Congress Passes a New Farm Bill

February 4, 2014 | Roger A. McEowen


On January 31, the U.S. House passed H.R. 2642, the “Agricultural Act of 2014” on a 251-166 vote.  The Senate passed the bill on February 4 by an 68-32 margin.  The bill contains a projected $956 billion in spending over the next 10 years.  That amount is approximately 50 percent more than the 2008 Farm Bill.  Appropriately, the word “reform” was removed from the title of the bill.  Crop insurance is retooled, but crop insurance spending will likely not be reduced under the bill.  The payment limitation provisions are also only slightly changed.

The following is a summary of the more significant provisions of the bill of importance to farmers and agricultural operators.

Title 1 – Commodities

The bill repeals direct payments.  Sec. 1101

Counter cyclical payments are repealed, but they continue to apply for the 2013 crop year for wheat, corn, soybeans and peanuts.  There is a reduced “transition” payment that is available for cotton for 2014 and 2015.   Sec. 1102

The ACRE Program created under the 2008 Farm Bill is repealed, but does continue through the 2013 crop year for covered commodities and peanuts for which an irrevocable election was made before enactment of this bill.  Sec. 1103.

The bill gives farmers two options via a one-time irrevocable election with respect to programs designed to replace the ACRE program and direct payments – Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC).  The election can be made on a crop-by-crop basis.  If an election is not made for a farm, a default rule applies PLC to the farm.  PLC payments are triggered if U.S. average market price for the crop year are less than the crop’s reference price.  Secs. 1116-1117.

Note:  Examples of reference prices are $5.50/bushel for wheat, $3.70/bushel for corn and $8.40/bushel for soybeans.  ARC payments are triggered when actual crop revenue is less than the ARC revenue guarantee for the crop year.  The county ARC guarantee is pegged  at 86 percent of the county ARC benchmark revenue, with coverage capped at 10 percent.  That makes coverage between 76 percent and 86 percent of the county ARC benchmark revenue.  Benchmark revenue is tied to the Olympic average which takes the average prices for the five immediately preceding crop years without the high and low yields.  ARC is based on the entire farm and not an individual crop.  For both PLC and ARC, payment acres are pegged at 85 percent of the farm’s base acres for the crop at issue, plus any former cotton base acres planted to the crop.  Individual ARC payments are 65 percent of a farm’s total base acres (plus any former cotton base acres).

The bill replaces the Dairy Product Price Support and MILC programs with the Dairy Production Margin Protection Program effective September 1, 2014.  The program is based on the difference between the price of milk and the feed cost of producing milk.  A coverage level can be elected in a range between $4 and $8 per cwt in $.50 increments.  There is no premium for the lowest level of coverage.  Secs. 1401-1427.

The “permanent” farm legislation of 1938 and 1949 is merely suspended through the 2018 crops for covered commodities and through December 31, 2018, for milk. Itis not repealed.  Sec. 1602.

The total amount of payments that an individual or entity can receive either directly or indirectly (except for a joint venture or general partnership) for any crop year is $125,000.  Spouses are able to double that amount, and a separate limit applies to peanuts.  Any amount received from forfeiting a non-recourse loan is not subject to the payment limit.  Sec. 1603.

Within 180 days of enactment, the USDA Secretary is to write regulations defining the term “significant contribution of active personal management” and perhaps set limits for various types of farming operations based on the number of individuals who can be considered to be actively engaged in farming with respect to the farming operation when a significant contribution of active personal management is the basis used to meet the requirement of being actively engaged in farming.  But, the regulations are not to apply to entities comprised solely of family members.  Sec. 1604.

Note:  Both the initial House and Senate versions contained language that specified that active personal management would not satisfy the “actively engaged in farming” requirement.  Under those bills, an individual would have had to make a significant contribution of personal labor, except for a farm manager (one per farming operation).   

The bill removes both the farm and non-farm AGI limitations of the 2008 Farm Bill and replaces them with a $900,000 AGI limitation applicable to any individual or entity.  The $900,000 AGI limitation applies to both commodity and conservation programs.  Sec. 1605.

The bill directs the USDA Secretary to check twice annually with the Commissioner of Social Security to make sure that farm program payment recipients are not dead.  Sec. 1608.

Title II – Conservation

The bill extends the Conservation Reserve Program (CRP) through 2018, and the maximum acreage that can be enrolled in the CRP drops from 27.5 million acres in fiscal year 2014 to 24 million acres in 2018.  Of those amounts, a limit of 2 million acres of grasslands is imposed for all years.  Sec. 2001.

The bill reduces the amount of acres eligible for the farmable wetland program from 1 million acres to 750,000 acres. Sec. 2002.

The bill imposes an enrollment cap of 10,000,000 acres in the Conservation Stewardship Program at an enrollment rate of $18/acre through 2022. Sec. 2101.

The bill extends the Environmental Quality Incentives Program (EQIP), but establishes a $450,000 payment limit for contracts entered into through 2018.  Sec. 2206.

The bill establishes an agricultural conservation easement program.  Land eligible for the program includes land that was formerly enrolled in the Wetlands Reserve Program and the Farmland Protection and Farm Viability Program (which are repealed). Secs. 2301 and 2704.

The bill requires conservation compliance for a producer to be eligible for crop insurance premium assistance on highly erodible land and wetland.  Sec. 2611.

The Grassland Reserve Program is repealed.  Sec. 2705.  The same applies to the Agricultural Water Enhancement Program (Sec. 2706) and the Wildlife Habitat Incentive Program.  Sec. 2707.

Title III – Trade

The bill specifies that the USDA Secretary shall, within 90 days of enactment, conduct an economic study on the existing U.S. market for U.S. Atlantic Spiny Dogfish.  Sec. 3205.

Title IV – Nutrition

An estimated 80 percent of spending under the bill is attributed to Food Stamps – referred to as the Supplemental Nutrition Assistance Program (SNAP).  Since fiscal year 2000, food stamp spending has quadrupled, and it has doubled since the beginning of 2009.  The initial House bill would have reduced Food Stamp spending by about $39 billion, and the initial Senate version would have reduced Food Stamp spending by only $4 billion.  This bill reduces Food Stamp spending by approximately $8 billion.  That represents a cut of approximately 1 percent.  The bill does not contain any limitation on assets for Food Stamp recipients.  Thus, individuals can own unlimited assets (under a policy known as “broad-based categorical eligibility”) and still qualify for Food Stamps if their income is below specified levels.  The bill also does not contain a work requirement for Food Stamp eligibility.  On this point, what is included in the bill is the establishment of a “pilot project” between the USDA Secretary and state agencies to “develop and test” methods to reduce dependency and increase work requirements.  Sec. 4022.

Title V – Credit

The bill changes the required experience to be eligible for a Farm Service Agency (FSA) farm ownership loan from a strict 3-year minimum to allow for “other acceptable experience for a period of time, as determined by the Secretary.”  Sec. 5001.

The bill provides for an expanded range of business entities to qualify for FSA operating loans and loan guarantees.  The list of eligible entities now includes family trusts and limited liability companies and those with an “embedded entity structure” (one entity owned wholly or partly by another entity).  Sec. 5101.

The bill eliminates the rural residency requirement for operating loans to youth.  Sec. 5102.

Title VI – Rural Development

The bill essentially continues many existing provisions through 2018, with some at lower funding levels.  Secs. 6001-6210.

Title VII – Research, Extension and Related Matters

The bill essentially continues many existing programs.  Secs. 7101-7606.

Title VIII – Forestry

The bill authorizes the U.S. Forest Service to lease up to five large airtankers for up to five years for the purpose of combating wildfires.  Sec. 8305.

Title IX – Energy

The bill both extends and repeals various existing programs.  Secs. 9001-9015.

Title X – Horticulture

The bill exempts bulk shipments of apple exports to Canada from the inspection requirements of the Apple Export Act.  Sec. 10009.

The bill directs the USDA Secretary to reinstate the tax on Christmas tree producers within 60 days after the bill’s enactment.  The tax is 15 cents per fresh-cut Christmas tree sold.  Sec. 10014.

Title XI – Crop Insurance

The bill provides a Supplemental Coverage Option which allows a producer the option to buy county-level insurance to cover part of the deductible under the farmer’s individual yield and revenue loss policy.  Under the provision, the coverage level cannot exceed 85 percent of the individual yield or 95 percent of the area yield.  The Supplemental Coverage Option is triggered only if the losses in the area exceed 14 percent of normal levels.  Sec. 11003.

The bill establishes a revenue-minus-cost margin crop insurance contract via an amendment to the Federal Crop Insurance Act.  Sec. 11004.

Title XII – Miscellaneous

The bill leaves the Country of Origin Labeling (COOL) rules intact, but directs the USDA Secretary to conduct an economic analysis of the final COOL rule within 180 days of enactment.  The bill also applies the COOL rule to venison.  Sec. 12103.

The bill fails to repeal the Food Safety Modernization Act (FSMA), but rather directs the Secretary of the Department of Health and Human Services to conduct an economic analysis of the FSMA when publishing a final rule on “Standards for the Growing, Harvesting, Packing, and Holding of Produce for Human Consumption.”  Sec. 12311.

The bill extends through 2014 a federal program known as “Payment in Lieu of Taxes” (PILT) that compensates approximately 1,900 counties in the Western U.S. with replacement income for federal lands in those counties that are not subject to property tax.  Approximately $400 million in PILT funds was paid out to these counties in 12 states in 2013.  Sec. 12312.

The bill specifies that the Section 402 permit requirement under the Clean Water Act does not apply to a discharge from runoff resulting from nursery operations, site preparation, reforestation and subsequent cultural treatment, thinning, prescribed burning, pest and fire control, harvesting operations, surface drainage, or road construction and maintenance.  All such activities must be conducted in accordance with standard industry practice to be exempt from the permit requirement.  Sec. 12313.

Provisions Not Included in the Bill

The bill does not contain a provision contained in the initial House-passed version that would have repealed a duplicative USDA catfish (and other seafood) inspection program.  Under the 2008 Farm Bill, catfish are to be inspected by the USDA in addition to the Food and Drug Administration (FDA).  The Government Accounting Office (GAO) has estimated that this duplication of inspection requirements costs $14 million annually.  The USDA has been unable to identify any outbreaks of illnesses related to catfish, and a GAO report stated that the duplicative process could be eliminated without any impact on food safety. 

The bill also does not include a provision that was contained in the initial House version that would have barred a state, absent legitimate public safety concerns, from enacting legislation designed to regulate the production of out-of-state agricultural goods and livestock that are sold in that state.