Farm Programs:

Direct Payments Should Be Reconsidered

GAO-12-640: Published: Jul 3, 2012. Publicly Released: Jul 3, 2012.

Additional Materials:

Contact:

Lisa R. Shames
(202) 512-3000
shamesl@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

From 2003 through 2011, the U.S. Department of Agriculture (USDA) made more than $46 billion in direct payments to farmers and other producers. These producers planted varying percentages of acres that qualified for payments based on their historical planting yields and designated payment rates (qualifying acres). Cumulatively, USDA paid $10.6 billion—almost one-fourth of total direct payments made from 2003 through 2011—to producers who did not, in a given year, grow the crop associated with their qualifying acres, which they are allowed to do. About 2,300 farms (0.15 percent of farms receiving direct payments) reported all their land as “fallow,” and producers did not plant any crops on this land for each year for the last 5 years, from 2007 through 2011; in 2011, these producers received almost $3 million in direct payments.

Direct payments generally do not align with the principles significant to integrity, effectiveness, and efficiency in farm bill programs that GAO identified in an April 2012 report. These payments align with the principle of being “distinctive,” in that they do not overlap or duplicate other farm programs. However, direct payments do not align with five other principles. Specifically, they do not align with the following principles:

  • Relevance: When the precursors to direct payments were first authorized in 1996 legislation, they were expected to be transitional, but subsequent legislation passed in 2002 and 2008 has continued these payments as direct payments. However, in April 2012, draft legislation for reauthorizing agricultural programs through 2017 proposed eliminating direct payments.

  • Targeting: Direct payments do not appropriately distribute benefits consistent with contemporary assessments of need. For example, they are concentrated among the largest recipients based on farm size and income; in 2011, the top 25 percent of payment recipients received 73 percent of direct payments.

  • Affordability: Direct payments may no longer be affordable given the United States’ current deficit and debt levels.

  • Effectiveness: Direct payments may have unintended consequences. Direct payments may have less potential than other farm programs to distort prices and production, but economic distortions can result from these payments. For example, GAO identified cases where direct payments support recipients who USDA officials said own farmland that is not economically viable in the absence of these payments.

  • Oversight: Oversight of direct payments is weak. With regard to oversight, USDA has not systematically reported on land that may no longer be eligible for direct payments because it has been converted to nonfarm uses, as required for annual reporting to Congress. In addition, GAO identified weaknesses in USDA’s end-of-year compliance review process. For example, USDA conducts relatively few reviews and generally does not complete these reviews within expected time frames.

Continuing to provide payments that generally do not align with principles significant to integrity, effectiveness, and efficiency in farm bill programs raises questions about the purpose and need for direct payments.

Why GAO Did This Study

Through one facet of the farm safety net, USDA provides farmers and other producers with fixed annual payments, called direct payments, based on their farms’ historical crop production. Direct payments do not vary with crop prices or crop yields. In March 2011, GAO reported on observations and options regarding direct payments and suggested to Congress that they be eliminated or reduced. GAO was asked (1) to provide information regarding the geographic distribution and ownership characteristics of payment recipients, as well as the dollar amount of direct payments made for farms with acreage that qualified, and the amount and types of crops grown on such acreage for years 2003 to 2011, and (2) to examine whether direct payments are aligned with principles significant to integrity, effectiveness, and efficiency in farm bill programs. To conduct this work, GAO analyzed USDA data and interviewed agency officials.

What GAO Recommends

Congress should consider eliminating or reducing direct payments. GAO also recommends that USDA take four actions to improve its oversight of direct payments including developing a systematic process to report on land that may no longer be usable for agriculture, and considering ways to increase the number of cases selected for end-of-year reviews and completing these reviews in a timely manner. USDA generally agreed with two of GAO’s recommendations and disagreed with two others, stating that it believes its current processes or practices are adequate. GAO continues to believe that it is important for USDA to take the recommended actions.

For more information, contact Lisa Shames at (202) 512-3841 or shamesl@gao.gov.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: From 2004 through 2013, the U.S. Department of Agriculture (USDA) made more than $47 billion in direct payments to farmers and other producers. Direct payments are fixed annual payments to farmers based on a farm's history of crop production. Farmers received them regardless of whether they grew crops and even in years of record income. In 2009, GAO first reported that reducing these payments could save millions of dollars annually. In March 2011, GAO issued a report followed by testimonies suggesting that Congress eliminate or reduce direct payments to achieve cost savings of up to $5 billion annually. In September 2011, the President released his Plan for Economic Growth and Deficit Reduction, which included a proposal to terminate direct payments, and a senior White House official cited GAO's work in support of the proposal. In July 2012, GAO released a report, which found that direct payments generally do not align with principles significant to integrity, effectiveness, and efficiency in farm bill programs, and GAO again recommended that Congress consider eliminating or reducing the payments. In November 2012, USDA's Economic Research Service cited GAO's report when it issued a report on the effects of eliminating direct payments. In August 2013, Sen. Flake cited GAO's work as he urged congressional conferees to issue a farm bill conference report that eliminated direct payments, which they did. In addition, GAO's work on direct payments and cost savings was referenced in several national news publications from 2011 through 2013. In February 2014, Congress eliminated direct payments when it passed the Agricultural Act of 2014 without reauthorizing them. The Congressional Budget Office estimated that eliminating direct payments would save $4,946,000,000 annually from fiscal year 2015 through 2019.

    Matter: In light of the need to identify potential savings in the federal budget and questions about the continued need for direct payments, Congress should consider eliminating or reducing these payments.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: As noted in our report, in its official comments USDA disagreed with this recommendation, stating that it considers its current process of selecting a statistical sample of producers for spot checking to be adequate. Further, in July 2016, the Deputy Director of FSA's Production, Emergencies, and Compliance Division stated that nothing has changed regarding USDA's response to this recommendation. However, given the weaknesses in USDA's process, as discussed in the report, such as the very small number of producers selected for annual spot checks and methodological limitations and inconsistencies in how FSA's field offices collect data on land conversions, we continue to believe that FSA needs to develop and implement a more systematic process. Thus, we are closing this recommendation as not implemented.

    Recommendation: To help ensure that direct payments, while they remain in effect, and other farm programs, including Average Crop Revenue Election (ACRE) and counter-cyclical payments, are made in a manner consistent with farm bill provisions and related implementing regulations, and to minimize the potential for improper payments, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency (FSA) to develop and implement a systematic process to report on land that may no longer be usable for agriculture, as required for annual reporting to Congress.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Not Implemented

    Comments: In August 2016, the Farm Service Agency's (FSA) Geographic Information System (GIS) Program Manager advised us that FSA has not obtained additional funds to increase its acquisition of geospatial imagery to meet an annual collection timeframe. However, this official noted that FSA has been able to move from a 3-year acquisition cycle to a 2-year cycle for the Continental United States without an increase in agency funding due to improved technology and collection methods. This official also said the agency continues to seek improvements to the program within existing budget constraints. While moving the acquisition cycle from 3 to 2 years is an improvement, we continue to believe that FSA should explore options, such as leveraging resources from other agencies or reallocating more funding to geospatial imagery acquisition within it existing budget resources, to better meet the agency's and imagery program's needs. Thus, we are closing this recommendation as not implemented.

    Recommendation: To help ensure that direct payments, while they remain in effect, and other farm programs, including ACRE and counter-cyclical payments, are made in a manner consistent with farm bill provisions and related implementing regulations, and to minimize the potential for improper payments, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to ensure the more timely and consistent regular collection and distribution of geospatial imagery needed to corroborate that payments are only made for lands usable for agriculture.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Not Implemented

    Comments: In its official comments on our report, USDA disagreed with this recommendation, stating in part that, in consideration of efficiency, the Farm Service Agency (FSA) had made a targeted selection and devoted its limited resources to identify farming operations considered most likely to have potential payment eligibility and limitation compliance issues. In March 2016, a Program Manager in FSA's Production, Emergencies, and Compliance Division, citing changes made in the 2014 Farm Bill to payment eligibility and limitation requirements and noting that FSA's budget constraints have not improved, told us that FSA could find no compelling reason or justification to increase the sample size of farming operations selected for end of year reviews. Regarding program changes, this official said that direct payments had been eliminated, and the counter-cyclical and ACRE programs had been replaced by new programs with more stringent actively engaged in farming requirements and higher payment limitations. This official noted that these and other Farm Bill changes have diminished the number of program participants who will even approach or reach the new $125,000 payment limitation in a given year. While we have not assessed the impact of these Farm Bill changes, we note that there is still potential for improper payments in the farm programs. Further, if FSA continues to select a small sample of cases for end of year reviews and does not complete these reviews in a timely manner, the agency will continue to expose itself and taxpayers to potential fraud, waste, and abuse of taxpayers dollars. Thus, we are closing the recommendation as not implemented.

    Recommendation: To help ensure that direct payments, while they remain in effect, and other farm programs, including ACRE and counter-cyclical payments, are made in a manner consistent with farm bill provisions and related implementing regulations, and to minimize the potential for improper payments, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to consider options within given budget constraints to improve FSA's end-of-year reviews by selecting a larger sample of cases to review and ensuring that these reviews are completed in a timely manner.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: In March 2016, a Program Manager in the Farm Service Agency's (FSA) Production, Emergencies, and Compliance Division told us that FSA made revisions to its end of year review (EYR) process and end of year tracking (EYRT) system to require its staff to record and track determinations of producer misrepresentation, scheme and device, and fraud as the result of the EYR process. These revisions were included in a May 2013 amendment to FSA's Handbook for State and County Offices (4-PL Amendment 17, May 15, 2013) and appear responsive to the intent of the recommendation. Therefore, we are closing this recommendation as implemented.

    Recommendation: To help ensure that direct payments, while they remain in effect, and other farm programs, including ACRE and counter-cyclical payments, are made in a manner consistent with farm bill provisions and related implementing regulations, and to minimize the potential for improper payments, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to maintain comprehensive data on misrepresentation and enforcement actions taken nationwide, as needed for management oversight and reporting purposes.

    Agency Affected: Department of Agriculture

 

Explore the full database of GAO's Open Recommendations »

Dec 7, 2016

Nov 28, 2016

Nov 17, 2016

Jun 9, 2016

May 26, 2016

May 19, 2016

Apr 14, 2016

Jan 14, 2016

Jan 8, 2016

Jul 9, 2015

Looking for more? Browse all our products here