Ag Policy Blog

A tireless crusader for tightening farm payments to limit exploitation, Sen. Charles Grassley on Tuesday called on USDA to finalize its actively-engaged rule for the 2016 crop year. The senator lamented reaction by some farmers and farm groups that ask for USDA to scrap the rule.

USDA proposed in March to limit the number of farm managers who can receive government payments in farm operations considered non-family joint ventures or general partnerships. Under the proposed rule, farm managers must prove they contribute at least 500 hours of farm-management work per year or at least 25% of the time necessary to run the farm.

Large, complex business operations may be able list up to three farm managers eligible for farm-program payments "only if they can show all three are actively and substantially engaged in farm operations."

The public comment period for the proposed rule ended May 26. The rule received just 89 comments overall, but most major agricultural and commodity groups wrote in regarding the rule.

"I can't help but shake my head in disbelief at a few of the comments," said Grassley, a Republican from Iowa.

The senator said in a weekly conference call with reporters that some farm groups failed to appreciate how generous the USDA proposal is compared to the actively-engaged language that should have been in the final version of the farm bill. Tighter eligibility standards drafted by Grassley and others passed both the House and Senate, but conferees on the 2014 ended up stripping the language out of the final version of the farm bill.

"Some comments focus on the fact that is isn't enough only three managers who qualify through the traditional way of contributing land, capital or equipment," Grassley said. "In other words, being actively engaged rather than being a Wall Street farmer."

The current definition of "actively engaged" for managers allows people with little to no contributions to farm management decisions to collect farm-program payments if they are classified as farm managers, and for some operations there were an unlimited number of managers that could receive payments, USDA stated.

Family farm operations largely are exempted from these changes in actively-engaged rules, though USDA has spelled out an explanation regarding family lineate that has farm groups concerned.

Farm-program payments are capped at $125,000 for an individual producer who has a three-year average adjusted gross income under $900,000.

These actively-engaged rules would affect producers starting in 2016 who are enrolled in the Agricultural Risk Coverage, Price Loss Coverage, marketing loans and loan-deficiency payments.

The National Association of Wheat Growers expressed concerns about the lineage provisions of family farms, citing that there are farm operations involving cousins, nieces and nephews that could be excluded. NAWG also questioned the necessity of the record-keeping provisions to log labor and management activities. "What sort of records need to be maintained by the producer? What sort of outreach would the Department undertake to ensure that producers understand any new record-keeping requirements that will be the result of this rulemaking?" NAWG questioned.

The National Corn Growers Association expressed concerns for different farms that would otherwise be eligible for the same program payments "but for the blood lineage delineated in the proposed rule." NCGA recommended USDA create an exemption to the three-manager limit for farmers who can show they could operate as an independent family farm and are eligible for farm-program payments on individual operations.

The American Farm Bureau Federation, American Society of Farm Managers and Rural Appraisers, National Cotton Council, Southern Peanut Farmers Federation, USA Rice Federation and Western Peanut Growers Association jointly submitted comments on the rule. The groups also questioned the issue of lineal family members and argued there are circumstances in which a "non-lineal" family member may have a key management role in the farm. The groups also questioned the ability to accurately measure the 25% management requirement. They also stated that if these management activities are going to face a strict standard, then a limit on the number of farm managers is unnecessary. Further, limits on the number of farm managers are arbitrary and don't take into account geographic and crop requirements for different farms.

According to those groups, USDA also estimates the three-manager rule would affect a total of 635 joint operations that have more than three managers. The groups argue while that is only a small number of operations, "the statistics show that those impacted are also the farms contributing the greatest amount of production value."

National Farmers Union argues that the actively-engaged rule "is not forceful enough." Farm payments should be meant to protect family farms, though allowing managers and operators to collect payments invites the potential for abuse. NFU noted that under the rule, a given operation could have as many as eight people eligible for payments. An operation could have an owner-operator and his or her spouse collecting payments along with up three managers and their spouses.

"That holds open the possibility that an operation could have an effective limit of $1 million, negating the purpose of the proposed rule," NFU stated.

NFU states the owner-operator should qualify as the first manager and only the owner-operator's spouse should be eligible for payments, not spouses of other managers.

Some farmers who wrote in stated they were smaller producers who support tighter payment limits and actively-engaged rules.

"Payment Limitations and the actively engaged rule are vital to ensuring the farm program is not abused by the largest and wealthiest farms. The Farm Service Agency (FSA) has missed the mark when it comes to writing an effective rule that will stop such abuse," wrote a Missouri farmer.

Yet, a Louisiana farmer cited involvement in two farm partnerships that each have more than 7,000 acres and are comprised of 10 members. Under the rule, each partner would no longer qualify as "actively engaged" even though the partners perform various management duties. "Given the size and complexity of these two farming operation, I would argue that each of the partners should qualify and not be disqualified due to some arbitrary limit on the number of managers," the farmer wrote.

The USDA Office of Inspector General also submitted a comment noting that regulations were required to include a plan for monitoring how a person or entity is in compliance with the actively engaged rule. Yet, the OIG noted that there is no such plan requirement in the rule. The rule does establish some record-keeping requirements to spell out how a person meets the management requirement. Still, the OIG states that "is not the same as a plan for monitoring the status of compliance reviews."

Grassley criticized one commenter who had 15 farm managers overseeing a total of 15,000 acres, or effectively one manager for every 1,000 acres. "With the advancement of technology, it seems more likely that those 15 managers are probably used to collect farm payments than to do actual management," he said.

The senator has repeatedly argued over the years that it's bad for agriculture when 10% of the farmers collect 70% of the commodity payments. That allows larger farmers to crowd out small and beginning farmers.

"I have no problem with farmers who expand their operations, they just shouldn't do it at taxpayers' expense, sometimes by exploiting the actively engaged loophole," he said.

USDA did not immediately respond to questions regarding when the rule would be finalized.

Chris Clayton can be reached at Chris.Clayton@dtn.com.

Follow me on Twitter @ChrisClaytonDTN.

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