Proposed Large Farm Payment Limitations Need Tweaking

April 2009 Newsletter

The Obama Administration proposal to reduce payments to large farms is a significant step in the right direction, but it needs some work. To its credit, the administration calls for a $250,000 limit on total payments.

That reflects the proposal by Senators Byron Dorgan (D-ND) and Chuck Grassley (R-IA) to close loopholes and create enforceable limits of $40,000 on direct payments, $65,000 on counter cyclical payments, and $150,000 on loan deficiency payments. The Dorgan-Grassley bill is the leading payment limitation proposal before the Congress. Active support by the administration could make the difference in moving it forward.

But a different approach is needed on the administration proposal to trim direct payments – the payments made even when crop price are good. The administration would eliminate direct payments to any farm with sales of over $500,000. That would cut out even midsize farms, such as 100 cow dairies and 1,000 acre corn-soybean operations.

There are better ways to trim spending that clearly strengthen midsize farms. In addition to passing Dorgan-Grassley, Congress could further trim the limit on direct payments during times of high crop prices down from $40,000 to $20,000 or even $10,000.

That would save real money and remake direct payments as a tool to maintain a rural base of small and midsize farms. It would reduce pressure from large farms on cash rents and land prices, which would improve margins for smaller operations. It would bring back more young farmers.

Second, put some real teeth in the income limits on farm program participants. Currently, rich landlords who cannot get farm payments just switch to high dollar cash rents. The payments still end up in the landlords’ bank accounts after passing briefly through the farmers’.

We could save real money and reduce incentives for rich investors to buy farmland by eliminating half the payment on cash rented land owned by a high-income landlord. Technically, the tenant would take the cut. But it would come directly out of the rents that high-income landlords could charge, so the tenant would be no worse off.

It would reduce the incentive for rich landlords to switch to cash rents and for high-income investors to buy more land – which is looking increasingly attractive in light of the stock market meltdown.

These common-sense reforms would save money as they make farm programs work better to strengthen family-size farms.

Agree or disagree? Send your comments to Chuck Hassebrook, chuckh@cfra.org or 402.687.2103 x 1018.

Comments

Payment Limitations

Tue, 04/07/2009 - 11:30 — Bruce Jacobson (not verified)

Who's going to decide when things are good? Last year's record prices were mixed with record input costs followed by the drop in prices after the crop insurance prices were decided, I think you put the hard cap in place and live with it, just because the crop's were high doesn't mean all farmers were able to capture them. Some of us sat with corn boot high the first of July and short soybeans and didn't dare sell because it didn't look like we would have a crop to sell in the fall, we made a average crop but were faced with huge drying bills along with field's we couldn't get into until it froze, Finished corn harvest Feb. 18 2009. The hard cap also eliminates having the IRS determine what our farm income was and how to figure year end spending spree's. Bruce

payment limitations

Sat, 04/25/2009 - 15:20 — Chuck Hassebrook (not verified)

I propose that the direct payment limit be cut in half whenever the price of a commodity exceeds 110 percent of the target price (about $3.00 corn). That is very simple and based on current law. If we could get a hard cap at a reasonable level, I would agree with setting it and leaving it in place year in and year out. But the practical cap for direct payments is now 80,000 - enough in a typical instance for 4,000-5,000 acres of corn and beans. We keep trying to get it lower, but the best we could hope for is to get it down to 40,000.

All commodity support schemes

Tue, 04/07/2009 - 11:54 — Philip (not verified)

All commodity support schemes should be means tested to eliminate welfare for any who do not need it. Medicaid, food stamps, and general assistance are all limited to those truly in need.

Payment Limitations

Sat, 04/25/2009 - 15:27 — Chuck Hassebrook (not verified)

Philip, I approach it a little differently. I see targeted payments as a means of maintaining a family farm structure of agriculture. That is why I favor a hard payment cap, which provides payments on a limited volume of production that is enough to support a family and farm efficiently, but subsidizes no one to grow beyond that size. Basing it soley on low income would not necessarily serve that purpose. Thanks for writing. Chuck

Graduated Limit and Cash Leases

Sat, 04/11/2009 - 09:31 — Bill Harshaw (not verified)

I think a graduated payment limitation along the lines of the European Union's might work better. For example, if the AGI is less than $10X, pay 100 percent of the payment. If the AGI is between $10X and $50X, pay 80 percent of the the payment. And so forth. I may misinterpret your comment about cracking down on cash lease. How do you limit a farmer's ability to pay a cash rent? Kick him out of the program?

payment limitations

Sat, 04/25/2009 - 15:33 — Chuck Hassebrook (not verified)

Bill, I agree. The graduated payment approach you describe would be ideal. If our Congress were less in touch with the Washington farm lobby and more in touch with the majority of farmers, they would be looking at that. We could do two things in payment limits that would prevent cash rents from getting pushed so high. An effective payment limitation would help, because agressive, expansion oriented big farms are the primary drivers of cash rent - and they bid every nickel of farm program payments into their cash rent bids. The other thing that I propose is to eliminate half the tenants' federal farm payment on land owned by high income investors. I would just deny the tennant half the payment on the land owned by rich investors. They would have to reduce their cash rents to get the land farmed. The landowners end up with the payment anyway through inflated rents. Reduce the payment on land owned by rich investors, and they will have to lower rents. Thanks for writing. Chuck Hassebrook

Family farms can survive

Wed, 04/29/2009 - 10:52 — Philip (not verified)

Family farms can survive without handouts, if they don't grow commodity crops. The subsidies, no matter how large, just keep small operators on a treadmill doing something they can never succeed at.