FSA Changes Payment Rule

Agency Reverses Earlier Rule Regarding Active Management for Family Farm Operations

Jerry Hagstrom
By  Jerry Hagstrom , DTN Political Correspondent
The Farm Service Agency corrected some definitions for actively engaged farmers in a family-farm operation with a change in the rule after issuing tighter restrictions in August. Still, some supporters of tighter payment limits are upset over the change in the rule. (DTN file photo by Katie Dehlinger)

WASHINGTON (DTN) -- USDA's Farm Service Agency on Wednesday restored the previous definitions of "active personal management," "significant contribution," and "related phrasing" in a rule on farm program subsidy eligibility and payment limitations.

FSA Administrator Richard Fordyce called the change, which will be published in the Federal Register, "a correction" and said, "These revisions mean that members of family farm operations are not subject to the more stringent management requirements applicable to farming operations comprised of non-family members established in the 2014 farm bill and further supported by the 2018 farm bill."

USDA added in an explanatory note, "Now, the more restrictive definitions only apply to farming operations comprised of non-family members that are subject to a limit in the number of farm managers seeking to qualify for actively engaged in farming based on a contribution of active personal management alone as established in the 2018 farm bill."

In an interview, Fordyce said, "It was not our intent to bring family farm entities under the more stringent provisions. It wasn't Congress' intent for us to do that."

Fordyce said the correction to the rule will be published in the Federal Register on Thursday and will be effective immediately.

Asked if he had advised Sen. Chuck Grassley, R-Iowa, a strong advocate of payment limitations about the change, Fordyce said no. Asked for his views on a Government Accountability Office report released this week that Grassley said highlighted FSA's lack of oversight of farm subsidy eligibility, Fordyce said he had not read it.

Grassley, who has tested positive for COVID-19 and is working from home, told DTN in an email, "As both a family farmer and senator, I've worked with the USDA over the years in good faith to ensure these programs are used for their intended purposes and aren't being taken advantage of. It's a shame that USDA is backtracking after just finalizing a fair rule for this program a couple of months ago. This is particularly concerning after GAO just published a report confirming that farm payments need additional oversight and that 19 of the top 20 operations that use these loopholes are in the South. This revision of the final rule has not deterred me. I'll continue to work with my colleagues in Congress to fix this broken system in the next farm bill."

The National Sustainable Agriculture Coalition said the "reversal on payment limits sells out farmers." The 2018 farm bill expanded the types of family members who were eligible to receive payments to include first cousins, nieces, and nephews, in addition to children, grandparents, and siblings, while simultaneously ensuring that only those family members who were actively engaged in the farm business would be eligible for farm program payments. To be eligible for a payment under the August final rule, a recipient must provide either 25% of a farm's total management hours, or perform at least 500 hours of management annually, on a 'regular, continuous and substantial' basis, NSAC stated.

"The Trump administration's final rule issued just three short months ago correctly interpreted Congress' intent that farm subsidies be limited to people who derive their livelihoods from, and are actively engaged in, farming," said Eric Deeble, NSAC policy director. "The new rule, posted today, is a complete reversal and repudiation of the final rule from August. The original final rule clearly reflected the bipartisan consensus to close one of the biggest loopholes in the payment limitation of farm subsidies. The administration's contention that the final rule -- which limits farm payments to family members that really work on a farm, rather than those that only do so on paper -- was done in error by Congress and USDA is a lie. Issuing this 'correction' to a final rule flouts congressional intent, invites legal challenge, and provides a windfall for the biggest, most complex farming operations while ignoring real family farmers who need the assistance."

"A 180-degree about-face on an already-final rule reeks of an election campaign season payoff," said Deeble. "The new rule will use taxpayer money to foster farm consolidation, putting family farmers and beginning farmers at a severe disadvantage. We trust that the incoming Biden administration will revoke this parting gift and put the teeth back in the farm bill's payment limit to ensure fairness and stop subsidizing economic concentration."

Fordyce acknowledged that stakeholders had objected to the rule. K-Coe Isom, a farm management accounting firm, claimed credit for recognizing the impact of the change and urging Agriculture Secretary Sonny Perdue on behalf of its clients to repeal the regulation.

K-Coe Isom said the August rule would have created financial incentives to push founders out of the farming businesses they created and set up barriers to bringing the next generation of family farmers into the business. The rule also would have allowed two farms with the exact same losses to receive different disaster payments, based on how their businesses are structured.

"This regulation may have been well-intentioned, but it would have seriously hurt thousands of farm families," said Brian Kuehl, director of government and public affairs at K-Coe Isom.

"The regulation would have forced families to buy out business owners who weren't serving as managers of the farming operations at least 500 hours/year or providing at least 25% of the management in the farm," Kuehl added. "This would have disproportionately hurt semi-retired founders of family farms and next-generation farmers just getting started in the business. The buy-out wouldn't have improved the productivity or profitability of the farm -- it only would have forced businesses to use scarce capital and made them less able to handle existing industry challenges."

"The regulatory fix was not a Republican or a Democratic thing," said Matthew Farrell, director of Farm Program Services at K-Coe Isom. "It's just called 'good government' when agencies correct mistakes and comply with federal law."

K-Coe Isom said it "will remain engaged on this issue to ensure that the incoming Biden-Harris administration understand the non-partisan nature of this change."

Jerry Hagstrom can be reached at jhagstrom@nationaljournal.com

Follow him on Twitter @hagstromreport

Jerry Hagstrom