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Commission suggests holding off on payment limitation changes

“While farm bills can be changed, their multi-year nature provides stability for production agriculture. Producers, their lenders, and other agribusiness firms make long-term investment decisions based on this multi-year legislation. If substantial changes are to be made in payment limits, payment eligibility criteria, or regulations administering payment limits, such changes should be part of the reauthorization of the next Farm Bill,” the Commission says.

What’s more, the group says, any changes in payment limitations should be phased-in slowly to avoid unnecessary disruptions in production, marketing, and business organization. Payment limitations shouldn’t create incentives for producers to choose a form of business organization that they wouldn’t normally choose in the absence of such limits, and individuals should only be eligible for payments if they are truly contributing in a “meaningful way,” to the operation. Associated regulations should also be meaningful, transparent, and simple, the Commission says.

Established by the Farm Security and Rural Investment Act of 2002, the Commission spent the last nine months studying the potential impacts of further payment limitations on farm income, land values, rural communities, agribusiness, planting decisions, and commodity market prices. The group is made up of nine producers and industry leaders, and Keith Collins, chief economist for the U.S. Department of Agriculture.

Released Sept. 3, the Commission’s 170-page report analyzes the effects of limiting the amount of money producers can receive from direct payments, counter-cyclical payments, and marketing assistance loan benefits.

“Each of these three payment programs has separate payment limits. The payment rates and the payment limits for each program were established in relation to one another for the program crops. This inter-relationship increases the complexity of changing payment and payment limit provisions,” the Commission says. “Payment limits are uniformly applied across commodities and regions, despite very different structural and economic situations. Further payment limits, if applied uniformly, would have very different effects across commodities and regions.”

To prevent that from happening, the Commission says, potential changes in payment limit policies and regulations should recognize these disparate and substantial regional and local effects.

Those regions that would potentially be the most impacted by further payment limitations include Arkansas, Louisiana, Mississippi, west Texas, and the rural areas of Arizona and California. It’s in those areas, the report says, where farm income is most dependent on payments, and the likelihood of producers being affected by further payment limits is highest. And for cotton and rice growers in those regions, further payment limitation restrictions would be even more painful.

One payment limitation issue dividing the Commission is the debate over marketing loan payment limitations.

While some commissioners believe the nonrecourse loan program is a fundamental component of the farm safety net, others say the loan program is an entitlement for all producers and for all production, regardless of farm size.

Those fighting to keep marketing loan benefits say the long-standing program is “essential to income stability and risk management.” It’s notable, they say, that marketing loan benefits are large only when prices are extraordinarily low. “Removing the safety net at such a time would lead to very adverse consequences for affected producers.”

Their adversaries in the debate say, “Payments should be maintained as far as possible for family-size operations. There is no public interest in providing benefits in excess of a reasonable level of income support for family-size operations.” They also question whether it is in the public interest to allow what they see as large operators influencing farmland values and rental rates with the use of government payments.

Commission members do agree that they would like to see program payments connected to individuals, instead of persons who could be individuals, corporations, or other entities. That, they say, would improve program transparency, program administration, and farm business efficiency.

Specifically, the group says payments could be attributed directly to an individual, but the individual would not have separate limits for payments received directly from the government, and from payments received through entities. Instead, existing limits would be combined into one limit per individual.

They give this example. “An actively engaged individual could receive up to $40,000 in direct payments made straight from the government to the individual. If the individual also has interest in any number of entities, and is actively engaged in agriculture in these entities, the individual could receive up to an additional $40,000 in direct payments made to the entities and attributed through them to the individual.”

The Commission is also in agreement that the Farm Service Agency and the Office of Inspector General are both substantially understaffed. “FSA county office staff have considerable workloads, and more resources could augment current efforts to train staff on payment limits and monitor compliance,” the report says.

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