By Drew Mitchell, Research Fellow, National Agricultural Law Center
With the release of a new final rule, the Payment Limitation and Payment Eligibility Rule, many agricultural producers will soon see some important changes to the farm program. On August 24, 2020, the USDA Farm Service Agency (FSA) published the Payment Limitation and Payment Eligibility Rule. While the rule may be short, it will shape the way the FSA runs its crop subsidy and disaster programs. It impacts both farm program applicants and payments limits that were instituted under the 2014 Farm Bill. The rule also gives the Secretary new authority to waive limitations for certain environmental programs while addressing provisions of the 2018 Farm Bill. This article highlights some of the key provisions.
The rule focuses largely on farm program changes in the form of payment support for farmers by amending the “payment limitation and payment eligibility”. The USDA accomplishes many of these changes by simply amending and redefining the definitions section of the 7 CFR 1400.
One of the most notable changes relates to eligibility requirements. Current law requires that a person “must be actively engaged in farming with respect to the operation” to be considered eligible to receive farm program payments. Additionally, a person must make a significant contribution to an operation through a combination of capital, equipment, land, active personal labor and active personal management. This new rule amends “active personal management” to require the following:
activities performed by a person, with a direct or indirect ownership interest in the farming operation or a legal entity, on a regular, continuous, and substantial basis to the farming operation and meets at least one of the following to be considered significant:
- Performs at least 25 percent of the total management hours required for the farming operation on an annual basis; or
- Performs at least 500 hours of management annually for the farming operation.
This change now requires all program applicants to perform at least 25 percent of the management hours or contribute 500 hours to the farming operation. Previously, these requirements were only applicable to joint ventures and general partnerships. This is a sharp contrast from prior standards that allowed anyone on a family farm to become eligible if “crucial to the profitability of the operation.”
In contrast to the more restrictive definition of “active personal management,” the 2018 Farm Bill expanded the definition of “family member.” Under the 2014 Farm Bill, a “family member” was considered to be a great grandparent, grandparent, parent, child, including legally adopted children and stepchildren, grandchild, great grandchild, or a spouse or sibling of family members. Within the USDA-issued rule change, a “family member” will now include “a cousin, niece, or nephew” in addition to the other relatives. This change expands the number of people eligible to receive payments in a family farming operation and allows the farming operations to qualify for additional payment limitations under the rules for “substantive change.” But, while this new definition expands eligibility, each family member must still comply with the “active personal management” standard and meet the minimum percentage or hours of management to qualify for a payment.
Aside from eligibility, the remainder of the rule deals largely with program payment limitations. A variety of USDA loan-based programs and FSA disaster programs were part of the payment limitation overhaul. The payment limits for the Noninsured Crop Disaster Assistance Program (NAP) and Emergency Conservation Program (ECP) were increased, while payment limits for the Emergency Assistance for Livestock, Honeybees and Farm Raised Fish Program (ELAP), Marketing Loan Gains (MLG) and the Loan Deficiency Payment (LDP) were removed.
NAP is a program designed to provide producers with financial assistance for non-insurable crops when there is a natural disaster that affects planting or yields. This rule essentially divides its payment structure into two classes: basic coverage and buy-up coverage. Previously, the payment limit was $125,000 regardless of the level of NAP coverage a producer elected to purchase. Now, there is a separate per crop yearly maximum based on the producer’s level of NAP coverage. For the basic 50/55 NAP coverage, a producer will have a $125,000 payment limitation. For producers that purchase buy-up NAP coverage, they will be eligible for payments up to $300,000 on losses.
ECP is a program helping farmers and ranchers repair farmland damaged by natural disasters. The payment limits for ECP were more than doubled from $200,000 per disaster to $500,000 per disaster. ELAP previously had a $125,000 limit, which was removed entirely so that it currently has no maximum payment cap. Likewise, the payment limits for the MLG and LDP programs – previously $125,000 – were removed.
Adjusted Gross Income
The last major change made by the rule includes an adjusted gross income (AGI) waiver. The AGI is in place to prohibit payments to participants who had an AGI exceeding a $900,000 average amount. The 2018 Farm Bill does not change the AGI limitation for programs, but it does give the Secretary authority to waive the limitation requirement for participants of certain FSA and Natural Resources Conservation Service conservation contracts. Specifically, the Secretary can determine whether certain “environmentally sensitive land of critical significance” contracts deserves a waiver despite the failure to meet the AGI limitation.
While the full impact of these changes have yet to be seen, it has been estimated that this final rule will result in a $21.2 million cost increase to farm programs on an annual basis. A bulk of this increase can be attributed to the payment increases and the elimination of the ELAP limit. While there is an overall increase in necessary funding, the new eligibility requirement will likely reduce the actual number of program participants. The rule became effective on August 20, 2020.
Payment Limitation and Payment Eligibility Rule, 7 C.F.R. §1400 (2020).
Farm Service Agency, Payment Eligibility, https://www.fsa.usda.gov/programs-and-services/payment-eligibility/index
Farm Service Agency, Payment Limitations, https://www.fsa.usda.gov/programs-and-services/payment-eligibility/pay-limitations/index
Farm Service Agency, Non-insured Crop Disaster Assistance Program, https://www.fsa.usda.gov/programs-and-services/disaster-assistance-program/noninsured-crop-disaster-assistance/index
Farm Service Agency, Emergency Conservation Program, https://www.fsa.usda.gov/programs-and-services/conservation-programs/emergency-conservation/index
Farm Service Agency, Emergency Assistance for Livestock, Honey Bees and Farm-Raised Fish, https://www.fsa.usda.gov/programs-and-services/disaster-assistance-program/emergency-assist-for-livestock-honey-bees-fish/index
Farm Service Agency, Loan Deficiency Payments, https://www.fsa.usda.gov/programs-and-services/price-support/loan-deficiency/index