NSAC's Blog


Most Want Real Farm Subsidy Reform, but Mega-Farms Want More Taxpayer Money

June 11, 2015


Our Analysis of Public Comments on USDA’s Actively Engaged in Farming Rule       

The public comment period on USDA’s proposed “Actively Engaged in Farming” rule recently closed. USDA will now sift through more than 80 comments received to write a final rule, that we hope will be with a commitment real reform.

The draft rule, while making some positive changes, left the door wide open for mega-farms to continue to collect millions in federal subsidy payments.

You can read NSAC’s detailed comments on the USDA proposal on our website.

Comment Analysis – Most Want Real Reform!

Of the 85 comments submitted that were relevant to the proposed rule, more than half the commenters favored reforms that are stronger than what was included in the USDA proposed rule.

Nearly a third of the total indicated that USDA should use its existing authority to apply a consistent rule to family farms as well as farms with non-family members, require at least half-time labor and/or management to be qualified as actively engaged in farming, and not allow farms to receive more than one payment limit, positions NSAC supports.

Barely a quarter of the comments opposed real reform. The vast majority of comments opposing real reform came from a small segment of agriculture representing mega-farms who are trying to protect unlimited subsidy payments for the largest farmers.

While small in number, the existence of these comments indicates that mega-farms are willing to advocate in favor of continuing to collect millions in taxpayer dollars.

Reorganize Your Way out of Payment Limits?

One commenter even asked that USDA delay the rule a year, beyond 2016, so that they would have more time to reorganize their business and thereby avoid any negative impact from the rule!

Massive reorganizations to avoid being declared out of compliance with the rule is an issue NSAC warns about in its comments, and is the major reason why real reform should apply improved rules to all farms instead of just a few farms as USDA provides for in the proposed rule.

Several commenters also suggest that USDA do away with any quantifiable measure of whether a person is actively engaged and instead use a “significant contribution” of active personal management as the only standard.

In other words, they are asking for no change in the status quo. According to the USDA Office of the Inspector General, the US Government Accountability Office (GAO), and the USDA Payment Limitation Commission, the status quo “significant contribution” language is at the root of there being no effective control over who is actively engaged in farming and thus who qualifies for subsidy payments. As a result of the management loophole, there are no effective payment limits for farm subsidy programs.

The GAO has reported “the lack of measurable standard for what constitutes a significant contribution of active personal management allows individuals and entities who may have little involvement in a farming operation to be eligible for payments.”[1]

It is a pity that for more than 25 years USDA has failed to implement measurable standards for who is actively engaged in farming and when they attempt to do so for a very small number of farms some still push to maintain the status quo. It would be even more of a pity if USDA listened and heeded those voices.

Non-Farming Managers – Business Decision or Subsidy Decision?

The proposed rule caps the number of people that can be qualified as actively engaged through management only (no actual farm work) at three, but when spouses (who do not have to meet any labor or management test to qualify for a payment) and the primary operators are included the farm bill’s $125,000 payment limit increases eight times and balloons to over $1 million a year in federal commodity subsidies.

Yet, several commenters suggested the cap of three is arbitrary and too low to account for the “management complexities” of modern agriculture.

Yet nothing in the law says that having a more complex farm should entitle you to more federal subsidies. Agriculture safety net programs were originally created to help family-scale operations survive a bad year, not subsidize mega-farms who are the least in need of subsidies.

The examples cited by commenters seeking to loosen the rule expose the types of farms that want looser rules for what they are, mega-farms. The examples cited include a 16,000 acre farm in Arkansas with three non-family member managers; a pair of 7,000 acre Louisiana farms with 10 partners each; and a 15,000 acre farm comprised of 15 non-family single person LLCs.

Realistically and ridiculously, it is highly unlikely any of these farms will be subject to the draft rule unless changes are made before it goes final anyway. They would all qualify for a million dollars or more a year under the proposed rule, and, if they were to reorganize the business with only extended family members as partners, they would face no limit whatsoever.

Business decisions about how many non-farming managers a farm business requires should be simply that – business decisions, not decisions based on how much additional subsidy one can game the federal government into coughing up.

Accountability and Good Government?

The proposed rule, for the first time ever, requires those seeking to be qualified as actively engaged through management to keep a log of management activities in order to prove they meet the time requirements of the rule, a small step in the right direction toward reform.

Several commenters nonetheless expressed concern that this new modest record-keeping requirement is excessive and burdensome.

That the same basic requirements are required by the Internal Revenue Service for taxpayers to show they are active and not passive investors in a business for (material participation)[2] does not seem to matter to these commenters. In fact, it is reasonable to conclude that transparency is exactly what some mega farms want to be sure does not happen, so the status of quo in which passive investors, as determined by the IRS, can continue to be declared actively engaged in farming by the USDA. The status quo is a textbook example of a good government breakdown.

Family-Only vs. Non-Family

One set of comments from anti-reform forces we do agree with is the concern that an unfair double standard is created when subjecting “farm entities with non-family partners” and “family only farms” to different eligibility criteria, as USDA proposes. Several commenters note that farms subject to the rule would face a higher standard than family-only farms.

We agree, but we disagree on the solution. Rather than weakening the non-family only rules as anti-reformers propose, we believe that reform should apply to all farms, consistent with what both the House and Senate passed in their versions of the 2014 Farm Bill and then inexplicably dropped from the final 2014 Farm Bill in the last moments of behind closed doors negotiations.

The bipartisan, bicameral majority got it right! But then the agricultural one percent took it behind closed doors and undid the will of the majority, and now USDA and the Obama Administration are playing along with the same crowd.

No Impact Means No Savings for Taxpayers

USDA’s own Cost Benefit Analysis clearly shows the tiny number of farms that will be impacted by the rule. This is USDA’s admission that the vast majority of mega-farms will continue to receive millions in taxpayer subsidies. Of the 2.1 million farms identified in the 2012 census, only 635 are likely impacted by the rule according to USDA. Even that number will diminish by year two and three according to UDSA, a tacit admission that major business reorganization will take place to avoid the rule.

USDA’s analysis pegs the cost savings as $13 million in 2016, and falling to $4 million in 2018, with a total savings over three years of $23 million. This a paltry sum, just one-tenth of one percent of the three-year total projected cost for the subsidy program of $22.7 billion, and another indication that the proposed rule is completely lacking in real reform.

The likelihood of reorganizations to avoid this rule is confirmed by commenters, some of whom raise the cost of reorganization as a reason to weaken the rule.

Conclusion

While it is clear that the draft Actively Engaged in Farming rule, as written, will have little impact on the ability of mega-farms to collect millions in federal subsidies, the supporters of these farms still cling to the status quo, claiming the sky will fall if any accountability or sanity is brought to the payment eligibility criteria used to qualify people for agricultural subsidy program payments. Sadly, there is no real reform in the USDA proposed rule, but what little potential beginnings of reform are included are nonetheless under attack by those who profit from the status quo.

NSAC continues to encourage USDA to write a final rule that provides for real reform and effective payment limits. To do so, they will need to thoroughly rework their proposed rule

[1] GAO-13-781, Farm Programs Changes are needed to Eligibility Requirements for Being Actively Involved in Farming, pg. 3, referencing GAO-04-407,
[2] http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG-Chapter-4-Material-Participation

Categories: Beginning and Minority Farmers, Commodity, Crop Insurance & Credit Programs, Farm Bill


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