Farm Bill Veto Ahead?

By Chuck Abbott

2/8/2008

A few years ago, Chuck Conner was on his family’s farm in northwest Indiana helping his brother at harvest by running the combine. “I literally had not been on the combine more than a couple of rounds” and he was still familiarizing himself with the controls, Conner recalls.

Then, he says, “my Blackberry starts going off like gangbusters.” It was the White House, where Conner was agriculture adviser.

For a hectic interval, Conner needed three hands—one to steer the combine, one to run the joystick controller and one to hold the Blackberry as a cell phone while sorting out questions about a presidential appearance on rural development. His brother briefly wanted Chuck out of the cab. “Everything worked out,” Conner says, looking back on a moment when agricultural policy truly intersected production.

As acting agriculture secretary, Conner was just as busy trying to steer reform into the 2008 farm bill. The George W. Bush administration insists the new farm law cut off subsidies to those with an adjusted three-year income above $200,000. That’s much more stringent than either the House or Senate proposed in separate farm bills, although they included some reforms. House and Senate negotiators are expected to produce a final version of the bill in late February or March.

Expected changes. In the end, the farm bill is likely to make modest changes in the crop support rates in effect since 2002, mostly to benefit wheat and soybeans, and give farmers the option of a revenue protection program alongside traditional subsidies, according to lawmakers and farm group leaders.

While large operators, investors and absentee landlords are at risk of losing access to the farm program, Congress might punt the issue to USDA, telling it to write new regulations on who is eligible for payments. That would delay a resolution past the 2008 elections and put it in the hands of the next administration.

Taxes and payment limits were the administration’s top issues when discussions about the bill began between lawmakers and Conner. The White House promises to veto any bill not substantially changed from the House and Senate proposals.

“I think they’d veto it over payment limits. That’s my sense,” says House Agriculture Committee chairman Collin Peterson (D-Minn.).

Besides pressure from the administration, House Speaker Nancy Pelosi of California “wants us to go further” on payment-limit reform because of public interest, Peterson says. A majority of the Senate supports an annual payment cap of $250,000 per farm although it is not in their bill.

AGI adjustment. After years in Washington, Conner is known as an affable executive who is willing to give a fair hearing to all sides of an issue. He is blunt in describing tighter subsidy rules as common sense, good policy and a money saver.

“To us, it seems inherently unfair” to give crop subsidies to the wealthiest two percent of Americans—“the upper crust, if you will,” Conner says in an exclusive interview last month with Top Producer. “If you’re at the $200,000 level, you’re doing awfully well for yourself.”

Along with the income test, the administration calls for a stricter definition of who is “actively engaged” in farming and can collect payments. Currently, people who provide land, capital, equipment, labor or management are eligible. The administration would allow landowners who crop-share to remain eligible.

“While there may be many different forms of a truly active farmer out there, the clear and simple fact is we have a lot of people, a lot of people, getting farm program benefits who are, by any measure, passive investors,” Conner says. Nor should benefits go to landowners who take no role in farming, he said.

Under the $200,000 AGI limit, payments would stop for some 38,000 people. The House and Senate have proposed reforms that would hit around 9,500 recipients. The House proposed a $1-million AGI “hard” cap for crop subsidy and conservation payments; $500,000 if less than two-thirds of income is from farming. The Senate endorsed a $750,000 AGI cap beginning with 2010 crops for crop subsidies, but no cut-off if farming provides more than two-thirds of income.

At present, there is a $2.5-million AGI ceiling for crop subsidies and conservation payments. The administration would not change the conservation rule.

“Nearly one out of every 10 commercial farms with payments reported AGI over $200,000 in 2004,” says a 2007 Economic Research Service (ERS) report, referring to farms with gross annual sales that exceed $250,000. ERS says Internal Revenue Service data show the largest share of farm sole proprietorship returns come from the West, Southeast and Northeastern states. The Midwest and the Plains have the lowest share.

Enough already. Texas farmer Bob Stallman, president of the American Farm Bureau Federation, says agriculture “accepted a great deal of reform” already. The House and Senate bills, jibing with administration proposals, would require payments to be tracked to individuals and would end the three-entity rule that allows farmers to collect payments through two affiliated operations.

“It’s really excluding some production,” Stallman says, when reformers advocate income tests or say large landowners should be ineligible. “Size does not matter,” he says, because all farmers face rising input costs and volatile markets.

Despite its intense interest in the topic, the administration has not sent language to Congress to refine the “actively engaged” definition. Conner says Congress may want USDA to handle this issue through rule-making, which would allow more flexibility than a statute.

Reformers say AGI offers only a partial solution to large federal payments that, in their view, bankroll expansion by large operators. AGI “is not terribly effective to achieve the ends of payment limit reform,” says Ferd Hoefner, policy director for the Sustainable Agriculture Coalition. He backs a hard cap on payments and stricter rules on “actively engaged.” He says those steps are less likely than an AGI cap to inspire landlords to demand cash rent rather than crop share.

Jim Wiesemeyer, an analyst with Memphis, Tenn.,-based Informa Economics and the ProFarmer Washington consultant, says the administration’s opposition to tax increases may be the largest obstacle, and could prolong work on the bill. The House and Senate Agriculture committees have spent nearly two years on the bill already and they continue to miss informal targets to enact a new law. That’s not novel. The 1996 and 2002 laws were several months later than expected.

Rather than engage in brinkmanship with the White House, Peterson says, “I’m not interested in a bill that will be vetoed. I want a bill that will be signed.” 

To contact Chuck Abbott, e-mail topproducer@farmjournal.com.

Top Producer, February 2008