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6 Agricultural Practices and Mississippi River Water Quality A gricultural land uses and practices are of central importance to nutrient and sediment loads into the Mississippi River and the Gulf of Mexico and merit discussion in a broad review of Mississippi River water quality issues. As explained in Chapter 2, agriculture is the predominant land use across the Mississippi River basin, and agriculture is central to both nonpoint source pollution issues and water quality restora- tion strategies. The farming of row crops, such as corn and soybeans, in the basin has increased over time, and there has been a corresponding increase in mean nitrate concentration in runoff across the basin. The soil system has lost nitrogen as farmers have plowed under prairie grasses and exposed the soil. Moreover, since World War II, farmers have increasingly used nitrogen fertilizers to support the growth of crops. Today, phosphorus and nitrogen loadings to the Mississippi River are predominately from agricul- ture, with loadings from municipal and industrial point sources represent- ing only a small fraction of that contribution (Goolsby et al., 1999, and Figure 2-11). As Chapter 2 emphasizes, the primary nonpoint pollution concerns in the Mississippi River basin are nutrients, which derive largely from fertil- izers applied to crops, and sediments, which derive largely from soil erosion and are related to tillage. Agricultural practices therefore are key factors in efforts to address both of these critical pollutants in the Mississippi River and the Gulf of Mexico. As this chapter discusses, agricultural practices and policies involve a trade-off between protecting water quality and related environmental 

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 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT services, on the one hand, and efforts to increase production of food, fiber, and most recently, bioenergy, on the other. Historically, agricultural policies and programs have emphasized agricultural commodity production. More recently, Congress and the U.S. Department of Agriculture (USDA) have created and implemented agricultural programs that facilitate conservation of land and water resources, but these programs generally have received far less emphasis than crop production incentives. Nevertheless, the balance between these two goals has been shifting. Many farmers today across the river basin are seeking ways to improve farming and production efficien- cies, while at the same time seeking to increase environmental benefits. These latter benefits can also be viewed as a type of “commodity,” albeit a nontraditional one. This chapter discusses agricultural production and conservation pro- grams, including strategies for reducing sediment and nutrient loadings within the context of the Clean Water Act and through federal and state agriculture-related initiatives. It identifies and describes existent and emerg- ing regulatory, incentive-based, and market-based approaches for reducing nonpoint inputs. It also provides recommendations for ways in which the states, the USDA, and the Environmental Protection Agency (EPA) might strengthen cooperative efforts to improve water quality through agricul- tural programs and actions. TENSIONS BETWEEN AGRICULTURAL PRODUCTION AND WATER QUALITY The Farm Bill The Agricultural Adjustment Act of 1933 established a time-honored tradition in American agriculture: the notion that it is necessary to control the supply of agricultural commodities in order for farmers to receive a fair price for their goods (Cain and Lovejoy, 2004). The act pursued this goal by setting price supports, or parity prices, to guarantee that prices did not fall below a set level. This price support was available to producers who participated in voluntary production reduction programs, such as acreage set-asides. Early farm bills defined a pattern of government involvement that still holds today: voluntary participation based on economic incentives through income or price support and payments for specific actions. Today, most government payments subsidize producers of commodity program crops such as corn, wheat, soybeans, cotton, rice, and peanuts. Commodity payments and price supports can lead to more extensive and intensive production than would be the case if there were none, because these mechanisms give farmers an economic incentive to expand actual and potential crop production. However, these rational responses to the Farm

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY Bill’s economic incentives carried with them attendant impacts on land use, runoff, and water quality. Historically, such payments also linked a specific land base that produced the commodity to the payments. For example, the 1996 Farm Bill changed direction from commodity acreage-based pay- ments to farm-based payments (Schertz and Doering, 1999). However, these general income payments under the 1996 act still helped farmers maintain production levels during a period of relatively low commodity prices in the late 1990s. The 1933 Farm Bill, and the subsequent 70 years of Farm Bills and other agricultural programs, have had a tremendous influence on Missis- sippi River basin land uses, crop types, farmer attitudes and preferences, and the structure of the agricultural sector; in turn, they have greatly af- fected runoff patterns and water quality across the basin and in the Mis- sissippi River and the Gulf of Mexico. Nevertheless, Farm Bills also have contained provisions encouraging conservation practices, and the 2002 Farm Bill included an unprecedented expansion in federal support for farmers for conservation activities by introducing the Conservation Security Program and continuing the Environmental Quality Incentives Program. Impacts of Commodity Programs on Production and Conservation Commodity program benefits have led to modest increases in acreage of program crops (Young and Westcott, 2000). Historically, when price supports or market prices change to alter a long-term market price ratio (for example, between corn and soybeans), there are acreage shifts in the Mississippi River basin to more profitable crops. Such crop shifts may cause more or less sediment or nutrient loss in the basin. Technological changes and advances may also affect crop mixes and land uses. In low- moisture grassland and prairie environments, for example, the development of herbicide-resistant soybeans, combined with no-till planting technology, allow such lands to be planted in soybeans. Favorable prices or government support programs may also be required to encourage soybean planting in these areas. Commodity program payments sometimes compete with incentives for farmer participation in voluntary land and water conservation programs. It is clear that higher commodity revenue, whether through the market or through price supports, provided through government programs means that farmers will require increased incentive payments to engage in farm-level conservation and water quality-enhancing activities (Moore, 2002). Higher crop prices also tend to increase land values, making land retirement-based programs more expensive. Many other long-term and structural effects of commodity program benefits influence crop types and levels of production:

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 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT • Wealth shift. Payments increase the overall wealth of farmers, increasing investments in productive assets and enhancing production. Increases in land values are an important component of this effect (Young and Westcott, 2000). • Greater access to credit. Lenders are more willing to lend money based on the more stable stream of income that commodity payments and insurance provide. • Risk aersion. Reduction in risk also encourages producers to maintain or increase production levels from where they might be otherwise (Chavas and Holt, 1990). • Expectations about future programs. Because the tradition has been one of program payments based on past planted acres, producers can be reluctant to give up the production of program crops on a given tract of land. In addition, there is an expectation of continuing government support payments into the indefinite future. Commodity program benefits also have important effects on marginal agricultural lands. Crop insurance, for example, disproportionately keeps in production low-productivity land and some environmentally sensitive lands such as those with highly erodible soils. Also, the land retained in cultivation because of crop subsidy increases includes a higher proportion of lower-quality land than the national average for cultivated cropland. Such low-productivity land leaches higher amounts of nitrogen and adds greater amounts of phosphorus to surface waters (Lubowski et al., 2006). Commodity programs thus provide incentives for production that may work against farmer participation in voluntary land and water conserva- tion programs. The federal government, through the USDA, has created programs that aim to balance incentives for production with incentives for conservation and environmental quality improvement. FEDERAL AGRICULTURAL PROGRAMS FOR RESOURCE CONSERVATION To encourage land and water quality conservation practices, the USDA sponsors several programs that provide incentives for voluntary participa- tion. The largest of these land and water conservation programs are the Conservation Reserve Program (CRP) and the Environmental Quality In- centives Program (EQIP). Congress authorized these programs in the 1985 and 1996 Farm Bills, respectively, as a result of increasing concern for con- servation and water quality that had been building since the 1960s (Batie et al., 1985). The more recent Conservation Security Program (CSP) is a stewardship program that complements the CRP and EQIP. These programs are administered by USDA’s Farm Service Agency (FSA) and its Natural Resources Conservation Service (NRCS), respectively.

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY The CRP provides technical and financial resources to assist eligible farmers and ranchers in improving soil and water management practices on their lands. The program initially focused on retirement of highly erosive and other environmentally sensitive land from crop production. However, the scope of the CRP has been steadily expanded, such that it now encom- passes a broad range of natural resource management issues (SWCS, 2003). Total land area in the CRP is about 35 million acres. The CRP provides contracts under which producers receive rental payments for lands in the program. After the initial sign-ups under the 1985 Farm Bill, the USDA used this program to retire productive land, both as a supply control mea- sure during the farming financial crisis of the late 1980s and to remove environmentally sensitive land from production. Since 1997, there has been more emphasis on retiring fragile lands that, when taken out of production, would yield improvements in water quality and wildlife habitat. The CRP is the largest USDA-sponsored conservation program, and it has yielded multiple and substantial environmental benefits (National Audubon Society, 1995). For example, Box 6-1 describes a conservation reserve enhancement program developed in Illinois that leverages and extends the federal CRP program. Smaller programs, including the Wildlife Habitat Incentive Pro- gram, the Wetlands Reserve Program, and the Grassland Reserve Program, augment the CRP. EQIP, the second-largest program by expenditure (but first in terms of number of participants and acres under contract), provides financial and technical assistance to farmers and ranchers to implement practices and build infrastructure primarily to improve water quality and reduce erosion. It is the main USDA program for protection of environmental quality on working land. The program aims to provide producers with assistance that promotes production and environmental quality protection and improve- ment as compatible goals. Farmers carry out EQIP activities according to a plan of operations that identifies practices the farmer will implement in or- der to address site-specific natural resource concerns in addition to produc- tion objectives. Plans are subject to NRCS technical standards adapted for local conditions. These plans must be approved by the local conservation district. The program is implemented through local conservation districts, but the program does not effectively target working lands that produce the highest rates of nutrient and sediment pollutant loads. Furthermore, the program lacks the coordination that would help it achieve a far greater impact (SWCS, 2007). The EQIP program has potential to be employed more effectively and to realize greater reductions in nonpoint source water pollution. Introduced in the 2002 Farm Bill, the Conservation Security Program is designed to assist farmers in implementing conservation practices on a whole-farm planning basis. It is a stewardship program designed to improve environmental quality and natural resource condition in agricultural land-

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0 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT BOX 6-1 Illinois Conservation Reserve Enhancement Program The Illinois River is a major tributary of the Mississippi River, and its drainage basin covers a large portion of Illinois including most of the prime agricultural land in the state. Illinois has developed a Conservation Reserve Enhancement Program (CREP) to restore and protect large stretches of floodplain corridors both on the mainstem of the Illinois River and along the major tributaries. It is helping landowners, who have only been able to produce crops in the area once or twice in the last decade, to retire these lands from agricultural production. As part of the agreement with the USDA for administration of the Conservation Reserve Pro- gram, the state provides an additional incentive to landowners to extend the 15- year federal CRP for an additional 15 or 35 years, or as a permanent easement. The purpose of this state program is to provide long-term environmental benefits by allowing certain environmentally sensitive lands in the Illinois River watershed to be restored, enhanced, or protected over a period of time. The state’s CREP portion is driven by locally led conservation efforts that show landowner support. This program is a vehicle for a partnership between landowners, governmental entities, and nongovernmental organizations in addressing watershed quality problems. Of the 116,410 acres of land enrolled in the federal CRP program, 38.3 percent (44,549 acres) are also participating in the expanded state option in the Illinois River basin; 7.6 percent of participating acres have conservation programs ex- tended to 30 years; 5.3 percent will be extended to 50 years; and 87.1 percent of the conservation acreage will be maintained in perpetuity. All of these expanded programs are within the Illinois River basin. To participate in the enhanced CREP program the state must match 20 percent of the federal program. To date, Illinois has spent more than $49 million on this initiative. scapes, while also providing a source of income to producers. As produc- ers increase the use of water quality and erosion control best management practices (BMPs), payments are increased (Box 6-2). The CSP is the most comprehensive working lands program to date, but it has operated with only a modest budget (SWCS, 2007). Like EQIP, the CSP has potential to help reduce nonpoint source water pollution. The USDA sponsors significant land and water conservation programs that could help address nonpoint source water pollution in the Mississippi River basin. Participation is voluntary, but there are financial incentives to implement BMPs, as defined by the agency and local conservation districts. Because not all landforms, cropping patterns, and farm fields yield similar levels of nutrient and sediment loadings, effectieness and efficiency are in- creased when conseration programs are directed at farms and watersheds with the highest pollutant loadings. The USDA, NRCS, and FSA could improve these conservation programs by better targeting them to the great-

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY est sources of land degradation and water pollution (SWCS, 2007; SWCS and Environmental Defense, 2007). Stronger interagency coordination also would improve these programs. As an example of an existing interagency cooperative conservation program, the USDA and the EPA currently participate in the Conservation Effects Assessment Project (CEAP). Along with the USDA and EPA, other program participants are the Army Corps of Engineers, the U.S. Fish and BOX 6-2 Best Management Practices for Land and Water Conservation in Agriculture A best management practice has been defined as a practice or combination of practices that represents the most technologically effective and economically feasible means of preventing or reducing the pollutant load generated by nonpoint sources to a level that meets water quality goals (USEPA, 1980). Examples of ag- ricultural management practices for water quality protection include the following (SWCS, 2007): • Conservation tillage—leaving crop residue on the soil surface to reduce runoff and soil erosion • Crop nutrient management—optimizing nutrient inputs to ensure that suf- ficient nutrients are available to meet crop needs while reducing nutrient export from farm fields • Pest management—use of methods to control insects, weeds, and pests below economically harmful levels while protecting water, soil, and air quality • Conservation buffers—vegetation of water conveyance channels and areas along streams and ponds to serve as a barrier for capture of nutrients, sediments, and other pollutants in runoff • Irrigation water management—applying irrigation water input to meet crop water demands while minimizing contamination of ground- and surface water • Grazing management—control of grazing and browsing activities on pas- ture and ranch lands to minimize water quality impacts (e.g., through fencing along streams) • Animal feeding operations management—control of runoff and waste stor- age and treatment to minimize impacts on water quality • Erosion and sediment control—use of methods to minimize erosion and capture eroded soil in runoff from lands affected by agricultural production The effectiveness of BMPs in agricultural settings is a subject of ongoing study. By most reports, the movement toward conservation tillage (no-till and low-till) in the Mississippi River states has realized some successes. For example, the Iowa River (a Mississippi River tributary) showed improvement in total suspended solids concentrations following the 1985 Farm Bill that encouraged such practices.

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 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT Wildlife Service, the U.S. Geological Survey (USGS), and several nongovern- mental organizations. The CEAP began in 2003 as an effort to quantify the environmental benefits of conservation practices used by private landown- ers participating in select USDA conservation programs. An independent review of the CEAP strongly endorsed its purpose of helping to implement existing conservation programs and design new ones, while offering recom- mendations for program improvement (SWCS, 2006). Although the CEAP may require some changes and adjustments to help achieve its program goals, the coordination it has promoted serves as an example of interagency initiatives that could improve water quality in the Mississippi River and the Gulf of Mexico (NRCS, 2007). Building on the cooperative efforts within the CEAP, the USDA and EPA could extend their collaborative efforts to other areas of water qual- ity management and monitoring. For example, the USDA and the EPA could strengthen their collaborative activities to help improve targeting of funds expended in the CRP, EQIP, and CSP programs. The EPA and the USDA could work together with conservation districts, extension agents, and farmers on programs such as water quality monitoring and alternative cropping practices. Ideally, this cooperation would result in better-targeted expenditures and programs that would help farmers improve economic profitability and also help realize water quality and related environmental improvements. At a larger scale, Mississippi River system-wide water qual- ity monitoring is important to evaluating water quality impacts of the CSP, CRP, and EQIP programs. KEY POLLUTANTS AND STRATEGIES FOR REDUCING THEIR IMPACTS Nutrients The nutrients of major concern with respect to the water quality of the Mississippi River and the Gulf of Mexico are nitrogen and phosphorus, especially from agricultural lands used for row crop production. In develop- ing strategies for nutrient management in agricultural production, meeting essential nutritional needs for crops and livestock, producing profitable economic returns, sustaining environmental quality, and conserving natural resources are all important considerations. Effectively reducing nutrient impacts on Mississippi River basin water quality will require improved nutrient management strategies that balance nutrient requirements for crop production with reductions of nutrient loss from agricultural lands to sur- rounding watersheds.

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY Nitrogen The challenge of meeting nutrient needs for crop production has re- sulted in an increasing demand for nutrients (fertilizer) to produce higher crop yields. When natural processes in the soil can no longer supply suffi- cient nutrients to meet crop production needs, farmers have applied increas- ing amounts of nutrients as fertilizers to agricultural lands. Meeting crop demands for nutrients such as nitrogen without causing loss of excess nitro- gen to the environment is difficult because nitrogen undergoes continuous cyclic transformations into various forms and states in nature (Keeney and Hatfield, 2001). This “nitrogen cycle” results in many complicated spatial and temporal changes in the distribution of various nitrogen compounds in the environment. Nitrogen- and phosphorus-containing fertilizers may result in increased crop yields and economic return, but these additions also alter the distribution of various forms of nitrogen and phosphorus in the soil and can result in leaching and runoff of excess nitrogen and phosphorus to waterways (see Box 6-3). Over the years, many Corn Belt states have used different approaches to develop nitrogen fertilizer application guidelines. This has inadvertently resulted in confusion among the Corn Belt states regarding appropriate fertilizer application rates. In recent years, many scientists from the upper midwestern states have noted that rates of nitrogen application needed to reach specific corn production yield goals are relatively consistent over this broad geographic region, but there are large variations in soil and climatic conditions and in management practices. This realization has led to the development of a regional approach for setting nitrogen application rate guidelines (Sawyer et al., 2006). The ability to set guidelines for optimal nitrogen application is important in the management of nitrogen-bearing fertilizer for water quality protection. Although setting application rate guidelines is a critical step in devel- oping a reliable management strategy for nitrogen, this approach only ad- dresses the issue of how much nitrogen farmers should apply for optimal production. Soil testing alone cannot improve the efficiency of nitrogen use in crop production. Therefore, many states have also developed regional nutrient management guidelines. These guidelines include fertilization prac- tices such as the timing and type of fertilizer nitrogen applications; tillage practices such as no-till, minimum tillage, conservation tillage; and use of cover crops (see Randall and Mulla, 2001; Randall and Vetsch, 2005). Furthermore, recent developments in precision agriculture technology have further enhanced the farmer’s ability to manage more accurate and timely nitrogen applications (Mamo et al., 2003). These BMPs have been adopted widely for more efficient production of the predominant corn-soybean crop mix in the upper Midwest. These BMPs aim to increase agricultural

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 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT BOX 6-3 Fate of Applied Nitrogen and Phosphorus in Agricultural Soils Under aerobic conditions, nitrate is normally the most dominant form of avail- able nitrogen in the soil for crop production. Nitrogen in fertilizer, often in the form of anhydrous ammonia, is readily hydrolyzed into ammonium and subsequently oxidized into nitrate in the soil. During a growing season, the nitrogen available in the soil at any given time could be derived from fertilizers, manure, or composted organic wastes from various sources applied to the soil; from mineralization of soil organic matter, crop residues, or fertilizer residues from the previous cropping season; or by other means such as deposition from the atmosphere and biologi- cal nitrogen fixation. At the same time, microbial transformations, movement and leaching from soil, immobilization, denitrification, and nitrate reduction processes, in addition to crop uptake, reduce the amount of nitrate present in the soil. From the point of view of water quality and the potential for nitrogen pollution of the river, the form of nitrogen that is of major concern is also nitrate, because it is the form that is carried by water in runoff from soil surface or by leaching through the soil into the river or groundwater. However, from the viewpoint of the total quantity of nitrogen in the soil, nitrate is only a small component, with the vast majority of nitrogen present in organic forms. Nitrate is formed continuously from organic nitrogen, with the transformation affected by variations in soil physical properties, in temperature and available moisture during the growing season, and in other factors that influence nitrogen transformation processes in the soil. Phosphorus is the other major essential nutrient needed for crop production that has caused significant concern because of its impact on the water quality of the Mississippi River (Wortman et al., 2005). The mechanisms and processes involved in its transport and transformation in the soil environment are different from those for nitrogen. The dominant form of phosphorus in the soil environment is phosphate. However, at any given time, only a tiny fraction of total soil phospho- rus exists as phosphate ion in solution. The vast portion of soil phosphate exists as highly insoluble phosphate minerals (e.g., calcium, iron, and aluminum phos- phates), tied strongly to soil clay particles or bound in soil organic matter. Unlike leaching of nitrate from soil, phosphorus is lost from land mostly through surface runoff carrying excess water and eroded soil particles and organic materials into the nearby river as suspended solids or sediments. production, but the guidelines also protect environmental quality and can be incorporated into management practices to help meet Clean Water Act goals. The NRCS efforts to implement such BMPs could influence Missis- sippi River water quality in a positive way and should be combined with coordination and targeting of efforts under the CRP, EQIP, and CSP pro- grams discussed earlier.

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY Phosphorus Strategies for managing phosphorus, both for enhancing crop produc- tion and for preventing deterioration of water quality, are different from those for nitrogen. Most of the productive agricultural soils in the Midwest now contain high levels of phosphorus from years of application of manu- factured fertilizers, manure, and biosolids (sludge). As a result, the potential for phosphorus pollution from surface water runoff is high, especially from fields devoted to row crops that have little plant residues covering the land surface. BMPs for these fields generally seek to limit external phosphorus inputs to the soil, maintain sufficient ground cover or crop residues on the soil surface to reduce soil erosion, and build buffer strips between crop fields and nearby rivers and streams to trap sediments and prevent them from entering surface and groundwater. Effective soil conservation practices are especially important in minimizing soil erosion on steeper fields. Although phosphorus BMPs are, in principle, beneficial to both agricul- tural production and environmental quality, their effectiveness is difficult to evaluate at the farm field or local watershed level. Much of the phosphorus is particle associated. There is a considerable lag time between changes in soil management practices and improved water quality in rivers (Mulla et al., 2005). The limited amount of long-term water quality data to assess BMP effectiveness in improving environmental quality has confounded meaningful evaluation of the success of these BMPs in improving down- stream water quality. Nutrient management is a critical factor in agricultural production as well as in maintaining water quality, and farmers and government agencies must implement appropriate nutrient management strategies as part of a comprehensive and integrated approach to modern farming operations. Existing USDA conservation programs, especially EQIP and CSP, provide vehicles for doing just this and could be utilized more fully to help im- prove water quality across the Mississippi River basin and in the Gulf of Mexico. Sediments Agricultural activities result in enhanced sediment inputs to the Mis- sissippi River, but the extent of agricultural contribution in a particular watershed is difficult to measure. Because of the nonpoint source nature of sediment pollutants, it is difficult to trace these pollutants back to their source. Even if a source location can be identified, it is challenging to assess quantitatively the extent of the pollution. For example, soil erosion can be an obvious source of sediments from a field, especially if the erosion process forms gullies and rills. However, sheet erosion is less visible but may carry

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY some areas produce greater sediment and nutrient loadings than others. Distribution of the limited resources available for watershed-level nutrient and sediment management must use some criteria regarding effectiveness if agriculture-related programs are to offer an efficient means of improving water quality in the Mississippi River and the Gulf of Mexico. Market-Based Approaches and Regulation Targeting can be integrated into the different institutional approaches aimed at improving water quality, and the USDA has done some of this integration in the past. Market-based approaches, whether based on performance or design, can provide incentives to concentrate efforts. Performance-based approaches require monitoring and information that allows increased targeting. Both auction-based approaches and easements (which can be auction-based) are amenable to various degrees of target- ing. Thus, limits on targeting derive primarily from lack of information or lack of political will. Traditionally, regulators have relied on directives to mitigate pollution. All levels of government increasingly are tending to augment this approach, referred to as “command-and-control,” through market-based policies. In market-based approaches to pollution control, a regulator sufficiently alters the relative value of available options for an individual polluter such that subsequent decisions have market incentives to align with the pub- lic or regulatory objective (Stavins, 2001). A well-designed market-based policy instrument often can accomplish the desired regulatory goal at com- paratively lower cost than command-and-control regulation. In addition, market-based policies can provide significant incentives for cost-effective innovation that reduces abatement costs to the polluter and to society. The evolution of market-based strategies is a continuous process. A variety of market-based policy initiatives have been proposed in response to diverse situations, and there is no one standard approach. Although market-based incentives can be useful in promoting agriculture efficiencies and environ- mental improvements, they do not necessarily represent a panacea, and their successes depend on unique political, geographic, social, and eco- nomic contexts (see Devendra et al., 2006, for a summary of market-based approaches). The following section describes some commonly attempted market-based approaches. Water Quality Trading In conjunction with its watershed initiative, the EPA introduced a Water Quality Trading Policy in January 2003 (USEPA, 2003f). This mar- ket-based approach to improving water quality allows point sources and

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0 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT nonpoint sources—especially sources of nutrients (nitrogen and phospho- rus) and sediment—to trade discharge allowances within areas of a water- shed governed by an approved TMDL (USEPA, 2003f). Participants must possess a Clean Water Act permit, and the trade must result in improve- ments beyond those already achievable through the technology-based effluent limitations (USEPA, 2003f). Water quality trading is in its initial phases, but the program clearly contemplates cross-border trading and hence, logically, cross-border TMDLs. Of the 10 mainstem Mississippi River states, only Minnesota is currently experimenting with a trading program (USEPA, 2006f). Beyond the mainstem Mississippi River, other states have implemented different trading programs to help address water quality problems (see, for example, Box 6-5 for a discussion of nutrient trading in Pennsyslvania). Water quality trading is a broad concept embracing a variety of compli- ance options for point and nonpoint sources under the Clean Water Act. In theory, a trading program allows parties to discharge pollutants up to some quota or limit. Those parties that discharge less than their allocated limit would generate credits that could be sold—and purchased by those parties that discharge pollutants beyond their allocated limit. Those who discharge beyond their limits have the choice of either reducing discharges or purchas- ing credits from the lower polluters. Theoretically, overall pollutants can be reduced, at lower social and economic costs, if (1) the aggregate limit of total pollution represents a reduction and (2) pollution control costs are met largely by those who have lower costs of pollution control. The reali- ties of water quality trading, however, are more complicated. For example, existing National Pollutant Discharge Elimination System (NPDES) regula- tions do not allow dischargers to exceed permitted discharge. These types of regulatory and other realities pose significant complications to successful implementation of water quality trading programs. Tradable permits have been used extensively for air pollution under 1990 amendments to the Clean Air Act. Air quality trading programs have seen some successes for a variety of reasons, one of which is that discharges are from point sources and can be measured and verified relatively eas- ily, and the medium of trade is a standard “commodity” such as a ton of sulfur dioxide. Water quality trading in the Mississippi River basin would involve a large percentage of nonpoint dischargers, and air and water pol- lution issues fall under different statutory regimes—current statutory and regulatory constructs often make it difficult to structure effective, market- based trading programs (see Stephenson et al., 1999). Although the relative success of air quality trading permits should be considered, so should the significant differences between air and water quality trading regimes. There is an extensive literature on the realities, experiences, and pros and cons of implementing water quality trading (and TMDLs) that the interested practi-

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY BOX 6-5 Pennsylvania Nutrient Trading Program for the Susquehanna River The Dauphin County Conservation District in Pennsylvania established a nutri- ent trading program available to Dauphin County farm owners. The program was created in response to a Pennsylvania Department of Environmental Protection (PADEP) initiative focused on enhancing the water quality of the Susquehanna River in order to meet federal mandates enacted to improve the health of the Chesapeake Bay. Pennsylvania has a comprehensive nutrient trading program related to water quality improvements in the Chesapeake Bay (see PADEP, 2007a). Farmers accepted into the program receive cost-share funding to install se- lected agricultural best management practices, such as cover crops and no-till practices, to reduce the amount of nutrients in runoff from their lands. The instal- lation of a BMP generates nutrient discharge trading credits that have monetary value. Different amounts of credit are linked to particular BMPs and their demon- strated effectiveness in reducing nutrient runoff. Trading of the nutrient discharge credits allows point source dischargers, such as municipal wastewater treatment plants, to obtain nutrient reduction credits and thus meet their permit requirements. Credits are purchased from the agricultural nonpoint source dischargers and provide a source of income to the farmer. Gen- eral guidelines for these transactions are that they must involve comparable units (e.g., nitrogen must be traded for nitrogen); they must be expressed as mass per unit time; they can occur only between eligible parties; credits generated by trading cannot be used to comply with existing technology-based effluent limits as expressly authorized by federal regulations; they may occur only in a water- shed authorized by the PADEP; they are not allowed between sources outside of watershed boundaries; they may take place between any combinations of eligible point sources, nonpoint sources, and third parties; and each trading entity must meet applicable eligibility criteria established by the PADEP (2007b). In addition, all credits used to meet an annual nutrient cap, or any other effluent limitations, must be used under conditions contained in an NPDES permit. The Pennsylvania Department of Environmental Protection is responsible for program oversight and enforcement. The two-year trial program is being implemented by the Dauphin County Conservation District, which is collaborating with PADEP (DCCD, 2007). It serves to illustrate not only a working nutrient trading program, but also what can be achieved through collaboration of state and federal water quality regulators with USDA and their conservation districts. tioner or decision maker may wish to consult (see, for example, Stephenson and Shabman, 2001; Shabman et al., 2002). Water quality trading programs face regulatory, monitoring, and other challenges. Nevertheless, water quality trading could become more useful and widespread over time as monitoring improves and as stricter water

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 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT quality criteria are adopted (which has been the case for air pollution). Water quality trading may produce greater economic efficiencies, which could encourage additional future trading. These trading schemes also hold the prospect of providing multiple environmental benefits in the form of nonstructural, or “green,” best management practices such as buffer strips, reforestation, constructed wetlands, and better fertilizer and other nutrient management practices. Meeting nutrient targets can be an expensive propo- sition, and water quality trading holds the prospect of a relatively low-cost means of helping meet these targets. Performance-Based Trading In some cases, nonpoint discharges can be measured accurately enough to allow actual performance to determine compliance with the cap-and- trade program rather than using estimates of performance from BMPs. For example, the Grass Lands Farmers’ Trading Program in the San Joaquin Valley measures selenium discharges at the irrigation district level (Young and Karkoski, 2000). Trades are conducted among the seven irrigation districts. Each district has its own strategy to influence farmers within the district to reduce selenium loadings. Performance-based trading is usually easier with point sources, such as wastewater treatment plants or point source discharges from irrigation drainage tile systems, where monitoring and measurement of discharges are already required under the Clean Water Act’s NPDES permit program. Design-Based Trading It is not always possible to determine accurately the extent of discharges from nonpoint sources such as agriculture. As a result, some watershed management authorities use a design-based water quality trading system instead. Under this framework, the nonpoint sources generate credits by adopting prescribed BMPs that are expected to reduce pollutants by a given amount. For example, the North Carolina Division of Water Quality, under its Tar-Pamlico Nutrient Reduction Trading Program, facilitated the forma- tion of a consortium comprising both point and nonpoint sources to reduce nitrogen and phosphorous discharges (NCDENR, 1998). Point sources exceeding the limit can either invest in equipment to reduce their loadings or buy credits from farmers who have adopted nutrient-controlling BMPs (see Ribaudo et al., 1999, for further discussion of the characteristics of, and differences between, performance- and design-based approaches).

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY Auction-Based Contracting Auction-based contracts determine which individuals are willing to un- dertake pollution control at what costs and can serve as a source of public information about pollution control. Citizens often lack information on the cost required to implement or maintain practices to reduce pollution. Tra- ditional monetary incentive programs provide compensation to landholders for their efforts. Landowners may be overcompensated, however, if pay- ments are substantially greater than the costs of the pollutant management measures (Stoneham et al., 2003). In addition, most conventional incentive programs do not recognize that different land segments differ with respect to their conservation significance or the synergies that can result from using multiple conservation strategies. Although some of these shortcomings are addressed in procedures such as the CRP auction process and the EQIP en- vironmental benefit index, other kinds of auction-based contracting address them more successfully. For example, under the Australian Onkaparinga Catchment Water Management Board system, bidding is designed to limit as much as possible the landowner’s knowledge of the board’s willingness to pay (Brett et al., 2005). The closed-bid strategy with a limited number of contracts reveals the landowner’s true costs; the selection of a bid based on the joint conservation significance of the land and the invested effort can result in a cost-effective allocation of public money. Such a strategy can allow precise targeting of resources to specific environmental concerns or multiple objectives (for more background on auction-based contracting, see Latacz-Loehmann and van der Hamsvoort, 1997). Conservation Compliance The 1985 Farm Bill introduced the concept of conservation compliance (Luzar, 1988). Under this management approach, for a producer to receive commodity price supports and other USDA program benefits, the producer would have to maintain certain conservation standards. These standards included both protection of existing wetlands and grasslands and the use of BMPs to keep soil erosion rates within set bounds. These standards have been relaxed since 1985. Enforcement was assigned to the Natural Resources Conservation Service and was extremely unpopular, effectively reducing its technical assistance role with producers (GAO, 2003; Wiebe and Gollehon, 2006). At issue is whether financial support for agricultural production also entails some responsibility for proper land stewardship. The Secretary of Agriculture’s proposal for the 2007 Farm Bill would in- crease conservation compliance requirements (USDA, 2007a). High com- modity prices, however, dull the effectiveness of conservation programs that are tied to price support payments.

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 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT MOTIVATING NONPOINT SOURCE CONTROL IN AGRICULTURE A key factor in reducing nutrient and sediment pollution in the Missis- sippi River is the motivation of those who can control pollutant discharges. This degree of motivation is affected by a combination of institutional and economic considerations. Given the examples of market-based approaches, multiple incentives often are needed to produce outcomes that are both cost-effective and contribute to environmental protection or enhancement. Market-based approaches can become operative only if some enforceable regulatory standard provides the initial incentive to which market forces can respond. The institution providing the incentives also must have the appropriate geographical reach required to accomplish the pollution reduc- tion goals and adequate enforcement authority. The primary means in the United States to control point source dis- charges has been Clean Water Act NPDES permits, but for nonpoint agri- cultural sources, states and the federal government have mostly encouraged voluntary control measures through economic incentives. Incentives have often taken the form of direct payments from the rest of society, such as payments to farmers to set aside land under the CRP or payments under the EQIP or CSP to implement nutrient management plans. Tax incentives or disincentives can also be used. The fact that the Clean Water Act does not require command-and-control legislation for nonpoint sources highlights the importance and potential of the funded USDA conservation programs in helping improve water quality in the Mississippi River, its tributaries, and the Gulf of Mexico. These incentive programs gain even more importance if the USDA Conservation Compliance rules are increasingly less effective. Although participation by farmers and ranchers in the USDA pro- grams is voluntary, these programs have no shortage of applicants. Farm- ers compare the value of the incentive(s) offered to the cost of meeting the standards and requirements necessary to obtain the incentive(s) and decide whether to participate. These costs include not only direct costs such as management time and establishment of ground cover, but also forgone opportunity costs that might be involved in production activities such as growing crops or grazing additional livestock. Nonmonetary concerns are also a part of farmers’ crop production and nutrient management decisions. Some farmers may be predisposed to par- ticipate or not based on attitudes or levels of formal education, and some may perceive higher benefits and lower costs for participation than other farmers. In addition, if a farmer or society views the incentive program’s objective favorably, participation is more likely. For the entity providing the incentives, therefore, the question is how to set the incentives at levels sufficient to generate adequate participation, without overpaying. This valuation issue explains why there is increasing interest in devices such as

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY auction-based payments, which enlist farmers predisposed to participate at lower incentive cost than those who have to be compensated more to participate. The USDA land and water conservation programs have benefited farm- ers and ranchers and resulted in some environmental improvements (SWCS and Environmental Defense, 2007); however, better targeting will be nec- essary to realize further substantial improvements in water quality as it is affected by agriculture. The suite of USDA programs aimed at farmers and ranchers clearly needs to be applied more effectively in order to realize ad- ditional reductions in nonpoint source pollution in the Mississippi River basin (GAO, 2003). Improved coordination between the USDA, the EPA, and the states clearly can achieve more effective management of nonpoint water pollu- tion sources from agricultural lands. There exist good examples of where cooperation on farming systems, nutrient management, tillage practices, and water quality monitoring has yielded improvements in water quality. Illustrative of these from within the upper Mississippi River basin are the programs and activities promoted by the Iowa Soybean Association, or ISA (Box 6-6). The ISA is not a federal program, but it demonstrates the many linkages among agriculture and water quality, at different spatial scales, and how collaborative efforts among farmers and water quality experts can produce additional benefits for both agriculture and water quality. POTENTIAL IMPACTS OF BIOFUELS PRODUCTION The potential for additional nonpoint source pollution from the ex- pansion of bioenergy crop production illustrates the need for improved nonpoint source pollution control. Expanded biofuel production, especially ethanol, has the capacity to increase both sediment and nutrient loadings in the Mississippi River. The key drivers of such increases are as follows: • Ethanol plant construction and increased production of ethanol have greatly increased the demand for corn. • Increased prices for corn and other substitute crops create strong production incentives and dilute the attractiveness of voluntary conserva- tion payments. High corn prices also potentially reduce the influence of cross-compliance if farmers do not have to join price support programs. Corn prices increased from about $2 per bushel in the fall of 2006 to more than $4 per bushel in early 2007 (USDA, 2007b). This price increase is unprecedented and is being driven primarily by anticipated increases in the use of corn in ethanol production in 2007 and 2008. • There likely will be increased land across the Mississippi River

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 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT BOX 6-6 The Iowa Soybean Association: Programs for Reducing Nonpoint Source Impacts on Water Quality The Iowa Soybean Association, established in 1964, develops policies and programs designed to help farmers expand profit opportunities and operational efficiencies while promoting environmentally sensitive production methods. ISA is governed by an elected board of 21 volunteer farmers and serves about 6,000 members in Iowa. ISA sponsors initiatives designed to help improve production and profitability, including market development for soy foods, soy biodiesel and bio-based products, and an on-farm network that helps evaluate in-field products and practices. ISA’s agronomic and environmental programs address whole farm- ing systems, including nutrient management and pest control in corn and soybean production, integration of livestock and manure management in crop production, tillage practices, and energy management. ISA environmental programs encompass three primary initiatives: Certified En- vironmental Management Systems for Agriculture (CEMSA), watershed manage- ment programming, and an On-Farm Network™. These initiatives aim to develop, apply, and promote programs that assist producers in increasing productivity and efficiency and that enhance agriculture’s ability to measure and improve environ- mental performance. All rely on the principles and practices of applied evaluation (collection of site-specific data) and adaptive management (integration of data into management decisions for continual improvement). The ISA watershed program involves planning at the watershed level and ex- tends to include farm operational level issues and field-level considerations. ISA promotes a philosophy of integrating various activities among at least a majority of production acres across a given watershed in order to realize water quality gains. The goal of this philosophy is to improve sustainable production on working lands and further mitigate nonpoint source pollution through targeted placement of buffers and wetlands. ISA works with farmers to help gather and evaluate water quality data to characterize waters, identify trends over time, identify emerging problems, assess the effectiveness of control programs, and direct pollution con- trol activities to areas in which they will have the greatest effect. The On-Farm Network involves field trials of different management approaches for improved agricultural production and environmental performance. It provides a mechanism for testing and demonstration of best management practices. The program’s main focus has been on nitrogen management in corn production. In the growing seasons since 2000 when the program began, ISA has coordinated field trials with participating farms to help reduce nitrogen application rates and modify nitrogen application timing, method, and form. Data from the field trials have been compiled and evaluated by ISA, with the results disseminated to farm- ers and state and federal agencies. The On-Farm Network program serves as an example of the kind of nonregulatory initiative for agricultural process improve- ment that can lead to reduced nonpoint source impacts on water quality. SOURCE: Adapted, with permission, from Iowa Soybean Association (2007). © 2007 from the Iowa Soybean Association.

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY basin under cultivation, including potential CRP land going back into crop production to increase total crop acres. This possibility already concerns a number of wildlife groups interested in the wildlife benefits of CRP (Brasher, 2006). Moreover, the additional land that farmers would bring into production would be more marginal than lands currently in produc- tion. Spring 2007 planting intentions indicate more than 10 million ad- ditional acres of corn for 2007. This increase in corn will come primarily from decreased soybean acres, but also from decreases in acres planted in wheat and cotton. Continuous corn will replace corn-soybean rotations in many cases. While there was traditionally a 50-50 corn-soybean rotation in the upper Midwest, a 60-40 rotation is being projected. Greater nitrogen leaching from the increased corn production will be a major concern. This trend toward increased corn production is not limited to the Corn Belt region: large areas of agricultural land in the Mississippi River delta region are being converted from cotton to corn, for example, and acreage planted to corn is also projected to increase in some Eastern states. • Increased continuous corn production, as opposed to traditional corn-soybean crop rotation, will have negative effects on water quality. To maintain yields that were achieved under traditional crop rotation prac- tices, continuous corn production requires more fertilizer and often more erosive tillage systems (Vyn, 2007). A large block of CRP contracts was due to expire in 2007 releasing land for possible crop production. Because of administrative staffing limitations, USDA decided to let farmers re-enroll land (ahead of contract expiration) that had contracts expiring in 2007-2010 for varying time periods if the land provided sufficiently high environmental benefits. Well over 80 percent of the 27.8 million acres with contracts expiring during this period were re-enrolled starting early in 2006. Much of the re-enrollment occurred be- fore the tremendous run-up in corn prices during the 2006 fall harvest and subsequent high prices in 2007 that would have discouraged re-enrollment. Thus, only a small number of acres will be released from contract that might enter crop production from the CRP. There are currently some 4 mil- lion to 7 million acres that could support corn or soybean production now in the CRP that might come out eventually for that purpose. SUMMARY Runoff from agricultural lands is the primary nonpoint source of nutri- ents and sediments to the Mississippi River and the Gulf of Mexico. There is an inherent conflict between agricultural production and improving water quality in the Mississippi River. The USDA’s traditional agricultural com-

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 MISSISSIPPI RIVER WATER QUALITY AND THE CLEAN WATER ACT modity programs tend to encourage more production and more intensive production. Although the Clean Water Act does not authorize command-and- control regulation for nonpoint sources such as agricultural lands, the USDA has instituted programs to reduce the water quality impacts of agriculture. Through these programs, the USDA is the key organization in managing agricultural nonpoint source pollution. These voluntary, in- centive-based programs include the Conservation Reserve Program, the Environmental Quality Incentive Program, and the Conservation Security Program. The programs aim to balance incentives for crop production with incentives for land and water conservation on farms and ranches. Participation is voluntary, but there are financial incentives for implemen- tation of best management practices. The national financial investment in and the scope of these USDA programs is large. It is imperative that these USDA conservation programs be aggressively targeted to help achieve water quality improvements in the Mississippi River and its tributaries. Current application of USDA environmental protection programs is not well targeted to the most significant sources of land degradation and water pollution, but targeting could be much improved through interagency coordination. Because not all farm fields across the Mississippi River basin contribute equal amounts of nutrients and sediments that eventually make their way to the river, water quality protection programs need not be imple- mented in every watershed and on every farm. Programs aimed at reducing nutrient and sediment inputs should include efforts at targeting areas of higher nutrient and sediment deliveries to surface water. The EPA and the USDA should strengthen their cooperative activi- ties designed to reduce impacts from agriculture on the water quality of the Mississippi River and the northern Gulf of Mexico. Management of nutrient and sediment water inputs and other water quality impacts will require site-specific, targeted approaches involving BMPs. Existing USDA programs provide vehicles for implementing agricultural nonpoint source controls, but they will require closer coordination with the EPA and state water quality agencies to maximize water quality improvements. The EPA could provide assistance to the USDA to help improve targeting of the significant funds expended in the CRP, EQIP, and CSP programs. The EPA and the USDA should draw on the considerable expertise and data of the USGS in implementing programs that include water quality monitoring components. The prospects of greatly expanded bioenergy production and robust commodity markets are encouraging producers to extend and intensify crop production across the upper Mississippi River basin. Much of this ex- panded production is in corn, which entails high rates of fertilizer applica- tion and intensive soil tillage. As a result, nutrient and sediment runoff from

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 AGRICULTURAL PRACTICES AND MISSISSIPPI RIVER WATER QUALITY agricultural land in the upper Mississippi River basin is likely to increase. This state of affairs provides an even stronger rationale to implement with urgency the targeted application of USDA conservation programs, to im- prove and expand EPA-USDA coordination for nonpoint pollution control programs, and to devise and implement other initiatives to mitigate the adverse effects of nutrients and sediments on the Mississippi River and the Gulf of Mexico.