USDA has released the final rule for implementation of the 2014 Farm Bill’s “actively engaged” provision that governs commodity program payment limitations. This final rule governs the ability of non-family partnerships and joint ventures to qualify for hundreds of thousands of dollar of extra federal subsidy payments.

This is one of the last final rules from the 2014 Farm bill to be released, nearly two years after passage of the law.

We are disappointed that USDA rejected our recommendation to use its long existing authority alongside the special 2014 Farm Bill’s directives to address glaring weaknesses with the current payment limit enforcement system. By not addressing the loopholes in a comprehensive way, USDA has missed an opportunity to address the long-standing ills of the payment limit system.

The final rule takes a few good steps in the direction of real reform, but then fails to apply them in a meaningful way. Given the small scope of this final rule, the improvements will have little impact, though they could be important raw materials for a future Administration that had the courage to take on the mega farm lobby and end payment limit abuse.

Yesterday, NSAC issued a press comment expressing a disappointment in USDA’s decision not to pursue comprehensive reform.

NSAC Comments on Proposed Rule

In May NSAC submitted comments on USDA’s draft actively engaged rule. In our comments we encouraged USDA to overhaul of the actively engaged rules for all farms to create fair and effective limitations on the subsidies taxpayers provide to commodity farms.

We supported applying a single payment limit to each farming operation, regardless of the operation’s size or business structure. The NSAC recommendations would effectively cap payments at $125,000 per farm ($250,000 in the case of married couples), as stipulated by the 2014 Farm Bill, and apply that cap to both family farms and giant general partnerships and joint ventures whose structure includes partners and passive investors unrelated by blood or marriage.

This final rule amounts to very little real reform, missing the best chance yet for USDA to make good on President Obama’s number one agricultural policy platform proposal. In his Real Leadership for Rural America platform statement, then Candidate Obama promised to close the very subsidy loophole this final rule keeps wide open. This is the second time the Obama Administration has failed to fulfill the Obama campaign commitment, have previously failed to close the regulatory loopholes back in 2010.

2014 Farm Bill Section 1604

Section 1604 of the 2014 Farm bill instructed USDA to define a “significant contribution of active personal management” and consider limits on the number of farm managers qualifying for extra payment limits while exempting family only operations from the new definitions and any limits.

Nothing in the 2014 Farm Bill prevents USDA from using its existing authority — which USDA has had since 1987 when the actively engaged rules were first created to address payment limit loopholes — to undertake comprehensive reform. Yet, the final rule makes clear that USDA has chosen not to use its authority to address the loopholes in the current system.

Instead USDA has stuck to a narrow interpretation of Section 1604 and ignored an opportunity to close the loopholes that let mega farms collect nearly unlimited subsidies.

What the Final Rule Says

This final rule mirrors closely the draft rule released in March of 2015. In the words of USDA:

No major changes are being made in response to comments, because FSA has determined that the comments support the definitions and requirements for “actively engaged in farming” specified in the proposed rule and support limiting eligibility for farm payments.

The final rule applies the new payment eligibility requirements only to general partnerships or joint ventures that (a) include business partners unrelated by blood or marriage and (b) who do not actually work the farm. USDA admits that this rule will cover less than four percent of farm operations. All other farms – the vast majority – would be subject to the current rules that contain no effective limits on payments. Moreover, any mega farms that are currently organized as partnerships that might potentially be limited by the new rules can be fairly easily re-organized with extended family members taking the place of unrelated partners, thus negating the impact of the rule.

Moreover, the final rule allows “large” (more than 2,500 acres according to the rule) and “complex” (more than one crop or enterprise) farms operated as general partnerships or joint ventures to receive three (six if they all have spouses) additional $125,000 annual payments. These payments would not based on need, but rather on size and “complexity”, which are two factors not contained in 2014 Farm Bill and not in line with the historical goals of our farm programs — to provide modest assistance to help family farms weather years with sharp price or income declines.

Counting the actual farm operators (and spouses), the new limit for large and “complex” partnerships is easily over $1 million a year, hardly anyone’s definition of reform — other than of course those who have long opposed reform and thus fought hard for regulatory loopholes and found willing partners at USDA.

What the Final Rule Got Right

The final rule defines active personal management for these additional farm managers as 500 hours of management or at least 25 percent of the total management required. It is a major step forward for USDA to include this quantifiable standard in the final rule, as the lack of any quantifiable standard has been at the root of payment limitation abuse for decades.

The rule also includes a list of qualifying management activities, which excludes passive management activities, and includes a requirement that managers keep records of their management activities. These new critical anti-abuse tools should be extended beyond the small sliver of farms impacted by this final rule.

NSAC does also appreciate USDA’s rejection of several proposals made by those representing mega farms that benefit from weak actively engaged rules. Those commenters requested:

• The elimination of the cap on farm mangers;
• Delayed implementation to give mega farms time to reorganize to avoid the rule;
• The inclusion of non-lineal family members in the definition of family farm;
• The elimination of quantifiable requirements for “active personal management;” and
• The elimination of record keeping requirements for management activities.

Despite rejecting these proposals and including the few important elements of reform, the final rule applies the reforms in a way that yields no actual change to persistent payment limitation abuse.  The major real world effect of the new rule will be causing some large general partnerships to reorganize their business structures in order to continue to receive nearly unlimited subsidies.

For all its failings, this rule does lay the groundwork for a real effort to target federal farm subsidies to the family farms that most in need. The inclusion of a quantifiable definition of active personal management, record keeping requirements, and the specific exclusion of passive management activities are important ingredients needed for an effective payment limits regime should a future Administration take up the cause of real reform.