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- William C. Bridgforth
- David R. Bridgforth
- Ramsay, Bridgforth, Harrelson and Starling LLP
- Post Office Box 8509
- Pine Bluff, Arkansas 71611
- (870) 535-9000
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- Interesting Facts:
- Compared to other major agricultural producers around the globe, the
U.S. ranks near the bottom of the subsidization and tariff scale.
- Producer Support Per Acre:
- United States - $49
- E.U. - $309
- Japan - $4,606
- Source: The Facts on U.S.
Farm Policy, The House Agriculture Committee, Summer 2002
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- Interesting Facts:
- Agricultural Tariffs:
- Average Final Bound Tariffs
- WTO Average – 62%
- United States Average – 12%
- India – 114%
- Source: Peter Allgeier, U.S.
representative to the World Trade Organization, Letter published in The
Wall Street Journal on July 17, 2007.
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- Interesting Facts:
- 98% of U.S. farms are run by families -less than 2% are corporate
farms.
- Agriculture accounts for roughly 20% of the nations GDP, contributing
$3.5 trillion a year to the U.S. economy.
- For every dollar Americans spend on food, farmers only get 20 cents.
- U.S. consumers spend just 10% of their income on food-the lowest
percentage in the world.
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- Interesting Facts:
- Farms receiving no government payments:
- 98.6% of the income for nonparticipating farm households comes from
off-farm sources.
- Average farm income of $1,098.
- Farms with gross sales less than $10,000
- 58% of 1,990,343 farms
- Responsible for 3.8% of total farm receipts
- Receive 7% of farm program payments
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- Interesting Facts:
- Farms with gross sales over $50,000
- 23% of the 1,990,343 farms
- Responsible for 90.3% of farm receipts
- Receive just over 81% of farm program payments.
- Definition of “Farm”
- Official U.S. farm definition requires only $1,000 of sales to qualify
as a farm.
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- Status of Farm Bill
- July 27, 2007, the House of Representatives passed the Farm, Nutrition
and Bioenergy Act of 2007.
- December 14, 2007 – Senate passed the Food and Energy Security Act of
2007.
- Conference Committee – Hope to have Conference Report by early to mid
March.
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- Commodities Title of House Bill
- Provides Support for 2008-2012 Crop Years
- Direct Payment Program
- Counter-Cyclical Payment Program
- Option to elect Revenue-Based Counter-Cyclical Payments in lieu of
Price-Based CC Payment
- Marketing Loan Program
- Continuation of 9-month non-recourse loan program
- Continuation of marketing loan gains/LDPs
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- No change in formula for calculating amount of direct payments on a
farm.
- Amount of the direct payment to be paid to a producer on a farm for a
covered commodity for a crop year shall be equal to the product of the
following:
- The payment rate specified in the Bill
- The payment acres for the covered commodity
- The payment yield for the covered commodity
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- Payment Acres
- 85 percent of the base acres of a covered commodity on a farm.
- No change from 2002 Farm Bill.
- No update of base acres as was offered in 2002.
- Payment Yield
- Established yield for a covered commodity on a farm.
- No change from 2002 Farm Bill.
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- Amount of Direct Payment on a farm will be the same amount as provided
under the 2002 Farm Bill.
- Advance payment option.
- Producer may elect any month beginning on December 1 within which to
receive 22% of the direct payment.
- Balance of Direct Payment will be made after October 1.
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- 2007 House Bill provides for two types of counter-cyclical payments:
- Price-based counter-cyclical payments
- Revenue-based counter-cyclical payments.
- Producers will have ONE opportunity to elect to receive revenue-based CC
payments rather than price-based CC payments.
- No election, producer will receive price-based CC payments.
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- The price-based counter-cyclical payments are essentially the same as
the counter-cyclical payments made under the 2002 Farm Bill.
- Price-based counter-cyclical payments will be made when the sum of the
direct payment rate and the higher of the loan rate or the average
market price during the 12 month marketing year are less than Target
price.
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- Price-Based CC Payment Amount
- If counter-cyclical payments are required to be paid for any of the
2008-2012 crop years, the amount shall be equal to the product of:
- The payment rate for the covered commodity
- The payment acres of the covered commodity
- The payment yield or updated payment yield, if applicable
- Same formula as used under 2002 Farm Bill
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- Price Based CC Payment Rate
- The payment rate used to make counter-cyclical payments with respect to
a covered commodity for a crop year shall be equal to the difference
between-
- the target price for the covered commodity; and
- the effective price for the covered commodity.
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- Effective Price:
- The effective price for a covered commodity is equal to the sum of the
following:
- The higher of: (i) the national average market price received by
producers during the 12-month marketing year for the covered
commodity; or (ii) the national average loan rate for a marketing
assistance loan; and,
- The payment rate for purpose of making direct payments with respect to
the covered commodity.
- Same as under the 2002 Farm Bill.
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- Payment Acres
- 85 percent of the base acres of a covered commodity on a farm.
- No change from the 2002 Farm Bill.
- No opportunity to update base acres.
- Payment Yield
- Same as payment yields for counter-cyclical payments under the 2002
Farm Bill.
- No opportunity to update payment yield.
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- Timing of Payments
- House Bill provides that if price-based counter-cyclical payments are
required for a covered commodity, Secretary shall make the payment as
soon as practicable after the end of the 12-month marketing year for
the covered commodity.
- Advance Payment Option – Producer may elect to receive 40% of projected
counter-cyclical payment after completion of first 6 months of
marketing year.
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- 2007 House Bill provides a revenue-based counter-cyclical payment as an
alternative to the price-based counter-cyclical payment.
- Producers to be provided a single opportunity to elect which type of
counter-cyclical payment the producer would like to receive.
- If no election is made, producer will be deemed to have elected the
price-based counter-cyclical payments.
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- Revenue-Based Counter-Cyclical Payments will be made if Secretary
determines that the “national actual revenue per acre” for the covered
commodity is less than the “national target revenue per acre” for the
covered commodity.
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- “National Actual Revenue Per Acre” equals:
- National Average Yield times the higher of: (i) the national average
market price received by producers during the 12-month marketing year
for the covered commodity, as determined by the Secretary; or (ii) the
loan rate.
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- “National Actual Revenue Per Acre” Example
- In 2004, the National Average Yield for cotton was 843.3 lbs and the
average market price during the 12 month marketing year was $0.4280/lb.
- National Average Revenue Per Acre would be equal to $438.52.
- 843.3 lbs x $0.52 = $438.52
- Use the loan rate as it is higher than the average market price
during 12 month marketing year.
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- National Target Revenue Per Acre is fixed in the House Bill.
- Wheat - $149.92 per acre
- Corn - $344.12 per acre
- Grain Sorghum - $131.28 per acre
- Cotton - $496.93 per acre
- Rice - $548.06 per acre
- Soybeans - $231.87 per acre
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- In prior example using 2004 average annual yield and market price for
cotton, the “National Actual Revenue Per Acre” was $438.52.
- Less than the National Target Revenue Per Acre of $496.93 so there
would be a Revenue-Based Counter-Cyclical Payment for the yield and
market conditions existing in 2004.
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- Revenue-Based CC Payment Rate
- The difference of the National Target Revenue Per Acre and the National
Actual Revenue Per Acre divided by the National Payment Yield.
- National Payment Yields are specified in the House Bill for each covered
commodity.
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- Back to our example using 2004 data:
- National Actual Revenue Per Acre was $438.52
- National Target Revenue Per Acre was $496.93
- National Payment Yield for cotton is 634 lbs.
- Revenue-Based CC Payment Rate would be $0.0921/lb.
- Note that in 2004, the average market price was less than the loan
rate. Therefore, the
price-based counter-cyclical payment rate under 2007 House Bill would
be the maximum of $0.1133/lb.
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- Timing of Payments
- House Bill provides that if revenue-based counter-cyclical payments are
required for a covered commodity, Secretary shall make the payment as
soon as practicable after the end of the 12-month marketing year for
the covered commodity.
- Advance Payment Option – Producer may elect to receive 40% of projected
counter-cyclical payment after completion of first 6 months of
marketing year.
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- Planting Flexibility Retained
- General Rule is that any commodity or crop may be planted on base acres
on a farm.
- Prohibition for fruits and vegetables continues.
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- Marketing Loan Provisions
- Retains the Non-recourse Marketing Loan for all production of loan
commodity produced on the farm.
- Continues 9 month term for loans.
- Eliminates Certificates.
- However, House Bill also eliminates the limit on marketing loan gains
or LDPs.
- Special Provisions for Cotton and Rice
- Repayment rate is lesser of loan rate or prevailing world market price
for the commodity adjusted for quality and location.
- Additional special provisions for cotton
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- Changes to Payment Limitation Rules
- Repeal of three-entity rule
- New limits on direct payments and elimination of limit on marketing
loan gains and LDPs
- Elimination of generic marketing certificates.
- Direct Attribution
- Changes to rules governing spouses.
- Scheme or Device Provisions
- AGI Limitation
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- Limitation on Direct Payments
- 1. Covered Commodities: $60,000/person or legal entity
- 2. Peanuts $60,000/person or
legal entity
- Limitation on Counter-Cyclical Payments
- 1. Covered Commodities: $65,000/person or legal entity
- 2. Peanuts: $65,000/person or
legal entity
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- Direct Attribution
- The Secretary shall issue regulations to ensure that the total amount
of payments attributed to a person (does not include a legal entity) by
taking into account the direct and indirect ownership interests of the
person in a legal entity that is eligible to receive such payments.
- All payments made directly to a person shall be combined with the
person’s pro-rata interest in payments received by a legal entity in
which the person has a direct or indirect ownership interest.
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- Direct Attribution
- Payments to a legal entity (other than a partnership or joint venture)
- Traced through four (4) levels of ownership.
- First level – Any payments made to a legal entity that is owned in
whole or in part by a person shall be attributed to the person in an
amount that represents the direct ownership in the first tier entity
by the person.
- Example: Individual A owns 50% of Corp. AB. Corp. AB receives direct payments
of $60,000. Individual A will
have $30,000 attributed to him.
Individual A could receive an additional $30,000 in direct
payments from other sources.
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- Direct Attribution
- Payments to a legal entity (other than a partnership or joint venture)
– continued
- Second Level – Any payments made to a legal entity that is owned in
whole or in part by another legal entity (a second tier entity) shall
be attributed to the second-tier entity in proportion to the
second-tier entity’s ownership in the first-tier entity. If the second-tier entity is owned
in whole or in part by a person, the amount of the payment to the
first-tier entity shall be attributed to the person in the amount that
represents the indirect ownership in the first-tier entity by the
person.
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- Direct Attribution
- Payments to a legal entity (other than a partnership or joint venture)
– continued
- Second Level – Example:
- Individual A owns 50% of Corp. B.
Corp. B owns 50% of Corp. AB.
Corp. AB received direct payments in the amount of
$60,000. Corp. B will have
$30,000 of these payments attributed to it and Individual A will have
$15,000 of these payments attributed to him. Individual A could receive $45,000
in direct payments through other sources.
- Attribution is made for third and fourth level of ownership using this
same method.
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- Spouses:
- Eliminates special rules for spouses that combined spouses if either
spouse had a substantial beneficial interest in more than one entity
(including the spouses themselves) that received payments as separate
persons.
- New provision – If one spouse is actively engaged in farming, the other
spouse is automatically deemed to have made a right-hand contribution
(labor or personal management).
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- Scheme or device provisions:
- 2 year ineligibility if Secretary determines a person or entity engaged
in an activity in which the primary purpose was to avoid the
application of the provisions of the Bill.
- Period of ineligibility is extended to 5 years if Secretary determines
that the person or entity has knowingly engaged in, or aided in the
creation of fraudulent documents, failed to disclose material
information, or committed other equally serious actions.
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- Adjusted Gross Income Limitation
- Absolute limit of $1,000,000
- If average AGI is between $500,000 and $1,000,000, then 66.66% of
income is derived from farming, ranching, or forestry operations.
- Expands definition of income derived from farming, ranching, or
forestry operations.
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- Commodities Title of Senate Bill
- Provides Support for 2008-2012 Crop Years
- Direct Payment Program
- Counter-Cyclical Payment Program
- Marketing Loan Program
- Continuation of 9-month non-recourse loan program
- Continuation of marketing loan gains/LDPs
- For 2010 through 2012 Crop Years, Producer Option to Elect Average Crop
Revenue Program as Alternative to Direct/CC Payments or Loans
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- Same as the Direct Payments made under the 2002 Farm Bill.
- Provisions are essentially identical to the Direct Payment provisions of
the House Bill.
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- No change in Payment Acres
- No change in Payment Yield
- No change in Payment Rates
- Like House Bill, advance payment option of 22% any month after December
1 with balance to be paid after October 1.
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- Only provides for Price-Based Counter-Cyclical Payments.
- No option to elect Revenue-Based CC Payments.
- The Target Price for certain covered commodities is different in the
Senate Farm Bill, resulting in slightly higher or lower maximum CC
payments for some crops, otherwise, no material difference between
Price-Based CC Payments in House and Senate Bills.
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- No change in Payment Acres
- No change in Payment Yield
- Slight change in Maximum Payment Rates as previously discussed.
- Like House Bill, advance payment option of 40% after completion of first
6 months of marketing year with balance to be paid at conclusion of
marketing year.
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- Planting Flexibility Retained
- General Rule is that any commodity or crop may be planted on base acres
on a farm.
- Prohibition for fruits and vegetables continues.
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- Marketing Loan Provisions
- Retains the Non-recourse Marketing Loan for all production of loan
commodity produced on the farm.
- Eliminates Certificates.
- Eliminates the limit on marketing loan gains or LDPs.
- Special Provisions for Cotton and Rice
- Repayment rate is lesser of loan rate or prevailing world market price
for the commodity adjusted for quality and location.
- Additional special provisions for cotton
- Essentially the same as the House Bill.
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- For 2010-2012, Producers will be provided option of electing to
participate in Average Crop Revenue Program as Alternative to
Participation in Direct and Counter-Cyclical Payment Programs as well as
Marketing Loan Program.
- No election will be deemed election to participate in direct and
counter-cyclical payment programs and marketing loan program.
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- Fixed Payment Component:
- Average Crop Revenue Payments will be equal to the product of $15 times
the lesser of (i) quantity of base acres for all covered commodities;
or, (ii) average of the acreage planted on the farm to all covered
commodities and peanuts during 2002 through 2007 crop years.
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- Revenue Component:
- Amount of Average Crop Revenue Payment shall be increased if—
- the actual State revenue for the crop year for the covered commodity
or peanuts is less than the average crop revenue guarantee for the
crop year for the covered commodity or peanuts.
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- Revenue Component:
- “Actual State Revenue” is the product of: (i) the actual State yield
for each planted acre for the crop year for the covered commodity; and
(ii) the average crop revenue program harvest price for the crop year
for the covered commodity.
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- Revenue Component:
- “Average Crop Revenue Guarantee” shall be equal to 90% of the product
of: (i) the expected State yield for each planted acre for the crop year
for the covered commodity; and, (ii) the average crop revenue program
pre-planting price.
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- Revenue Component:
- “Crop Revenue Program Pre-Planting Price” in a State shall equal the
average of price used to calculate revenue under revenue coverage plans
offered under Federal Crop Insurance Act for the crop year and prior 2
years.
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- Planting Flexibility
- General Rule is that any commodity or crop may be planted on base acres
on a farm.
- Prohibition for fruits and vegetables continues.
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- Changes to Payment Limitation Rules
- Repeal of three-entity rule
- New limits on counter-cyclical payments and elimination of limit on
marketing loan gains and LDPs
- Elimination of generic marketing certificates.
- Direct Attribution
- Changes to rules governing spouses.
- Scheme or Device Provisions
- AGI Limitation
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- Limitation on Direct Payments
- 1. Covered Commodities: $40,000/person or legal entity
- 2. Peanuts $40,000/person or
legal entity
- Limitation on Counter-Cyclical Payments
- 1. Covered Commodities: $60,000/person or legal entity
- 2. Peanuts: $60,000/person or
legal entity
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- Direct Attribution
- Same as the direct attribution provisions in the House Bill.
- Change to Rules Governing Spouses
- Elimination of current law combining spouses.
- Automatic right-hand contribution for spouse of an individual who is
actively engaged.
- Spouse included in definition of “Family Member.”
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- Scheme or Device Provisions
- Requires failure to comply with the regulations and the adoption or
participation in the adoption of a scheme or device to evade or that
has purpose of evading the payment limitation provisions.
- Improvement over House Bill which uses word “avoid” and does not
expressly require noncompliance with regulations.
- 2 year ineligibility; 5 years if fraud involved.
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- Adjusted Gross Income Limitation
- Transition Period through 2008
- 2009 - An individual or entity is ineligible if average AGI exceeds
$1,000,000 unless 66.66% of income is derived from farming, ranching,
or forestry operations.
- 2010-2012 – An individual or entity is ineligible if average AGI
exceeds $750,000 unless 66.66%
of income is derived from farming, ranching, or forestry operations.
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- Expanded definition of income derived from farming, ranching, or
forestry operations.
- Includes income from sale of farm equipment regardless of whether
equipment was subject to depreciation.
- Includes income from provision of production inputs and services to
farmers.
- Includes income from processing, storing, and transporting commodities.
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- Administration involved in
discussions.
- Submitted a proposal of its own on May 10, 2007.
- Largely ignored by Congress but President Bush has threatened to veto
legislation so the Administration is now a significant player in the
discussions.
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- Establish market-based loan rates at 85 percent of the 5-year Olympic
average with maximum loan rates as established in the House-passed
version of the 2002 farm bill.
- Replace the current daily posted county prices used for determining LDP
rates and repayment rates for marketing assistance loans with a monthly
PCP for each crop.
- Producer’s LDP and loan repayment rate to be based on the month that
beneficial interest is lost.
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- Create a counter-cyclical program that is more responsive to actual
conditions by replacing current price-based payments with revenue-based
payments for program crops.
- Permanent termination of base acres on a farm if that farm is acquired
in a transaction subject to Section 1031 of the Internal Revenue Code of
1986.
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- A person or legal entity shall not be eligible to receive a payment
described in section 1601(b) during a year if the average adjusted gross
income of the person or legal entity for the preceding 3 years exceeds
$200,000, as determined by the Secretary.
- AGI of a husband shall be considered separate from the AGI of the wife
if, prior to the marriage, each spouse was separately engaged in
unrelated farming operations and, after their marriage, the farming
operations remain as separate farming operations.
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- If Congress takes no additional action on commodity support before the
beginning of the 2008 harvest, then the non-expiring provisions of the
Agriculture Adjustment Act of 1938 and the Agriculture Act of 1949 take
effect.
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- Mandatory support for basic crops through nonrecourse loans, but without
the option of settling the loan obligations at posted county prices or
receiving loan deficiency payments.
- The only settlement option would be forfeiture of the commodities used
as loan collateral or full repayment of the loan.
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- Nonrecourse loan rates could be as high as 90% of parity but not less
than 50% of parity for wheat, 65% of parity for cotton, and 50% of
parity for corn.
- Parity is a formula that gives a unit of the commodity the same
purchasing power it had in the 1910-1914 time period.
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- “Our farmers deserve praise, not condemnation; and their efficiency
should be cause for gratitude, not something for which they are
penalized…”
- President John F. Kennedy
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Notes
