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Corn+Soybean Digest

Farm Payment Limits Legislation Introduced, Targeting Small and Mid-Sized Farmers

Sens. Chuck Grassley (R-IA) and Russ Feingold (D-WI) introduced legislation on Aug. 4, 2010, to establish more stringent farm program payment limits and close legal loopholes that render current statutory limits meaningless. The bill would establish a limit of $250,000 for farm program payments to any individual in an attempt to better target farm program payments to family farmers. The legislation would save the federal treasury more than $1 billion over ten years, conservatively.

"We applaud the Senators for introducing this legislation," says Chuck Hassebrook, executive director of the Center for Rural Affairs. "As we've said many times, the single most effective thing Congress could do to strengthen family sized farms is to stop subsidizing mega-farms to drive their smaller neighbors out of business. By placing effective caps on farm program payments and preventing mega-farms from gaming the system, this legislation would accomplish that crucial end."

According to Hassebrook, the bill caps direct payments at $40,000, counter-cyclical payments at $60,000 and marketing loan gains (including forfeitures), loan deficiency payments and commodity certificates at $150,000 annually. The bill also closes loopholes that individuals use to evade current statutory limits. And the bill improves the standard the USDA uses to determine whether farmers are actively engaged in their operations.

"The bill would tighten rules that are supposed to limit payments to active farmers who work the land and their landlords. Current law is weak. Investors who participate in one or two conference calls are considered active farmers, allowing mega-farms to get around payment limitations by claiming uninvolved investors as partners," Hassebrook explaines.

Sen. Grassley has sponsored similar legislation previously and offered similar language in both of the last two farm bill debates, securing passage of the amendment in the Senate bill in 2008 but subsequently losing the language in the House-Senate conference committee.

"Rural America cannot continue to withstand the pressure that unlimited payments create. The farm program was never intended to help big farmers get bigger, instead it was created to help those who couldn't withstand the political whims of Washington or the fierce reckonings of Mother Nature," Grassley says. "When 10% of the nation's farmers receive more than 70% of the payments, it erodes public confidence in federal farm programs, and this legislation is one way to stop that trend from growing."

For most of the last decade, Sen. Byron Dorgan (D-ND) co-sponsored payment limits legislation and amendments with Grassley. However, due to his retirement from the Senate after this year, Sen. Feinfold joined Grassley in co-sponsoring the bill in Dorgan's stead.

"For too long large agribusinesses and non-farmers have gamed the limits on farm subsidy programs, taking limited and critical resources better used to support our family farmers that are facing numerous challenges in the current economic climate," Feingold says. "I have enjoyed working with Sen. Grassley to ensure fair competition and contract terms for our farmers and I am pleased to collaborate with him again on this important issue for farmers and taxpayers. Our legislation is a common sense, bipartisan approach to support Wisconsin family farms, while saving taxpayer dollars."

Sens. Grassley and Feinfold also released a summary of the Rural America Preservation Act of 2010, which includes the following:

Limit annual per farm commodity subsidy payments to $250,000. The amendment would establish effective caps of $40,000 on direct (fixed) payments, $60,000 on counter-cyclical payments and $150,000 on loan deficiency payments and marketing loan gains, including gains on generic certificates and forfeited commodities. The nominal limits would be half these amounts. The combined limit would be $250,000 (see note [i] below). These limits would be reduced by varying amounts depending on the farmer's participation in ACRE, essentially setting the payment limitations at the effective caps, less the reductions in direct payments and marketing loan gains.

Simplify the complicated legal games now played to avoid the limitation. Qualifying for the maximum legal payment would be greatly simplified. An individual who participates in just one farming operation could receive double the nominal limit. That would reduce farmers' legal costs by allowing them to receive the maximum payment without hiring a lawyer to restructure the farm. The spouse equity rule is retained in its entirety. Married couples who qualify under the spouse rule would receive up to twice the nominal payment limitations, as under current law.

Close loopholes. All payments will be tracked through entities and partnerships directly back to the individual who is the ultimate beneficiary. All payments would count toward an individual's limit, whether received directly or through a corporation or other type of entity. All beneficial interests in an entity would be subject to payment limitations, making it more difficult to create "paper" farms for the purposes of exceeding the limits.

Ensure that payments flow to working farmers. Current law attempts to target payments to working farmers. However, as explained in the final report of the USDA Payment Limitation Commission and as demonstrated by the 2004 Government Accountability Office Report, the lack of a defined active management test in law and regulation is a major loophole facilitating huge payments. The amendment improves the "measurable standard" by which USDA determines who should and should not receive farm payments. It requires that management be personally provided on a regular, substantial, and continuous basis through direct supervision and direction of farming activities and labor and on-site services. The combined labor and management standard is 1,000 hours annually or 50% of the commensurate share of the required labor and management. Landowners who share rent land to an actively engaged producer remain exempt from the "actively engaged" rules provided their payments are commensurate to their risk in the crop produced (see note [ii] below).

[i] In comparison, under current law the cap on direct payments and counter cyclical payments is $80,000 and $130,000, respectively, and there is no effective cap on loan deficiency payments and marketing loan gains, and hence no effective total limitation.

[ii]Under current law and regulation, to qualify as actively engaged with respect to labor, an individual must perform at least 1,000 hours of work on the farm. Alternatively, an individual may contribute management rather than labor, and management is not defined in any quantifiable, measurable way in existing law or regulation. This "management" loophole has been used creatively by many of the largest farming entities in the country as the key to creating farm partnerships with multiple "paper" partners each qualifying as active farmers eligible to collect payments, allowing a single farming operation to collect in some cases millions of dollars. GAO has documented instances in which such partners have qualified as active farmers by doing no more than participating in twice annual conference calls.

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