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FARM BILL: Definitions take on new importance

Agricultural use – Refers to cropland: planted to an agricultural crop, used for haying or grazing, idled for weather-related reasons or natural disasters, or diverted from crop production to an approved cultural practice that prevents erosion or other degradation.

Base acreage (or crop acreage base) – A farm’s crop-specific acreage of wheat, feed grains, upland cotton, rice, oilseeds, or peanuts eligible to participate in commodity programs under the 2002 law. Base acreage includes land that would have been eligible to receive production flexibility contract (PFC) payments in 2002 and producers of other covered commodities (oilseed and peanut producers). Producers had the option to choose base acres to reflect contract acreage that would otherwise have been used for 2002 PFC payments or to update base acres to reflect the four-year average of planted plus prevented from planting for the commodity during the 1998 to 2001 crop years. Producers must select one of the two options for all covered commodities, including oilseeds.

Commodity certificates – Payments issued by the Commodity Credit Corp. (CCC) in lieu of cash payments to participants in farm subsidy or agricultural export programs. Holders of certificates are permitted to exchange them for commodities owned by the CCC. Certificates were used not only to compensate program beneficiaries but also to reduce the large, costly, and price-depressing commodity surpluses held by the CCC during the mid-1980s.

Commodity loan rate – The price per unit (pound, bushel, bale, or hundredweight) at which the Commodity Credit Corp. provides commodity-secured loans to farmers for a specified period of time.

Conservation plan – A combination of land uses and farming practices to protect and improve soil productivity and water quality, and to prevent deterioration of natural resources on all or part of a farm. Conservation plans for conservation compliance must be both technically and economically feasible.

Conserving use acreage – Farmland diverted from crop production to an approved cultural practice that prevents erosion or other degradation. Though crops are not produced, conserving use is considered an agricultural use of the land.

Considered planted – Refers to a provision of the Agricultural Act of 1949 that was used to implement the base acreage and yield system for 1991-95 crops, a provision suspended by the FAIR Act of 1996. Acreage considered planted includes acreage idled for weather-related reasons or natural disasters; acreage devoted to conservation purposes or planted to certain other allowed commodities; and acreage USDA determines is necessary to include for fair and equitable treatment.

Contract acreage – Land voluntarily enrolled in a production flexibility contract (PFC) under the 1996 Act. Land was eligible for the PFC enrollment if it had attributed to it at least one crop acreage base for a contract crop that would have been in effect for 1996 under previous farm law, prior to its suspension by the 1996 Act. A farmer could voluntarily choose to reduce contract acreage in subsequent years. Upon leaving the Conservation Reserve Program, base acreage under previous farm law could be entered into a production flexibility contract. Otherwise, the maximum amount of contract acreage was established during the one-time sign up for the PFC in 1996.

Contract crops – Crops eligible for production flexibility contract payments under Title I of the 1996 Act: wheat, corn, sorghum, barley, oats, rice, and upland cotton.

Counter-cyclical payment – Counter-cyclical payments are available to eligible commodities under the 2002 Farm Act whenever the effective commodity price is less than the target price. The effective price is equal to the sum of 1) the higher of the national average farm price for the marketing year, or the commodity national loan rate and 2) the direct payment rate for the commodity. The payment amount for a farmer equals the product of the payment rate, the payment acres, and the payment yield. Payments are considered counter-cyclical since they vary inversely with market prices.

Crop year (marketing year) – The 12-month period starting with the month when the harvest of a specific crop typically begins. The 1998 wheat crop year, for example, is June 1, 1998, through May 30, 1999. The amount harvested during this time is then considered the “1998 crop.”

Decoupled payments – Government program payments to farmers that are not linked to the current levels of production, prices, or resource use. When payments are decoupled, farmers make production decisions based on expected market returns rather than expected government payments.

Direct payment – Fixed payments provided under the 2002 Farm Act for eligible producers of wheat, corn, barley, grain sorghum, oats, upland cotton, rice, soybeans, other oilseeds, and peanuts. Producers enroll annually in the program to receive payments based on payment rates specified in the 2002 Farm Act and their historic program payment acres and yields.

Loan deficiency payments – A provision initiated in the Food Security Act of 1985 giving the Secretary the discretion to provide direct payments to wheat, feed grain, upland cotton, rice, or oilseed producers who agree not to obtain a commodity loan on their production for a particular crop year. Loan deficiency payments (LDP) continue to be available for all loan commodities except ELS cotton. The LDP provision is applicable only if a marketing loan provision has been implemented; in which case a commodity loan may be repaid at a price less than the original loan rate (the repayment rate). The intent of these two provisions is to minimize the accumulation of stocks by the government, minimize the costs of government storage, and to allow U.S. commodities to be marketed freely and competitively. The LDP payment amount is determined by multiplying the local marketing loan payment rate by the amount of the commodity eligible for a loan. The marketing loan payment rate at a point in time is the announced local commodity loan rate minus the then current local repayment rate for marketing loans.

Market loss assistance payments – Payments authorized by emergency legislation in 1998-2001. Payments were made to recipients of production flexibility contract payments. Similar payments were also authorized for oilseed and dairy producers for selected years.

Marketing allotments – When in effect, provide each processor or producer of a specified commodity a specific limit on sales for the year, above which penalties would apply. Sugar allotments, for example, were authorized during 1991-95, but were suspended by the 1996 Act and then reauthorized under the 2002 Act.

Marketing loan program – Provisions first authorized by the Food Security Act of 1985 (P.L. 99-198) that allow producers to repay nonrecourse commodity loans at less than the announced loan rate whenever the world price or loan repayment rate for the commodity is less than the loan rate. Prior to 1985, commodity loans had to be repaid at the original loan rate, which often resulted in the accumulation of surplus commodities in government inventories. Marketing loan provisions are aimed at reducing government costs of stock accumulation. Marketing loan provisions were originally mandated only for rice and upland cotton. The secretary of agriculture had the option of implementing marketing loans for wheat, feed grains, soybeans, and honey under the 1985 Act and the subsequent farm acts. The 1996 Act mandates that marketing loan provisions be implemented for feed grains, wheat, rice, upland cotton, and all oilseeds. The 2002 Act established marketing loan provisions for peanuts, chickpeas, lentils, dry beans, wool, mohair, and honey.

Non-recourse loan program – Provides commodity-secured loans to producers for a specified period of time (typically nine months), after which the producer may either repay the loan and accrued interest or transfer ownership of the commodity pledged as collateral to the Commodity Credit Corp. (CCC) as full settlement of the loan, without penalty. These loans are available on a crop year basis for wheat, feed grains, cotton, peanuts, tobacco, rice, and oilseeds. Sugar processors are also eligible for non-recourse loans. Participants in commodity loan programs agree to store and maintain a certain quantity of a commodity as loan collateral, for which they receive loan funds from the CCC-based on the announced commodity-specific, per-unit loan rate. The loans are called non-recourse because, at the producer’s option, the CCC has no recourse but to accept the commodity as full settlement of the loan. For those commodities eligible for marketing loan benefits, producers may repay the loan at the world price (rice and upland cotton) or posted county price (wheat, feed grains, and oilseeds). Some commodity loans are recourse loans, meaning producers must pay back the loans in cash.

Oilseeds – Soybeans, sunflower seed, canola, rapeseed, safflower, mustard seed, and flaxseed.

Other Oilseeds – Sunflower seed, canola, rapeseed, safflower, mustard seed and flaxseed.

Payment acres – Equal to 85 percent of the base acres for calculating direct and counter-cyclical payments under the provisions of the 2002 Farm Act.

Payment limitation – The maximum annual amount of commodity program benefits a person can receive by law. Persons are defined under payment limitation regulations, established by USDA, to be individuals, members of joint operations, or entities such as limited partnerships, corporations, associations, trusts, and estates that are actively engaged in farming. The 2002 Farm Act sets payment limits at $40,000 per person per fiscal year for direct payments, sets a limit of $65,000 for counter-cyclical payments, and limits marketing loan benefits to $75,000. The three-entity rule limits the number of farms from which a person can receive program payments. Producers with adjusted gross income of over $2.5 million, averaged over three years, are not eligible for payments, unless more than 75 percent of adjusted gross income is from agriculture.

Payment yield (also called program yield) – Farm commodity yield of record (per acre), determined by a procedure outlined in legislation. Payment yields for direct payments are unchanged since 1985. Under the 2002 Farm Act, producers could update payment yields for counter-cyclical payments during the initial enrollment in 2002 by adding 70 percent of the difference between program yields for 2002 crops and the farm's average yields for the 1998-2001 to program yields, or by using 93.5 percent of 1998-2001 average yields.

Posted county price (PCP) – Calculated for wheat and feed grains for each county by the Farm Service Agency, the PCP reflects price changes in major terminal grain markets (of which there are 18 in the country) corrected for the cost of transporting grain from the county to the terminal. It is utilized under the marketing loan repayment provisions and loan deficiency payment provisions of the wheat and feed grains commodity programs. Rice and cotton use an adjusted world price as the proxy for local market prices.

Prevented planting acreage – Land on which a farmer intended to plant a program crop or insurable crop, but was unable to do so because of drought, flood, or other natural disaster. Used in the calculation of disaster payments and crop insurance indemnity payments.

Production flexibility contract (AMTA) payments – Payments to farmers during 1996-2002 who enrolled "contract acreage," under Title I, Subtitle B of the 1996 Act. The annual total amount was first determined for all contract crops combined (wheat, rice, feed grains, and upland cotton), and this total was then allocated to specific crops based on percentage allocation factors established in the 1996 Farm Act. Each participating producer of a contract crop received payments equal to the product of their production flexibility contract payment quantity and the national average production flexibility contract payment rate.

Production flexibility contract payment rate – The amount paid to farmers per unit of participating production under the 1996 Act. A farm’s contract acreage and farm program payment yield was established in 1996 during the sign-up period. A national average payment rate per unit for each crop was calculated each year based on the then total participating production (production flexibility contract quantity) and the total amount to be paid out for each crop, largely predetermined by the 1996 Act.

Production flexibility contract payment quantity – The quantity of production eligible for production flexibility contract payments under the 1996 Act. Payment quantity is calculated as the farm’s program yield (per acre) multiplied by 85 percent of the farm’s contract acreage.

Program crops – Crops for which federal support programs are available to producers, including wheat, corn, barley, grain sorghum, oats, extra long staple and upland cotton, rice, oilseeds, tobacco, peanuts, and sugar.

Program payment yield – The farm commodity yield of record (per acre), determined by a procedure outlined in legislation. Previous law allowed USDA to make individual farm program yields equal to the average of the preceding five years’ harvested yield (dropping the highest and lowest yield years). This provision has not been implemented in recent years. Program yields continue to be frozen at 1985 levels.

Recourse loan program – A provision allowing farmers or processors participating in government commodity programs to pledge a quantity of a commodity as collateral and obtain a loan from the Commodity Credit Corp. (CCC), subject to the condition that the borrower must repay the loan with interest within a specified period. This is unlike the condition with nonrecourse loans whereby producers may settle their loans by giving the collateral to the CCC.

Safety net – A policy that ensures a minimum income, consumption, or wage level for everyone in a society or subgroup. It may also provide people (businesses) with protection against risks, such as lost income, limited access to credit, or devastation from natural disasters.

Target price – Prices established in the 2002 Farm Act used for calculating counter-cyclical payments (CCPs) for wheat, corn, grain sorghum, barley, oats, rice, upland cotton, oilseeds, and peanuts. Target prices are fixed for 2002-03 and then raised to fixed level for 2004-07, except for soybeans and rice, which remain at the 2002-03 levels. Prior to 1996 target prices were used to calculate deficiency payments.

Tariff-rate quota (TRQ) – An import restriction system based on tariffs and quantity quotas agreed to in the Uruguay Round Agreement on Agriculture. A certain quantity of imports, called the quota amount, is allowed to enter a country after payment of a relatively low tariff. A higher, over-quota tariff is imposed for imported quantities above the quota amount.

Three-entity rule – Limits the number of farms from which a person can receive program payments. Under the rule, an individual can receive a full payment directly and up to a half payment from two additional entities.

For more information, go to the USDA’s Economic Research Service Web site:

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