complete, integrated set of agricultural (plant and animal)
production practices that maintain or enhance farm profits, long-term productivity, and
environmental quality and natural resources.  Farming systems often require more
intensive management, more efficient use of inputs, a better utilization of the natural
environment and processes, and increased knowledge due to their site-specific nature.

       The farming system options presented here pertain to agricultural lands that are
kept in production. The  options are based on the assumption that management
measures are available that can provide environmental benefits-water, air, and soil
quality, wildlife habitat, climate change objectives, food safety, worker safety, and human
health-while producing food and fiber. Generally, these options are based on the
Administration's position on the  reauthorization of the Clean Water Act and the Safe
Drinking Water Act, the  President's Climate Change Action Plan, the Administration's
Pesticide Use/Risk Reduction Initiative, the Administration's proposed Food Safety
Legislation, and EPA's Pesticides and Ground Water Strategy.

       The options are presented in four main categories: baseline, geographic targeting,
land management, and implementation.  The categories are mutually dependent. For
example, land management decisions have to be made no matter what geographic
targeting option is chosen. The options provide alternative policies within each category.
A discussion of the pros and cons of -the options follows each main category.

       The financial mechanisms and incentives to implement these farming systems are
not included in the options since they are comprehensively explored in the financial
incentives policy options paper. A variety of implementation mechanisms could be used:
cross-compliance, cost-share programs, stewardship payments.  The choice of incentive
could vary depending on  a variety of factors such as the cost of the option, expected
environmental benefits, and/or political philosophy.


Revise and Expand Current Farm  Bill Programs—Water Quality Incentives and Integrated
Farm Management  The  baseline option would take conservation programs that were
authorized  in previous farm bills and modify them to provide greater environmental
benefits.  Two programs would be targeted for modification:  Water Quality Incentives
Program and Integrated Farm  Management.

Water Quality Incentives Program  (WQIP)  WQIP provides cost-share incentives to
farmers to adopt management  practices in specific geographic areas.  As implemented,
WQIP is a part of the Agricultural Conservation Program (ACP), therefore, total
payments for both the management practices of WQIP and the structural practices of
ACP are limited to $3,500 annually .  States submit grant applications for specific
watersheds up to $300,000 each.  The grants are awarded competitively.  The 1995

                                                         DRAFT September 7, 1994

WQIP appropriation is anticipated to total $15 million.

       To strengthen the Program, a significant increase in funding could be tied to
better environmental targeting using states and EPA as partners in the process. In
addition WQIP could be separated from ACP so that the combined $3,500 cap no longer
inhibits integrated environmental solutions on farms.

Integrated Farm Management   The goal of the Integrated Farm Management (IFM)
Program Option is to "assist producers in adopting integrated, multi-year, site-specific
farm management plans by reducing farm program barriers to resource stewardship
practices and systems; and to  help producers improve and conserve soil and water on
farms by converting land to resource conserving crops."  The  Soil Conservation Service
describes the crop rotations, practices, and systems to be used on the farm. Producers
must enroll for three to five years.  20% of crop acreage bases must be in resource
conserving crops (legumes, grasses, small  grains).

       Few producers have  enrolled in IFM primarily because of the obscure nature of
the incentives for the producer. To strengthen the program, the incentives for
participation would be modified. For example, if producers were allowed to crop their
set-aside acres with a commodity crop, participation in the  program might increase
dramatically.  Other incentives could be considered such as expanding the uses of
Conservation Reserve Program lands.  No additional funding would be needed if
adequate program incentives were adopted.

Ease of Implementation

       a. Enforceability  Enforceability has not been an  issue to date because of the
small size of these programs.  However, some type of enforcement mechanism would
have to be developed if these programs became wide spread. It is difficult to determine
if practices or systems are implemented.

       b. Political Feasibility  There would be little political opposition to the expansion
of these programs on other than budgetary grounds.  Environmental groups may strongly
support the expansion of WQIP as  the vehicle for adoption of management

       c. USDA/EPA Implementation   USDA would need to increase the staff involved
in these programs, if they increased significantly.

       d. Support by Other Federal Agencies  OMB would probably oppose the expansion
of WQIP for budgetary reasons.

       e. Regional Flexibility  These programs allow for site-specific tailoring.

                                                         DRAFT September 7, 1994

       f. Importance of Option Design Currently WQIP cost-shares specific practices.
The redesign of WQIP should include cost-sharing of more comprehensive measures or
systems. Without an adequate incentive, farmers will not participate.


       g. National Budgetary Implications IFM redesign would not have any implications
for the federal budget. WQIP would depend on the funding levels proposed.

       h. Costs to Producers  Since the programs are totally voluntary and provide
commodity program incentives or cost-share, producers would only participate to the
extent that they benefited.

Economic Benefits

       i. Cross-media Impacts Both programs can address  a wide range of
environmental concerns.

       j. Measuring Results  Environmental results would be difficult  to measure.

       1. Compatibility with Other Environmental Legislation  These programs can
support the implementation of the Clean Water Act, the  Coastal Zone Nonpoint
Pollution Program, and the Safe Drinking Water Act.
                           Geographic Targeting Options

      To more efficiently use limited funds, farming systems should be focused on
specifically defined geographic areas. Environmentally, the preferred target may simply
be all agricultural lands.  However, because of administrative and budget constraints, the
targeted areas will have to be more focused. The options vary in the amount and type of
land where farming systems would be implemented.

      The degree or scope of targeted area depends on the targeted environmental
benefit, and each has its costs and limitations. For example, targeting areas for
management measures where watershed or aquifers are threatened or impaired will have
the maximum benefit for water quality and wildlife, but may not be as effective in
protecting agricultural farmworkers or ensuring the safety of the food supply.

Option 1:  Agriculture Programs   From an administrative perspective, agricultural lands
enrolled in USDA programs could be fairly easily targeted for implementation of
farming systems.  Several current USDA programs could  be used as targeting

                                                         DRAFT September 7, 1994

mechanisms-commodity programs, marketing orders, Conservation Reserve Program,
and highly credible lands. Any combination of these programs could be employed.
About 68 percent of all agricultural land or 270 million acres would be covered by using
these USDA programs as targeting mechanisms.  Most of the rest of agricultural  land or
130 million acres is used  for pasture or hay production.

       If commodity programs were used as a targeting mechanism,  agriculture lands .
producing crops covered by a variety of price support programs would implement
farming systems.  These crops include feed grains (corn, grain sorghum, oats, rye, barley),
wheat, cotton, rice, soybeans, minor oil  seeds (sunflower, canola, rapeseed, safflower, flax
seed, mustard seed), sugarcane and sugar beets, peanuts, dairy, and  tobacco. Under this
option, approximately 83  percent of base cropland acres would implement fanning

       Marketing orders cover approximately 30 crops, primarily fruit, vegetable,  and nut
crops. A purpose of the marketing orders are to control supply and protect consumers
by restricting the grade, size, quality, and maturity provisions of the  relevant crops.
Marketing orders apply to a small number  of acres nationally, but apply to significant
amounts  of cropland in Arizona, California, Florida,  and Texas.

       Beginning in 1995, contracts for acres retired under the Conservation Reserve
Program  (CRP) will start to expire. Many  of the  acres covered by the expired contracts
will be put back into the production of food and fiber.  Since these acres are primarily
highly credible cropland,  producers will have to comply with the  Conservation
Compliance Program to be eligible for any USDA payments.  These acres could be
targeted to implement  more comprehensive farming  systems.  A total of 36  million acres
of cropland could be brought back into  production if the CRP is not renewed.

       The Soil Conservation Service has classified approximately 148  million acres as
"highly credible land".  95% of these acres  are covered by the Conservation Compliance
Program.  Targeting highly erodible acres would dramatically increase the coverage of
farming systems above  the acreage coming  out of CRP.

Option 2:  Environmental  Programs  Under this option, agricultural lands that negatively
impact the environment would be  targeted  for implementation of farming systems.
Targeting could be based on any combination of the  programs listed below. Some
environmental targeting tools are already in use-wellhead protection areas and sole
source aquifers under the Safe Drinking Water Act; PM-10 and ozone non-attainment
areas under the Clean Air Act. Other environmental targeting mechanisms have  been
proposed under the Administration's proposals for reauthorization of the Clean Water
Act and the Safe Drinking Water Act-impaired and  threatened watersheds, source water
protection areas.

                                                         DRAFT September 7, 1994

Safe Drinking Water Act (SDWA)   Two programs currently exist under SDWA that
could be used to target land management options~the Sole Source Aquifer Program and
the Wellhead Protection Program.  Under SDWA, EPA has the authority to designate
aquifers which are the sole or principal source of drinking water for an area, a sole
source aquifer. Once an aquifer has been designated, EPA reviews projects with federal
financial assistance in order to prevent federal funding of projects which might
contaminate the aquifer and create a significant hazard to human health.  64 aquifers
have been designated sole source aquifers under this program and 9 additional aquifers
are awaiting designation. EPA has approved Wellhead Protection Programs for 35
states/territories. Under this Program, states designate wellhead protection areas for
each wellhead of a public drinking water supply system.  Once the wellhead protection
areas have been delineated, potential sources of ground water contamination are
identified and management efforts  are developed to prevent contamination and protect
public health. In addition to programs which have been specifically authorized by  the
SDWA, EPA is working with states to develop Comprehensive State Ground Water
Protection Plans (CGWPP).  Where states identify specific areas of concern in their
plans, CGWPPs could also be used as a targeting mechanism. EPA has not yet
approved any plans, although several states have submitted plans for approval. About 20
states are developing plans.

       The Clinton Administration  proposal for reauthorization of the Safe Drinking
Water Act includes a recommendation for the creation of source water protection  areas
for all public drinking water supplies. If source water protection areas are included in
the reauthorization, they could be used as  another mechanism to target land
management options.  The purpose of these areas is to prevent pollution of ground and
surface water sources of public water supplies.

Clean Water Act   The recommendations  in President Clinton's Clean Water Initiative
for reauthorization of the Clean Water Act include two major proposals that could be
used to target agriculture management options—1)  state inventory of watersheds with
impaired and threatened waterbodies or other special waters; and 2)  creation of state
watershed programs.

       The Initiative recommends that every five years states specifically identify
waterbodies and their watersheds that are impaired or threatened by nonpoint sources
(including agriculture); and other special waters such as outstanding national resource
waters and drinking water supplies. This inventory would also include the major stresses
on the waterbodies, in addition  to chemical pollutants.

       The Initiative also includes a recommendation for the development of state
watershed programs. The watershed programs would go beyond achievement of water
quality standards to include broader environmental objectives such as wildlife habitat.

                                                         DRAFT September 7, 1994

This provision, if adopted, would provide a mechanism for states to target environmental
concerns comprehensively.

Coastal Zone Act Reauthorization Amendments of 1990 (CZARA)  Under CZARA, the
National Oceanographic and Atmospheric Administration (NOAA), in cooperation with
the coastal states, is determining boundaries for the coastal zone nonpoint source
program.  The geographic scope of the program must encompass land and water having
a significant individual or cumulative impact on the state's coastal waters.  The boundary
determination will be made prior to the state submission of the CZARA program to
EPA and NOAA in mid 1995. Currently two states, Delaware and Florida are entirely
within the coastal zone.

Clean Air Act  Agricultural lands would be targeted that are contributing to the
degradation of air  quality in (1) PM-10 non-attainment areas, and (2) ozone non-
attainment areas.

      The national Ambient  Air Quality Standards were established to protect human
health and well-being of the public against high concentrations of PM-10 (small particles
that can be inhaled) and other criteria pollutants (ozone, nitrous oxide, lead, carbon
monoxide,  and sulphur dioxide).  Currently air  quality considerations are not included  in
the decision-making process for selecting soil conservation measures and other farming
practices such as field burning.

Environmental Stewardship Zones    Environmental Stewardship Zones (ESZ) are a
new idea that is being developed by EPA's Office of Pesticide Programs in response to
the Administration's Pesticide Use/Risk Reduction  Initiative. ESZs would be designated
by each state and would consist of acres in environmentally-sensitive areas and/or acres
providing major inputs to the  human diet.  A total number of acres would be available
nationally and would be divided among the states in an equitable manner allowing for
the extent of agricultural production and the extent of environmentally-sensitive areas to
be considered. The number of acres put into the program nationally would be a function
of the nature of the financial  and market incentives and the cost of such incentives. A
pilot program to test the concept may be necessary, at first.  States would designate the
location of ESZs, subject to EPA and USDA approval.

Ease of Implementation

      a. Enforceability  Geographic targeting  options would not require enforcement,
only regulations putting the chosen option in place.  Incentives or sanctions would be
administered in the targeted area only.

      b. Political Feasibility   Targeting based  on environmental conditions can be

                                                         DRAFT September 7, 1994

viewed two ways. It addresses the concern that private and/or public funds should be
expended only where there is a demonstrated environmental need. On the other hand,
many producers may view targeting as inherently inequitable since producers in impaired
watershed might be required to apply additional management practices.  Conversely,
producers in targeted watersheds might receive additional funds to correct problems that
producers in other watersheds corrected on their own.

      c.  USDA/EPA Implementation  Any of the agriculture program options could be
easily implemented by USDA since almost all the lands affected by the program options
have already been identified.

      The environmental program options vary in their ease of implementation.  The
nonpoint source management area under CZARA will have been  identified by mid-1995.
PM-10 non-attainment areas have already been identified.  Although sole source aquifers
and wellhead protection areas have been identified, they have not been entered into a
comprehensive  national data base that could  be used for geographic targeting.  States
can supply ground water areas for geographic targeting. Currently, EPA does not have
the ability to geographically target threatened or impaired watersheds. If the inventory
provisions in the Administration's recommendations were enacted with reauthorization of
CWA, the inventory would not be available until 1997, at the  earliest. Source water
protection areas await reauthorization  of SDWA. No mechanism  has bee established yet
to identify Environmental Stewardship Zones. PM-10 and ozone non-attainment areas
are included in a national data base called Aerometric Information Retrieval System.

      d. Support by Other Federal Agencies  USDA would probably not support
targeting based on potential SDWA or CWA reauthorization language, since the
timetable and the targeting mechanisms themselves are uncertain. However, all relevant
federal agencies signed off on the Administration's recommendations for reauthorization.
USDA's support for other environmental targeting mechanisms would depend on the
degree of certainty in the designation.  The Office of Management and Budget (OMB)
would support the option that gives the largest environmental return for the least cost.
The analysis comparing the options will not be available for several months, however,
USDA programs, especially commodity programs and marketing orders, would not be
able to target environmentally-sensitive land very efficiently.

      e. Regional Flexibility  Targeting through agriculture 'programs would not allow
for regional  flexibility since they are based on national program participation.
Environmental programs would be targeted to regional and/or state environmental
concerns.  Targeting through CZARA would  provide the least flexibility of any of the
environmental programs.  As an option tends to become more flexible, it tends to
become more difficult to  administer.

                                                         DRAFT September 7, 1994

       f. Importance of Option Design Agriculture programs have already been designed,
but will be modified in the 1995 farm bill.  State options such as watershed programs or
environmental stewardship zones would be targeted using a broad base of public input.
If targeting were focused on the commodity programs, land used for minor crops would
be ignored; some food safety or farmworker safety concerns might be overlooked. The
marketing orders system could provide an avenue to address  environmental objectives
for minor use farmers.


       g. National Budgetary Implications
       h. Costs to Producers The cost implications for the national budget or producers
depend on the incentive mechanism used to implement the option. If some type of cost-
share program is used, the greater the number of acres included in the option, the
greater the national budget outlay.  However, if a cross-compliance mechanism is used
for agriculture programs, any targeting option would be budget neutral and the cost
would be totally borne by the producers.

       According to the cost/benefit analysis prepared for The President Clinton's Clean
Water Initiative, targeting threatened and impaired watersheds with CZARA-like
management  measures would total an estimated $1 to $1.8 billion.  Federal agencies
would incur costs in the range of $118 to $210 million.

       Initially the costs to the federal government would be higher since more data
would be needed  to determine which geographic areas should be targeted.  Ultimately,
the total costs to federal agencies would  decrease over time, due to reduced workload
and reduced cost-share and technical assistance.

Economic Benefits

       i. Cross-media  Impacts  Cross-media impacts are determined by the farming
system selected, not the geographic targeting option.

      j. Measuring Results EPA estimated that 156,200 impaired or threatened river
miles and 7.1 million impaired or threatened lake acres would show measurable water
quality improvement (10% high likelihood and 46-58% medium likelihood).  Impact on
estuaries was not  estimated due to lack of state information.

      k. Synergy between Options and Addressing Multiple Objectives   Although the
agriculture programs do not specifically address wildlife, some CRP lands with expiring
contracts could support important habitat areas. There is some overlap between highly
credible lands and water  and air  quality  concerns.

                                                        DRAFT September 7, 1994

      1.  Compatibility with Other Environmental Legislation   Targeting based on
threatened and impaired watersheds, state watershed programs, and source water
protection areas would reflect the Administration position on the Clean Water Act and
the Safe Drinking Water Act.
                            Land Management Options

      Geographic targeting is simply the first phase of farming system options. Within
the targeted land area, decisions must be made as to the management practices,
measures, or systems that will be implemented.  The major choice is whether
management is based on whole farm planning (comprehensive management) or selective
implementation of specific management practices. Options one and two basically employ
the whole farm planning concept. Options three through six employ selective practices
or measures.

Option 1:  All Agriculture Management Measures   Implement all agriculture management
measures developed for the Coastal Zone Act Reauthorization Amendments of 1990
(CZARA) guidance.

      The CZARA guidance includes six agriculture management measures:  erosion
and sediment control, small and large  facility wastewater and runoff from confined
animal facility management, nutrient management, pesticide management, grazing
management, and irrigation water management.  Under this option, the incentive
mechanism would require that all applicable management measures be implemented on
a farm.  The comprehensive nature of this option would equate to whole farm planning

      Producers would be able to adopt best management  practices on a site-specific
basis, as long as the management measure was met.  The management measures would
not require specific best management practices, since the choice of practices depends on
the conditions on the farm.  Management measures allow for myriad variations of
practices to implement the measure.  For example, the irrigation  management measure
requires that the timing and amount of irrigation water match crop needs. This measure
can be achieved through the implementation of a variety of specific management
practices such as irrigation scheduling, flow measurement and control, and trickle
irrigation.  More intensive management is required to precisely determine crop needs on
a site-specific basis.

Option 2:  Revised Agriculture Management Measures  Implement  all agriculture
management measures in Option 1 with the following changes: strengthen pest
management measure and add measures for air quality and wildlife habitat.

                                                         DRAFT September 7, 1994

      The CZARA management measures were developed to restore and protect
coastal waters from nonpoint source pollution.  Since CZARA management measures
focus on water quality, other important environmental goals might remain unaddressed,
such as  food safety and worker protection, air quality, or wildlife habitat.  This option
would strengthen the systems approach to whole farm planning.

      A wildlife management measure could enhance and restore habitats for
endangered, threatened, and candidate (ETC) species.  This measure could be applied to
all ETC wildlife or targeted to terrestrial, riparian, or other areas.  Incentives could be
provided to farmers who implement cropping practices to promote on-field habitats and
restoration projects. This option would have a positive impact for those species whose
habitat intersects agricultural lands and whose survival often competes with agricultural
production such as the sharp-tailed grouse in Idaho or the Delta smelt in California.

      An air quality management measure would address violations of the PM-10 and
ozone air quality standards by practices such as wind erosion,  crop burning, crop dusting,
and other agriculture activities.  Under the Clean Air Act, as  amended in 1990, states
are required to submit plans to EPA for reducing emissions of paniculate matter from
sources  contributing to the problem. The measure would also address agriculture
activities that contribute to precursors  of PM-10 such as ammonia from animal feedlots
and precursors of ozone such as from nitrous oxide  from prescribed burnings.

      A strengthened pesticide management measure would address some of the
weaknesses inherent in the CZARA guidance. The new measure would implement
whole farm management systems, using all available technologies, to reduce the need for
pesticides and, when necessary, substitute less risky  pesticides  (e.g.,  biological) for higher
risk pesticides.

Option 3: Selected Management Measures  Under this option, management measures
would be implemented only for the agricultural sources which contribute to an
environmental problem.  For example, if a particular species  (or human community)
were threatened by pesticide use, the pesticide management measure would be
implemented in that area.  If a particular waterbody were impaired by phosphorus, all
management measures, except pesticides, would be  implemented in that watershed since
phosphorus is a nutrient (animal  and/or chemical based) which attaches to soil. The
possible management measures would  include the full range from Option 2:  nutrient,
sediment control, animal facility wastewater runoff,  grazing, irrigation, air quality,
pesticide, and wildlife  management.

Option 4: Nutrient Management Measure   Implement only  the nutrient management
measure, since it may be the most cost-effective measure.  EPA analysis completed for
the President Clinton's Clean Water Initiative determined that producers could save at


                                                          DRAFT September 7, 1994

least $700 million annually from implementing this measure.  The goal of a nutrient
management measure is to minimize and/or prevent nutrients from running off into
surface water or leaching into ground water.  The measure requires the development and
implementation of a nutrient management plan with specific components such as nutrient
budgeting, realistic yield goals, and soil/tissue/manure testing. The specific practices
depend on the  site-specific conditions described in the plan.

Option 5:  Pesticide and Pest Control Management   Farmers would work closely with
SCS, or certified  crop consultants, to develop pest management plans.  A minimum set of
practices would be required.  This option targets pesticide use reduction and the
adoption of various integrated pest management strategies. The  CZARA pesticide
management measures would be the baseline which would be expanded or adjusted to
address regional variations.

       Practices to implement the measure would include: evaluating past pest control
and cropping measures; examining the soil and physical characteristics of the site; use of
IPM strategies  (crop rotation,  pest monitoring, timing of planting, biological control,
judicious use of pesticides based on economic thresholds, etc.); selection of least risky
pesticide; use of pesticide resistant strategies; regularly calibrating pesticide application
equipment; use of anti-backflow devices on mixing tank hoses; use of banded application
techniques; and pesticide record keeping.

Option 6: Selected Best  Management Practices   Implement only selected practices within
the management  measures which may have the broadest application with important
environmental benefits for a variety of media. Crop rotation and scouting are  described
below, but other practices such as contour farming, conservation  tillage, filter strips,
green manures, resistant cultivars, biological controls, or nutrient soil testing could also
be implemented.

Crop Rotation  Crop rotation  as a valuable pest management technique and directly
applies to farmers of monocultures, particularly corn growers.  For example, available
usage data indicates that an acre of continuous corn is four times more likely to be
treated with an at-plant insecticide than an acre of rotated corn (56% vs 14%). Growers
who grow continuous corn do so because corn is more profitable  than an  alternative
crop.  Any program that would make rotations a more attractive  option and would
reduce insecticide use by 42 percent for each additional acre brought into rotation.
Rotating with a leguminous crop adds the benefit of reducing the need for nitrogen
inputs  to the soil.

Scouting and Pest Monitoring  About half of all treated field  corn is treated with
insecticides unnecessarily, since only 50 percent of treated field corn acreage contain pest
populations  above economic injury levels.  Therefore, scouting and pest monitoring


                                                        DRAFT September 7, 1994

techniques can have an economic and environmental benefit. Monitoring of weed
infestation economic thresholds is also important because herbicide use makes up the
majority of pesticides applied to agricultural lands.

       Required practices could also be developed through a state plan in conjunction
with Environmental Stewardship Zones.  They would be subject to USDA and EPA
approval with plans being centered around commodity-specific strategies.

Ease of Implementation

       a. Enforceability  Installation of structural components of management measures,
i.e. animal waste storage or anti-backflow devices, can be readily ascertained as can the
creation of nutrient management plans or conservation plans. Assuring the
implementation of the management practices in  the plans is  more problematic. Pesticide
or fertilizer purchases could require a "prescription" or implementation could be verified
by SCS spot checks and/or certification of private consultants.

       Enforcement has been a contentious issue in the agriculture community. To
enforce any of these management options, USDA would have to withhold payment to
farmers. Historically, USDA (SCS) has been reluctant to enforce against farmers who  it
perceives as its clients.  The more management measures employed the greater degree of
enforcement required.

       b. Political Feasibility     Management measures allow  for myriad variations of
practices to implement the measure depending on the specific conditions on the farm.
However, some agriculture groups perceive the measures to be rigid, especially for
animal waste.  Even though whole farm planning is a concept being widely promoted by
many agriculture groups, as the menu of measures becomes more comprehensive, more
opposition will develop. Producers will favor voluntary programs over a cross-
compliance approach (although participation rate will be considerably less for a
voluntary program). Comprehensive farming systems will appeal to consumer and public
health  groups. Environmental groups have been generally supportive of the
comprehensive management measures approach, although they would like to see
measures based on performance, especially for soil erosion.  Congressional Agriculture
Committees are still very responsive to the farmer and  commodity groups, however, the
budget may be the overwhelming constraint.

       c. USDA/EPA Implementation   The options vary in their need for USDA
education and technical assistance.  The recent loss of 1,000  SCS staff may seriously
impede USDA's ability to provide needed assistance. SCS is expected to lose another
500 positions.  USDA does not have adequate trained field staff to write plans or even
provide intensive technical assistance to all the farmers that would be affected by these


                                                         DRAFT September 7, 1994

options, especially the more comprehensive options.  SCS and Extension staff are not
specifically assigned to environmentally sensitive areas:  they are spread out to provide
geographic coverage.  Extensive training of USDA staff would be necessary.  SCS
expertise is in soil erosion, not the broad array of other management measures.
Certified crop consultants can be used in lieu of SCS personnel.  Currently not enough
certified consultants available to meet the farmer demand for their services that would
result from the implementation of these management options.

       Even though EPA has a national data base to target PM-10 and ozone non-
attainment areas, we currently have no documentation as to where agricultural practices
are contributors to violations of these air quality standards. EPA and USDA are
working together to estimate air emissions from wind erosion and evaluating practices to
address the issue.

       d.  Support by Other Federal Agencies  USDA level of support is dependent on
the degree and scope of the imposed management measures,  and whether they are
mandatory (i.e., linked with existing commodity programs) or voluntary in nature.
Although  all relevant agencies-USD A, DOI, OMB, FDA, etc.-signed off on the
President's Clean Water Act Initiative, Sustainable Agriculture and Pesticide Use
Reduction Initiative, and proposed Food Safety Legislation, the level of support from
each agency is unclear.

       e.  Regional Flexibility  By their design, management measures must be adapted
to site-specific conditions. They do not prescribe specific practices that must be adopted
on every farm.  If specific management practices are implemented, producers may view
this option as limiting their flexibility.

       f.  Importance of Option Design  The basic management measures have already
been written through CZARA.  If there are any changes to the existing management
measures, there may be opposition from a variety of agriculture groups who felt they had
not been consulted in the CZARA process.
      g. National Budgetary Implications  (See geographic targeting g. and h.)

      h. Costs to Producers  Since selected management measures will be less  inclusive,
the costs to farmers would be less than having to implement whole farm planning. If
management measures were targeted to threatened and impaired watersheds, 33 to 50
percent of the producers would have to implement the measures.

Economic Benefits

                                                         DRAFT September 7, 1994

       i.  Cross-media Impacts  The Climate Change Action Plan estimates that
implementation of nutrient and pesticide management would result in a reduction of 2.7
million metric tons of CO2.  In addition, the Plan estimates a reduction of N20 emissions
by an additional 4.5 million metric tons of carbon equivalents.  If the comprehensive set
of management measures are implemented (Options 1 and 2) multiple benefits to soil,
water, and air quality, wildlife, food safety, farmworker safety, and human health would
be attained to varying degrees.  As management measures/practices are targeted to
selected environmental problems, the multiplicity of benefits will decrease.

       j.  Measuring Results If Option 1 were implemented in threatened and impaired
watersheds, EPA estimated that 156,200 impaired or threatened river  miles and 7.1
million impaired or threatened lake acres would show measurable water quality
improvements (10% high likelihood and 46-58% medium likelihood).  Impact on
estuaries was not estimated due to lack of state information.  No estimates have been
made on the impact on other environmental indicators.  EPA's  Office of Pesticide
Programs is developing methods to measure reductions in pesticide use as part of its
Pesticide Use Reduction Strategy.

       k.  Synergy between Options and Addressing Multiple Objectives   Most of the
management measures/practices are not mutually exclusive. Any type of farm
management planning system will result in improvement to land, water, air, wildlife, and
human health. For example, although Option 1 is targeted at water quality, it will
produce other environmental benefits such as soil and air quality, food safety and human
health, and wildlife and habitat preservation. It addresses mitigation of existing
pollution, as well as pollution prevention objectives.  Pollution prevention  opportunities
diminish  if measures/practices are tightly  focused on current, demonstrated problem

       1.  Compatibility with Other Environmental Legislation   Option 1 would use farm
bill incentives to implement the agriculture portions of the Administration's proposals for
reauthorization of the Clean Water Act and the Safe Drinking Water  Act. In addition,
the nutrient and  pesticide management measures would implement a portion of the
President's Climate Change Action Plan.

       Many of the management measures would complement the current
FIFRA/FFDCA Food Safety legislation and could have an impact on  regulations
stemming from it.  For example, the farm bill program could  pay farmers to install filter
strips.  This incentive would make it easier for EPA to limit pesticide  use by prohibiting
a pesticide's use  on crops without filter strips and thereby make it easier for farmers to
reduce their pesticide use.  A range of regulatory controls can be applied to other
practices as well.  The implementation of specific pesticide use  reduction measures,
particularly where those measures are targeted to priority ground water areas, may


                                                         DRAFT September 7, 1994

qualify as, or at least complement, measures implemented under Pesticide State
Management Plans.

                              Implementation Options

      A variety of implementation mechanisms could be used, such as environmental
compliance, cost-share programs, stewardship loans, crop insurance, stewardship
payments, educational and technology transfer programs, and regulation. -The choice of
incentive (or disincentive) could vary depending on the cost of the option or the
expected environmental benefit.  The financial  mechanisms are discussed in greater
detail in the financial  options policy paper.

      Non-financial mechanisms may be need  as well to implement farming systems in
targeted areas.  USDA data and resources may be inadequate to implement some of the
geographic targeting and land management options.

Option 1:  Mandatory Recordkeeping and Public Reporting  Currently EPA and USDA do
not have adequate data  to know what pesticides are being used and at what rates.
Mandatory record keeping and reporting would provide valuable information on
agrichemical usage patterns.

A.  Mandatory Recordkeeping and Reporting by the Farmer   Require all farmers to
keep records on all  agrichemical usage (pesticides and fertilizers, or pesticides alone).
Restricted use pesticides represent only a small fraction of the total number  of pesticides
on the market.  California and Texas are the only two states which have mandatory
pesticide recordkeeping  legislation for use of all agricultural pesticides.

      Incentive programs would  not work since all agrichemical users must participate
for the option to be effective and usable.  Very few producers would participate if the
program were voluntary. The regulation would restrict public reporting of the data by
the state and federal government to the release composite figures only. This option is
similar to the Toxics Release Inventory (TRI) program.

B.' Mandatory Recordkeeping by Agrichemical Dealers and Distributors   If farmer
recordkeeping and reporting is politically infeasible, mandatory record keeping and
reporting of pesticide sales at the dealer level might be more acceptable.  Records would
be kept at the point of sale by dealers who would record the amount of product sold and
ask the purchaser about his intended use for the product.  Reports would be filed
annually with EPA aggregating sales information. Alternatively, manufacturers could be
required to include a postcard with each unit of product that includes a barcode to
indicate the identify the  product and the appropriate unit. These postcards would be
forwarded to EPA where they would be scanned into a computer database. Funding

                                                         DRAFT September 7, 1994

would be necessary under either option to develop and maintain a data collection system.

Option 2: Expand USD>A/National Agriculture Statistics Service  Surveys   As an
alternative to mandatory recordkeeping, the current USDA/NASS surveys would be
expanded.  The scope of the surveys would be expanded in the areas of crops covered,
states covered, information requested, sample size increase, etc.. Additional funding
would be required.

Ease of Implementation

      a. Enforceability The enforcement mechanism would remain the same as the
mechanism, for the restricted use pesticides.  However, FIFRA has no enforcement
mechanism for fertilizers.

      b. Political Feasibility  Mandatory pesticide recordkeeping of all agricultural
pesticides was the subject of debate in the 1990 farm bill. Consumer, environmental,
farmworker, and public health groups supported the provision with strong opposition
coming from farmer organizations, commodity groups, and USD A.  The resulting
compromise required recordkeeping only for restricted use pesticides.  EPA classifies
pesticides for restricted use if they are especially hazardous. Restricted use pesticides are
only available to certified pesticide applicators.  The debate might be different  in 1995
since vegetable and fruit  grower association will support a recordkeeping provision.
They feel that recordkeeping gives them some protection from liability and could help
them in getting loans.  The Wheat Growers and the Soybean Association will fight the

      If chemical fertilizers were added to the recordkeeping provisions, The Fertilizer
Institute  would vigorously fight the provision arguing that chemical fertilizers are not the
only source of agricultural nutrients and should  not be unfairly singled out.  In  addition,
farm groups could be expected to argue that nutrients are not like pesticides because
they are  found in nature.

      c. USDA/EPA Implementation   For Option 1, both USDA and EPA will be
inundated with nutrient and pesticide usage data.  Administrative ability to process  the
data will depend on available resources.

      d. Support by Other Federal Agencies  USDA did not support a mandatory
pesticide recordkeeping and reporting provision in the 1990 Farm Bill. However, USDA
signed off on recordkeeping provisions for pending FIFRA/FFDCA  Food Safety
legislation.  USDA would probably not support any recordkeeping requirements for

                                                         DRAFT September 7, 1994

       e. Regional Flexibility  These options would not be flexible regionally, however,
they would allow for tailoring of future programs.

       f. Importance of Option Design   The design of Option  1 is critical because of the
political sensitivity of the issue. Confidentiality of individual usage data and access to the
data are key concerns.


       g. National Budgetary Implications  The federal government would also incur
some costs to process recordkeeping data under Option 1 and to expand the NASS
surveys under Option 2.

       h. Costs to Producers  Farmer cost to comply with Option 1 would be minimal.

Economic Benefits

       i. Cross-media Impacts  If recordkeeping resulted in reductions in pesticide and
fertilizer use, the entire range of environmental benefits would be impacted.

       j. Measuring Results The environmental results of recordkeeping would be very
difficult, if  not impossible to measure.  If the program functioned like TRI, local groups
could use the information base to advocate reductions in agrichemical use.

       k. Synergy between Options and Addressing Multiple Objectives  These options
could address the full range of environmental objectives.

       1. Compatibility  with Other Environmental Legislation   Option 1 reflects the
recordkeeping provision in the pending FIFRA/FFDCA Food Safety legislation.

Option 3:  Certification  of Farm Plans/Planners  If farm plans of any type are required or
cost-shared, some type  of certification of the plans would be necessary to ensure their
development and implementation.  USDA, primarily SCS, does not have adequate staff
to develop  plans for all producers who would be affected.

A.  Producer Certification  With technical assistance provided by SCS, the Extension
Service, or  private  consultants, producers would develop the required plans and certify
their completion and implementation to USDA.

B.  SCS Development and Certification  SCS field staff would work with producers to
develop the site-specific plans. SCS developed all the conservation plans under the
Conservation Compliance Program.


                                                         DRAFT September 7, 1994

C.  Certified Consultants Plans would be developed by certified agriculture advisors.
Private consultants and public employees (SCS, Extension) would be certified through
the American Society of Agronomy's (ASA) Certified Crop Advisor Program or through
a newly developed federal certification program.  In either case, SCS would certify the
plans produced by the certified advisors.

      ASA's Certified Crop Advisor Program has been operating for four years and has
been adopted in 34 states.  Over 7,500 exams have been given. Approximately 2,000
people are currently certified; many more have passed the exam and certification is
pending. To remain certified, advisors must fulfill continuing education requirements.
This program does not contain any check on the plans written or the advice given.
USDA and EPA have been working with ASA to strengthen the program.

Ease of Implementation

      a. Enforceability  For any of the options, SCS would probably be the agency
responsible for  enforcement, similar to its responsibilities  under the Conservation
Compliance Program.

      b. Political Feasibility  Producer certification would probably be the least
politically costly option, however, producers would prefer  that someone else (SCS,
private consultant) develop the plans at no cost to themselves.  Environmental groups do
not appear ready to accept  certification by the producer or private consultants.

      c. USDA/EPA Implementation  SCS does not have adequate field staff either  in
total numbers or training to develop whole farm plans for large numbers of farmers.
However, since SCS  is spread out and not targeted to environmentally important areas,
some reorganization might  be necessary, but very difficult to accomplish. It would  be
very difficult for USDA and EPA to develop a separate certification program for

      d. Support by Other  Federal Agencies  SCS will probably resist adding this
responsibility to its current  work load, especially enforcing the development and
implementation of the plans.  It might be more amenable to certification of plans
developed by other parties.

      e. Regional Flexibility  Certification  of the plans would allow site-specific tailoring.

      f.  Importance of Option Design The certification of management
measure/practice implementation is critical.  Plan  development without implementation
is meaningless.

                                                         DRAFT September 7, 1994


      g. National Budgetary Implications  Implications for the federal budget depend
on the option chosen. Since SCS will have completed the development of Conservation
Compliance Plans before the passage of the 1995 farm bill, it might be able to use its
current resources to develop other plans.

      h. Costs to Producers  The  cost to producers depends on the implementation

Economic Benefits

      i.  Cross-media Impacts  If a certification program increases the development and
adoption of plans, the environmental benefits would be wide-ranging.

      j.  Measuring Results This option could easily be used to measure the number of
plans written and certified or crop  advisors certified.  Measuring environmental results
would be difficult.

      k. Synergy between Options and Addressing Multiple Objectives   Since certification
is an implementation mechanism for adoption of farming systems, it has the ability to
address many objectives.  In addition,, certification of private  consultants may increase
the professionalism of this sector and have a small increase in employment in rural

      1.  Compatibility with Other Environmental Legislation  No  specific proposals for
certification were made in Administration positions on the Clean Water Act or the Safe
Drinking Water Act.


                                                                           SEP   7  1994
       Land retirement programs in the 1995 Farm Bill provide an opportunity to advance
Federal objectives regarding the budget, trade, rural development, human health, and
environmental quality.  The Conservation Reserve Program (CRP), the predominant land
retirement program in 1985 and 1990 farm legislation, did not initially focus on
environmental goals. Lands were recruited that were marginal for agricultural production
and were characterized by significant in situ soil erosion problems.  Land selection criteria
were changed in 1990 to recognize opportunities to improve water and quality, but other
benefits ~ wildlife habitat, supply control, flood abatement, and carbon sequestration -- were
achieved with little direction on how to direct resources to lands that would maximize
multiple benefits to the public.

       Gaps and inconsistencies with CRP land selection criteria and with commodity and
conservation provisions under the 1990 farm bill made it difficult, if not impossible, to
achieve many critical environmental objectives.  Provisions of the CRP disallow economic
uses of the land, even those that are consistent with environmental objectives, and
necessitated inordinately high rental rates  to recruit lands into the program.  Great expense
has been incurred for lands that in some cases yield little or no environmental returns,
particularly those lands entered into the CRP between 1986 and 1990,  yet proposals exist to
continue payments on the same lands simply to maintain the inefficient stream of
environmental benefits.

       In addition, other benefits of land retirement, such as supply control, wildlife habitat,
flood abatement, and carbon sequestration are largely coincidental and resources have not
been strategically directed  to lands where  the greatest benefits could be achieved cost
effectively.  Accomplishing comprehensive environmental protection requires a longer  term
perspective than that offered by the CRP.

       This paper proposes alternative land retirement options to protect environmental
quality. The proposed options vary by the longevity of the conservation easements on  retired
lands, the purposes for which lands will be retired, and the costs to the Federal government.
Beyond environmental quality effects, there are other considerations for land retirement
options: the political and administrative issues, the benefits and costs, and the incidence of
benefits and costs associated with implementing and enforcing land retirement.

       Discussion in this paper is premised on certain assumptions about land retirement.
First,  long-term retirement for environmental purposes should be used only  for those lands
that cannot be used for agricultural production and still protect natural resources and
environmental quality.  Second, resources should be directed to those lands  where water and
air quality protection, wildlife habitat, flood abatement,  carbon sequestration, and other
environmental benefits are highly likely to be realized with land retirement. Third, a smaller
fraction of existing lands under the CRP are needed to provide greater off-farm
environmental quality benefits than are currently realized under the CRP. These benefits can
be achieved by directing resources to those lands: (a) that contribute disproportionately to
environmental degradation, (b) for which  continued use for crop production is incompatible
with environmental and critical wildlife habitat protection,  and (c) that will lead to

discernable improvement of environmental quality if idled.  Fourth, those lands which
require permanent protection and can only be adequately protected by retirement, such as
riparian areas and ground water  wellhead protection areas, should be retired under long-term
or permanent easements where landowners are willing to sell conservation easements for land
uses that are consistent with environmental quality objectives.  Fifth, a watershed
management approach should be used to integrate all land resource management practices
that will be  used to achieve socioeconomic and environmental objectives.  Finally, rental
rates and Federal costs for the land retirement options can be reduced substantially by
allowing certain economic uses on retired lands that are consistent with the environmental
objectives for those land resources.

             Environmental Quality Criteria for Selecting Lands for Retirement

       Regardless of the tenure and institutional framework under which land retirement is
accomplished, there is a need for environmental criteria to assure that environmental
objectives are addressed with lands that are retired.  These criteria are summarized:

       (1) Critical terrestrial habitat should be protected and restored for wildlife that are
endangered, threatened, or candidate (ETC) species  listed under the Endangered Species Act,
and rare or declining or otherwise  important native species.

       (2) Riparian agricultural lands should be enrolled in long-term land retirement to
protect water quality in  watersheds with impaired or threatened waters,  to reduce flood
damages, and/or to protect and restore habitat for important wildlife species.

       (3) Environmentally sensitive lands should be enrolled in land retirement programs
when they are the most  cost-effective means for protecting ground water and wetlands
resources.  Such lands may include: •

       -State identified ground water recharge protection areas.

       -State identified wellhead protection areas.

       —Areas  where ground  water discharging to surface waters provides critical support for
        important wildlife species or threatens the attainment of designated uses for surface

       -Wetlands that are adjacent to or upstream from impaired or threatened waters or that
        important wildlife species depend on for part of their life cycle and can be

       Land retirement resources for water quality purposes should be narrowly focused in
areas where water quality is impaired or threatened in watersheds or aquifers.  Retirement of
lands in areas with severe wind erosion problems can support air quality goals where land
management practices cannot  adequately reduce windblown soil.  Agricultural practices can
provide adequate protection of the  environment on most agricultural lands, and generally
should be considered as the appropriate means to address protection or restoration of

environmental and wildlife resources. An example where air quality can be better addressed
with farming practices can be found in the West Coast states of California, Washington, and
Oregon.  Harvesting and post-harvest practices cause emissions of smoke and dust that can
be arrested by a change in management practices.

       Land Retirement Baseline:  Extended Conservation Reserve and Wetlands Reserve

       An extended Conservation Reserve Program (CRP) could be reduced from current
enrollments because of budget concerns.  Environmental objectives on newly recruited lands
(those lands that are not renewed from the current CRP) would apply to an extended CRP.
A five- to 15-year retirement program of 20 to 35 million acres would be proposed based on
admitting only those new lands that meet environmental quality criteria for retirement. An
extended Wetlands Reserve Program (WRP) would select up to one million acres of
environmentally sensitive wetlands, consistent with current environmental quality criteria for
selecting lands for retirement.  A CRP that retires more land than long-term easements can
provide substantial environmental benefits if environmental selection criteria are carefully
applied to all lands that are enrolled in an extended CRP.

       An extension of the CRP means continuing a short-term solution to long-term
environmental problems.  First, existing CRP lands are not those that can most efficiently or
effectively meet environmental objectives through land retirement.  Second, when contracts
expire, either the environmental benefits are negated or the contracts must be renewed to
maintain the environmental benefits.  Continuation of the CRP is supported relative to long-
term easements by some landowners, rural communities, and others because it would  provide
a stream of income without removing agricultural land permanently from production.

       The WRP  would continue to be available for landowners to retire lands under
permanent easements, consistent with environmental protection and wetlands protection
criteria under the  existing WRP.  A criticism of the WRP is that lands with the loweest bids
are enrolled rather than high-priority wetlands that can provide the greatest benefits.

Ease of implementation

       a.  Enforceability.  Existing institutions and resources can be used for continuation of
the CRP/WRP. Limited problems exist to monitor compliance with conserving land uses.
Regular monitoring by SCS or other designated field personnel is needed to assure that
contracted lands are managed consistent with program requirements.  An extended CRP-type
program has comparable monitoring requirements to a long-term easement program.

       b.  Political feasibility.  Some continuation of the CRP would be supported by many
interest groups. Wildlife and hunting groups probably would be supportive of this option
because of the acreage that can be protected.  The Office of Management and Budget, U.S.
Congress,  and others  who are concerned about Federal budget outlays may be less receptive
to continuation of the CRP/WRP at comparable levels but would support any reductions that
can be achieved by reducing the size of the existing CRP/WRP.  Other opponents are some
environmental groups who favor a smaller,  focused program that provides permanent land

protection. The National Farmers Union and other producer groups support extension of a
substantial CRP.  Agribusiness may present some opposition to this land retirement option.

       c.  Administrative ability to implement the options both at USDA and EPA.
Administrative capabilities exist at both the U.S. Department of Agriculture and EPA to
implement this option under existing organizations and procedures established for the CRP.

       d.  Likelihood of other Federal agencies supporting the option (OMB, DOI, USDA).
The Office of Management and Budget would give weaker support to an extension of the .
CRP/WRP in proportion to the amount of lands renewed and their associated costs relative to
the proposed long-term easement program, based on the extended CRP/WRP's higher costs.
The U.S.  Fish and Wildlife Service and the Office of Management and Budget also could be
expected to prefer long-term protection that does not require future expenditures to sustain
the flow of environmental benefits from idled lands. The U.S. Department of Agriculture
probably would support this option.

       e.  Degree of regional flexibility (place-based, site-specific nature of option).  This
option could direct resources to specific regions for social, political, or economic goals, in
addition to accomplishing more limited environmental objectives relative to an
environmentally focused easement program. More extensive resources and retired lands
could accomplish  substantial environmental benefits if CRP renewals include environmental
selection criteria.  Criteria will be set in the field for meeting environmental objectives,
subject to  approval by State or National headquarters offices of the Soil Conservation
Service. The role of EPA would presumably be defined by the current CRP enrollment
process, or revised to include reviews by Regional or Headquarters offices of EPA.

       f.  Importance of the design of the option (i.e. who makes the place-based (targeting)
decisions that need to be made).  There could be additional attention given to how much land
retirement renewals are focused on areas that are designated by States (for example, Section
305 (b) and 319 (CWA) reports) and others (for example, The Nature Conservancy database
on biodiversity  and ETC species; U.S. Fish and Wildlife Service) for environmental


       g.  National budgetary implications.  A ten-year continuation of selected CRP lands
(20 to 35  million  acres) would cost $1  to $2 billion per year. Additional costs for the WRP
add up to  $90 million per year to Federal budget costs, assuming roughly  100,000 acres per
year are added to the program.  Future renewals of the CRP would add future Federal
government costs  to continue support for conserving land uses,  potentially making the
program more expensive than long-term easements.

       h.  Cost to producers.  Land idling programs impose a cost on producers for the loss
of agricultural production on  idled lands.  However, because land retirement is voluntary and
landowners are allowed to bid or otherwise set a price for which they will accept retirement
of lands/conservation easements, they are made whole  for the economic value of their
agricultural losses. Therefore, net costs to producers are presumed to be zero or possibly

negative (if producers receive more than their full market value from land retirement
program payments plus economic gains from the conserved land use) for land retirement and
this is not an important consideration for individual producers.

Economic benefits

       i.   Environmental impact to all media.  More land would be retired under an extended
CRP/WRP, compared to a long-term easement program, and could provide more wildlife
habitat and biodiversity because of the  greater acreage, but the benefits per acre of retired
land would be expected to be much less. Limited funds will be available for high-priority,
environmentally sensitive lands because of substantial CRP renewals that are expected for
existing CRP acreage.  Erodible lands would continue to be withdrawn from production,
potentially avoiding or substantially reducing soil and water pollution from some CRP lands
that contribute disproportionately to soil erosion and surface runoff problems.

      j.   Extent to which results can be measured.  A measure of land retirement programs
is the number of acres protected with conserving uses, but this should not be taken as a
benefit of such programs.  Measurable results should include benefits such as demonstrated
water quality improvement in impaired or threatened waterbodies that are affected by retired
lands or increased numbers and diversity of animal and plant wildlife species.

       k.  Synergy between options and addressing multiple objectives.  An extended
CRP/WRP can be somewhat better directed  than current CRP lands, using the proposed
environmental criteria, to assure that new acreage is enrolled to address environmental
objectives. For example, riparian lands can provide important migratory bird corridors,
protect impaired terrestrial and aquatic species, and reduce polluted agricultural runoff.
Wetlands and ground water protection areas also can be accepted in an extended CRP/WRP.
However, limits on newly recruited lands will limit the CRP/WRP's effectiveness relative  to
long-term easements that use more rigorous  environmental selection criteria.

       1.   Synergy between addressing the option in the farm bill and/or other environmental
legislation (i.e.  CWA, SDWA, ESA). Land retirement in an extended CRP/WRP can address
concerns  in the Federal Clean Water Act, Safe Drinking Water Act, and Endangered Species
Act, though  not as effectively as the other options.

                            Option 1:  Long-term Easements

       A focused, long-term (30 to  50  years) or permanent land retirement program under
the farm bill could admit perhaps 10 million acres for conserving land use easements.
Additional lands could be admitted to such a program over the long run if it were to include
substantial wildlife habitat and other environmental objectives.  Budget constraints and
landowners'  voluntary bids are expected to  limit the acreage accepted for easements.  Crop
producers would maintain conserving land uses on environmentally sensitive lands that would
be continued through contracts or deed restrictions.  Easements would focus on those lands
that are needed in conserving uses for purposes of protecting the  environment.

       Recommended uses of an easement program would focus on environmental objectives
for wildlife, biodiversity, and water quality.  A primary objective of wildlife habitat
protection would focus on endangered, threatened, and candidate (ETC) species, and rare or
declining species of concern that can be prevented from Endangered Species Act listing.
Land retirement should focus on protecting ecosystems and maximizing biodiversity.  Focus
areas for easements would include riparian  lands that can provide water quality protection
and wildlife habitat and migration corridors (two to four million acres).  Ground water
wellhead protection areas (one to three million acres) and threatened wetlands protection (one
to three  million acres) would comprise another large fraction of lands that would be enrolled
in easements.  Total acreage that would qualify for water quality and wetlands protection
therefore would total somewhere between four and ten million acres.

       An easements program to protect wildlife habitat for ETC  and declining species could
support the goals of the Endangered Species Act,  Migratory Bird Treaty Act, and
international agreements with Canada and Mexico for  the protection of wetlands for
migratory birds.  There is little evidence to indicate the acreage needed or its location to
adequately protect ETC and other critical species, nor is there  a clear indication of the level
of farmers' interest in providing long-term  easements on their lands for purposes of wildlife
protection. Given the uncertainty about the acreage needed and its availability, a pilot
program could admit one to four million acres of critical habitat for species protection
(including lands that achieve multiple objectives).   Ongoing research and analysis would be a
central component of any long-term (greater than  10-year) easement program.  Experience
with a pilot program could provide the studies and experience for a "wildlife reserve
program" of up to 10 million acres, perhaps in the year 2000 farm legislation.

       Lands and land uses that provide multiple objectives would be given top priority for
selection. Land retirement in the proposed easement program  would focus only on the worst
land for  farming and/or the best land for environmental protection.  By directing land
retirement resources to critically sensitive lands, other farm programs (for example,  for soil
erosion control, nutrient and pest management, animal waste management) that more
efficiently address environmental quality problems would have greater resources available if
land retirement is reduced to the minimum  necessary to achieve environmental objectives.

       A focused easement program could accomplish many environmental objectives.
Greater environmental gains can be achieved that provide public benefits with less land and
at less cost than currently under the CRP.  Also, the conserving land use is protected
permanently and landowners are paid  once  for that conserving  use, versus the continuing
payments required under a CRP-type program extension.

       To encourage participation and minimize the bids necessary to enroll  lands, a long-
term easement program should allow land uses that are consistent with environmental
objectives.  For example, haying and grazing may improve grassland habitat. Timber
production may be allowed in riparian and ground water protection areas.  Other practices
should be considered to ensure that lands continue to have economic value.  By assuring that
landowners can continue to produce on easement lands, the Federal government only
purchases an easement for the damaging uses of the land and not the full value of the land.

       There are concerns about maintenance of vegetation on idled lands regardless of the
easements' duration and the institutional framework used to establish them.  Useful-life
easements have been suggested in the past, in which a conservation easement would be
granted by landowners for the life of the vegetation that is established on idled lands.
Depending on the tree and grass species that are established and the level of maintenance, the
life of the vegetation could range from 10 or 15 years up to hundreds of years.  Long-term
or permanent conservation easements may be difficult to enforce, and incentives may be
necessary for landowners to continue maintenance of conservation practices  and land uses
after Federal payments discontinue or land ownership changes.

Ease of implementation

       a.  Enforceability.  Easements can be readily implemented and pose limited problems
for monitoring compliance with conserving land uses.  There will be a need for regular
monitoring by SCS or other designated field personnel that contracted lands  are managed
consistent with program requirements.  Greater long-term monitoring costs will be required
for an easement  program versus  a shorter term land retirement program (unless fixed-term
leases  are renewed).

       b.  Political feasibility. The Office of Management and Budget, U.S. Congress, and
others concerned about Federal budget outlays may be allies for initiating a land retirement
system that does not expose the Federal government to paying for the same  benefits over and
over.   Other allies are some environmental groups who favor a focused land idling program
that provides long-term (greater than 30 years) or permanent land protection. The U.S. Fish
and Wildlife Service would support a program that provides long-term/permanent protection
for wildlife, particularly ETC and other species of critical concern. Opposition from some
wildlife groups is expected for a long-term easement program because of its limited acreage,
relative to the CRP.  Other opposition would be expected from hunting groups (for example,
Ducks Unlimited, Pheasants Forever and Quail Unlimited) and others who benefit from CRP
lands  and retirement criteria.  The National Farmers Union, which represents primarily
small- to medium-sized farms in the central United States, has opposed easements because of
concerns about sustainability of farming and farm communities.  Local and county
governments also may oppose long-term easements because of their likely effects on reducing
area tax revenues, sales, and purchases. Other producer organizations and agribusiness also
may oppose long-term easements because of potential reductions in farm chemical and
equipment sales.

       c.  Administrative ability  to implement the options both at USDA and EPA.  (Same as
the baseline).

       d.  Likelihood of other Federal agencies supporting the option (OMB, DOI, USDA).
The Office of Management and Budget would likely support an easement program as the less
expensive of the options that provides long-term land protection.  The U.S. Department of
the Interior, particularly the U.S. Fish and Wildlife Service, could be expected to support
this option if substantial wildlife  habitat acreage can be supported through the farm bill
budget. Mild  opposition from the U.S. Department of Agriculture could be  expected for a

reduced land idling program, because of reduced landowner payments from the CRP but also
because of increased commodity payments and greater uncertainty about supply control.

       e.  Degree of regional flexibility (place-based, site-specific nature of option).  The
more limited proposal for an easement program, by virtue of its limited acreage, argues for
less regional flexibility in retiring lands so that only environmentally sensitive lands are taken
out of agricultural production. There is a risk that this option would direct resources to
specific areas to achieve environmental goals that may not address important social, political,
or economic goals that policy makers'may wish to address with land retirement resources.
Land retirement funds may be directed, to the extent possible, to watersheds and ecosystems
where CRP funds currently go. Criteria could be established in national guidance for
meeting environmental objectives, or could be established in the field subject to approval by
State or National headquarters offices of the Soil Conservation Service and EPA.

       f.  Importance of the design of the option (i.e. who makes the place-based (targeting)
decisions that need to be made). Resources would be strategically focused on areas that are
designated by States  (for example, Section 305(b) and 319 (CWA) reports) and  others (e.g.
The Nature Conservancy database on biodiversity and ETC species; U.S. Fish and Wildlife
Service) to retire lands that provide  the greatest potential environmental benefits.


       g.  National budgetary implications. A highly focused, long-term easement program
could be phased in at 600,000 to one million acres per year.  Assuming the costs for long-
term easements are comparable to the costs experienced so far for the Wetlands Reserve
Program (WRP), which recently admitted about 75,000 acres at a cost of $66.7 million, a
total cost of $535 million to $1 billion per year may be incurred over ten years.  There is  an
issue regarding whether easements are made in annual payments versus upfront payments,
with related effects on how rapidly land could be enrolled in long-term easements.

       h.  Cost to producers.  (Same as the baseline).

Economic benefits

       i.  Environmental impact to all media.   A focused, long-term easement program is
expected to more efficiently meet objectives for protection of ETC species, water quality,
and riparian areas. Therefore, environmental goals under existing Federal environmental
legislation (for example, the Clean Water Act,  Safe Drinking Water Act, and Coastal Zone
Act Reauthorization Amendments of 1990) could be supported by focused land retirement
under the  farm bill.  Reduced amounts of land relative to  the CRP will reduce total wildlife
habitat and potentially could reduce total biodiversity vis-a-vis existing CRP enrollments.  A
small, focused easement program also  would increase the  amount of erodible and otherwise
environmentally sensitive lands that would return to crop production, potentially having
adverse effects on the quality of some  soil, water, and air resources because of additional soil
erosion, runoff,  and nutrient and pesticide use, compared to the existing CRP.

      j.  Extent to which results can be measured. (Same as the baseline).


       k.  Synergy between options and addressing multiple objectives.  A focused easement
program can be designed with environmental criteria that assure acreage is enrolled to
address multiple environmental objectives.  For example, riparian lands can provide
important migratory bird corridors, protect impaired  terrestrial and aquatic species,  and
reduce polluted agricultural runoff. Wetlands and  ground water protection areas also can be
accepted in a long-term easement program by prioritizing them according to ETC and other
species of concern that are likely to benefit from their protection.

       1.  Synergy between addressing the option in the farm bill and/or other environmental
legislation (i.e. CWA, SDWA, ESA).  Land retirement in a focused easement program, which
uses criteria for the protection of water quality and ETC species, can address concerns in the
Federal Clean Water Act, Safe Drinking Water Act,  Migratory Bird Treaty Act, Endangered
Species Act, and international wetlands agreements.

           Option 2: Conservation Reserve Renewals and Long-term Easements

       The CRP can be  renewed to provide for continued retirement of some lands already
enrolled in the program  while providing focused land retirement for environmental purposes,
or a so-called  "50-50" option.  For each acre renewed for another ten years under existing
CRP leases, there would be one acre  (or some other amount of land) that meets one or more
environmental selection criteria and would be established in a long-term or permanent
easement for environmental purposes.  The additional acreage could come from CRP lands
or newly recruited lands, so long as 50 percent (or whatever fraction is established relative to
CRP renewals) of the lands meet environmental criteria  discussed  earlier.

       A CRP/easements option would provide landowners with an opportunity to continue
receiving payments for enrollment of a substantial  portion of existing CRP lands that may or
may not be significant environmental  protection areas.  Additional lands probably would be
required to meet environmental protection criteria for enrollment.

       The WRP would  continue to be available for landowners to retire lands under
permanent easements, consistent with environmental protection and wetlands protection
criteria under the existing WRP.  A criticism of the WRP, similar to that  leveled against the
CRP, is that enrolled lands are the cheapest available (that is, voluntary bids are lowest on
lands that are of less economic value). While not  necessarily inconsistent with environmental
needs,  enrollments have  largely been  for bottomland  hardwood wetlands in Arkansas,
Mississippi,  and other Mississippi Delta states rather than high-priority wetlands.  For
example, in states such as the northern Great Plains, wetlands can provide critical habitat for
declining waterfowl,  songbirds, and other species.  Future signups in the WRP should
maximize the environmental benefits (not the acres of land retired) for a given expenditure.

Ease of implementation

       a.  Enforceability. Existing institutions and resources can be used  for continuation of
the CRP/WRP.  Limited problems exist to monitor compliance with conserving land uses.
Regular monitoring by SCS or other designated field personnel is needed to assure that
contracted lands  are managed consistent with program requirements. Lands retired  for

environmental purposes could have more or less long-term monitoring requirements than
option 2, depending on the length of the environmental easements.

      b.  Political feasibility.  Being a hybrid of long-term easements and the CRP, support
for this option would be expected to lie between the previous option and an extended CRP
and WRP.  This compromise option may get some support from most interest groups.

      c.  Administrative ability to implement the options both at USDA and EPA.   (Same as
option 1).

      d.  Likelihood of other Federal agencies supporting the option (OMB, DO1,  USDA).
The Office of Management and Budget could oppose an extension of this option in direct
relation to the amount of lands that are renewed and recruited, though would be more
supportive of this formula than one that essentially provides for large-scale renewals without
targeting lands for environmental benefits.  The U.S. Department of Agriculture could
support this option somewhat more than long-term  easements.  The U.S. Department of the
Interior's Fish and Wildlife Service is expected to support this option's focus on supporting
long-term easements for environmental purposes on at least half the enrolled lands.

      e.  Degree of regional flexibility (place-based, site-specific nature of option). This
option could direct greater resources to  specific regions for achieving social, political, or
economic goals,  and accomplish intermediate environmental gains compared to long-term
environmental easements or an as-is reauthorization of the CRP/WRP. Half the CRP lands
would include environmental selection criteria.  Criteria could be established in national
guidance for meeting environmental objectives, or could be established in the field subject to
approval by State or National headquarters  offices of the Soil Conservation Service and EPA.

      f. Importance of the design of the option (i.e. who makes the place-based (targeting)
decisions that need to be made).  (Same as  the baseline).


      g.  National budgetary implications. If the acres are comparable to the current CRP,
a ten-year continuation of half the lands currently in the CRP (18 million acres) could be
expected to cost  about $1 billion a year, with matching easements on the same acreage (total
of 10 to 18 million acres) would cost an average of approximately $1 to $2 billion per year.
(Experience with the WRP suggests that total costs are somewhat greater, perhaps 25 to 50
percent, for permanent easements versus ten-year CRP renewals.)  If environmental
easements are for a period longer than ten years and payments are made up-front, as they are
in the WRP, annual costs in  some years could  be higher but the expected average cost should
remain relatively unchanged over a ten-year period. Additional costs for an extended WRP
could add up  to $90 million per year to Federal budget costs, assuming roughly 100,000
acres per year are added to the program.

      h.  Cost to producers. (Same as the baseline).

Economic benefits

       i.  Environmental impact to all media.  The greater amounts of land that would be
retired under this option could potentially provide greater benefits for ETC and other species
of concern and protection of water and air quality and wetlands than under option 1, but
presumably less protection than a comparably sized long-term easements program because
environmental protection criteria are used on only half the land that is enrolled.  The benefits
per acre of retired land would be less than long-term easements.

       j.  Extent to which results can be measured.  (Same as the baseline).

       k.  Synergy between options and addressing multiple objectives.  Combined CRP
renewals and long-term easements allow resources to be directed  towards environmental
purposes on at least half the lands that are enrolled in the proposed program.  However it
provides little capability to address multiple objectives on the other half of the land that is
renewed in the CRP.  For example, riparian lands can provide important migratory bird
corridors, protect impaired terrestrial and aquatic species, and reduce polluted agricultural
runoff.  Wetlands and ground water protection areas also can be accepted  in a long-term
easement program by prioritizing them according to ETC and other species of concern that
are likely to benefit from their protection.

       1.  Synergy between addressing the option in the farm bill and/or other environmental
legislation (i.e. CWA, SDWA, ESA). Land retirement in this option allows concerns to be
addressed on half the lands in ways that can support objectives in the Federal Clean Water
Act, Safe Drinking Water Act, Endangered Species Act, Migratory Bird Treaty  Act, and
international wetlands agreements.


       Land retirement for environmental purposes should be considered for those lands that
cannot be used for agricultural production and still protect natural resources and
environmental quality.  The EPA recognizes the role that land idling plays for achieving
income support, supply control, and other social and political goals.  While considering other
goals, land retirement resources should be directed to lands where environmental benefits are
achieved cost effectively, with better cropping practices used elsewhere to protect the
environment.  Lands that require long-term protection and can only be adequately protected
by retirement, such as  riparian areas and ground water wellhead protection areas, should be
idled under long-term or permanent easements where landowners are willing to sell
conservation easements for land uses that are consistent with environmental quality

       Long-term easements have the potential to retire adequate  lands for long-range
protection of environmental values.  Some riparian zones, ground water recharge areas, and
ETC species' habitats need permanent protection.  Long-term or permanent easements on six
to ten million acres of privately-owned agricultural land are viewed as crucial to successful
protection of certain lands. Taxpayers will give greater support for protection of these areas
if they only have to pay the rental value of the land once, rather than making annual


payments with the risk of those lands returning to crop production in ways that threaten the
environmental values for which they are temporarily protected.

       Shorter-term easements, such as in the 10-year CRP, provide more protection than
cropping practices for certain resources, such as wildlife habitat, soil, air and water.  The
CRP also may meet many social and economic goals. If the CRP is extended, resources
should be focused carefully to new lands that can provide environmental benefits for the
general public as well as landowners, and to those lands that accomplish multiple objectives.
For example, a CRP extension should focus resources on nonattainment areas for air and
water quality and for wildlife species that are threatened by agriculture, particularly where
farming practices cannot be modified in ways that can achieve environmental objectives.

       To encourage participation and to minimize the Federal costs necessary to enroll
lands, a long-term easement program should consider allowing land uses that are consistent
with the environmental values to be achieved.   For example, haying and grazing may benefit
grassland habitat for wildlife by controlling weeds and by keeping short-grass habitats
available (on lands managed for short-grass prairie species).  Timber production may be
consistent with riparian and other water quality protection goals.  These and other practices
should be considered for long-term easements so that lands continue to have economic value.
By assuring that landowners can continue to produce economic goods on easement lands, the
Federal government only purchases an easement for the damaging uses of the land and not
for the full value of the land.

       After the 1990 FACTA, bids for enrollment in CRP were evaluated in a three-step
process.  A productivity index, based on rental rates for the area adjusted by the average
productivity for the parcel, was used to develop the maximum rental rate for the parcel.  In
step one, bids above the rental rate were rejected.  For land bids meeting the acceptable
rental rate, bids for "useful life easements" were automatically accepted.  Useful life
easements are small land parcels which have large off site impacts, such as filter strips or
living snow fences. Finally, an environmental benefits index  (EBI) was used to select more
"cost-effective" CRP land. The EBI which is a measure of the conservation and
environmental program goals that the land would meet if it was enrolled, is compared to the
productivity index  in order to select the best rental rates for the greatest environmental gains.

       Land enrolled after 1990 reduced CRP costs and provided a targeted approach to
environmental problems.  However, the EBI doesn't incorporate all the objectives we have
identified:  enhancing water quality, soil quality, habitat, and  human resources.  It is
currently based on seven equally weighted conservation and environmental factors:  surface
water quality  improvement,.potential ground water quality improvement, preservation of soil
productivity, assistance to farmers most impacted by conservation compliance,
encouragement of tree planting, enrollment in Hydrologic Unit Areas identified under the
Water Quality Initiative, and enrollment in conservation priority areas established by
Congress.  Criticisms of the  current CRP cite its overemphasis on water quality. The index
should be modified to include wildlife habitat and human resources.


       The framework for determining which land would be selected for program
participation and fixing the "rental rate" could be developed by using a "Productivity-Benefits
Index" (P-BI).  The P-BI would incorporate both integration with other environmental goals
and integration with other programs.  A version of the EBI, modified to reflect additional
national environmental objectives, should be included.  Additionally, adjustments/additions to
the P-BI by the regional, state, or local group, that would be developed and designated to
oversee farming systems and environmental quality, would direct programs to reflect
localized needs. For instance, flood plain management might be added in one area, while
wildlife protection might be enhanced in another.

       The productivity index should also be used to factor in the allowed alternative
economic use(s), listed later in the paper after the discussion on land retirement options.
Additionally, a factor  to incorporate effects on other national programs, such as commodity
programs, should be incorporated.

       National goals  and formula would determine state or regional distribution of the
money. Caps for sub-regions may be necessary to mitigate local economic effects.

       Last, programs should be redirected from short term contracts to long term or
permanent easements in order to reduce costs and stabilize the flow of benefits.  Alternative
economic use options  linked with easements make long term agreements more acceptable by
providing a potential source of steady income to farmers.

       One way to decrease the federal costs of land retirement, and to enhance its
attractiveness to farmers, is to allow some alternative uses on lands that are enrolled in land
retirement programs.  We propose factors for these uses that can be included in the proposed
P-BI to offset easement or rental payments.  A  list of alternative use options follows, as well
as their criticisms and plausible solutions.  Of course, the alternative land use must be in line
with environmental objectives.

       More restrictive limits on the use of some lands, which may otherwise be productive,
may be needed  to realize environmental objectives.  Examples might include wildlife
corridors, filter strips, or buffer zones for parks or critical habitat.

       Haying and Grazing.  Surveys found that farmers respond favorably to the  idea of
haying and grazing on idled cropland.  A Soil and Water Conservation Society survey shows
that producers are willing to reduce the rental rate received under the CRP by 11 % in return
for grazing and haying opportunities.  However, under the emergency haying and grazing
conditions in the early 1990's, CRP land holders accepted payment cuts of 25-50% in return
for temporary haying and grazing rights.

       Although generally acceptable to crop producers, the livestock groups have opposed
allowing  haying and grazing in concert with payments for two reasons.  First, a heavy influx
of haying and grazing enterprises will reduce beef prices.  Second, due to the rental  and cost


share opportunities which will most likely accompany any conservation program,  the
program participants who launch haying/grazing operations may have a cost advantage over
established ranchers.  Realistic compromises to reconcile these conflicting positions have yet
to be devised.

       Biomass Production.  Perennial plantings, such as poplar trees and gamma grass,
could be used as biomass sources for energy production. While generating income to
producers, poplar trees and gamma grass used in energy production may aid in the
fulfillment of another environmental goal — clean air.

       Criticisms of this option are two fold.  The first stems from the limited ecological
diversity which can be supported on land placed in monoculture production. Second, this
experimental project will most likely be directed by only a small number of power plants;
farmers producing this input could be faced with heavy transportation costs which lessen the
appeal of  this option. A proposed solution would therefore limit participation in this
alternative to producers within a defined radius of the eligible power plant and on lands
where monoculture production poses no threat to existing wildlife.

       Lumber and Timber Production.  Two types of commercial production are possible.
Producers engaged in short term contracts or easements may  elect to grow Christmas trees,
where harvesting  may begin only six to seven years after initial plantation.  Harvesting for
other types of commercial production may take longer, 20-30 years in the south and 40-60
years in the pacific northwest. But reforestation incentives for these  slow-growing trees
already existing within commercial tree farming tax structure allows for amortization of the
costs of production over seven years as well as a 10% tax break each year for production
expenses up to $10,000.

       Four reservations exist for this alternative. First, it is  subject to the same monoculture
criticisms  as above.  Second, trees planted specifically for conservation purposes, such as
shelterbelts and windbreaks are ineligible for the reforestation incentive. Third, even
allowing for these tax incentives, economic  returns to farmers may be too slow to sustain
their operations, hence the need for cost sharing or easement  payments.  Fourth,  once
planted in trees, the flexibility to alter land use is eliminated.  The tax structure could be
modified,  or cost  share options could compensate for the deficiency, in order to make
windbreak and shelterbelts production more appealing.  Planting of multiple species would
avoid monoculture problems and may smooth the schedule of economic returns.

       Recreational Use. Preserved wetlands and grasslands  also provide a wealth of
opportunities where hiking, hunting, aesthetic, educational, and research benefits can be
captured.  The economic returns from these activities can extend to the whole community
(such as hotels, restaurants, and equipment suppliers)  as observed during the increased
hunting activity on CRP lands in South Dakota.  The delicate state of a recovering ecosystem
leads some to question the appropriateness of recreational activity on program lands.
Limited hunting permits could be distributed and paths could  be created for other users to
reduce disturbance of restored ecosystems.

       Crop Rotations.  Management plans which include rotation schedules allow for crop
production, alternative uses, and environmental reserves to coexist on rural lands. The
rotation schedule must be based on the average time needed to achieve environmental
benefits (perhaps 4 years).  This use lowers government payments because it allows some
crop production at all times.  Critics warn that this rotation is only environmentally
beneficial under ideal weather conditions.  Water shortages, which slow the establishment of
cover could delay environmental benefits, such as nesting opportunities, result in rotations
before new wildlife habitat was useful.  A solution would be to require that rotations should
be tailored to environmental conditions. Another challenging problem is that rotations must
be integrated into whatever commodity support programs are maintained in the Farm Bill.  If
farmers lose commodity payments because of engaging in a rotation practice, they will be
discouraged from pursuing the option.


                                                           Draft: September 7, 1994

                       FARM BILL MARKETING OPTIONS

      Farm programs include a number of marketing programs which could be modified
to provide incentives for improved environmental performance by producers.  An
advantage of making such modifications is low budget exposure and an opportunity to
involve consumers in supporting environmental programs.  Five marketing options have
been proposed for consideration:  1) requiring processors to pay a premium for milk
certified as having been produced in an environmentally acceptable way (milk
stewardship program), 2) labeling organic/low pesticide produce to provide greater
consumer choice, 3) labeling products produced in other environmentally  preferable
ways, 4) making continuation of marketing orders contingent on the implementation of
minimally acceptable integrated pest management or related practices, and 5) federal
purchase preference for IPM produced foods.  The pros and cons of each option are
discussed and rankings of options are proposed.

Option 1: Milk  Stewardship

      The dairy price support program provides mechanisms which could include
incentives for proper management of manures.  Several options could be considered.
One proposal focuses on offering farmers a premium (e.g., a 2 percent higher price) for
milk certified as having been produced in an environmentally friendly way. This would
be administered similarly to  the Grade A milk price differential. Certification would be
provided in a manner consistent with the current cross compliance provisions. The
higher price would be implemented/enforced at the processor level, but through market
mechanisms, it would largely be passed on to consumers. (The certified milk would not
necessarily be labeled in the retail market). If the premium were a 2 percent price
differential, it would  result in up to half a billion dollars per year available to producers
to fund, sequentially, 1) waste treatment systems and 2) land disposal practices.

      Initially, the focus would be on  supporting  implementation of current CWA
livestock regulations and CZARA management measures, but within a specified time
period, proper enforcement of more advanced nutrient management measures during
field application could be required. As in the management measures, requirements for
smaller producers would differ from requirements for larger producers, due to
differences in costs of treatment and in the magnitude  of the pollution potential. All
would receive the same price incentive to participate in the milk stewardship program.

      In contrast to  the Dairy Compliance Proposal, the green milk option is not an all
or nothing scheme.  Dairy farmers are not faced with the loss of program benefits (i.e.,
fluid milk quotas and support prices) if they do not comply with specified management
practices.  Instead, farmers are rewarded with a premium, over  and above program
benefits, for installing environmentally sound practices.


Environmental Outcomes  Due to high costs per farm, dairy presents the greatest
economic challenge for implementing proposed CWA management measures for
agriculture.  Its economic clout as an incentive to carry out management measures and
its focus on a major environmental problem being addressed by the Agency ranks this
option very high on our environmental outcomes criteria.

Budget Exposure.  Because much of the cost could be passed on to consumers, there is
likely to be little budget exposure.

Farmer Costs. Again, this option passes on much of waste treatment costs to consumers.
Administrative Feasibility. It is relatively easy to identify Clean Water Act manure
management requirements and whether they are being met, and this option would greatly
reduce the current tendency  for farmers and processors to move to areas where
regulation requirements are weak.  Enforcing the land application through the CZARA
nutrient management measure will face some ambiguities, but the nutrient management
measure is among the strongest and most specific of the management measures.  Milk
marketing orders  have the administrative capability.

Political Feasibility. This approach is probably more palatable than the Dairy
compliance proposal, because it is "voluntary."  However, there may be a perception that
a premium is being offered to subsidized dairy producers at the expense of consumers ~
this is complicated by the fact that dairy products are  widely consumed by children.
Option 2: Labeling Options—Organic or Organic/Low Pesticide or IPM

      The 1990 farm bill provides a basic certification program which could label fresh
produce according to whether it was produced organically or with low pesticide
techniques.  The intent of the program clearly is to support 1) the soil, 2) the
environment, and 3) consumer choice regarding pesticides.  USDA staff working on this
program is responsive to EPA interest in providing a choice regarding pesticides and
food.  The option under consideration is to grant a small team approval to pursue this
option; the team would first determine what additional labeling would facilitate greater
consumer choice regarding pesticides and then determine whether any additional farm
or committee language  is needed to provide the  desired  additional  consumer choice.
Food safety may ultimately become a matter of choice as consumers weigh the tradeoffs
between pesticide risks, product availability and cosmetic quality.


 Environmental Outcomes.  A well designed certification program would provide
 consumers with better information regarding consumer products (i.e., food safety
 considerations), production processes. It would also provide an incentive  to producers to
 engage in environmentally sound practices.  Greater choice promises to address our food
 safety needs most efficiently; since preferences vary significantly, we would never attain
 agreement from consumers on any one approach to growing fresh produce to meet
 various environmental, cosmetic, and safety needs.  Choice was a major part of EPA
 food safety initiatives and was the focus of recent, joint pollution prevention strategies
 with USDA.

 Budget Exposure.  A more sophisticated organic labeling program or an interim IPM
 program would cost only slightly more than the current basic organic labelling program.
 Budget exposure would not be a significant issue.

 Farmer Costs. Organic farmers or IPM farmers would probably benefit economically
 from a certification program that satisfied consumer interest in having choices regarding
 pesticides on their food, although some farmers would see modest cost increases, most
 should be able to capture offsetting  market premia.

 Administrative Feasibility.  Inclusion and tracking of crop rotation in the organic
 certification program would require.a significant commitment on the part of field staff,
 but could be feasible because of the focus on specialty crops intended for the organic

 Political  Feasibility.  There are virtually no  opponents to a well designed organic
 certification program and this could be achieved without using up our farm bill "chips."
 No change in legislation may be necessary, and USDA staff support EPA's interest in
 providing choice regarding pesticides and food.
 Option 3: Labeling Options-Environmental Report Card

       Out of a sense of environmental benevolence or concern, some consumers may
 voluntarily pay more for milk or other products labeled as produced in an
 environmentally friendly manner, while producers may achieve lower chemical input
 costs. Under this option, USDA (in consultation with EPA and industry) would provide
 direction for an industry run Report Card program.  This option differs from the green
 milk option in that the product would be labeled at the retail level and participation by
 the processor would be purely voluntary. It differs from organic/low pesticide labeling in
 that the product consumers buy would not necessarily contain choice attributes regarding
. pesticides/food safety, which consumers prefer-the focus is instead on production
 practices that are  less damaging  to the environment.


Environmental Outcomes.  Logically, the incentive to pay the higher price would be
somewhat weaker compared to the organic/IPM options which support choices regarding
pesticide, which are more directly in the consumers self interest.  For dairy, it is clearly
more effective to require the processor to pay more for environmentally certified milk
than to offer it as an option for altruistic consumers.  Therefore,  based on environmental
outcomes, environmental labeling ranks below the other labeling options.

Budget Exposure.  Labeling options involve some administrative  costs, similar to the
organic certification program.

Farmer Costs. Farmer costs could be as  high as any option which requires farmers to
assume the full costs of dealing with environmental problems, such as livestock waste
management.  The intent is to have higher market prices for the  labeled item cover part
of those  costs. This is less likely than when there is a mandatory premium or when the
focus is on "food safety" labeling.

Administrative Costs.  Administrative  costs would be low, similar to the organic
certification program and green milk options' administrative  costs, except they would
exceed costs of the green milk option, because the environmentally labeled product
would have to be labeled in the retail stores (for processed and raw agricultural
commodities unless otherwise focused).

Political  Feasibility. This option might face resistance from other agencies, but would
probably not offend producers. Processors may resist such a program, based on the
extent to which increased costs can be passed on to consumers.
Option 4: Cross-Compliance for Marketing Orders Subject to the Agricultural
Marketing Act

      The option would stipulate that for a marketing order to continue to be granted
to producers in a region they must agree to adopt IPM or other more environmentally
sound system of agricultural production.  Marketing orders would require that relevant
(member) producers adhere to a set of minimally acceptable IPM practices in producing
a specific percentage of the marketing order's output (e.g., 75 percent).

      Most pesticides that represent a food safety threat are  applied to fruits and
vegetables.  Fruit and vegetable production is rarely affected by the farm bill. The
primary legislation affecting their production and the revenue of producers is the
Agricultural Marketing Act. By linking environmental conditions to the granting of
marketing orders in the Farm  Bill, the environmental  focus that has been reserved  for
the major


commodities might be extended to specialty crops. As of 1992, there were some 42
marketing orders covering such diverse crops as citrus fruit and spearmint.  Since many
of these are grown in California, Florida, and Texas, the Farm Bill could serve to further
IPM in these production areas and crops that intensively use pesticides.

       USDA issues  marketing orders, which  are legally binding.  Orders set standards
regarding various attributes of certain fresh processed fruits and vegetables, grains, meat,
poultry ,  dairy products, cotton, and tobacco and assigns grades accordingly.  Though
voluntary, they serve the important role of vocabulary to the producer in whole sale and
retail markets, and thus facilitate trade by enhancing communication and minimizing
confusion.  Marketing orders often grant some monopoly power:  serving to reduce
production or the supply of a commodity, or a commodity of a given set of attributes,
and thus raise the price received by the producer.  Marketing grades specified by
marketing orders often require significant pesticide use.

Environmental Outcomes. The threat of removing marketing orders is a heavy hammer
and threat of doing so would get the attention of producers. Many producers might be
persuaded to use IPM and related practices which, in some cases, greatly reduce
pesticide use.

Budget Exposure.  There is relatively little budget exposure. Costs are purely

Farmer Cost.  IPM has mixed cost implications, as some IPM projects produce chemical
savings that far out-weigh the cost of increased management services, while others are
not likely to cover their costs.

Administrative Feasibility.  Many crops in many areas do not have specified IPM
practices. Yet, this option wields a heavy hammer.  Until the necessary practices are
specified and agreed upon, this option cannot be effectively administered.

       Once such requirements are established, self regulation appears feasible.  EPA,
USDA, and the industry would have  to agree on the minimally acceptable system.  There
is, however, precedence for this: California's IPM pilot for example. The IPM
Coalition, has also identified the key components of acceptable IPM programs.

Political Feasibility.  Major opposition would come from the industry that currently
benefits from the current structure.  These industries represent a formidable political
force, which generally are left out of farm bill debates. Help might come from producers
already practicing IPM and from economists,  who of course, rarely appreciate marketing
orders and other such market distortions.


Option 5: Federal Purchase Preference for IPM produced foods.

      The Secretary of Agriculture would  review and implement ways in which USDA
programs can be used to provide markets for foods produced with reduced risk pesticides
and IPM techniques. Three areas of either direct control or influence in the Farm Bill
are explored: The Food Stamp Program, the Women Infants and Children (WIC)
Nutrition Program and the School Lunch
Program. In addition, USDA in concert with EPA, shall coordinate
with the  General Services Administration and the Department of Defense to establish a
phase-in  plan to give federal purchasing
preference to foods produced under approved IPM methods.

Environmental Outcomes  The environmental outcomes would initially be limited. The
activity would be symbolic and would in time create broader based markets for
environmentally friendly products. The long term fate of this option will depend on
public demand for and the market sector's  response to reduced input products.  Also,
since the federal government is a significant consumer of products, it is reasonable to
expect that the program could readily expand.

Budget Exposure  Any budget exposure could be modest, although the government
would have to pay a premium for products conforming to IPM techniques. The costs
would be mostly administrative start-up costs for participating Federal agencies. If
USDA choose to leverage the "buying power"  of food stamps, for instance, there might
be an added initial cost. In addition, this is not intended to be an entitlement program
and therefore would have a clear sunset clause.

Farmer Costs  There are no anticipated costs to farmers, as the program offers them a
larger market for IPM based products.

Administrative Feasibility  This is very feasible administratively.  The reason for
including it as a Farm Bill option is to get  the issue on the table and out of the
program  debate.

Political  Feasibility The political feasibility is a function of the Administration's
commitment to IPM and lowered exposure to  pesticide residues. If the Administration
chooses,  it can be seen as taking significant pro-active steps to safeguard food supplies.


Appendix  for  1995  Farm  Bill  Options  for  Research,  Extension  and

1.   Joint  EPA-USDA prioritization of USDA ARS  and  CSRS
     research to focus  on  human  health  and  environmental  risk.

     Background: Farmers  and ranchers in  the United States  are
     increasingly concerned about production of food and fiber in a
     manner that does not  make them liable  for pollution associated with
     agricultural  production.    Consumers are increasingly concerned
     about both  farming's  relationship  to environmental  quality including
     water  quality/quantity  and  pesticide  residues.

     Summary:   This proposal  recommends  a  process whereby specific
     applied research  priorities are jointly agreed to and set to resolve
     production  problems  with  an  emphasis  on air and  water  non-
     attainment  areas.  Three broad areas of concern are reductions of
     pesticide use, improved management of  nutrients  and air quality.

     The types  of applied research that will be encouraged include
     studies on  nitrates including soil  testing and advanced  monitoring/
     application systems,  crop specific pest management  measures
     focusing on Level III IPM,  animal waste management systems,
     riparian areas and water quality and  quantity including irrigation
     return  flows.

     Tools will have to be developed  and studies undertaken to:

     o     Estimate emissions  resulting from  wind erosion  events, crop
           burning, crop dusting,  and other agricultural activities.

     o     Determine  PM  concentration  during  wind erosion events, and

     o     Assess the  effectiveness  of the alternative farming practices
           of farm management practices.

Two USDA  agencies are  responsible for the majority of research in
the Department:  CSRS and ARS.  Because of the more  applied nature
of the  CSRS research, we recommend that a process be joined with
CSRS   for joint development of research priorities  along  with a
significant increase  in funding for CSRS.  EPA has experience in
ecological systems  management and understands  the  relationships
between agricultural production systems and healthy ecosystems.
Both fields  of  expertise  would benefit a  joint priority setting
process.  The following areas of expertise would be applied to the
research setting  process:

     Threatened and  endangered species/candidate species  and  their
     Nutrient/soil  testing
     Migratory birds and their habitats
     Farm  worker  protection
     Chemical application technology
     Animal waste
     Pest resistance
     Soil Ecology
     Long-term health and reproductive effects  of pesticide
     Water supply/quantity issues  including  irrigation
     Riparian areas
     Water quality  and monitoring
     Revised nutrient recommendations to  include organic sources
     Biological and reduced risk pesticides

Pro:   A shift to  joint prioritization of research will ensure a more
     appropriate balance among agricultural  production,
     environmental, and  human health concerns.   This will better
     reflect the public interests as  opposed,to the present
     agribusiness dominated decision  making.

Pro: The process  of  joint priority setting  will help bridge cultural
     differences  between the  agencies  and  institutionalize
     interagency staff cooperation.

Pro: After the  principal of joint decision  making  is established, the
     process should be broadened to include the USF&WS and

      other Federal natural  resource agencies.

Con:  Such a significant change  in the  way USDA does business will
      take time and resources to make workable.

      a.    Enforceabilitv
           General language on committing  resources to
           environmental  research needs, such as a 10% goal, is
           unenforceable, and  will only lead  to  reclassification of
           existing research.    S  structured stringent process  will
           offer more chances  for enforceability through public
           pressure and pressure of other Federal agencies.

      b.    National  Budgetary  Implications

           Negligible,  this is reprogramming  of  existing  money.

      c.    Political   feasibility

           Political feasibility is  limited  due  to  the  anticipated
           strong  opposition of the historic triad of agribusiness,
           the land  grant university  agricultural  research  sectors
           and USDA.  Commodity organizations and agrichemical
           companies  will also  strongly oppose  any attempt to
           "green" the USDA research  priorities.   Strong  support can
           be expected among  grass roots organizations,
           environmentalists, EPA, some USDA sub-units, and the
           USF&W Service.

     d.    Environmental  Impact

           Very significant impact on all media and aspects of
           agroecosystems  in the long term.

     e.    Measurement  of results

           On  short-term, very  difficult to measure on-the-ground
           results.  With  better pesticide and nutrient  use
           reporting, measurability would  increase  in the long-

f.     Ability  to implement

      This  is  implementable -  particularly  with  top level
      directives to establish a process  by a certain date.   Joint
      Espy/Browner  solidarity and  commitment is vital to

g.     Synergy among options

      Will positively impact  other  options  including other
      legislation including the Clean Water  Act and the Safe
      Drinking  Water Act.

h.     Addressing in  Farm  Bill

      There is  no  present  clear vehicle in the Farm Bill to
      address this recommendation.

i.     Federal Agency Support

      As a policy  position, USDA will oppose any attempt to
      change the status  quo and include  EPA in its priority
      setting  process.   At the  staff level there will be
      sympathy and  unofficial support in SCS,  ES, and  most of
      CSRS.  The most concern from any agency will regard the
      precedent that another agency is meddling  with  the
      autonomy of another agency.  . .  . and that they potentially
      may  have to share their own priority  setting  processes.

      Strong  support is anticipated  from the USF&WS.

j.     Cost to farmers

k.     Degree  of  regional  flexibility

      Will  increase  regional flexibility

I.     Importance of  option  design

                 Extremely important because  success could shift  major
                 funding to human and  ecological  health research.

2.    New  initiative  to  determine total  environmental  costs  of
      off-site  agricultural  pollution.

      Background:  Issues  of  negative externalities  have been debated by
      economists for years.   This initiative is an attempt  to begin  the
      multi-year process of debating and  resolving long term ecological
      cost  issues. What are the true  long-term societal costs of
      production of food and  fiber.

      Summary:  EPA believes  that unless the  "total costs" of production
      are  understood and accounted for  the nation  will  be  on a continuous
      pattern of fixing  environmental problems often at great expense.
      This  is an attempt to understand total costs  so management and
      political  decisions can be made with full  understanding  and
      disclosure of the  impacts  of various production practices.   In  many
      ways this is a model pollution  prevention tool.  If we understand the
      future long term costs of aquifer  pollution, for example, we have
      the  opportunity to  manage the aquifer resource more carefully.  This
      principle  applies equally to  all of  our non-renewable resources.

      The study would  factor in other attempts  to  establish  baseline costs
      including the Upper Mississippi Basin Study recommended  by the
      President's Council on Sustainable Development.   Study areas could
      include but would  not be  limited to:

      o    Aquifer draw down at rates  in excess of recharge.

      o    Nitrate  contamination of ground and surface water.

      o    Salinization  of soils  and other concentration  of  toxicants
           in  waters (or biota) e.g.  Selenium in the Tulare Basin.
      o    Loss of threatened and endangered species.
      The study would also factor  in the  environmental/ecological  impacts
      of other sectors  of the economy.

EPA envisions that this  effort be  open to competitive bid.   Cost
estimates vary widely  but  a project of this scope could take up to
seven  to ten  years with annual costs of $5.0 million dollars.

Pro:  The single largest barrier to  "total  resource  cost accounting"
      is  the  lack  of  information/agreement  regarding  negative
      externalities or  hidden  environmental  costs of various
      agricultural (and other) practices.  A  conscious  consolidated
      effort needs to be made to  identify these total costs including
      human  health and ecological resource depletion costs.

Pro:  By tasking  NRC/NAS to undertake the study,  we will ensure
      that objective accounting  methodologies will  be  used.

Pro:  This  type of initiative should be supported by the President's
      Council  on Sustainable  Development.

Con:  The task of identifying  total  costs  and then  valuing them will
      be very expensive.  Conservative estimates of the  time/cost
      are $5.0 million a year for   7-10 years.

Con:  Selection of methodologies  and variables  will be highly
      politically charged and  fundamentally  linked  to personal

      a.    Enforceability


      b.    National  Budgetary Implications

           $5.0 million a year for  10 years.

      c.    Political   feasibility
           Environmentalists  will  strongly support.  The
           agricultural industry would probably oppose because the
           unknowns could challenge the status-quo.

     d.    Environmental  Impact

      Potentially a major impact,   could significantly  change
      agricultural decision making  in  the  next 20 years.

e.    Measurement of results

      Gives us tools and baseline  to  measure results

f.    Ability  to implement

      Very feasible if done by NRC/NAS

g.    Svnergv among options


h.    Addressing in Farm Bill

      Most appropriate for the Farm  Bill

i.     Federal Agency Support
      Opposition should be expected by USDA

j •     Cost to  farmers

      None directly

k.    Degree  of  regional flexibility


I.     Importance  of option design

      Very important that designed to be performed by outside

3.   Commit  to  encouraging  private sector  products,  systems
     and  services and technologies that  contribute to  low
     [environmental]   impact  agricultural  production.

     Background:   This initiative recognizes the potential of  the private
     sector to initiate  and  implement agricultural  pollution  prevention
     technologies  and services independent of the Land  Grant
     Universities, USDA Extension and  USDA ARS.  EPA  recommends
     market and other incentives  for  public sector  providers  that develop
     products services  and systems that help prevent or reduce pollution
     from  agricultural  production.

     Summary:  Incentives can be  provided to "level the playing  field" in  a
     number of ways  including:

     o     Create market  mechanisms to  increase  product/service
           demand.   Eg. Require that  products/services become part of
           BMP recommendations.

     o     Establish a  research and  implementation revolving  fund for
           qualifying  alternative technologies,  products  and  services.

     o     Assist  in creating cooperative scouting  services  for  small
           producers  and for minor crops.

     Pro:  Private  sector,  market-driven incentives are more  efficient
           and culturally acceptable than the  present top down system of
           agricultural research.

     Pro:  Growers, grower  organizations and  processors could  take
           greater  responsibility for their own technical  needs  thereby
           privatizing functions  previously  provided largely  by

     Con:  There is a potential for the demand for  alternative systems to
           outstrip the  supply of products  and services  causing  temporary
           market disruptions.

a.    Enforceabilitv


b.    Rational  Budgetary  Implications

      Minor unless a revolving fund is established.

c.    Political   feasibility

      Agriculture will largely oppose  this as  would the
      Land Grant Universities.   Private sector would support.

d.    Environmental  Impact

      Potentially very high.

e.    Measurement  of results

      Moderately difficult to measure  long-term  environmental

f.    Ability  to  implement

      High  but  complicated.

g.    Svnergv among options


h.    Addressing in  Farm Bill

      Farm Bill only

i.     Federal Agency Support

      USDA would oppose as privatizing their function.
      Other  resource agencies would likely support.

           j.    Cost to farmers

                None ... farmers would benefit in the long run.

           k.    Degree of regional  flexibility

                Privitization  may  better address regional needs.

           I.    Importance of option  design

                Vital to have a well thought out design

4.    Establish  a  coordinator for  alternative  farming  systems
     under the  Assistant  Secretary for Research  and  Education
     at  USDA.    Require the office to identify pollution
     prevention  goals  and  to develop  and  promote innovative
     environmentally  acceptable  farm  production  technologies
     in  concert with  EPA.

     Background:  The primary thrust of USDA research  education and
     demonstration is with  production  agriculture and major commodity
     crops and  products.  Alternative  farming systems and  sustainable
     agriculture are addressed by sectors of CSRS and ES.  Water quality
     issues are a  significant concern of the SCS.  The small  movement
     toward alternative  (non industrial farm)  systems must  be given
     institutional parity  within the Department to enable these producers
     to compete in the  marketplace and to address environmental

     Summary:  Alternative  farmers may be  full  or  part time and fill  the
     niche between organic producers  and "industrial producers."
     Alternative  systems are  supported by  EPA  because of their
     potentially  positive contribution  to:

     o     Soil biology  and tilth

     o     Threatened and  endangered species

     o     Air and water quality

o     Soil  retention

o      Human health and risk from exposure to pesticides.

Pro:  Leadership in alternative agricultural  production  technologies
      should be  in USDA. Such an office would help create
      institutional parity  in  USDA.

Pro:  A high level focal  point  for sustainability issues in  USDA will
      help  the  Department  to  set priorities with natural  resource
      agencies and the public.

Con:  The management and administrative  structure of USDA does
      not encourage cross cutting functions.   A sustainable
      coordinating office  would impact most if not all  of  the USDA

      a.    Enforceabilitv


      b.    National  Budgetary Implications

           Very  minor

      c.    Political  feasibility

           Agriculture would probably oppose.  Grass roots
           agriculture and organic types  would support.

      d.    Environmental  Impact

           Potentially  very  high.

      e.    Measurement  of  results

           Moderately difficult to  measure  long-term environmental

           f.    Ability to  implement

                Moderately high

           g.    Svnergy among options


           h.    Addressing in Farm  Bill

                Farm Bill  only

           i.    Federal Agency Support

                USDA would  oppose;  Other  resource agencies would
                likely  support.

           j.    Cost  to farmers

                None ... farmers would benefit in the long  run.

           k.    Degree of regional  flexibility


           I.    Importance of option  design

                Vital to have a well  thought  out design

5.   New  initiative  on   residue  monitoring,  food  consumption
     surveys, and  incident poisoning  monitoring.

     Background:  The  Administration  and EPA are very concerned about
     pesticide and other food  safety issues.  EPA proposes, in cooperation
     with the USDA and the FDA, to expand the research and data
     presently available on food  safety, human health  and nutrition to
     ensure that the food supply is  as wholesome and safe as possible.

     Summary:  While much data presently exists, there is  a need for a
     high level coordinated system of evaluation and review  to establish

research priorities in the areas of food safety, human  health and

Pro:  New data will improve  regulatory decision-making  and will
      improve understanding of the issues of  risk from pesticide
      residues  and the interrelationships between food safety,
      human health and nutrition.

Pro:  Data from  this  effort could  clarify  the  impact of certain
      pesticides and provide an incentive for  the  development of
      alternative  technologies.

Con:  The costs  of a  comprehensive effort could  be prohibitive and
      the  resulting information would not  directly  improve
      environmental conditions.

      a.    Enforceability


      b.    National  Budgetary  Implications

           Possible major budget implications

      c.    Political  feasibility

           Limited reaction pro or con

      d.    Environmental  Impact

           No  direct environmental impact.  Some  indirect if human
           health  risk  appears to be  a  factor.

      e.    Measurement  of results

           The project is a measure of residues.   Environmental/
           human health  results  are statistical.

      f.    Ability to   implement

                Can be done administratively.  Should be an EPA/FDA

          g.    Synergy among options

                Could  give EPA tools to encourage stronger action.

          h.    Addressing in Farm Bill

                Could  be more appropriate for FFDCA or FIFRA.

          i.    Federal Agency Support

                USDA  would oppose; FDA major support.

          j  •    Cost to  farmers


          k.    Degree of regional flexibility


          I.    Importance of option design


1.   Provide  funding  for  state  agricultural  chemical  use
     reduction  programs to  help  achieve  the Administration's
     75% land  management  goal.   Coordinate the award process
     with EPA  and its  10 regional  offices.   Fund annually at $5
     million  per  region.

     Background/Summary:  The goal to have 75% of domestic crop  land
     under plans for pest and nutrient management is laudable but needs
     financial support and  coordination.  The concept is to have  funds
     available to:

o    Support the state planning processes, and

o    For joint EPA/USDA management to  help achieve the
     Administration's year 2000 goal.

Pro: State programs are  more likely  to address specific local needs
     than national  use  reduction programs.

Pro: The administration  has  committed to pesticide  use/risk
     reduction and implementation of  IPM.  This could be the central
     coordinating  mechanism for that  commitment.

     a.    Enforceability


     b.    National  Budgetary  Implications

           Possible  budget implications if funds are  not
           reprogrammed from other  areas.

     c.    Political   feasibility

           Funded mandates to  the states are always popular.

     d.    Environmental  Impact

           Significant, but  second order.

     e.    Measurement of results


     f.   Ability  to implement

          Good but  will need to establish mechanism for
          competitive awards of  funds.

     g.   Svnerov among options

      Supports local  implementation  as well as other options
      and goals.

h.    Addressing in Farm Bill

      Could also be addressed  in other budget legislation or
      through administrative  reprogramming  of  funds.

i.     Federal Agency Support

      USDA  will likely oppose if the  funds are reprogrammed.

j.     Cost to farmers


k.     Degree of regional flexibility

      High -  increases  regional flexibility.

I.     Importance of option  design

      Important to give funds to states and/or regions for use
      reduction since local efforts will  likely  be more
      effective than  a national  program.


                                   DRAFT                   September 9, 1994

        Sustainable Private  Nonindustrial Forestry

                            1995 Farm  Bill

Importance  of Private  Nonindustrial Forest Lands	

Private nonindustrial forest lands represent 55 percent of all forestland in the U.S., and 48
percent of all commercially productive forestland. They cover 217 million acres of
landscape in the United States, in comparison to 382.3 million acres of crop lands ( 57
percent as much). Many are farmed or pastured within the same property boundary and
thus also qualify as "farms" under the Farm Bill.

Increasingly, fiber from private nonindustrial forest lands replaces supplies from public and
industrial lands. This trend is expected to continue in the long term. At the same time,
private nonindustrial forest lands provide a growing share of environmental amenities, such
as water quality and flow, wildlife habitat, climate protection, air quality and soil quality.
This trend is also expected to continue.

These two trends are frequently in conflict at present, and are likely to be in greater conflict
in the future without major Farm Bill assistance. Potential conflicts are heightened by a
variety of factors threatening the overall productivity and abundance of private
nonindustrial forest lands.  Adjacent lands and watersheds are impacted by these problems
as well.  Major threats include:

•  conversion to nonforest  uses; 5.4 million acres were lost from 1982-92 (NRI)

•  impairment of forest stands and soils, due to a variety of causes both
   on-site and off-site

•  conflicting management uses

•  low  management intensity by landowners

Suggested  Forestry  Provisions  Working  Goals	

Four general forestry goals in 1995 Farm Bill could, at least partially, address many of
these problems.  The forestry provisions could be designed to:

•  Maximize the  number of acres of harvestable nonindustrial forests using
   Best  Management Practices (BMP's).

•  Maximize targeted tree planting, with targeting criteria based on environmental
   and financial factors.

•  Maximize acres of targeted riparian  buffers, with targeting criteria based on
   environmental and financial factors.

                                    DRAFT                   September9, 1994

•   Minimize the overall rate of forest conversion to nonforest uses.

Potential Tools  for  Implementation	

To achieve these four goals, Farm Bill forestry programs must address general issues of
stewardship incentives, land set asides (including tree planting), and agricultural-forestry
program interactions.

Overall, improved targeting of  resources appears to hold the greatest potential for
successfully implementing these goals and issue areas.  Stronger targeting includes: 1)
efficiently overlaying a set of multiple benefits (both environmental and financial) on a
common landscape in order to sharply focus funds, and 2) modifying existing Farm Bill
forestry programs to reflect these priorities and efficiently implement them.

Other tools of potential importance include:

•   financial  incentives, such as cost shares for BMP's

•   financial  disincentives, such as reduced support payments associated with land

•   trading schemes, particularly on a watershed basis

•  .watershed approaches for single farm and multi-farm stewardship plans

Watershed approaches may be a particularly useful organizing principle because they can:

•   integrate multiple resources,  resource  user  needs, and adjacent  property
    plans on a common, manageable landscape

•   enable the use of collaborative, incentives based  approaches that allow smaller
    landowners to capture the synergies of larger-scale management

•   use easily  defined geographical  boundaries

Potential Revisions of Existing Farm  Bill  Programs	

Several existing Farm Bill forestry programs could, theoretically, be modified to achieve
the four goals above.  However, there are drawbacks to any system that attempts to achieve
too many separate objectives through a single catch-all program. In some ways SIP may
have falfen  prey to this approach. Similarly, several land set aside programs exist that
directly or indirectly involve tree planting and/or forestry, yet are poorly coordinated and
confusing to landowners. These SIP and  land set aside programs are not well coordinated
within or across programs. And, neither appear to be coordinated with other on-farm
programs that are, at least potentially, highly interactive.

A general approach to improve this situation might involve the following:

                                   DRAFT                   September 9, 1994

I.     Consolidate  Forestry  Practices (BMP's)  Issues  Under a
	Streamlined,  Coordinated and  Highly-Targeted  SIP;	

•   Target to the following areas:

          riparian zones and key watersheds

       -  high value-added fiber production

       -  impaired forests

•   Use the watershed approach as an organizing principle for targeting and planning.

•   Increase acres using harvest planning and BMP implementation.

•   Integrate with the President's Plan for Climate Change.

•   Integrate with other tree planting programs through joint planning mechanisms (see
    land set aside programs below).

•   Improve emphasis on water quality, particularly nonpoint source pollution prevention.

•   Create programs for watershed restoration.

•   Improve emphasis on wildlife habitat, particularly habitat loss prevention.

•   Develop stewardship plans using a watershed approach.

•   Develop better mechanisms for collaborative multi-property plans, such as trading
    schemes, etc.
II.    Consolidate Land  Set Aside  and Tree Planting Programs
	Into  a  Single,  Coordinated,  Highly-Targeted  Program;

•  Replace the current "alphabet soup" of set aside programs with single program that
   integrates forestry and agriculture into two major categories: long-term and short-term

•  Make tree planting a major component of land set aside programs, with appropriate
   planting incentives and harvesting safeguards.

•  Target to riparian zones, key watersheds, and threatened and impaired high value-added

•  Integrate with SIP through joint planning and cross-program incentives.

•  Coordinate the design and implementation of these set aside programs with other Farm
   Bill agriculture incentives programs.

                                    DRAFT                    September 9, 1994
    Create disincentives for conversion of targeted forest lands to nonforest uses,
    particularly where conversion to cropland is an issue.
Ease of Implementation	


The programs for forestation activities suggested here are within the current scope of
financial incentives programs that USDA has a great deal of experience with. USDA has a
large network of extension agents for both forestry7 and agriculture work who can monitor
activities by recipients of assistance or subsidies.

Political feasibility:

There is substantial support within the farm community for programs of this type,
evidenced by the participation of farmers in previous versions of these programs. There is a
much support for forestry incentives in the forestry community and cost-share incentives
have been very successful in accomplishing their aims.  Support from wildlife interests and
the general environmental community is strong due to the impact on ecosystem
improvements and availability of amenities.  Congressional support for these activities is
increasing. Regional targeting of programs to meet regional political and social needs is

Administrative feasibility:

Administrative capabilities exist to implement these types of programs under existing
organizations and procedures.  A streamlined approach could, potentially, reduce
implementation costs.

Likelihood of other Federal  and State Agencies supporting these  options:

As these programs support other environmental goals, other agencies will likely support
them. DOE will be particularly interested if forests established under such programs can be
made available for bioenergy fuel stocks, a question which has yet to be answered. State
wildlife agencies, the U.S. Fish and Wildlife Service, and the National Marine Fisheries
Service are likely to support actions that reduce Endangered Species Act (ESA) conflicts
and improve recreation and commercial activities. State forestry and pollution control
agencies are likely to support any improvements to private nonindustrial forestland
management that reduce their financial burdens.

National budgetary  implications:

Cost-share incentives programs are quite efficient, financially. Removing land from the
commodity crop base results in savings to the government in reduced subsidy payments,
which can be significant. Avoidance of ESA costs are also a potential cost savings.

Cost to  farmers and forest landowners:

                                    DRAFT                   September 9, 1994

Landowners must share the cost of establishing forests or some new management regime.
However, once established, costs are minimal to non-existent, and if the program includes
provisions for owners eventually harvesting the forests, farmers will eventually see
significant financial gains from their investment.
Environmental  benefits	

Environmental impact to  all media:

These programs deliver a host of benefits, including large carbon sequestration benefits,
soil erosion (wind and water)  reductions, water quality improvements, wildlife habitat and
biodiversity improvements, ground water recharge, flood abatement, and aesthetic and
recreational values.

Extent to which  results can be measured:

Measurable results will be: 1) the acres of land put into forest land or under improved
management, 2) the number of acres that remain in those uses after the first harvest of those
trees, and 3) the acres of land  using environmental management measures. In addition,
water quality, wildlife populations, soil erosion rates, carbon sequestration, and fossil fuel
displacement can be measured.