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Payment Limits

Payment Limits

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Payment Limits

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  1. Payment Limits • What is the Issue? • Brief History of Payment Limitations • Payment Limit Commission • What Does the Data Indicate? • Payments • Certificates • Estimated Impacts of Tightening Limits • Conclusions

  2. Brief History of Payment Limitations • Payment limit debate began in late 1960s • Limits first enacted in 1970 farm bill at $55,000 and ranged from $20,000 to $40,000 through 1985 • 1985 farm bill raised to $50,000 per “person” • Initiated 3 entity rule • 1990 farm bill established separate limits for deficiency payments and MLG/LDP • 2002 farm bill set direct payment limit at $40,000, CCP at $65,000, and MLG/LDP at $75,000 • Introduced means testing for first time • $2.5 million AGI limitation (3 year avg) unless 75% came from Ag.

  3. What is the Issue? • Depends on a person’s point of view • Proponents generally feel: • Too much money goes to too few • Large payments accelerate consolidation/industrialization of agriculture • Large farms don’t need the money • Large payments lead to higher land values • Opponents generally feel: • Rules have been set and are being followed • Business/investment decisions have been made based on limits in current law

  4. What is the Issue? (Continued) • A person’s point of view tied closely to what they feel is the goal of farm programs • A few of the often cited goals are: • Foster an abundant supply of food and fiber • Support and stabilize farm income • Help producers get access to credit • Expand agricultural exports • Conserve natural resources • Maintain the family farm and the vitality of rural communities • Capitalize on the multiple functions of agriculture • Counter the protection provided to agriculture in other countries

  5. Current Payment Limitations • $40,000 per “person” for direct payments • $65,000 per person for countercyclical payments • $75,000 per person for loan deficiency payments and marketing loan gains

  6. Background: A Person • A person is the unit to which payment limits apply—it may be an individual, an individual in a joint operation, or other entity: trust, limited partnership, corporation • Under the 3-entity rule, an individual who receives payments may also receive payments from up to 2 other entities in which the individual has up to a 50% interest

  7. Background: An example of maximum payments an individual may receive Producer has own operation, 50% interest in trust A and 50% interest in corporation B DirectCCPMLG/LDP Dollars Own farm 40,000 65,000 75,000 A 20,000 32,500 37,500 B 20,00032,50037,500 Total 80,000 130,000 150,000 Grand total $360,000

  8. Background: To be Eligible a Producer Must be Actively Engaged in Farming • Must provide: Land, equipment or operating capital and Active personal labor or active personalmanagement • Contributions must be commensurate with shares and must be at risk

  9. Distribution of PFC Payments, 2001$4.1 bil. Paid to 1.2 mil. Payees

  10. Payment Limit Commission • Keith Collins, Chair with 3 members appointed by each of Secretary, House, and Senate • Assess effects of further limitations for direct, counter-cyclical payments and marketing loan benefits on: • Farm income • Farm land values • Rural communities and agribusiness infrastructure • Planted area of covered commodities and supply and prices of all commodities • Recommendations as Commission determines appropriate • Report came out at the beginning of September

  11. Farms Receiving Government Payments34% of all Farms in 2001

  12. Current Limits Do Not Reduce Payments Appreciably Why? • Most farms are not large enough to trigger limits, although farms in 43 states hit limits in 2001 • Large farms have multiple persons (payment limits) per farm • No limit on marketing loan benefits

  13. Effect of Current Limits on Payments PFC Mkt loss Amount not paid out due to limits Loan benefits

  14. Base Acres Needed to Reach $40K in Direct Payments

  15. Certificates • Used to facilitate marketing loan administration • Used to avoid loan forfeitures, gain not s.t. limits • Nonrecourse loan makes LDP/MLG limit ineffective • Have primarily been used in cotton and rice • Use of certificates with nonrecourse loan has little consequence for taxpayers, slight increase in farm income, and avoids market disruption of forfeitures

  16. Effects of Further Limitations on:1--Farm Income • Reducing direct limit to $30K, CCP to $50K and loan benefit to $75K: • Direct payments fall $255-275 mil. • CCP payments fall $400-425 mil. • Loan benefits fall $400-500 mil. • Reductions: 4-5% of payments • Producers affected: rises to 35,000 from 12,000 farms • States most affected: CA, AZ, AR, MS

  17. Effects of Further Limitations on: 2--Farmland Values • 15-25% of land values due to gov. payments, but many factors determine land values • Non-operator landlords rent out 41% of farmland • Reducing limits to $30/50/75K would reduce rental rate and land values. Modest national effect; possibly large regional effects • Ariz. & Calif: 25% or more of producers would reach limit • Effects greatest in Delta, So. Plains, followed by Southeast and rural areas of Far West

  18. Effects of Further Limitations on:3--Rural Communities & Infrastructure • 316 out of ~2,300 rural counties are farm dependent • Vulnerable areas: county income dependent on farm income, farm income dependent on payments, high proportion of producers affected • Short-run effects greatest in Delta, West Tex. , rural Ariz. & Calif., Western Kan., Eastern Neb. & So. Dak., Western Iowa • Lower acres, farm income & spending, but higher crop prices & lower rents. Effects diminish over time • Long-run effects largely unknown: farm structure less important than technology, economic diversity, natural amenities

  19. Effects of Further Limitations on:4--Commodity Supply and Prices • Limits on decoupled payments expected to have minimal effect; main effect is limits on loan benefits • Planted acres decline: modest national effect but larger effect for cotton and rice • E.g., cotton: 0.5 to 1.2 to 2.5 mil ac. • Limited effect on F&V due to climate, lack of market outlets, need for contracts, investment, negative effects of shifts. Shifting to hay a likelihood • Effects diminish over time

  20. Conclusions • The commission report provides support to proponents and opponents of tighter limits • Payment limit issue is not going away • Momentum • Federal budget situation • Differences in a person’s position on this issue can be tied to differences in their perception of the goals of farm programs