Senators Charles Grassley and Byron Dorgan have re-introduced legislation that would put a “hard” limit of $250,000 on the amount of annual farm program benefits an individual farmers can receive.

The bill introduced by Grassley, a Republican from Iowa, and Dorgan, a North Dakota Democrat, has a new name, the Rural America Preservation Act of 2007, but it's basically the same measure the two Midwesterners have introduced almost annually since the writing of the 2002 farm bill.

The legislation drew ringing endorsements from Washington “think tanks” that have claimed that a small percentage of large farmers receive the lions' share of farm payments made by USDA.

“The Dorgan-Grassley proposal helps level the playing field for family farmers by limiting the ability of the largest producers to bid land away from small and beginning operators,” said Ferd Hoefner, policy director for the Sustainable Agriculture Coalition.

“The act also provides a means to increase funding for popular farm bill initiatives in a year when spending is constrained. This is a common sense, pro-family farmer way to help provide needed support for value-added agriculture, new markets, improve nutrition, rural development, beginning farmers and conservation.”

The Grassley-Dorgan bill would establish effective caps of $40,000 on direct 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, according to a statement issued following the bill's introduction. The combined limit would be $250,000. (Current law caps direct payments at $80,000 and counter-cyclical payments at $130,000. Loan deficiency payments and marketing loan gains are not limited.

The bill would establish one comprehensive payment limitation per person for all commodity payments, rather than two sets of payment limitations for two different sets of commodities, as is currently the case, the authors said.

“Qualifying for the maximum legal payment would be greatly simplified,” they said. “Farmers would not need to reorganize under the ‘three-entity’ rule as they do under current law. An individual who participates in just one farming operation could receive double the nominal limit, just like an individual who reorganizes his/her farm under the three-entity rule.

“That would reduce farmers' legal costs by allowing them to receive the maximum payment without hiring a lawyer to restructure the farm.”

The bill would retain the spouse equity rule. Married couples that qualify under the spouse rule would receive up to twice the nominal payment limitations, as under current law.

Farmers would no longer be able to use generic commodity certificates or forfeitures to the government to “evade the limits,” according to the senators. “Those mechanisms could be used, but their value would count against the limits. Also, 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, and 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, the statement said.

To prevent farms from reorganizing in a manner that frustrates the intent of the limitation, USDA would be directed to issue regulations to attribute payments on a farm to the person exercising primary control over the operation.

The senators say the current lack of a defined active management test in law and regulation is a major loophole facilitating huge payments. Instead, the bill 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 statement said.

“The combined labor and management standard is 1,000 hours annually or 50 percent 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.1

The bill would also improve USDA's enforcement ability by instituting firm penalties for fraud. “A person who commits fraud in connection with a scheme or device constructed for the purpose of evading existing payment limits will be ineligible to receive farm payments for the crop year from which the scheme or device is adopted and the succeeding five crop years,” the statement said.

The senators say the bill would also:

  • Place a real limit on the amount of money any one entity can receive and close loopholes to distribute scarce federal dollars in a more equitable way.

  • Level the playing field for family farms by limiting the ability of mega farms to drive them out of business by bidding land away from them.

  • Improve farm income by reducing land price inflation caused when program benefits are bid into land prices.

  • Help the United States comply with WTO standards by reducing incentives to overproduce, which put downward pressure on commodity prices, encourage dumping, damage agricultural development efforts in poorer countries, and harm the environment.

  • Produce budget savings, which can be used to reinvest in, or reduce budget pressure on, programs providing long-term solutions to the social, economic, and environmental problems of agriculture and rural communities.

  • Eliminate current loopholes in law and regulation that “invite abuse and compromise the integrity of farm programs, making a mockery of the intent of Congress in enacting payment limitations in the first place.”