Report of the payment limit commission keith collins
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Report of the Payment Limit Commission Keith Collins. Commission’s Statutory Charge. 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

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Report of the Payment Limit Commission Keith Collins

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Report of the Payment Limit Commission Keith Collins

Commission’s Statutory Charge

  • 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

Commission’s Other Charge

Report language:

“Examine the feasibility of improving the application and effectiveness of payment limitation requirements, including the use of commodity certificates and the unlimited forfeiture of loan collateral.”

Commission Members

  • 3 Members Appointed by House Agriculture Committee

    --Gary Black (Georgia); Gary Dyer (Arizona);

    Richard Newman (Texas)

  • 3 Members Appointed by the Senate Agriculture Committee

    --Terry Ferguson (Illinois); Ellen Linderman (North Dakota);

    Neil Harl (Iowa)

  • 3 Members Appointed by the Secretary

    --Alice Devine (Kansas); William Spight (Mississippi);

    Ed Smith (Texas)

  • Keith Collins (Chairman)

Commission Timeline

  • Late January 2003: first meeting

  • March 2003: Commission solicited public comments

    --375 comments received

  • June 17, 2003: public workshop held on

    --9 invited speakers and several members of the public

    provided comments

  • August 2003: final meeting held

    --From January-August, 9 meetings held in which several experts were invited to provide information

  • September 2003: report released

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

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

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



Own farm40,00065,00075,000




Grand total$360,000

Background: To be Eligible a Producer Must be Actively Engaged in Farming

  • Must provide:

    Land, equipment or operating capital


    Active personal labor or active personalmanagement

  • Contributions must be commensurate with shares and must be at risk

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

Certificate Exchange Gains by State, 2001

Distribution of Certificate Exchange Gains, 2001

Farms Receiving Government Payments34% of all Farms in 2001

Average Payments by Farm Type, 2001

Farm typePayments per farm*

Cash grain$31,900


Rice $116,600

Cotton $55,500

Other crops $12,100

Livestock $9,300

*For farms receiving government payments. About 20% of other crop and 40% of livestock farms received government payments in 2001.

Current Limits Do Not Reduce Payments Appreciably


  • 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

Effect of Current Limits on Payments




Amount not paid

out due to limits



Payment Reductions due to Current Limits in 2001, by Crop

Crop% Reduction





Base Acres Needed to Reach $40K in Direct Payments

Number of Persons per FSA Farm



FSA Farms1.6 mil. 198,890 19,222 2,289 325

Marketing Assistance Loan Benefits


  • Used to facilitate marketing loan administration

  • Used to avoid loan forfeitures, gain not s.t. limits

  • Nonrecourse loan makes LDP/MLG limit ineffective

  • Use of certificates with nonrecourse loan has little consequence for taxpayers, slight increase in farm income, and avoids market disruption of forfeitures

Effects of Further Limitations on:1--Farm Income

  • Reducing direct limit to $30K, CC to $50K and loan benefit to $75K:

    Direct payments fall $255-275 mil.

    CC payments fall $400-425 mil.

    Loan benefits fall $400-500 mil.

  • Reductions: 4-5% of payments

  • Producers affected: rises to 35K from 12K

  • States most affected: CA, AZ, AR, MS

Regional Effects of Further Limitations

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

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

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

Commission Recommendations--1

  • General:

    --Delay change until next farm bill or allow adequate phase-in time

    --Increase compliance resources at FSA/OIG

    --Avoid incentives to create business organizations for payment purposes

    --Avoid changes that force risk shifting from landlord to tenant

    --Changes should be meaningful, transparent and simple and sensitive to commodities, regions, existing infrastructure

    --Information and analysis

Commission Recommendations--2

  • “Actively engaged” should be strengthened by combining active labor and management and making it meaningful and measurable

  • Direct attribution would improve transparency, administration, efficiency

    • Attribute payments through entities to individuals

    • Entities still qualify for payments but interests must be actively engaged in agriculture

    • Landowner/share rent exemption would continue

Commission Recommendations--3

  • Commission divided on imposing payment limits on forfeiture and certificate gains

  • Key issue is whether to limit nonrecourse loans

    • Some see loans as fundamental to income stability and risk management and any limitation would reduce production, efficiency, and rural infrastructure

    • Others believe loan benefits should limited to production on family-size operations. They argue such a limit would reduce the income derived from economies of scale, lowering land values and slowing farm consolidation with associated benefits to rural communities

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