Agriculture Payments:

Effectiveness of Efforts to Reduce Farm Payments Has Been Limited

RCED-92-2: Published: Dec 5, 1991. Publicly Released: Dec 11, 1991.

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Pursuant to a congressional request, GAO reviewed whether: (1) amendments to the Food Security Act of 1985 effectively prevented producers from avoiding the $50,000 payment limit and reduced program payments; and (2) the Department of Agriculture's (USDA) computer systems effectively monitor and enforce payment limit requirements.

GAO found that the Food Security Act of 1985 limited deficiency payments, which are designed to protect agricultural producers when crop prices fall below an established target price, to $50,000 per person. GAO also found that the 1987 amendments had a very limited effect in reducing payments, since: (1) the amendments allowed equitable reorganizations under which farmers could reorganize their farming operations, within a specified time period, to avoid any reductions in their total payments; (2) USDA required that only 50 percent of a corporation's ownership provide significant contributions of personal labor or active personal management for the corporation to meet the requirement that it be actively engaged in farming; and (3) individuals could qualify for payments from up to three eligible entities. In addition, GAO found that: (1) because the amendments' provisions worked against one another, the provisions only reduced 1989 program payments by $3.4 million; (2) according to a USDA report, 12 of the 52 farming operations reviewed reorganized their business structures to avoid losses in payments; and (3) USDA computer systems effectively monitor and limit payments to producers.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: As part of the Federal Agriculture Improvement and Reform Act of 1996, the 104th Congress replaced farm program payments with production flexibility contract payments and reduced the payment limit from $50,000 to $40,000. However, the act did not address the issue of limiting payments to individuals actively engaged in farming, as GAO has recommended. No further changes in payment limitations are anticipated.

    Matter: If Congress wants to further tighten payment limits as a means of reducing program costs, it may wish to consider having the payment limit apply to individuals only, with payments limited to $50,000 for individuals actively engaged in farming whether those payments: (1) are earned from their own operations; or (2) are attributed to them as owners in one or more entities. A higher limit could be established for specific crops that would not be considered economically viable if held to the $50,000 limit.

 

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