2002 Farm Bill Proposals and Analysis

The payment limitation provisions of the farm bill are not reform. Rather, the new farm bill would provide the nation’s largest farms with an even bigger share of federal farm income support payments than they have received in recent years. This represents a marked retreat from the strong payment limitation reforms of the Senate farm bill.

The practice in recent years – under the combined provisions of 1996 farm bill and subsequent emergency legislation – has been to remove all limits on marketing loan gains through generic certificates and cap other income support payments at $160,000.

The farm bill agreement weakens those already permissive limits in two respects. First, by raising marketing loan rates, it shifts a larger share of income support payments to marketing loan gains – the form of payment on which there is no cap. Second, it raises the limit on other income support payments from $160,000 to $210,000 ($80,000 on fixed direct payments and $130,000 on counter cyclical payments).

As a result, the nation’s largest farms will receive multi-million dollar payments. Even the limits that do exist are raised to levels that accommodate all but the nation’s very largest farms. In the Midwest and Northern Plains, the limit on counter cyclical payments would affect only a fraction of one percent of the largest farms.

Acres Needed to Reach Proposed Fixed and Counter Cyclical Payments Limits *

	Fixed Direct Payment Limit	Fixed Direct Payment Limit	Counter Cyc. Payment Limit	Counter Cyc. Payment Limit
Commodity	Husband/Wife	Parents/2 Sons or Daughters	Husband/Wife	Parents/2 Sons or Daughters
Corn/Soybeans (50/50)	5,263	15,789	6,510	19,530
Cotton (67%) Wheat (33%)	3,368	10,104	3,022	9,066
Rice/Soybeans (50/50)	1,749	5,247	3,348	10,044
Wheat, Sunflower/Barley (50/40/10)	8,077	24,231	16,560	49,680
Cotton (CA)	1,321	3,963	1,043	3,129

* This assumes the national average yield for each commodity, except we use the state average yield for California cotton. Fixed and counter cyclical payments are calculated on 85 percent of base acres at 93.5 percent of actual yield, as provided by the farm bill agreement. We assume 16.67 percent of production and payments go to landlords, as would be the case when 1/3 of the farm operator’s land is rented on a 50/50 crop share.

Uncapped Payments to Large Farms Under the Farm Bill Agreement

Total annual income support payments to a 25,000-acre California cotton farm owned or cash rented by the operator under the farm bill agreement at current price levels would equal $8.4 million. The payment to that one farm would have been sufficient to fund the rural small business development program included in the Senate bill but omitted from the final agreement due to insufficient funds.

Payment Limitations: Current Law and Farm Bill Agreement Explained and Compared

The 1996 farm bill imposed effective limits of $80,000 on fixed "AMTA payments" and $150,000 on marketing loan gains.

The nominal limits were half those amounts - $40,000 and $75,000. A farmer could receive double the nominal limits by dividing the operation with his/her spouse or by using the three entity rule to divide the farm into three corporations – one in which he/she owned 100% interest and two in which he/she owned up to 50 percent of the interest.

Those limits were severely weakened in subsequent emergency legislation. The emergency legislation doubled fixed AMTA payments to up to $160,000 per farm. It instituted generic certificates for marketing loan gains that did not count toward the limitation. Producers who had reached the limitation on regular marketing loan gains could simply file a different form for generic certificates and receive unlimited payments.

The farm bill agreement would further weaken payment limitations in two respects. By raising the marketing loan rate, it would shift a greater share of payments to the payment category that has no limitation – marketing loan gains.

Second, it would increase the limitation on other payments. It would create new counter cyclical payments with a separate higher limit – in effect codifying the income stream that was provided by doubling fixed AMTA payments through annual emergency legislation. But whereas the supplemental AMTA payments were limited to an additional $80,000 per farm ($160,000 total), the cap on counter cyclical payments is more than 60% higher - $130,000 per farm ($210,000 total when combined with the $80,000 cap on fixed direct payments).

Whereas, the emergency legislation provided unlimited marketing loan gains and up to $160,000 of other payments, the farm bill agreement would provide unlimited marketing loan gains and up to $210,000 of other payments.

The Big Ruse: The farm bill agreement includes a $360,000 payment limitation - a compromise between the House and Senate Bills.

The Sad Truth: The farm bill agreement abandoned the reforms in the Senate Bill and includes no limitation on total payments. It does include an $80,000 cap on fixed payments and a $130,000 cap on counter cyclical payments. But it includes no limit on marketing loan gains.

The Senate Bill capped fixed and counter cyclical payments at $75,000 per farm and marketing loan gains at $150,000 per farm. It provided an additional $50,000 that could be applied to either of these caps when both spouses were involved in the operation. It included extensive reforms to prevent creation of paper farms and paper farmers to avoid payment limitations.

The House Bill included no such reforms. It included a phony $300,000 limit on marketing loan gains. In reality, it included no limit on marketing loan gains because it retained generic certificates through which large producers could receive unlimited payments. It placed limits of $100,000 on direct fixed payments and $150,000 on the new counter cyclical payments.

The final agreement is almost all House. It includes no reforms to prevent creation of paper farms and paper farmers. The only concession to the Senate is the slight drop in fixed direct and counter cyclical limits from $100,000 and $150,000 respectively in the House bill to $80,000 and $130,000.

The farm bill agreement created the façade of compromise and the façade of a $360,000 payment cap by dropping the phony limit on marketing loan gains from $300,000 to $150,000. But that is a ruse, because the agreement retains generic certificates making that limit meaningless. In truth, there is no limit on marketing loan gains.

For more information, contact Chuck Hassebrook, chuckh@cfra.org or Traci Bruckner, tracib@cfra.org.