Focusing Farm Payments on Small and Medium-Sized Farmers

Press Release from
Grassley, Feingold Introduce Legislation to Focus Farm Payments on Small and Medium-Sized Farmers
WASHINGTON – Senators Chuck Grassley and Russ Feingold have introduced legislation to close loopholes that are being used to game the farm payment system and target payments to actively engaged farmers who need assistance getting over the bumps that come with ensuring a safe and abundant food supply. The legislation would set a limit of $250,000 for farm payments in an attempt to better target farm program payments to family farmers.  The legislation would save the federal treasury more than $1 billion over 10 years. “Rural America can’t 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 said. “When 10 percent of the nation’s farmers receive more than 70 percent of the payments, it erodes public confidence in federal farm programs, and this legislation is a way to stop that trend from growing.”

“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 who are facing numerous challenges in the current economic climate,” Feingold said.  “I have enjoyed working with Senator 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.”
Specifically, 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.  It also closes loopholes that people are using to maximize their take from the federal government.  The bill also improves the standard which the Department of Agriculture uses to determine farmers who are actively engaged in their operations.
Here is a summary of the Grassley-Feingold Rural America Preservation Act of 2010.
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. (I)    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. (II)

(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.

The amendment combines labor and management into a single combined standard.  First, the amendment requires management contributions to be personally provided on a regular, substantial, and continuous basis through the direction supervision and direction of activities and labor involved in the farming operation, and on-site services that are directly related and necessary to the farming operation.  Second, the amendment requires the combined labor and management to equal or exceed 1,000 hours per year, or 50% of the commensurate share of the required labor and management.  The amendment also tightens the rules under which an entity may be considered to be actively engaged in farming, ensuring that, in order to receive payments, the majority of beneficial interests must be held by persons actively engaged in farming and their family members and that no individuals may use the creation of entities to collect more than the limitation.

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