Articles

Comparison of the 2007 House and Senate Farm Bills

Monday, November 26, 2007
Contributed by: Courtney Goodman-Morris

Much speculation exists regarding possible changes to federal government agricultural programs anticipated in the 2007 farm bill. Both the House and the Senate have passed versions of a 2007 farm bill. These bills are currently in Committee for resolution of differences. The following provides a summary of both the House and Senate farm bill titles involving commodity programs, payment eligibility and limitation, conservation, and dairy programs. Please note that the following is only a brief overview of the aforementioned provisions in the bills. This article does not address the entire agricultural title of either bill.

General Information

The House bill, HR 2419, is titled the Farm, Nutrition and Bioenergy Act of 2007. This bill was passed by the House on July 27, 2007.

The Senate bill, S 2302, is titled the Food and Energy Security Act of 2007. This bill was passed on October 23, 2007.

Commodity Programs

Producer Income Protection

Both the House and the Senate bills continue the current Direct and Counter-cyclical Payment programs. Payment rates for direct payments remain the same as established under the 2002 farm bill. The direct payment rates are as follows.

The target price is used to determine the availability of counter-cyclical payments. The proposed 2007 target prices would be increased for some crops and remain unchanged for other crops. However, the target price for cotton would be decreased under both the House and Senate bills. The following provides a comparison of the 2002 target prices and the House and Senate proposed target prices.

New Program - Average Crop Revenue Program

Both the House and the Senate bills include a new program as an alternative to the direct and counter-cyclical programs. The new program, Average Crop Revenue Program is a revenue based program. The Average Crop Revenue Program would be available to producers beginning in crop year 2010 and continuing through 2012.

Under the House bill, payments would be made to producers who elect to enroll in the program when the actual national average revenue per acre is less than the national average target revenue. The national average target revenue would be set at the following levels.

In contrast, the Senate bill provides that payments under the Average Crop Revenue Program would be equal to no less that $15 per acre times the lesser of the producer's base acres or the average of the acreage planted of all covered commodities and peanuts during the 2002 through 2007 crop years.

Market Assistance Loans and Loan Deficiency Payments

Both the House and Senate bills continue market assistance loans and loan deficiency payments. The loan rates under both bills have been increased for most crops. The following provides a summary of the current loan rates and the proposed loan rates under each bill.

*The House bill sets separate loan rates for malt barley ($2.50) and feed barley (1.90).

Payment Eligibility and Limitation

The House and Senate bills both provide the most drastic changes from previous farm programs in the area of payment eligibility and limitations. If the changes set forth in either bill become law, many producers will need to reorganize their farming operations. Even with reorganization, some producers will lose some of the government payments they have come to rely upon.

Three Entity Rule Repealed

Under the current farm bill, producers can receive payment through up to three entities, including earning payment as an individual. The "three-entity rule" effectively allows a producer to earn payment through a total of three "persons." For example, it is possible under the current rules for a producer to earn up to $120,000 under the direct payment program.

Both the House and the Senate bills repeal the "three-entity rule." The proposed rule requires all payments to be attributed to a "person" by taking into account all direct and indirect ownership interests in a "legal entity," up to four levels of attribution for embedded entities. A "legal entity" is defined as an entity created by Federal or State law that owns land or an agricultural commodity or produces an agricultural commodity. A "person" is defined as a natural person that does not include a legal entity.

Payment Limitation Levels Amended

Under the House bill, the maximum payment limitation for direct and counter-cyclical programs would be reduced to $125,000 per person, $60,000 for direct payments and $65,000 for counter-cyclical payments. As with the 2002 farm bill, peanut producers would have a separate $125,000 limitation. Under the Senate bill the maximum payment limitation would be $100,000 per person, $40,000 for direct payments and $60,000 for counter-cyclical program payments.

Qualifying Adjusted Gross Income Reduced

Currently a producer cannot have an average adjusted gross income of more than $2.5 million and earn government payments. However, if at least 75% of the average adjusted gross income is from farming, ranching or forestry operations, the producer is exempt from the rule.

The House bill would reduce the adjusted gross income limitation to $1 million. Further, the bill provides that if the producers average adjusted gross income exceeds $500,000 and at least 66.6% of the average adjusted gross income is from farming, ranching or forestry operations, then the producer is exempt from the adjusted gross income requirement.

The Senate bill would maintain the current $2.5 million limitation for the 2007 and 2008 crop years then reduce the adjusted gross income requirement to $1 million for 2009 and $750,000 for 2010 and subsequent crop years. The Senate bill would also reduce the income percentage from 75% to 66.6% for exemption from the rule.

Conservation Reserve Program

Both the House and Senate bills would continue the Conservation Reserve Program, hereinafter "CRP". Both bills authorize up to 39.2 million acres to be enrolled in CRP through 2012. The payment limitation for CRP would remain $50,000.

Environmental Quality Incentive Program

The Environmental Quality Incentive Program, hereinafter "EQIP" would be reauthorized in both the House and Senate bills. Under the House bill, funding for EQIP would be increased to up to $2 billion by 2012. Under the Senate bill baseline funding would remain the same and the payment limitation would be reduced from the current limitation of $450,000 over a five year period to $240,000 over a five year period.

Dairy Programs

The Milk Income Loss Contract program, hereinafter "MILC," would be extended under both the House and Senate bills. Under the Senate bill the payment factor would be increased to 45% and the quantity limitation would be increased from 2,400,000 to 4,150,000.

Other dairy programs including the Dairy Forward Pricing Program, Dairy Export Incentive Program, Dairy Indemnity Program, dairy price support through government purchase of cheddar cheese, butter and nonfat dry milk are continued.

Conclusion

The proposed farm bills also include several new programs and changes and continuations of programs authorized under previous farm bills. If you grow a specialty crop, raise livestock or grow organic crops the 2007 farm bill may also affect government benefits you have been eligible to receive under previous farm bills.

The purpose of this article is to provide you with information so that you may start planning for future compliance with government program requirements. Until a final version of the farm bill passes both the House and the Senate, change to this information can be expected.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.