Category: Policy

On May 30, 2024, we compared the farm safety net features of the House Ag Committee-passed version of the 2024 Farm Bill (Farm, Food, and National Security Act of 2024) with the Senate majority proposal (Rural Prosperity and Food Security Act of 2024). In today’s article, we focus on one of those provisions: the addition of base acres. While the Senate majority proposal would provide a “limited opportunity” to update base for “underserved producers”– and it remains to be seen exactly what that would entail – the House Ag Committee-passed bill would add up to an additional 30 million acres of base for farms where planted acres exceed base acres on the farm. While base is a wonky, often overlooked provision, is has the potential to be one of the more consequential in the farm bill, particularly as proposed by the House. 

Previous Southern Ag Today articles (for example, see here) have explored the issue of base. While a seemingly straightforward issue, it’s actually quite complicated. First, base acres were established decades ago and there have been very few opportunities to update/add base. Second, because base acres are decoupled from planting history, what a producer was planting in the mid-1980s when base was established is not necessarily reflective of what is being planted on the farm today. Third, while the 2014 Farm Bill allowed for a “reallocation” of base acres – which did provide an opportunity for the base acres to be more aligned with what was planted on the farm, on average, from 2009-2013 – that “reallocation” did not allow new base acres to be added to the farm. In fact, the last real opportunity to add base acres occurred in the 2002 Farm Bill as soybeans were being added as a covered commodity. Consequently, land with no base (or with plantings that exceed base) have had virtually no opportunity to add base in the last several decades. Fourth, there are severe data limitations preventing thorough analysis, which means it’s difficult for policymakers to know the scope of the problem. Fifth, because of those data limitations, it’s difficult to advise policymakers on the implications of various proposals to change base acres. For example, one popular option adopted by the National Corn Growers Association would be for Congress to simply mandate a base acre update to recent plantings, but ascertaining who would add/lose base is almost impossible to determine, which puts Congress in a precarious position. Despite all of these challenges, based on our collective decades of experience in working on farm policy, just about every farmer we know has land without base (or that is “under-based”) and would be very interested in being able to add new base acres. 

It is this last point that makes the House Ag Committee proposal particularly intriguing. It is entirely optional and, apart from the 2002 Farm Bill making soybeans a covered commodity, it would represent the single largest opportunity to add base acres since their initial creation in the mid-1980s. Under the House Ag Committee proposal, a farm would be eligible for additional base acres equal to the amount by which (1) the average number of acres from 2019 through 2023 that were planted or prevented from being planted to covered commodities (including “eligible non-covered commodities”) exceeds (2) the existing base acres on the farm. In other words, if you have a farm with plantings that exceed base (including farms where you have no base at all), you can add the missing base. There are a few key limitations/provisions of which to be mindful:

• To avoid penalizing producers who may be in a crop rotation that contains certain non-covered commodities, the number of eligible acres may include the number of acres planted or prevented from being planted to non-covered commodities (i.e., the “eligible non-covered commodities” referenced above) other than trees, bushes, vines, and pasture. The acres of non-covered commodities that can count toward the eligible acres on the farm would be limited and may not exceed 15% of the total acres on the farm.

• New base acres added under this provision would be assigned to covered commodities using a formula like that utilized for the base reallocation opportunity in the 2014 Farm Bill. The assignment would reflect the ratio of covered commodities planted on the farm from 2019 through 2023.

• Following sign-up, if the total number of eligible acres across the country exceeds 30 million acres, the Secretary would be required to apply a pro-rata reduction to all farms to reduce the number of eligible acres to equal 30 million. For example, if USDA receives applications to add 60 million acres of base, everyone will see a 50% factor applied to their application (i.e., 30 million divided by 60 million). Regardless, assuming there are sufficient applications, this would result in a minimum of 30 million new base acres being added to the program.

Bottom line: this is a significant change from previous law that we expect to be extraordinarily popular among agricultural producers.

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Fischer, Bart L., and Joe Outlaw. “Examining Farm Bill Base Acre Proposals.” Southern Ag Today 4(23.4). June 6, 2024. Permalink

There was a time when agricultural economists who focus on farm policy didn’t take a position on a farm bill proposal.  At least the authors of this article were taught by our mentors…just describe what’s in a policy proposal and don’t take a position…that’s not your job.  Good and bad was for others to decide…primarily elected officials since it is, in fact, their job.  Those days are over.  In the last two weeks since the House Agriculture Committee majority released details of their bill, there has been a steady stream of articles talking about the proposal’s reference price increases as being tilted to the South and Southern crops. 

 We thought we would instead try to provide facts and information that you can use to help decide whether any proposed bill—House or Senate—is providing a safety net for all U.S. farmers.

Fact #1 

During the development of every farm bill, there are people who say unequivocally that one or more commodities are advantaged relative to others.  In the current environment – with ARC and PLC as the Title I safety net programs – since they are both countercyclical, producing a map that shows payments are higher in one area really means very little.  It very likely means that prices for those crops are lower and triggering payments, not that the farm bill was titled toward producers of those crops.

Fact #2 

While farm bills encompass a broad range of topics, producers rely on the programs in Title I and Title XI to provide a minimal safety net so they can endure economic downturns like we are currently in.  Without meaningfully bolstering the safety net provided in Title I and Title XI, the producers we encounter all over the country see little benefit in passing a new farm bill.    

Fact #3

Statutory reference prices were established in the 2014 Farm Bill and have not kept up with increases in the cost of production.  Using USDA cost of production data, the average increase in costs from 2014 to 2023 (the most current) for corn, cotton, grain sorghum, peanuts, rice, soybeans, and wheat was 31 percent.

Fact #4 

The effective reference price (ERP) provisions included in the 2018 Farm Bill allow individual crop reference prices to increase based on the 5-year Olympic average of market prices (lagged one year) multiplied by 85%.  ERPs are capped at 115% of statutory reference prices.  Of the 23 covered commodities with reference prices, only 10 (corn, oats, soybeans, grain sorghum, large chickpeas, small chickpeas, mustard seed, crambe, sesame seed and temperate japonica rice) had market prices increase enough to result in a 2024 ERP greater than the statutory reference prices in the 2018 Farm Bill.   Of these 10, only corn, soybeans and grain sorghum represent significant base acreages.  Based on realized market prices and CBO projections, corn and soybean ERPs are expected to increase each year and hit the 115% cap in each year through 2027.  Based on hearing testimony in both the House and Senate, commodities not in that position were seeking reference price increases in the next farm bill.

Fact #5

Statutory reference prices are set by Congress.  In past farm bills, at least since the 1970s, reference prices and their predecessor (i.e., target prices) have been established with the commodity’s cost of production in mind.  Looking at major crop cost of production for 2023 indicates that current reference prices are not covering much of major commodity costs (Table 1).   This happens for two reasons: (1) costs are higher than reference prices and (2) the payment calculations use an 85% payment factor to reduce payments.  Based on USDA data, wheat and grain sorghum appear to have the strongest case for significant reference price increases, but USDA data is just one resource the Committees use in establishing support levels.

Table 1.  Major Crop Cost of Production, Effective Reference Prices and Percent of Costs Covered by the Effective Reference Price.

Outlaw, Joe, Nathan Smith, and Bart L. Fischer. “If You are Following the Conversation about Reference Prices… Here are a Few Facts.” Southern Ag Today 4(21.4). May 23, 2024. Permalink

While this may come as a surprise to some of our readers, farm program payment limits have been around almost as long as farm bills themselves. Modern payment limits are rooted in the Agricultural Act of 1970, but the earliest versions appeared in the Agricultural Adjustment Act of 1938, the nation’s second farm bill. While payment limits are not a new phenomenon, recent times have seen a sharp increase in the complexity – and perhaps unintended consequences – of the rules enforcing them.

Applying payment limits to Federal farm programs might seem relatively straightforward, but the decades-long debate over who should be eligible for assistance – and once they are deemed eligible, how much assistance they should receive – has resulted in a morass of regulations that are almost impossible for even the most astute attorney to follow. For example, with respect to eligibility, the Federal government devotes hundreds of pages to simply identifying who is “actively engaged in farming” and in determining whether a farmer’s income exceeds allowable thresholds for participation. While the intent (i.e., making sure the farm safety net is only accessible to those who really need it) may be laudable, we argue that the execution has made both risk management and farm transitions unnecessarily more challenging for family farms.

In a recent article in the Drake Journal of Agricultural Law, we explored all of these topics, focusing on one element in particular: the 2008 Farm Bill’s treatment of individuals and legal entities for purposes of applying payment limitations. According to the 2008 Farm Bill, both individuals and legal entities may only qualify for a single payment limit. The “legal entities” implicated by this provision include limited liability companies (LLCs) and corporations, both of which are restricted to a single payment limit regardless of the number of members of the farming operation that individually qualify as eligible for payment limits. This is in sharp contrast to the treatment of general partnerships, which may, in effect, combine the payment limits of their individual partners. As a practical matter, family farming operations comprised of multiple stakeholders must structure as general partnerships or some other form of joint venture if they are to avoid being forced into a single payment limit (Figure 1).

While this all may seem rather academic, it matters a great deal to those who rely on farm programs to manage the risks they face in production agriculture. For example, a family farm with multiple stakeholders actively engaged in the farming operation may have been advised by their attorney or accountant to structure as a pass-through LLC (to manage risk or tax liability); unbeknownst to them, their entire farming operation was then subjected to a single payment limit. Perhaps more importantly, LLCs are a very popular legal vehicle for facilitating farm transitions, yet Federal treatment of LLCs for payment limit purposes significantly disincentives their use. Ironically, in the same farm bill that Congress uses to authorize risk management tools for farmers and ranchers, the payment limit rules continue to expose real-life farmers and ranchers to even more risk.

In the article noted above, we argue for taking what we call an “entity agnostic” approach to farm bill payment limitations. Under this approach, any entity (especially pass-through entities like LLCs) involving two or more individuals would be treated like a partnership, where the number of payment limits parallels the number of actively engaged participants. This change would not affect who is eligible for assistance (although those rules are ripe for modernization as well). As we argue in the article, the remaining “eligibility rules provide more than adequate safeguards to ensure those receiving farm bill payments are legitimately involved with their respective farming operations.”

Congress has an opportunity in the impending farm bill debate to help facilitate farm transitions from one generation to the next by modernizing payment limitations to ensure they are not disincentivizing the use of LLCs.  If you would like to read more on this topic—or if you are having trouble falling asleep tonight—considering checking out the full, 60-page article at this link.

Figure 1. Comparing the Disparate Application of Payment Limits for LLCs and General Partnerships under Current Law.

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Ferrell, Shannon L., Tiffany Dowell Lashmet, and Bart L. Fischer. “Paved with Good Intentions: Unintended Impacts of Farm Bill Payment Limitations.” Southern Ag Today 4(19.4). May 9, 2024. Permalink