Report of the Commission on

the Application of Payment

Limitations for Agriculture 

Submitted in Response to Section 1605, 

Farm Security and Rural Investment Act of 2002

August 2003
Report of the Commission on the Application of Payment Limitations for Agriculture,

Submitted in Response to Section 1605, Farm Security and Rural Investment Act of 2002.

Prepared by the Commission on the Application of Payment Limitations for Agriculture.

August 2003. Published by the Office of the Chief Economist, U.S. Department of

Agriculture. Washington, D.C. August 2003. 168 pp.

This report is available in electronic form at http://www.usda.gov/oce.

Washington, D.C. 20250-3800 August 2003
T

he Commission on the Application of Payment Limitations for Agriculture

(Commission) was established by the Farm Security and Rural Investment Act of 2002

(2002 Act). The purpose of the Commission was to conduct a study on the potential

impacts of further payment limitations on direct payments, counter-cyclical payments, and

marketing assistance loan benefits on farm income, land values, rural communities, agribusiness infrastructure, planting decisions of producers affected, and supply and prices of covered

and other agricultural commodities. 

The 2002 Act directed the Commission to prepare a report containing the results of the

study, including such recommendations as the Commission considers appropriate. This

report has been submitted in fulfillment of the 2002 Act to the President, the Committee on

Agriculture of the House of Representatives, and the Committee on Agriculture, Nutrition,

and Forestry of the Senate. 

The Commission consists of three members appointed by the Secretary of Agriculture: Alice

Devine, Vice President and General Counsel, Kansas Livestock Association, Kansas; Dr.

Edward Smith, Associate Director, Agricultural and Natural Resource Sciences, Texas

Cooperative Extension, Texas A&M University System; and William Spight, producer,

Mississippi; three members appointed by the Committee on Agriculture, Nutrition, and

Forestry of the Senate: Terry Ferguson, producer, Illinois; Ellen Linderman, producer, North

Dakota; and Dr. Neil Harl, Charles F. Curtiss Distinguished Professor in Agriculture and

Professor of Economics, Iowa State University; three members appointed by the Committee

on Agriculture of the House of Representatives: Gary Black, President, Georgia Agribusiness

Council; Gary Dyer, President and Chief Executive Officer, Farm Credit Services Southwest,

Arizona; and Richard Newman, producer, Texas; and the Chief Economist of the

Department of Agriculture, Dr. Keith Collins.

Shortly after the appointment of all members and the Commission Chair, the Commission

held its first meeting in late January 2003. The Commission met nine times since then, with

the final meeting in August 2003. Written comments were solicited from the public during

March 2003 on the effects of further payment limitations, and the Commission received 375

comments. Copies of the comments are available from John Jinkins, Farm Service Agency,

USDA, Washington D.C. The Commission held a public workshop on June 17, 2003, in

Washington, D.C., where invited experts presented analyses of the effects of further payment

limitations, and the public provided written and oral comments. Copies of the papers presented by the invited experts at the workshop and a transcript of the workshop are available

from John Jinkins. The Commission also invited a variety of experts to provide information

to the Commission during its meetings.

The Commission extends special acknowledgement to the following individuals for their

contributions to the Commission’s efforts:

Dr. John Jinkins, Farm Service Agency, USDA, and Dr. Larry Salathe, Office of the Chief

Economist, USDA. These two individuals served as the principal staff to the Commission,

and their exceptional efforts are greatly appreciated.

i

Preface
Staff of the Farm Service Agency for analytical assistance, including James Little, Jim Baxa,

Sandy Bryant, Kimberly Graham, Dr. Terry Hickenbotham, Brad Karmen, Dan McGlynn,

and Tracey Smith.

Staff of the Farm Service Agency for administrative support, including Patty Moore, Sally

Reed, Lynda Smythe, Marlene Thompson, and John Williams.

Staff of the Office of Inspector General, USDA, for analytical assistance, including Thomas

Carlson and Melinda Wenzl.

Staff of the Economic Research Service, USDA, for analytical assistance, including Dr. Susan

Offutt, Dr. Charles Barnard, Dr. Steve Crutchfield, Linda Ghelfi, Dr. Jeffrey Hopkins, Dr.

David McGranahan, Dr. Mitchell Morehart, Dr. Stephen Vogel, and Paul Westcott.

Tom Sell, USDA and formerly of the staff of the House Committee on Agriculture, and

Terry Van Doren of Senator Fitzgerald’s staff for background on the statutory charge to the

Commission. 

Shirley Brown, Office of the Chief Economist, who provided administrative support to the

Commission; and Raymond Bridge, Office of the Chief Economist, and the USDA Office of

Communications, for assistance in publishing this report.

Invited presenters at the June 17 Workshop included: Dr. Daniel Sumner, Professor and

Frank H. Buck, Jr. Chair in Agricultural Business, University of California, Davis, and

Director of the Agricultural Issues Center, University of California; Dr. Bruce Gardner,

Distinguished University Professor, University of Maryland; Dr. Daryll Ray, Professor and

Blasingame Chair of Excellence and Director of the Agricultural Policy Analysis Center,

University of Tennessee; Dr. Pat Westhoff, Food and Agricultural Policy Institute, University

of Missouri; Dr. Jim Richardson, Professor, Food and Agricultural Policy Research Institute,

Texas A&M University System; Dr. Mark Lange, President, National Cotton Council; Roger

Johnson, Commissioner of Agriculture, North Dakota; David Stanford, Vice President,

Plains Cotton Cooperative; and Richard Bell, President and Chief Executive Officer,

Riceland Foods, Inc.

The Commission is also greatly indebted to the many people who made the effort to provide

written and oral comments to the Commission.

ii
Gary W. Black

Georgia 

Alice A. Devine

Kansas

Terry Ferguson

Illinois 

Ellen Linderman

North Dakota

Edward G. Smith

Texas

Keith Collins, Chair

Washington, D.C. 

Gary R. Dyer

Arizona

Neil E. Harl

Iowa

Richard O. Newman

Texas

William M. Spight

Mississippi

iii

Completed this 30th day of August, 2003:
Report Summary and Recommendations 1

Report Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Chapter 1: Overview of Payments and Payment Limitations 17

Farm Program and Payment Limit Policy Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Farm Programs Considered by the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

The Development of Payment Limits Through 2001 . . . . . . . . . . . . . . . . . . . . . . . . . .26

Payment Limits on the Programs Considered by the Commission . . . . . . . . . . . . . . .27

Off-Farm Income and Eligibility for Programs Considered by the Commission . . . .27

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Chapter 2: Administering Payment Eligibility and Limit Rules 31

Farm Business Organization and “Person” Determination . . . . . . . . . . . . . . . . . . . . .31

Ownership Shares and Person Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Three-Entity Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Actively Engaged in Farming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Review of Payment Limit Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Chapter 3: Level and Distribution of Payments 41

Farm Service Agency Data on Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Economic Research Service Data on Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Chapter 4: General Effects of Current Payment Limitations 65

Total Reduction in Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

Reduction in Payments by Commodity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67

Reduction in Payments by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73

Farm Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75

Land Values, Rural Communities, Agribusiness Infrastructure, Planting Decisions, 

and Supply and Prices of Covered Commodities . . . . . . . . . . . . . . . . . . . . . . . . . .78

Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78

Commodity Certificate Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87

iv

Contents
Chapter 5: Effects of Further Payment Limitations 89

Effects of Further Payment Limitations on 

Farm Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103

Effects of Further Payment Limitations on 

Farmland Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113

Effects of Further Payment Limitations on Rural Communities and Agribusiness

Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122

Effects of Further Payment Limitations on Planting Decisions and the Supply and

Prices of Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130

Appendix A: Supplemental Tables for Chapter 3 131

Appendix B: Supplemental Tables for Chapter 4 136

Appendix C: Supplemental Tables for Chapter 5 155

List of Figures and Tables 159

v
vi
Report Summary

Many objectives of farm program payments have been advanced over time, ranging

from ensuring an abundant and affordable supply of food and other farm products, to conserving natural resources, to supporting the family farm. The justifications for payment limits and their implementation depend on the objectives of the payments and the effects of the limits on achieving those objectives. Payment limits are an

increasing public issue today. Opinions on the objectives of farm programs are very diverse.

The Federal budget deficit is record large. Although payments have declined recently, the

cost of farm programs may again rise, if favorable weather increases production. This report

assesses the effects of existing and further payment limitations, with the hope that the

report will contribute to the continuing discussion of payment limitations for agriculture. 

The Three Types of Program Payments Are Interrelated and

Have Contrasting Purposes

The Commission was directed to consider three types of government payments for the program crops: food grains, feed grains, upland cotton, and oilseeds. Direct payments provide

general income support through a fixed payment dependent on producers’ historical

acreages and yields. Counter-cyclical payments also depend on historical acreages and yields

but vary depending on the level of prices. Benefits from the marketing assistance loan program are linked to current market conditions, depending on both current production and

prices, with benefits increasing as production rises and prices decline. The marketing assistance loan program offers producers four possible types of benefits: loan deficiency payments, marketing loan gains, certificate exchange gains, and forfeiture gains. Certificate

exchange gains and forfeiture gains are not subject to payment limits. 

Each of these three payment programs has separate payment limits. The payment rates and

the payment limits for each program were established in relation to one another for the program crops. This interrelationship increases the complexity of changing payment and payment limit provisions. Payment limits are uniformly applied across commodities, and

regions, despite very different structural and economic situations. Further payment limits, if

applied uniformly, would have very different effects across commodities and regions.

Payment Eligibility Criteria Greatly Affect the Performance of

Payment Limits

“Persons” are the units to which payment limits currently apply. Persons may be human

beings (individuals) or forms of business organizations, known as “entities.” Current payment limit administration has two major aspects: payment eligibility criteria (recipients

must be “actively engaged in farming”) and payment limit implementation (payment recipients can receive payments from no more than three entities). Types of business organizations that reduce farmers’ risks, such as corporations or limited partnerships, count as a single payment limit person. Types of organizations where producers pool resources but are

Report Summary and Recommendations 1

Report Summary

and

Recommendations
individually liable for claims against the farm, such as general partnerships, can potentially

have as many payment limit persons as there are members. In addition, an individual, as a

sole proprietor or a member of a joint operation or a partnership, may also receive payments from two other entities that may be corporations or limited partnerships. As a result,

the administration of payment limits creates incentives for producers to organize their farms

in ways that would not occur in the absence of the payment limitations. 

To be eligible for payments, persons must be “actively engaged in farming.” To be actively

engaged, they must contribute time (labor or management) and capital (land or equipment

or operating expenses) to the farming operation. This actively engaged concept is an effort

to define who is truly a farmer. The actively engaged rule is relaxed for share-rent landowners; they are considered to be actively engaged. This provision benefits operators by facilitating the sharing of production and marketing risks between operators and landowners.

Determining active management is very difficult and lack of clear criteria likely facilitates

the creation of persons for payment limit purposes.

Current Payments Reflect Farm Size, Are Concentrated in

America’s Midsection, and Account for a Sizeable Share of

Farm Income

Production flexibility contract (PFC) payments, market loss assistance, and marketing loan

benefits averaged $18.5 billion annually for the 1999-2001 crops. However, the President’s

Budget, released in February 2003, projects government payments of $8.8 billion for the

2002 crops and an average of $11.6 billion per year for the 2003-07 crops. This decline, if

realized, would reduce average payments to producers and perhaps lessen payment limit

issues. Budget projections, however, remain uncertain. Direct payments are projected to be

the largest component of payments, averaging slightly over $5 billion per year for the life of

the 2002 Act. Corn, wheat, and soybeans are expected to account for nearly three-fourths

of those payments. Counter-cyclical payments are projected to average $4.4 billion, but

could reach nearly $8 billion per year if market prices were to fall to each eligible crop’s loan

rate. Marketing assistance loan benefits are projected to average $1.6 billion per year, but

could surge to over $11 billion annually, if crop prices were to return to 1999-2001 levels.

Larger than anticipated marketing loan benefits would also likely increase the use of certificates above current projections. Marketing loan benefits reached a record high in 2001 at

$8.2 billion, including certificate exchange gains of $2 billion, which were also record high. 

The 1996 Act’s payments are concentrated in the Midwest, Plains, and Delta States, areas

tending to specialize in the production of program crops. Excluding conservation payments,

about one-third of all farms receive government payments. In recent years, government payments have accounted for about 20 percent of gross cash income and about 100 percent of

net cash income for the crops now eligible for direct and counter-cyclical payments and

marketing assistance loans. The farms receiving government payments tend to have higher

farm incomes and higher net worth than farms not receiving government payments.

However, commercial farms (over $250,000 in sales) receiving government payments have

lower farm incomes than those not receiving government payments.

2 Report Summary and Recommendations 
Direct and counter-cyclical payments are paid on a farm’s historical production, and marketing loan benefits are available for a farm’s total production of eligible crops; consequently, farm program payments increase with farm size. In 2001, the largest 6 percent of U.S.

farms received 30 percent of total PFC, market loss and disaster assistance payments, and

marketing loan benefits, but these farms accounted for 48 percent of the total value of agricultural production on farms receiving government payments.

Current Payment Limits Have Little Impact on Payments,

Farm Income, Farmland Values, Rural Economies, or Markets

The current $40,000 payment limit on direct payments is projected to reduce payments to

producers by about 1.6 percent or $85 million per year. This conclusion is based on Farm

Service Agency (FSA) payment data prior to the 2002 Act and assumes producers reaching

the payment limit do not restructure from their situations prior to the 2002 Act. The

$65,000 limit on counter-cyclical payments is projected to reduce payments by about 1.6

percent or $125 million per year when market prices for all crops eligible for counter-cyclical payments are at or below their respective loan rate. About 1 percent of all producers

(persons) are projected to have payments reduced because of current payment limits.

A larger proportion of upland cotton and rice producers are affected by current payment

limits than producers of other program crops. For cotton and rice, direct and countercyclical payments per acre and average acreage per farm are generally higher than for other

crops eligible for direct and counter-cyclical payments. Nevertheless, many producers

affected by payment limits are located outside of the traditional upland cotton and rice

production areas. In 2001, producers in 43 States reached the limit on PFC payments.

Furthermore, making soybeans and other oilseeds eligible for direct and counter-cyclical

payments under the 2002 Act will increase the number of producers that have payments

reduced because of payment limits in the Corn Belt and in other regions that dominate in

the production of these crops.

Producers currently have many options to reorganize their farm businesses in ways that reduce

the effect of limits on direct and counter-cyclical payments. Nationally, 88 percent of farms

had 1-2 persons, 11 percent had 3-5 persons, about 1 percent had 6-10 persons, and 0.1 percent had 11 or more persons in 2002. It is likely that many of the farms with a high number

of persons restructured to avoid payment limits. There were 325 farms with 21 or more persons. Ninety percent of these farms were located in 9 States—Arkansas, California, Illinois,

Louisiana, Mississippi, Missouri, North Dakota, Texas, and Washington. Data for 2001 indicate these were among the leading States in terms of the number of producers having payments reduced because of the limit on PFC payments and the value of payments forgone.

Current payment limits have very little effect on land values, rural communities, and

agribusiness infrastructure. That is because limits on marketing loan benefits are not effective, only a small percentage of program crop producers reach the current limits on direct

and counter-cyclical payments, and many of the largest farms have either restructured or are

Report Summary and Recommendations 3
likely to do so to lessen the extent to which the limits reduce payments. For the same reasons,

current payment limits also have very limited effects on planting decisions and supplies and

prices of covered commodities. In addition, direct and counter-cyclical payments are decoupled from production and consequently have little to no influence on planting decisions. 

The estimated annual reduction in payments due to current payment limits, which is projected to be on the order of $85-$210 million, can be compared with the costs of administering and implementing payment limits. FSA estimates the costs for producers of filling out

required forms at about $8 million annually, which does not include any legal, accounting,

or other fees. The Commission was unable to estimate the cost of legal, accounting, or other

fees. The Federal government spends about $16 million a year to administer regulations

related to farm program payment eligibility and payment limits, including regulations that

pertain to conservation and disaster programs. These costs include: employee and other

expenses to see that appropriate forms are filled out and filed properly; costs to load information electronically and to develop, maintain, and refine software used to track payments; and

costs to investigate, gather evidence, and prosecute instances in which producers have either

violated or appear to have violated regulations on payment limits.

The use of certificates has been controversial, subject to much confusion, and often pointed

to as the reason limits on marketing assistance loan benefits are ineffective. Producers can

avoid the current limit on marketing loan benefits by taking out a nonrecourse marketing

assistance loan, waiting until loan maturity, and then forfeiting the crops used as collateral to

secure the loan. Certificates simply provide a means to obtain the marketing loan benefit

without waiting for loan maturity to forfeit. As a result, prohibiting the use of commodity

certificates under the current marketing loan program would likely increase loan forfeitures,

which are not currently subject to payment limits.

The use of certificates under current marketing loan provisions results in little projected savings or costs to the taxpayer and only a slight increase in income for producers who would

otherwise reach the payment limit and forfeit crops held as collateral for marketing assistance

loans. Certificate exchanges avoid potential market disruption both during the marketing

season, as stocks that would otherwise be held under loan are free to be marketed, and at the

end of the season, when the government would otherwise likely sell forfeited loan stocks.

Further Limitations Could Have Substantial Regional Effects,

but Modest National Effects; Much Depends on the Type of

Limitations and the Ability of Producers To Adjust

Effects on Producers, Payments, and Farm Income 

The effect of further payment limitations on farm income depends on the size of payments,

the type of further limitations implemented, the effects on crop supplies and prices, and the

extent to which affected producers may be able to restructure their farm operations.

4 Report Summary and Recommendations 
Analysis of PFC payment data for 2000 and 2001 indicates that reducing the limit on direct

payments from the current level of $40,000 to $30,000 per person, and assuming producers

reaching the limit do not restructure further, could reduce direct payments by an additional

$255-$275 million per year, or roughly 5 percent. With prices at the 1999-2001 levels,

reducing the limit on counter-cyclical payments from $65,000 to $50,000 could lower

counter-cyclical payments by an additional $400-$425 million annually, or about 5 percent.

If marketing assistance loan benefits, including certificate exchanges and loan forfeitures, are

limited to $75,000, and assuming no supply response, marketing loan benefits could decline

by as much as $400-$500 million annually, or about 4 percent. The number of producers

(persons) reaching the reduced limit on direct payments would rise from about 12,300 currently to 35,000-40,000. A similar number of producers would reach the reduced limit on

counter-cyclical payments, if crop prices fall back to 1999-2001 levels.

Generally, payment limits more adversely affect the incomes of cotton and rice producers

than feed grain, oilseed, and wheat producers. Further payment limitations would put financial pressure on many upland cotton and rice farms, unless they are able to restructure.

Further payment limitations would also reduce payments and incomes for a lesser percentage

of feed grain, wheat, and oilseed farms. Nearly every State would have some producers who

would have payments and incomes reduced under further payment limits. Producers affected

by payment limits have a number of options for mitigating the effects on farm income. For

example, owner-operators could increase the number of persons eligible for payments, cash

rent out land, or sell some or all of the acreage no longer eligible for payments. In many

cases, payments would be redistributed from the producers affected to producers unaffected

by further payment limits, partly negating the effects of further payment limits on total payments and aggregate farm income.

Farm operators who rent land may have fewer options to offset income reductions due to

further payment limits. They would likely be less able to compete with other renters for

land on which they are no longer eligible for payments. If cash renting, they could try to

negotiate share rent leases but would be unlikely to succeed if that creates a payment limit

problem for the landowner. Another potential difficulty for tenants is that landowners

could elect not to produce on the land and collect direct and counter-cyclical payments

rather than renting the land out.

Effects on Farmland Values 

Some studies indicate that total government payments in recent years have increased U.S.

farmland values by 15-25 percent; thus reductions in payments would be expected to have an

effect on farmland values. Payment effects on farmland values vary regionally, reflecting the

importance of payments and the influence of nonagricultural uses and other factors on farmland values. The benefits of higher land values accrue to landowners, with many not directly

involved in agricultural production. About 41 percent of all farmland is rented out by

landowners who do not operate farms, although they may share in the risk of production

through crop share rental agreements. Higher farmland values increase the wealth of

Report Summary and Recommendations 5
landowners, helping them finance the purchase of additional land. Higher farmland values

also reduce the ability of limited-resource farms to purchase cropland and are of little benefit

to farm operators farming mostly rented land.

In areas where competition for rented land is intense, government payments are quickly

reflected in rental rates. In other areas, rental rates are slower to adjust, and tenants may

retain some of the benefits of government payments. Further payment limitations, by affecting more producers, could reduce competition for land, leading to lower cash rents and land

values. The effects of further payment limitations on land values, while expected to have little

effect nationally, are likely to vary considerably from region to region, reflecting regional differences in land markets and the number of producers and the amount of payments affected

by further limitations. In many areas, land values are heavily influenced by nonagricultural

uses, program crops account for a small portion of total cropland, or further payment limitations may not affect enough producers to reduce competition materially for farmland, helping to maintain land values.

Assuming affected producers do not restructure their operations, the percentage of upland cotton and rice producers reaching the payment limit could rise sharply under further payment

limitations, causing cash rents and land values to decline most in the areas that produce these

crops. In Arizona and California, the percentage of upland cotton and rice producers reaching

the limit on direct payments could rise to 25 percent or more if the payment limit on direct

payments is reduced from $40,000 to $30,000. In these States, competition for land for production of non-program crops and nonagricultural uses may limit the decline in land values.

Increasing numbers of upland cotton and rice producers in other States would also have their

payments reduced under further payment limits. Cash rents and land values could be more

affected in the Delta and Southern Plains than elsewhere. In these regions, government payments are an important source of income and cropland is primarily used for program crops.

Analysis conducted at the request of the Commission by the Food and Agricultural Policy

Research Institute (FAPRI) estimated that land values would average about 0.4 percent lower

and rental rates would average 0.8 percent lower nationally during 2004-12, if each farm was

limited to receiving $40,000 in direct payments, $60,000 in counter-cyclical payments, and

$175,000 in marketing loan benefits. (Farms analyzed were those meeting the Census of

Agriculture definition.) The analysis assumed projected market prices above levels during

1999-2001 and that farms would restructure so that 50-75 percent of acreage affected would

continue receiving payments. The largest regional declines in land values and rental rates

were predicted to occur in the Delta, Southern Plains, Far West, and Southeast, with land

values declining about 0.8 percent or more and rental rates declining by 1.6 percent or more

in each of these regions.

Effects on Rural Communities and Agribusiness Infrastructure 

Farming’s role in the Nation’s rural economies has declined over time, as growth in the nonfarm

economy exceeded that in farming. Out of 2,450 rural U.S. counties, the number of farmdependent counties—those where farming accounts for 20 percent or more of county personal

6 Report Summary and Recommendations 
income—has declined, falling from 556 in 1989 to 316 in the mid-1990s. While the farm

share of rural economic activity and the farm population have declined, the rural population

has grown, and average farm household income has risen to the point where it is on a par with

average urban household income and exceeds average nonfarm rural household income.

Despite the long-term decline in farming in the rural economy, agriculture—more broadly

defined as farming plus input-supplying industries and processing, distribution, and delivery to

consumers—remains a crucial part of the rural and national economy, accounting for 17 percent of U.S. employment and 12 percent of U.S. gross domestic product in 2001. Many rural

counties that are farming dependent also continue to depend heavily on government payments.

The greatest effects of further payment limitations on rural communities and agribusiness

infrastructure potentially occur in counties where payments are most concentrated, farm

income is most dependent on payments, and the likelihood of producers being affected by

further payment limits is highest. Such areas are found in: the Delta States of Arkansas,

Louisiana, and Mississippi; in west Texas; and in rural areas of Arizona and California, where

rice and cotton payments are concentrated. If payment limits were tightened significantly,

thereby increasing the portion of producers affected, farm-dependent counties in western

Kansas, central and eastern Nebraska and South Dakota, western Iowa, and a few other areas

could potentially be affected as well.

Short-term effects of further payment limitations are likely to be negative for rural communities and their agribusiness infrastructure. This conclusion depends on the assumption that

payments are important, which occurs when farm prices are low, and it depends on how

producers adjust to reaching the payment limit. If producers reduce planted acreage, which

several economic studies suggest, then in the most affected counties, there would be

declines in farm income, farm input use, purchases of agribusiness services (such as specialized infrastructure like cotton ginning, warehousing, and rice milling), and farmland values.

The largest negative effects are expected to be for counties where production of cotton and

rice is concentrated. Producers may also shift to other crops, but such shifting is expected to

be modest nationally but more pronounced regionally. Positive short-term effects include

higher prices of the commodities whose acreage is reduced and lower production costs to

the extent cash rents decline. These effects would partially offset the contractionary effects

on the rural economies caused by the lower production and farm incomes of those directly

affected by the further limits.

The long-run effects on rural economies of further payment limits are generally unknown.

The short-run effects on the farm sector, just described, are likely to diminish over time, as

producers adjust in a variety of ways to the payment limits. While the competitive position

of small farms relative to large farms may be enhanced, little is known as to whether that

would translate into positive rural community and agribusiness effects over time. Instead,

most studies suggest factors other than farm structure are more important, ranging from

nonfarm technology developments (from roads to telecommunications), to economic diversity, to natural amenities, to human capital investment. 

Report Summary and Recommendations 7
Effects on Crop Planted Area, Supply, Demand, and Price 

Various studies indicate that government payments over time have increased crop production

from 1 to nearly 6 percent. The estimates depend on the period analyzed, as government

payments have much less effect on crop production and markets when prices are high.

Decoupled payments affect planting decisions much less than payments that are directly

linked to current production. Consequently, further limitations that reduce direct and

counter-cyclical payments would likely have considerably less impact on crop supplies and

prices than equivalent further limitations that reduce marketing loan benefits. 

Analysis of eliminating marketing loan benefits provides an upper bound on the effects on

acreage and price that could occur under further payment limits that appreciably affect marketing loans. One USDA study estimated the elimination of marketing loan benefits could

have reduced plantings of major crops by 2 to 4 million acres, with cotton acreage down 1.5

million acres in 2000, or over 10 percent, the largest percentage decline for all major crops.

In response, cotton prices were projected to rise 5 cents per pound and rice prices, 10 to 20

cents per hundredweight. Another USDA study estimated that the unusually low prices of

2001/2002 would have reduced cotton acreage by 2.5 to 3.0 million acres and rice by

300,000 acres in the absence of the marketing assistance loan program.

The FAPRI analysis of a specific payment limitation scenario, cited earlier, estimated that

further payment limitations could reduce the area planted to cotton by about 500,000 acres

and the area planted to rice by about 250,000 acres in 2004. Cotton prices were projected to

increase by 2 percent and rice prices by 8 percent in 2004, while prices for other major crops

do not change significantly. FAPRI also pointed out that these effects depend on the existing

program benefit levels. If cotton prices were to average below 40 cents per pound, as they did

during the 2001 crop year, FAPRI projects cotton acreage could decline by 1.2 million acres

in 2004, up from their estimate of 0.5 million acres under the higher baseline price of 40-50

cents per pound. Alternatively, if cotton prices were to average over 50 cents per pound, cotton acreage could fall by only 0.2 million acres.

Producers may increase production of other crops, depending on relative returns, the additional investment and machinery needed, and agronomic considerations. For many producers, alternative crops may not be feasible because of climatic conditions. Some producers or

landowners may opt not to produce a crop on acreage subject to further payment limitations,

particularly when market prices are considerably below the loan rate. This option is generally

less desirable than renting out the land not qualifying for payments to another producer who

is not affected by further payment limitations, but may be the option of choice, especially if

many potential renters have payments reduced under further payment limitations.

Many of the producers affected by further payment limitations would be located in States

that also produce a variety of fruits and vegetables. The 2002 Act’s limitations on planting

fruits and vegetables along with other factors, such as the increase in investment and equipment, availability of market outlets, including the need for contracts for many perishable

crops, and volatility in prices and returns, may prevent many producers affected by further

8 Report Summary and Recommendations 
payment limitations from shifting additional acreage into fruits and vegetables. Nevertheless,

small shifts in acreage into fruits and vegetables could have negative price effects on some

fruit and vegetable crops. Forage crops, such as alfalfa, may represent the best alternative for

many western growers, and increased production of such crops would likely occur. 

Acreage and price effects are likely to be greatest in the short term. Over time, producers

affected by further payment limits are likely to adjust their operations, including reorganizations that permit the receipt of more payments or changes in landownership and rental

arrangements that allow other producers to farm the program crop acreage and receive the

payments associated with the acreage and production. Consequently, over the long term,

changes in acreage, price, and total payments (and therefore land value and rural economy

effects) are expected to be substantially lower than in the short term.

Recommendations 

Section 1605 of the 2002 Act directs the Commission to study specific issues addressed in

this report. In addition, the report may include “such recommendations as the Commission

considers appropriate.” The focus of the Commission has been on reviewing data and analysis on the effects of further payment limits as reported in Chapters 1 through 5 of this report.

In addition, the Commission believes this work has provided information that could guide

future legislative and regulatory efforts that address administration, effectiveness, and

integrity of payment limits. This guidance is presented in this section of the report. 

Timing of Changes in the Levels and Application of 

Payment Limits

• Any substantial changes should take place with reauthorization of the next Farm Bill. 

The 2002 Farm Bill establishes farm payment programs, including payment limits,

through the 2007 crop year. While farm bills can be changed, their multiyear nature provides stability for production agriculture. Producers, their lenders, and other agribusiness

firms make long-term investment decisions based on this multiyear legislation.

Consequently, if substantial changes are to be made in payment limits, payment eligibility criteria, or regulations administering payment limits, such changes should be part of

the reauthorization of the next Farm Bill.

• If substantial changes are made, there should be an adequate phase-in period. 

If any substantial changes in payment limits were to be made, they should be phased in

over a sufficient period of time to avoid unnecessary disruptions in production, marketing,

and business organization, including landowner-tenant lease arrangements.

Report Summary and Recommendations 9
General Administration of Payment Limits

• More resources should be allocated for payment limit administration in USDA’s

Farm Service Agency (FSA) and Office of Inspector General (OIG). 

As a result of considerable interaction with those administering and auditing the payment

limit program, the Commission believes that USDA staff implement payment limits with

integrity and determination. Nevertheless, FSA county office staff have considerable workloads, and more resources could augment current efforts to train staff on payment limits

and monitor compliance. Similarly, OIG has limited staff available for compliance and

enforcement. The vast majority of farmers adhere to the rules that limit payments.

Additional resources could be used to develop a targeted, strategic approach for addressing

the most questionable cases of payment limit abuse. Consideration could also be given to

developing a system of graduated penalties for intentional violations of regulations that

would make the penalty commensurate with the degree of the infraction.

• Payment eligibility and limitation statutes and regulations should not create

incentives that lead producers to choose one form of business organization over

another. 

Farmers may organize their businesses as corporations, limited liability companies, or

other types of entities to limit their personal liability for farm business debts, estate planning, and other business reasons. Under current payment limits, there are organizational

structures, such as a corporation, that are treated as a single “person,” while in other business structures, where liability is not limited, such as a general partnership, each partner is

a separate “person” with a separate payment limit. Payment limits should not induce a

producer to choose one form of business organization over another.

• Payment eligibility and limitation statutes and regulations should not cause

producers to take on production and marketing risks that they would not

otherwise undertake. 

Share lease arrangements are important risk-sharing mechanisms for producers. Changes

in payment limits could provide an incentive to shift from cash to share rent or vice versa

for the purpose of redistributing payments. Payment limit statutes and regulations should

strive to minimize the effect on the preferred risk-sharing arrangements between landowners and tenants. Continuing to treat share rent landowners as actively engaged in agriculture helps facilitate risk sharing for producers. 

• Efforts to change payment limit policies should strive to make the policies

meaningful, transparent, and simple. 

These objectives are difficult to achieve but worthy, and potential changes in payment

limit policies and regulations should be tested against these objectives.

10 Report Summary and Recommendations 
• Changes in payment limits should be sensitive to differences in commodities,

regions, and existing agribusiness infrastructure. 

Uniform changes in payment limit policies may have very disparate and substantial

regional and local effects. Potential changes in payment limit policies and regulations

should recognize these impacts.

The Need for Additional Information

• USDA should increase efforts to provide more complete data on farm program

benefits. 

More information is needed on the relationships between socioeconomic data based on

farm operator households and payment data based on persons. Current databases on payments per person provide no economic or other information on the farm operation.

Operation data provide incomplete information on a farm’s person structure. As a result,

there is no direct information available on how farms would be affected by further payment limitations. The Commission also believes that USDA needs to make a meaningful

commitment to implementing section 1614 of the 2002 Act, which requires tracking of

benefits provided directly or indirectly to individuals and entities. The Commission had

difficulty obtaining data tracking all benefits to individuals and recommends that FSA

track all benefits through entities to individuals.

• Alternative ways of addressing payment limits, payment eligibility, and payment

limit implementation need more analysis. 

Academic research on the effects of payment limits is very sparse, partly because the data

are limited. Changes in payment limits should not be made without an understanding of

the costs and benefits of the changes. The social costs might include reduced production

efficiency for U.S. agriculture and the social benefits might include some socioeconomic

effects on rural areas. Current academic research provides very limited estimates of efficiency costs and no consensus on socioeconomic benefits. These effects are likely to

depend on the types of changes in limits that are made and merit additional study. In

addition, most of the results of this report were based on average or deterministic prices,

yields, and acreage. The consequences of changing risk-mitigating farm payment programs

are better understood using probabilistic risk analysis. Such an approach would provide

probability distributions of different outcomes and would make a valuable contribution to

the public discussion of payment limitations.

Payment Limit Implementation and Eligibility Criteria 

During preparation of this report, the Commission reviewed payment eligibility criteria and

payment limit implementation. This review and public comments received identified several

issues and alternative ways to address them. The Commission did not evaluate in detail the

effects of the many options that became apparent, and therefore provides only conceptual

Report Summary and Recommendations 11
guidance on these issues. Several of the many issues identified and options to address them

appear central to the debate about further payment limitations. Development of these concepts into precise proposals would require greater specificity and analysis.

• Attributing payments directly to individuals (human beings) could improve

program transparency, program administration, and farm business efficiency. 

Currently, payments are attributed to persons, which may be individuals or entities, such

as corporations. This treatment raised two concerns with the Commission. First, the flow

of payments from the government to and through all entities to individuals receiving the

payments is not identified and therefore not transparent. Second, differential treatment of

the various forms of business organizations creates incentives for producers to choose business organizations based on payments rather than risk or other business considerations.

Attributing payments directly to the individual would reduce these concerns.

The Commission identified two alternatives for implementing direct attribution:

1. All payments would be attributed directly to individuals and subject to the payment limits

on individuals. Entities could still qualify for and receive payments. The individual would

have to be actively engaged in agriculture for the individual, or the individual’s share of an

entity, to receive payments. Payments to an entity would be limited by the number of

individuals actively engaged in agriculture in the entity. A landowner, as well as trusts,

nonprofit organizations, corporations, or other entities that own and share rent land

would continue to be considered actively engaged and be eligible to receive payments.

As an example, an actively engaged individual could receive up to $40,000 in direct

payments made straight from the government to the individual. If the individual also

has interest in any number of entities and is actively engaged in agriculture in these entities, the individual could receive up to an additional $40,000 in direct payments made

to the entities and attributed through them to the individual. 

2. All payments would be attributed directly to an individual, but the individual would

not have separate limits for payments received directly from the government and from

payments received through entities. The existing limits, $40,000 for the individual and

$40,000 from other entities, would be combined into one limit per individual. As in the

alternative above, landowners, as well as trusts, nonprofit organizations, corporations,

and other entities that own and share rent land would continue to be eligible and

receive payments. All payments to entities would be tracked through the entities and

attributed to the individuals in the entity who are actively engaged in agriculture. For

both of these approaches to direct attribution, the uniqueness of pooling commodities

for sale, such as by marketing cooperatives, may have to be addressed.

• Strengthening the current criteria for determining eligibility of persons for

payments could improve program integrity. 

Eligibility for payments currently requires that a person provide operating capital, equipment or land and active personal labor or management (see Chapter II). The Commission

is concerned that some individuals may become eligible for payments even when their

12 Report Summary and Recommendations 
active personal management is not contributing in a meaningful way to the farming operation. This may occur because of the difficulty of measuring management and determining compliance. Hence, the criterion of providing management may present a very low

threshold for qualifying for payments, thus facilitating creation of persons for payment

limit purposes. This concern could be addressed by combining the active personal labor or

management requirement into a single criterion: active labor and management. The

Commission did not develop explicit criteria and believes USDA should define active personal labor and management through rulemaking to ensure the individual’s contribution

to the operation is meaningful and measurable.

Payment Limits on Marketing Loan Benefits

Currently, there is a $75,000 limit per person on marketing assistance loan gains (MLGs)

and loan deficiency payments (LDPs), but marketing loans are nonrecourse loans, and there

is no limit on loan forfeiture gains. When the $75,000 limit is reached, a producer may continue to receive marketing loan benefits by using certificates to settle the loan or by forfeiting

loan collateral to the government. While the use of certificates expedites the process by which

a producer receives marketing loan benefits in excess of the $75,000 limit, it is the nonrecourse feature of the marketing loan that makes receipt of these benefits possible.

Imposing a fixed payment limit on marketing loan benefits would require that all four methods of realizing loan program benefits—LDPs, MLGs, certificate exchange gains, and forfeiture gains—be made subject to payment limitations. Making forfeiture gains subject to the

payment limit would require that access to the nonrecourse loan be limited. If the nonrecourse loan program with the option to forfeit continues, the Commission concludes there is

no clear benefit to eliminating certificates and there are apparent costs (see Chapter 4).

• Potential changes in the implementation of payment limits on marketing loan

benefits must address a fundamental policy choice about who should benefit

from farm program payments. 

The Commission was divided on this choice and simply offers the essence of the debate:

VIEW I—Continue the current nonrecourse marketing loan program.

Some Commissioners believe the nonrecourse loan program is a fundamental component

of the farm safety net and should remain in its current form. This long-standing program,

tracing to the 1930s, guarantees a minimum effective price for all of a producer’s eligible

production. These Commissioners view the program as essential to income stability and

risk management. It is a mechanism to promote orderly marketing by helping producers

finance temporary storage, providing them more flexibility to market at the appropriate

time over the course of the season. This flexibility is also an important feature for the many

producers who must sell into concentrated markets.

Limiting the forfeiture provision of loans is expected to reduce income and production,

particularly for rice and cotton, but also for many grain and oilseed producers, and

adversely affect related infrastructure for rice and cotton. The modern commercial familysize farm is large and heavily capitalized, and the current marketing loan payment limit

Report Summary and Recommendations 13
fails to reflect this contemporary and evolving structure of today’s farms. Limiting forfeiture to achieve some uniform payment limit on marketing loan benefits for all commodities and all regions would produce inequitable income risk coverage across commodities.

For example, production costs for cotton and rice equal a higher portion of the loan rate

than for grains and oilseeds.

These Commissioners believe it is notable that marketing loan benefits are large only when

prices are extraordinarily low, such as in 2001/2002 for cotton and rice. Removing the safety net at such a time would lead to very adverse consequences for affected producers. The

FAPRI analysis conducted for the Commission demonstrated that, under a strict marketing

loan limit, acreage cutbacks become quite substantial as market prices decline. These

acreage cutbacks result from large income reductions for these family-size farms as well as

denial of credit from their lenders because of higher financial risks.

These Commissioners believe that the consequence of a limitation on loan forfeiture

would be highly disruptive to production agriculture, agribusiness infrastructure, and

local economies in many areas. As affected producers reduce production or their lands are

farmed by other, less efficient producers, the efficiency of American agriculture would

decline. This reduction in efficiency could raise prices and make U.S. agriculture less competitive in the world. 

VIEW II—The payment limit for marketing loan benefits should apply to all four types of

marketing loan benefits: LDPs, MLGs, certificate exchange gains, and forfeiture gains. 

Some Commissioners believe that marketing loans should be nonrecourse up to the payment limit and recourse thereafter. The loan program should not be an entitlement for all

producers and for all production, regardless of farm size. Payments should be maintained as

far as possible for family-size operations. These Commissioners believe that there is no public interest in providing benefits in excess of a reasonable level of income support for familysize operations. They believe that at a time of low margins in agriculture, a modest population of large, lower cost operators in a regional land market could affect farmland values and

rental rates. They question whether it is in the public interest to allow large operators to

influence farmland values and rental rates with the use of government payments. There is

evidence in economic theory that the gains from efficiency of the larger operations are used

to bid up the most limiting factor of production, which is usually land. This is accomplished by bidding up rental rates, some of which are then capitalized into land values.

These Commissioners believe the FAPRI estimates conducted for the Commission on

the effects of further payment limitations demonstrate that the effects on acreage for rice

and cotton would likely be modest under baseline price projections. Market prices would

rise and there would be a small decline in national farmland values. If producers affected

by the marketing loan limits have substantial economies of scale, then further limits

could be absorbed with little restructuring. Because some affected producers may not

have substantial economies of scale, a 3- to 5-year phase-in period for the marketing loan

limitation should be utilized. Producers could also mitigate risks by using hedging and

other risk management tools to protect against the effects of low prices, which occur periodically and did in 2001.

14 Report Summary and Recommendations 
These Commissioners believe farm consolidation would be slowed somewhat with further

marketing loan limits, and that would be beneficial to rural communities, even though

empirical data are lacking on this point. They also believe that marketing loan limits would

have little effect on overall farm efficiency, as the primary effect would be on reducing the

economic rents of large producers. Effective payment limits on marketing loan benefits,

after a reasonable adjustment period, would allow labor and capital markets to function and

returns to labor and capital would be re-established near present levels. The ultimate major

impact would be on farmland values and rents.

These Commissioners would consider the establishment of different loan payment limits

by crop or region, although they doubt such differential limits are justified.

Report Summary and Recommendations 15
16
F

ederal assistance to crop producers through price and income support programs began

when Congress passed the Agricultural Adjustment Act of 1933, one of the first pieces of

New Deal legislation. Since then, Congress has frequently created new farm price and

income support programs in response to changing conditions in commodity markets, the

financial condition of producers, Federal budgetary pressures, and shifts in farm policy goals.

Farm Program and Payment Limit Policy Goals

There are fundamental differences of opinion on whether the amount of Federal assistance a

crop producer receives through price and income support programs should be limited, and if

limited, at what level. The Commission on the Application of Payment Limitations for

Agriculture (Commission) believes these differences of opinion reflect a lack of consensus on

the goals of farm price and income support programs. For example, someone who believes

that farm programs should provide producers with a minimum price on all production may

have a different view of further payment limitations than someone who believes farm programs should help producers achieve a minimum level of income. Therefore, it is important

to begin this study on the potential impacts of further payment limitations with a brief discussion of the range of goals of farm price and income support programs.

While authorizing legislation, such as the Farm Security and Rural Investment Act of 2002

(2002 Act), does not generally indicate the goals of farm price and income support programs,

some goals have had enduring, although changing, effects on the evolution of farm programs. Primary goals include:

• Foster an abundant supply of food and fiber 

This goal was evident as far back as the creation of the Nation’s land settlement programs

and the establishment of the land grant university system, and is sometimes referred to as a

“cheap food” policy. It posits that without support, widely fluctuating prices and income

would cause farmers to reduce production, leading to higher food prices. The “abundant

supply” goal is also sometimes advanced as enhancing national security, because government support encourages domestic production and helps preserve the infrastructure necessary to process food and fiber. Furthermore, the programs may promote a wider

geographic dispersion of production, helping to ensure an adequate supply when production falters in some areas. The “abundant supply” goal may extend beyond our borders,

striving to enable the United States to be a consistent supplier to international markets

and to respond to world food needs.

• Support and stabilize farm income 

Government intervention to support and stabilize farm income began with the Depression

in the 1930s and has continued to the present. Over time, programs to implement this

goal have evolved from supporting market prices and controlling production to subsidized

crop insurance and farm program payments, with the bulk of the payments being indeOverview of Payments and Payment Limitations 17

Chapter 1

Overview of

Payments and

Payment

Limitations
pendent of production (decoupled). Proponents of this goal point out that demand and

supply for agricultural products are quite insensitive to changes in market prices (inelastic), and coupled with the effects of weather, would lead to large swings in farm prices and

incomes in the absence of farm price and income support programs.

• Help producers get access to credit 

The economic stability provided by farm programs enhances the ability of farmers to

acquire the credit they need to run their operations. In the absence of farm price and

income support programs, the risks associated with farming would increase and this

increased risk would likely be reflected in reduced credit availability and higher interest

rates for farm operating and real estate loans.

• Expand agricultural exports 

Increased attention to this goal since the 1970s prompted the move away from farm policies that could reduce U.S. agriculture’s ability to compete in world markets. It was the

major factor in the shift away from production controls and effective price supports to

payments to producers.

• Conserve natural resources 

Conservation has been a farm program goal since the Dust Bowl of the 1930s.

Conservation programs include retiring fragile land from production as well as lessening

the environmental impacts of land remaining in production. Beginning with the Food

Security Act of 1985, producers may lose eligibility for farm program benefits if they produce crops on highly erodible land or on converted wetland.

• Maintain the family farm and the vitality of rural communities

Maintaining the family farm, including limiting the decline in farm numbers, has been

espoused for reasons ranging from preservation of the Nation’s agrarian heritage to maintaining economic vitality and infrastructure in rural communities. Some also argue that

fewer farms lead to rural outmigration and increased unemployment and pressure on

social services in urban areas.

• Capitalize on the multiple functions of agriculture 

Increasingly, policy discussion has focused on a broader role that agriculture is now viewed

as playing, such as supporting economic activity in rural areas, providing open space, protecting the environment, preserving production capacity for future generations, providing

recreational and tourist benefits, and providing renewable sources for nonfood products.

• Counter the protection provided to agriculture in other countries 

It is often argued that other countries protect their farmers and these protections put U.S.

farmers at a competitive disadvantage. As a result, farm price and income support programs merely put U.S. farmers on a “level playing field.”

18 Chapter 1
Each of these goals has proponents and opponents, yet they remain driving forces in the continuation of farm programs. When the notion of payment limits is presented in the context

of these goals, it is easy to see how conflicting views emerge. Those who view abundant farm

production or increasing exports as primary goals of farm programs may well argue that there

should be no payment limits at all, as any limits, if they are effective, might curtail production and therefore exports as well. In contrast, those feeling that maintaining the family farm

and the vitality of rural communities are primary goals may argue there should be limits on

payments if they believe that farm programs lead to diminishing farm numbers and a larger

average size for the remaining farms, which could reduce economic activity in rural areas.

The primary goals advanced for placing limits on the amount of payments and other benefits

a producer may receive under farm price and income support programs include:

• Reduce government spending 

Reducing the cost of farm price and income support programs has been one factor behind

the interest in further payment limits. Spending on farm price and income support programs decreased in fiscal year (FY 2002). However, based on USDA’s FY 2004 President’s

Budget baseline, the cost of farm price and income support programs is projected to

increase as a return to normal weather leads to increased crop production and lower prices.

In addition, the return of large Federal budget deficits has heightened attention on trimming Federal spending, including lowering the cost of farm programs.

• Prevent large operators from receiving excessive support

Those expressing this goal see the primary objective of farm programs as income support

and believe that very large operators generally have higher incomes (due to greater efficiency and production) and deeper pockets (more wealth) than smaller operators and

therefore are in less need of government assistance.

• Prevent wealthy non-producers from receiving payments 

Some wealthy individuals who do not depend on farming for their livelihood may qualify

for farm price and income support benefits because they own farmland. Many argue that

such individuals should be ineligible for farm program benefits.

• Slow down farm consolidation and the bidding up of land values

Those expressing this view generally see maintaining the family farm as a primary program

goal. This view of payment limits rests on the argument that very large operators have

lower costs than smaller farms, and government payments add enough to their net returns

to enable them to buy out farms that are in a less advantageous position.

Overview of Payments and Payment Limitations 19
• Redistribute agricultural program spending 

Proponents of this goal do not necessarily believe that too much is being spent on agricultural programs, but feel that some of that spending should be redirected. They could, for

instance, believe that too much is spent on programs that directly support farm prices and

incomes and that some of those funds would have a greater public benefit if spent on programs that help farmers to care for the environment.

This study does not address the merits of the array of goals ascribed to farm programs and

payment limits. This study does present the views of the Commission on the effects of further payment limitations. The information provided should help Members of Congress and

others decide whether further payment limits support or detract from the achievement of

their goals for farm policy.

Farm Programs Considered by the Commission

This section reviews the operation of the three farm programs considered by the

Commission: direct payments, counter-cyclical payments, and marketing assistance loans.

These three programs were authorized by the Farm Security and Rural Investment Act of

2002 (2002 Act), which covers the 2002-07 crops. Examining what causes a farmer’s payments from the three programs to rise or fall reveals what circumstances could cause a

farmer’s payments to be affected by payment limits.

Direct payments and counter-cyclical payments use “base acres” in the payment calculation.

Base acres are historical averages of acres dedicated to crops eligible for farm program payments. A farm may have base acres of just one or multiple commodities. Farmers with base

acres of wheat, corn, grain sorghum, barley, oats, upland cotton, rice, soybeans, peanuts, or

other oilseeds are eligible for direct and counter-cyclical payments. Producers need not grow

any specific crop on their farm to be eligible for payments, but they must continue to use

acres equal to their base acreage in agricultural or conserving uses.

Direct Payments

The direct payments program provides participating farmers with a predetermined payment

each year. The direct payment calculation uses the “direct payment yield.” As with base acres,

that yield is an historic farm average. Additionally, the calculation uses the “direct payment

rate,” which varies by commodity and is set by the 2002 Act for the 2002-07 crops.

For each commodity, the quantity eligible for a direct payment or “direct payment quantity”

is 85 percent of base acreage of that commodity times the direct payment yield. The direct

payment for each commodity is the direct payment quantity times the direct payment rate.

Nothing in the direct payment calculation depends on the outcome of the 2002-07 growing

seasons (prices, yields, etc.), so producers know beforehand if payments will be affected by

20 Chapter 1
the limit on direct payments. Farm characteristics that contribute to payments being affected

by the payment limit for this program include the base acres, direct payment yields, and

direct payment rates for the crops eligible for direct payments.

Example: Calculating the direct payment

A farmer’s entire base acreage consists of 100 corn base acres, the corn direct payment

yield for the farm is 100 bushels an acre, and the direct payment rate for corn is $0.28 per

bushel. The farmer plants 50 acres to soybeans, 40 to corn, and leaves the remainder fallow. The farmer’s direct payment would be $2,380 (100 corn base acres times 0.85 times

100 bushels per acre times the corn direct payment rate of $0.28 equals $2,380). Note

that the crop mix has no effect on the payment calculation.

The direct payments program succeeded the production flexibility contract (PFC) payment

program that was authorized by the Federal Agriculture Improvement and Reform Act of

1996 (1996 Act). The PFC payments program operated almost identically to the direct payments program. The payment calculation was the same, although the 2001 payment rates

were slightly lower than the direct payment rates (table 1.1), and some farmers have since

updated their base acres. Another difference was that there was no payment for soybeans,

other oilseeds, or peanuts. Because of the similarity of the two programs, this report often

uses historical data from the PFC program to provide insight on how payment limits might

affect the direct payments program.

Counter-Cyclical Payments

In addition to base acres, the counter-cyclical payment calculation has four components:

Counter-cyclical payment yield 

For some farms, this historic average yield will be different than the direct payment yield.

That is because the 2002 Act provided producers who updated bases the opportunity to partially update counter-cyclical yields based on yield history during 1998-2001, an opportunity

not provided for direct payment yields.

Overview of Payments and Payment Limitations 21

Table 1.1. Comparison of payment rates for the production flexibility contract and

direct payments programs

Wheat bushel 0.47 0.52

Corn bushel 0.27 0.28

Grain sorghum bushel 0.32 0.35

Barley bushel 0.21 0.24

Oats bushel 0.022 0.024

Upland cotton pound 0.0599 0.0667

Rice hundredweight 2.10 2.35

Soybeans bushel n.a. 0.44

Other oilseeds 1 bushel n.a. 0.008

Peanuts ton n.a. 36.00

Production flexibility

contract payment rate Direct payment rate

2001 crop 2002-07 crops

Crop Unit Dollars per unit

n.a. = Not applicable.

1 Sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed,crambe, and sesame seed.
Effective price 

The effective price is defined as the direct payment rate for a commodity plus the higher of that

commodity’s national average loan rate or the U.S. season-average price received by producers.

Target price 

The 2002 Act establishes target prices for eligible commodities (table 1.2).

Counter-cyclical payment rate 

If the target price exceeds the effective price for the commodity, the counter-cyclical payment

rate equals the difference between the target price and the effective price, otherwise the

counter-cyclical payment rate equals zero for the commodity.

Counter-cyclical payments are available only when the target price exceeds the effective price.

For each commodity, the quantity eligible for a counter-cyclical payment or “counter-cyclical

payment quantity” is 85 percent of base acreage of that commodity times the counter-cyclical

payment yield. The counter-cyclical payment for each commodity is the counter-cyclical

payment quantity times the counter-cyclical payment rate.

Example: Calculating the counter-cyclical payment

A farmer’s entire base acreage consists of 100 corn base acres. The farmer plants 50 acres

to soybeans, 40 to corn, and leaves the remainder fallow. The farm’s corn counter-cyclical

payment yield is 110 bushels an acre and the national average corn loan rate is $1.98 per

bushel. The season-average price of corn is below the national average loan rate.

Therefore, the effective price equals $1.98 plus the corn direct payment rate of $0.28 or

$2.26 per bushel. The corn counter-cyclical payment rate would be $0.34 ($2.60 corn

target price minus $2.26 effective price). The farmer’s counter-cyclical payment for corn

is $3,179 (100 corn base acres times 0.85 times 110 bushels per acre counter-cyclical payment yield times $0.34 corn counter-cyclical payment rate).

Since counter-cyclical payments depend in part on current market prices, farmers will be more

likely to reach the limit on counter-cyclical payments in years when high production or weak

demand pushes prices down. As with direct payments, farm characteristics can also affect

whether counter-cyclical payments will be affected by payment limits. These characteristics

include the base acres and payment yields for the crops eligible for counter-cyclical payments.

22 Chapter 1

Table 1.2. Target prices for the counter-cyclical payment program

Wheat bushel 3.86 3.92

Corn bushel 2.60 2.63 

Grain sorghum bushel 2.54 2.57

Barley bushel 2.21 2.24

Oats bushel 1.40 1.44

Upland cotton pound 0.724 0.724

Rice hundredweight 10.50 10.50

Soybeans bushel 5.80 5.80

Other oilseeds 1 pound 0.098 0.101

Peanuts ton 495.00 495.00

2002-03 crops 2004-07 crops

Crop Unit Dollars per unit

1 Sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed,crambe, and sesame seed.
Marketing Assistance Loans

Farmers are eligible for marketing assistance loans when they harvest wheat, corn, grain

sorghum, barley, oats, upland cotton, extra long staple cotton, rice, soybeans, other oilseeds,

dry peas, lentils, small chickpeas, or peanuts. Wool, mohair, and honey are also eligible. To

participate, farmers decide how much of their current year’s production they want a loan on

and pledge that amount as collateral.

Farmers can use marketing assistance loan funds for immediate needs, including paying debts

and living expenses, which reduces pressure to market commodities immediately at harvest, a

time when prices may be at their lowest. This can enable producers to wait until prices have

improved to settle their loans and market their commodities.

Marketing assistance loans have a 9-month maturity and accrue interest. For simplicity, however, the examples assume marketing assistance loans do not accrue interest. The loans may be

repaid at any time prior to maturity. These loans are “nonrecourse loans” meaning that the

government must accept the collateral as full payment of the loan at loan maturity if a producer so chooses. A national loan rate per unit of collateral is set by the 2002 Act for each eligible commodity (table 1.3). For some commodities, USDA uses the national loan rate as a

starting point for setting county loan rates, which reflect local variations in commodity prices.

Farmers can receive benefits from marketing assistance loans in four ways, two of which are

now subject to payment limits. Each is detailed below. Extra long staple cotton is eligible for

only the fourth type of benefit.

Overview of Payments and Payment Limitations 23

Wheat bushel 2.58 2.80 2.75

Corn bushel 1.89 1.98 1.95

Grain sorghum bushel 1.71 1.98 1.95

Barley bushel 1.65 1.88 1.85

Oats bushel 1.21 1.35 1.33

Upland cotton pound 0.5192 0.52 0.52

Rice hundredweight 6.50 6.50 6.50

Soybeans bushel 5.26 5.00 5.00

Other oilseeds 1 pound 0.093 0.096 0.093

Dry peas hundredweight n.a. 6.33 6.22

Lentils hundredweight n.a. 11.94 11.72

Small chickpeas hundredweight n.a. 7.56 7.43

Peanuts ton n.a. 355.00 355.00

Graded wool pound n.a. 1.00 1.00

Nongraded wool pound n.a. 0.40 0.40

Mohair pound n.a. 4.20 4.20

Honey pound n.a. 0.60 0.60

n.a. = Not applicable.

1 Sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed,crambe, and sesame seed.

Table 1.3. National marketing assistance loan rates

2001 crop 2002-03 crops 2004-07 crops

Crop Unit Dollars per unit
1. Marketing loan gains (MLGs) 

Producers may repay a marketing assistance loan anytime before loan maturity at the alternative loan repayment rate announced by USDA, if the alternative rate is less than the

loan rate plus accrued interest. The alternative repayment rates for upland cotton and rice

are announced weekly and are commonly called “adjusted world prices” (AWPs). For most

other crops, the alternative repayment rates are announced daily and are commonly called

“posted county prices” (PCPs). These alternative repayment rates rise when market prices

rise and decline when market prices decline.

The gain realized by the producer from repaying less than the loan principal to settle the loan

is called a marketing loan gain. Marketing loan gains currently have a joint payment limit

with loan deficiency payments, which are discussed in the following section.

Example: Calculating the marketing loan gain

A farmer produces 10,000 bushels of corn and pledges all of it as collateral for a marketing assistance loan. At a loan rate of $1.98 per bushel, the farmer receives $19,800 in loan

proceeds ($1.98 loan rate times 10,000 bushels equals $19,800). Suppose the farmer settles the loan for $18,000 on a day when the PCP is $1.80 per bushel ($1.80 times 10,000

bushels equals $18,000). The marketing loan gain would be $1,800 ($19,800 loan principal minus $18,000 equals $1,800).

2. Loan deficiency payments (LDPs) 

These payments are similar to MLGs, with the key difference being that farmers receive

LDPs on current production not placed under loan. The loan deficiency payment rate is

the amount by which the loan rate exceeds the alternative repayment rate on the day the

farmer requests payment. The total loan deficiency payment is the payment rate times the

quantity of a commodity for which a producer requests a loan deficiency payment.

Example: Calculating the loan deficiency payment

Let’s revisit the farmer who produced 10,000 bushels of corn. Rather than placing the

corn under loan, that farmer might want to receive an LDP and either market the 10,000

bushels of corn or hold the crop and wait to see if the market price increases. If the PCP is

$1.80 per bushel on the day the farmer wishes to receive the LDP prior to the marketing

of the corn, the loan deficiency payment rate would be $0.18 per bushel ($1.98 loan rate

minus $1.80 equals $0.18). On that day, the operator would receive an LDP of $1,800

($0.18 payment rate times 10,000 bushels equals $1,800).

3. Gains from the certificate exchange process 

In addition to repayment of the marketing assistance loan, commodity certificate

exchanges are another way for farmers to reestablish unencumbered control of their loan

collateral. The exchange process involves three sequential steps and begins with the producer taking out a marketing assistance loan. Next, the producer turns the collateral over

to the Commodity Credit Corporation (CCC) in full satisfaction of the loan and purchases certificates from the CCC. The certificate’s unit price is the alternative loan repayment rate for the commodity (PCP or AWP) at the time of the certificate purchase. Lastly,

the producer exchanges the certificates for the quantity of the commodity that was previously under loan and regains control of the collateral.

24 Chapter 1
When the cost of the certificate used to reacquire ownership of collateral is less than the loan

principal that was secured by that collateral, the farmer achieves a certificate exchange gain.

There is no payment limit on certificate exchange gains.

Example: Settling a marketing assistance loan with commodity certificates

A farmer pledges 10,000 bushels of corn as collateral for a marketing assistance loan and

receives $19,800 in loan funds ($1.98 per bushel loan rate times 10,000 bushels of corn

equals $19,800). Let’s assume the farmer opts to use certificates to settle the loan. On the

day the farmer settles the loan, the PCP is $1.80 and the farmer purchases $18,000 worth

of commodity certificates ($1.80 PCP times 10,000 bushels equals $18,000). The farmer

then exchanges the certificates to obtain the collateral previously placed under loan. The

farmer’s certificate exchange gain would be $1,800 ($19,800 loan principal retained by

the producer minus the $18,000 certificate cost equals $1,800).

4. Forfeiture gains 

Producers may settle marketing assistance loans by forfeiting ownership of the loan collateral to the government when the loan reaches maturity. The farmer benefits if the market

value of collateral forfeited is less than the loan balance; such a benefit is defined as a forfeiture gain. There is no limit on forfeiture gains.

Example: Settling a marketing assistance loan by forfeiture

A farmer pledges 10,000 bushels of corn as collateral for a marketing assistance loan and

receives $19,800 in loan funds. When the loan is due, the farmer decides to forfeit the

collateral to the CCC rather than repay the loan. On the day of forfeiture the PCP is

$1.80 so the collateral has an estimated market value of $18,000 ($1.80 PCP times

10,000 bushels equals $18,000). The forfeiture gain would be $1,800 ($19,800 loan proceeds minus $18,000 collateral value equals $1,800).

Marketing loan gains and loan deficiency payments are subject to payment limits under the

2002 Act, while payment limits do not apply to certificate exchange gains and forfeiture

gains. Since some types of marketing assistance loan benefits are not subject to payment limits, the 2002 Act does not restrict the overall amount of marketing loan benefits any producer may receive.

Marketing loan gains, loan deficiency payments, certificate exchange gains, and forfeiture

gains all depend on current prices and current production. As a result, marketing loan benefits rise as market prices decline helping to stabilize farm income. If total marketing loan benefits were subject to payment limits, farmers would more likely reach the limit on benefits in

years when high production or weak demand pushes prices down. Farm characteristics that

would also contribute to reaching a limit on marketing loan benefits include the amount of

acreage harvested and the yield per harvested acre of commodities eligible for marketing

assistance loans.

Overview of Payments and Payment Limitations 25
The Development of Payment Limits Through 2001

Changes in farm programs during the 1960s, such as the introduction of direct payments,

were important first steps toward a market-oriented agriculture. However, direct payment

program costs were large and visible. In addition, attention focused on the distribution of

program benefits, which showed some farmers receiving in excess of $1 million. In reaction,

Congress passed the first legislation to limit payments to producers in 1970.

In the Agricultural Act of 1970 (1970 Act), Congress mandated payment limits for farm programs designed to assist crop producers. The 1970 Act set three separate $55,000 limits: one

each for payments related to wheat, feed grains, and upland cotton. Farmers growing all three

crops could have received up to $165,000 in farm program payments. The limit applied to

land diversion payments, wheat certificate payments, and other payments on the basis of parity prices in use at that time.

The Agriculture and Consumer Protection Act of 1973 (1973 Act) introduced the concept

of target prices and deficiency payments for wheat, feed grains, and upland cotton. The 1973

Act established an annual per-person limit of $20,000 for combined payments for the 1974-

77 crops of wheat, feed grains, and upland cotton. Payments subject to the per-person limit

included deficiency, diversion, and disaster payments. In subsequent legislation, the Congress

excluded disaster payments from the payment limit for the 1977 crop. The Rice Production

Act of 1975 established deficiency payments for rice and a $55,000-per-person limit on payments for rice in 1976 and 1977. From 1979 through 1995, wheat, feed grain, upland cotton, and rice deficiency and diversion payments were subject to an annual per-person limit

for all crops combined of $50,000.

Another major step toward a market-oriented agriculture occurred in the mid-1980s. During

the mid-1980s, exports stagnated and concern arose that the nonrecourse price support program was reducing the competitiveness of U.S. crops in world markets by establishing a floor

on U.S. prices for wheat, feed grains, upland cotton, and rice. The Food Security Act of 1985

(1985 Act) introduced the concept of marketing loans in which producers could repay nonrecourse price support loans at less than the loan rate when the market or world price was below

the loan rate. The 1985 Act did not place a limit on marketing loan benefits. However,

Congress amended the 1985 Act in 1986, establishing a new combined limit of $250,000 on

a wide of range of farm program payments, including loan deficiency payments and marketing loan gains. The Food, Agriculture, Conservation, and Trade Act of 1990 (1990 Act)

included marketing loan gains and loan deficiency payments in a group of payments that were

subject to an annual per-person limit for all crops combined of $75,000. Under the 1996 Act,

loan deficiency payments and marketing loan gains for all crops were subject to a combined

limit of $75,000 and PFC payments for all crops were limited to $40,000. When crop prices

declined sharply in the late 1990s, Congress increased the combined limit on loan deficiency

payments and marketing loan gains to $150,000 for the 1999 through 2001 crops.

26 Chapter 1
Payment Limits on the Programs Considered by the

Commission

Payment limits for the three farm programs considered by the Commission are set by the

2002 Act. They apply to “persons,” that is, each “person” has a separate payment limit. A

person may be an individual (human being) or it may be an entity used by a producer as a

way to organize the farm business, such as a corporation. Table 1.4 presents the three perperson payment limits for the farm programs considered by the Commission. The next chapter provides a fuller treatment of “persons” and other payment limit administrative issues.

Off-Farm Income and Eligibility for Programs

Considered by the Commission

Under the 2002 Act, those whose 3-year average adjusted gross income exceeds $2.5 million are

ineligible for program benefits, unless they can establish that at least 75 percent of their income

is derived from farming, ranching, and forestry. The income measure used, adjusted gross

income, is a Federal income tax concept. For individuals, adjusted gross income combines earnings from wages and other sources with profits or losses from farming or any other business.

Individuals and other forms of businesses are allowed various deductions when calculating

adjusted gross income; health insurance expenses for the self-employed is one example.

Overview of Payments and Payment Limitations 27

Direct payments • $40,000 total for direct payments for wheat, corn, grain sorghum, barley,

oats, upland cotton, rice, soybeans, and other oilseeds (canola, crambe,

flaxseed, mustard seed, sunflower seed, safflower, sesame seed)

• $40,000 total for direct payments for peanuts

Counter-cyclical payments • $65,000 total for counter-cyclical payments for wheat, corn, grain

sorghum, barley, oats, upland cotton, rice, soybeans, and other oilseeds

(canola, crambe, flaxseed, mustard seed, sunflower seed, rapeseed, safflower, sesame seed)

• $65,000 total for counter-cyclical payments for peanuts

Marketing assistance loans • $75,000 total for loan deficiency payments and marketing loan gains for

wheat, corn, grain sorghum, barley, oats, upland cotton, rice, soybeans,

dry peas, lentils, small chickpeas, and other oilseeds (canola, crambe,

flaxseed, mustard seed, sunflower seed, rapeseed, safflower, sesame

seed)

• $75,000 for loan deficiency payments and marketing loan gains for

peanuts, wool, mohair, and honey

• No limit on certificate exchange or forfeiture gains

Table 1.4. Current payment limitations for direct and counter-cyclical payments and

marketing assistance loans

Program Limit
Payments made to a corporation, general partnership, or joint venture are reduced if any participant in the organization does not meet the adjusted gross income criteria, with the percentage reduction in benefits equaling that participant’s ownership interest. Those ineligible

for marketing loan gains and loan deficiency payments because of the adjusted gross income

restriction can still obtain marketing assistance loans and receive benefits in the form of certificate exchange and forfeiture gains. Data provided to the Commission indicate that a very

small number of those previously receiving farm program benefits will become ineligible for

direct, counter-cyclical, and loan deficiency payments and marketing loan gains as a result of

the adjusted gross income limitation.

Conclusions

• Many objectives of payments have been advanced over time, ranging from ensuring an

abundant and affordable supply of food and other farm products to conservation of natural resources to supporting the family farm. The justification for payment limits and the

levels at which they are established vary depending on the objectives of the payments. For

example, if the objective of payments is to provide general income support to farm households, then payment limits may serve the purpose of halting support after farm household

incomes reaches some target level. Alternatively, if the purpose of payments is to ensure or

expand aggregate and regionally diversified production by supporting and stabilizing farm

income, then payment limits may not be justified because they may discourage production

of the directly affected crops. Because people have strongly divergent views on the purpose

of payments, people have strongly divergent views on payment limits.

• Payment limits are an increasing public issue today because Federal budget deficits are

increasing the pressure to reduce Federal spending and because USDA projects lower farm

prices in response to increasing production, raising the cost of farm programs. In addition,

opinion on the objectives of farm programs is very diverse and Federal budget resources

are in great demand for alternative uses.

• The three payment programs considered by the Commission provide different types of

financial support with different objectives. Direct payments provide general income support through a fixed payment dependent on historical acreage and yields. Counter-cyclical

payments also depend on historical acreage and yields but increase as prices decline.

Benefits from the marketing assistance loan program are the most linked to current conditions, depending on both production and prices, and increase as production rises and

prices decline.

• Producers may elect to receive benefits under the marketing loan assistance program in

four ways: marketing loan gains, loan deficiency payments, certificate exchange gains, and

forfeiture gains. All four ways may provide nearly identical benefits to the producer. Since

28 Chapter 1
only two forms of marketing loan benefits are subject to current payment limits (loan deficiency payments and marketing loan gains), marketing assistance loan benefits are not

limited by current payment limitations.

• Each of the three programs considered by the Commission has different limits but are

linked through various mechanisms. Therefore, changes in payment limits and payment

provisions may be reinforcing or contradictory. For example, if a policy objective is to

limit marketing assistance loan benefits, this objective may be achieved by either changing

payment limitations for marketing assistance loans or, alternatively, by making changes in

the marketing assistance loan program itself, such as lowering loan rates. However, program parameters are closely linked. Lower loan rates would increase maximum countercyclical payment rates and potentially raise the number of producers that could have

payments reduced because of the limit on counter-cyclical payments, unless target prices

were also lowered.

• The specific payment limits established by Congress for each of the three payment programs considered by the Commission have changed over time. It is apparent that Congress

has wanted payment limits in place but has also wanted to avoid having the limits be

unduly constraining. Increasing the limit on loan deficiency payments and marketing loan

gains and permitting producers to use certificates to settle loans at times of low prices are

examples of actions taken to prevent payment limits from being too constraining.

• While payment programs have been adjusted over time to reflect economic and equity

considerations for individual crops, payment limits generally have been uniformly

imposed without regard to the economic structure of commodities or regions.

Overview of Payments and Payment Limitations 29
30
T

his chapter presents of some of the key payment eligibility and payment limit rules pertaining to the three programs considered by the Commission. The administration of

farm program payment limits requires first determining which farmers and farm businesses are eligible for payments and then determining how much they may receive. The cornerstone of current payment limitation and payment eligibility law is the Farm Program

Payment Integrity Act of 1987, enacted as part of the Omnibus Budget Reconciliation Act of

1987. Its provisions became effective with the 1989 crop year. As indicated in the preceding

chapter, the 2002 Act established the current payment limits under the three programs considered by the Commission.

The payment limitation and payment eligibility regulations are found at 7 C.F.R. Part 1400.

These regulations are administered by USDA’s Farm Service Agency (FSA). Most payment

limitation and payment eligibility determinations are made initially by a county or area FSA

committee. The FSA developed a payment limit handbook, 1-PL, to instruct field staff on

how to implement the payment limitation and payment eligibility regulations. Interested

readers may request copies from the FSA.

Payment limits for the three farm programs considered by the Commission apply to “persons,” which includes entities. Each person has a separate payment limit. The definition of

person, as used in the administration of payment limits, encompasses both individuals and

the various types of entities that farmers set up to organize their business. All individual

farmers and farm business entities must be “actively engaged in farming” to be considered as

persons eligible for payments. That means they must contribute significant amounts of

inputs to the farming operation. A discussion of the different types of farm business entities

and how they are treated as persons in the administration of payment limitations follows.

More detail is then provided on what it means to be actively engaged in farming.

Farm Business Organization and “Person”

Determination

This section presents some of the most common ways farmers organize their business and how

these business organizations are treated as persons under current payment limitation rules.

Sole Proprietorship

Around 90 percent of farming operations are owned, operated, and managed by a single

individual. A sole proprietorship has no legal existence independent of its owner, which

means, for instance, that only the owner, not the business, can be sued. Owners of sole proprietorships are personally liable for all their farm’s debts. An individual running a sole proprietorship is considered to be one person under current payment limitation rules.

Administering Payment Eligibility and Limit Rules 31

Chapter 2

Administering

Payment

Eligibility and

Limit Rules
Joint Operations 

Joint operations, defined by the FSA as two or more individuals who pool resources and share

profits or losses, make up about 5 percent of farm businesses. As with sole proprietorships, joint

operations have no legal existence independent of their owners. Participants in a joint operation have unlimited personal liability for the farm’s debts. Each participant in a joint operation

is considered to be one person under current payment limitation rules and adding additional

individuals to the joint operation could qualify the joint operation for additional payments.

Under current payment limitation rules, spouses jointly operating a farm may be treated as

two separate “persons” if neither spouse owns a substantial share of another entity that

receives farm program payments as a separate person. Spouses can also be treated as two separate persons for payment limitation purposes if they each operated a farm independently

before marriage and continue to do so after marriage. In that case, the spouses would be

operating two independent farms, not jointly operating a farm.

General partnerships are the simplest form of partnership and most States permit their formation with just an oral agreement. The FSA makes payments under the three programs

considered by the Commission directly to the partnership rather than to the individual partners. Each partner is considered to be one person under current payment limitation rules,

which means that the general partnership could qualify for additional payments by adding

more individuals or entities to the partnership.

Entities that Reduce Financial Risk

Farmers structure their farming operations in various ways to reduce their exposure to farming’s financial risks. For example, certain business structures may limit a farmer’s liability

when the farming operation has legal problems or debt that cannot be paid from farm earnings. These risk-reducing entities are considered to be one person under current payment

limitation rules limit regardless of how many members, partners, or shareholders they have.

About 4 percent of farming operations are organized as corporations, most of which are

owned by members of a single family. Corporations have a separate legal existence from their

owners, meaning that the corporation rather than the owners is ordinarily responsible for

farm business debts and that the corporation can be sued. As a result, some farmers may

choose the corporate form of farm business organization to protect their personal assets in

case of farm financial difficulties.

Limited liability companies are the newest way farmers can organize their businesses. Limited

liability companies are a hybrid form of business entity because they have the limited liability

feature of a corporation and the income tax treatment of a general partnership. Their owners

are called members.

32 Chapter 2
Limited liability partnerships, another hybrid organizational form, eliminate the liability of

an individual partner for negligence, wrongful acts, and misconduct of other partners and

partnership employees. Each partner remains personally liable for that partner’s own conduct and for the conduct of those under that partner’s direct supervision. Partners remain

personally liable for partnership commercial obligations such as loans or taxes.

Limited partners in a limited partnership are investors whose liability for partnership financial obligations is only as great as the amount of their investment. A limited partnership

must have at least one general partner who manages the farm business and who is fully liable

for partnership financial obligations to be considered eligible for farm program benefits.

Other Entities

Other types of entities that may qualify as one person under current payment limitation

rules include an irrevocable trust, a revocable trust combined with the grantor of the trust,

an estate, or a charitable organization. States along with their political subdivisions and

agencies are considered one person under current payment limitation rules.

Ownership Shares and Person Determination

If an individual or entity has more than a 50-percent ownership interest in a corporation, limited liability company, limited liability partnership, limited partnership, or similar entity, the

interest holder and the entity are treated as one person under current payment limitation

rules. Any portion of an entity owned by the interest holder’s spouse, minor children, or trust

for the benefit of those children counts towards the interest holder’s share. For example, if a

farmer runs a sole proprietorship and in addition owns 75 percent of a farming corporation

that operates another farm, the individual and the corporation would be treated as one person.

In the event two or more individuals or entities together own more than 50 percent of two or

more farming entities, all of the entities are considered to be one person. For example, suppose two farming corporations each have four shareholders as shown in the following table.

Individuals A, B, and C together own 90 percent of corporation A and 60 percent of corporation B. Since A, B, and C own more than 50 percent of corporations A and B, the two corporations would be counted as one person under current payment limitation rules.

Administering Payment Eligibility and Limit Rules 33

Corporation A Corporation B

Percent of Percent of

Shareholder shares owned Shareholder shares owned

A 30 A 20

B 30 B 20

C 30 C 20

D 10 E 40
Three-Entity Rule

Prior to the 1989 crop year, the payment limitation rules did not limit the number of entities

(corporations, limited liability companies, limited partnerships, or similar entities) through

which an individual could receive farm program payments. Beginning with the 1989 crop

year, the three-entity rule has limited the number of entities through which an individual can

receive program payments. Under the three-entity rule, an individual who receives payments

as an individual cannot receive payments from more than two entities. An individual who

does not receive payments as an individual may receive payments from up to three entities.

Individuals who could potentially receive payments from more than the allowed number of

entities must designate from which entities they will receive payments. The other entities not

designated have to forego that individual’s share of payments. The three-entity rule enables

an individual to receive total payments up to twice as large as the limit for one person—the

individual’s limit and up to half of the limit from two other entities.

Example: Applying the three-entity rule

A farmer operates a sole proprietorship that collects $40,000 in direct payments (remember the per-person direct payment limit is $40,000). In addition, the farmer is a 50-percent shareholder in three farming corporations that collect direct payments:

Corporation 1 collects $40,000

Corporation 2 collects $40,000

Corporation 3 collects $20,000

The three-entity rule dictates that the farmer can receive payments from just two of the

corporations. Logically, the farmer would select corporations 1 and 2 in order to maximize total direct payments received. Direct payments stemming from the individual’s own

farm and participation in farming corporations would total $80,000 ($40,000 from the

sole proprietorship plus $20,000 from corporation 1 plus $20,000 from corporation 2).

Corporation 3 would have to forego the farmer’s $10,000 share of direct payments.

As discussed above, if the individual owns more than one-half of another entity, the individual and the entity would be combined into one person.

The three-entity rule does not apply to individuals, general partnerships, and joint operations. For example, take a farmer who operates two farms. On the first farm, the farmer is

sole operator and the farmer is the member of a two-person general partnership that operates

the second farm. In this example, the three-entity rule does not apply and the farmer would

be treated as a single person eligible for $40,000 in direct payments.

34 Chapter 2
Actively Engaged in Farming

A person must meet the requirement of being actively engaged in farming to be eligible for

farm program payments. To be considered actively engaged in farming, the person must

make significant contributions to the farming operation in two areas:

(1) operating funds, equipment, land, or a combination thereof; and

(2) active personal labor, active personal management, or a combination thereof.

In addition, the above contributions, together with other qualifying contributions, must be

commensurate with the individual’s claimed share of the profits and losses of the farming

operation, and the contributions must be at risk.

Operating Funds, Equipment, Land, or a Combination Thereof

A person must contribute a significant amount of operating funds, equipment, or land or a

significant amount of a combination of two of the three or all three of the items.

For a single item, a significant contribution is a share of the item’s total value that equals at

least one-half of the person’s ownership share (share of the business profits or losses). Total

value for operating funds is the amount needed to run the operation for a year; total value for

land and equipment is what it would cost to rent those items for a year.

Example: Determining significant contribution of resources

A general partnership farms on land that would rent for $200,000 a year. One partner

with a 25-percent ownership share (receives 25 percent of partnership profits or losses)

provides land that would rent for $50,000. That contribution alone, 25 percent of the

total rental value of partnership land ($50,000 contribution divided by $200,000 total

rental value equals 25 percent), qualifies the partner as making a significant contribution

from the operating funds, equipment, and land group.

The partner could have contributed land worth $25,000 and still qualify, since that contribution would be 12.5 percent of the operation total ($25,000 contribution divided by

$200,000 equals 12.5 percent), which equals one-half of the partner’s ownership share

(one-half of 25 percent ownership share equals 12.5 percent).

A person might contribute a portion of two of the items or a portion of all three, but not a

significant amount of any single item. In that case, the overall contribution is judged significant if it represents a share of total farm operating expenses that equals at least 30 percent of

the person’s ownership share. Total farm operating expense includes the cost of any inputs

such as seed and fertilizer, along with the rental value of equipment and land.

Administering Payment Eligibility and Limit Rules 35
Active Personal Labor, Active Personal Management, or a

Combination Thereof

In addition to making a significant contribution from the previous group of inputs, a person

must make a significant contribution of at least one of the items in this group or a significant

contribution of a combination of the two items.

A significant contribution of active personal labor is at least the smaller of:

• 1,000 hours in a year, or

• one-half of the hours needed to operate a farm comparable in size to the person’s share of

the operation.

Example: Determining significant contribution of labor or management

A general partnership operates a farm requiring 1,000 hours of labor each year. One partner, who has a 50-percent ownership share, contributes 300 hours. It would take 500

hours of labor to operate a farm of the size corresponding to that partner’s ownership

share (1,000 hours total labor needed times 50 percent equals 500 hours). The partner’s

labor contribution is significant since it is more than one-half of 500 hours (300 hours

divided by 500 hours equals 60 percent).

Since management is not easily measured, no attempt is made to determine what portion of

total active personal management any person contributes. A management contribution is

judged significant if it is critical to farm profitability, keeping in mind the person’s ownership

share. That is, the management contribution of a person with an 80-percent ownership share

would need to impact farm profitability relatively more than the contribution of a person

claiming a 20-percent share.

When a person contributes a combination of labor and management, but neither contribution meets significance requirements, the collective contribution is considered significant if it

enhances farm profitability as much as a significant contribution of either of the two individual items would have. A person’s overall contribution from the two groups must be at least

commensurate with (meaning proportional to) the person’s ownership share. Additionally,

the contribution must be at risk, meaning the person must share in any loss the farming

operation incurs.

Example: Determining contribution commensurate with ownership share

A two-person general partnership uses land that would cost $100,000 to rent along with

seed, fertilizer, and other inputs that cost $50,000. The partners claim equal ownership

shares. Partner one provides land that would cost $25,000 to rent along with enough

operating funds to purchase all the other inputs. Partner two provides the remainder of

the land. The partners share equally in labor and management. Both partners’ contributions are commensurate with their 50-percent ownership shares. ($25,000 in land plus

$50,000 operating funds equals 50 percent of $150,000 total operating cost; $75,000 in

land equals 50 percent of $150,000 total operating cost; labor and management contributions are equal).

36 Chapter 2
Treatment of Family Members, Landowners, and Tenants

The “actively engaged in farming” requirements are relaxed for family members, share rent

landowners, and crop share renters. In farming operations in which a majority of the individuals are family members, adult family members are considered to be actively engaged in

farming if they make a significant contribution of active personal labor or active personal

management, or a combination thereof to the farming operation, the family member’s share

of the profits or losses from the farming operation is commensurate with the family member’s contribution to the operation, and the family member’s contributions are at risk.

A landowner is considered to be actively engaged in farming if the landowner receives rent or

income for the use of the land based on the land’s production or the operation’s operating

results, the landowner’s share of the profits or losses from the farming operation is commensurate with the landowner’s contribution to the operation, and the landowner’s contributions

are at risk. This type of business arrangement is typically referred to as a crop share lease. For

instance, a landowner and tenant might agree that the landowner will receive one-third of

the harvested crop from the land rented to the tenant. Sometimes share rent landowners also

pay a share of the production expenses. Under a crop share lease, the landowner and tenant

share the risk, since the returns to each vary depending on the volume of the crop produced

on the rented land.

A crop share renter is considered to be actively engaged in farming if the renter makes a significant contribution of active personal labor to the farming operation, the renter’s share of

the profits and losses from the farming operation is commensurate with the contribution to

the operation, and the renter’s contributions are at risk.

Review of Payment Limit Determinations

Decisions about who is actively engaged in farming and how many persons an operation may

claim are made using information farmers provide on a form called the “CCC-502” or “Farm

Operating Plan.” Usually committees composed of local farmers, in conjunction with FSA

county office staffs, evaluate those forms. FSA State offices review farm operations containing six or more persons. Farmers are only required to update the CCC-502 when they make

a change in the organization of the farming operation.

Each year the FSA national office uses computer programs to select a sample of farming

operations to review their adherence to payment eligibility and payment limit rules. In

essence, that means seeing if the farming operation is run as it was portrayed on the CCC502 form. Among criteria leading to an operation’s selection are adding or deleting a member

of a joint operation or receipt of a large amount of program benefits. Farmers selected for this

review must provide documentation on their operations, which could include loan documentation, canceled checks, lease agreements, and partnership agreements, along with a variety of other documentation. In addition, the USDA Office of Inspector General occasionally

Administering Payment Eligibility and Limit Rules 37
initiates audits of farming operations for compliance with payment eligibility and limit rules

or conducts audits at the request of the FSA. A person who is found to adopt or participates

in schemes or devices with the purpose of evading the payment limitation rules is ineligible

for payments in that year and the following year.

Conclusions

• Current payment limit administration has two major aspects: payment eligibility criteria

(for example, payment recipients must be “actively engaged in farming”) and payment

limit implementation (for example, payment recipients can receive payments from no

more than three entities).

• “Persons” are the unit to which payment limits currently apply. Persons may be human

beings or forms of business organizations.

• The type of farm business organization influences how many persons can be attached to a

farming operation. Types of business organizations that reduce farmers’ risk (such as corporations, limited liability companies or limited partnerships) generally count as a single

payment limit person. Types of organizations where producers pool resources but are individually liable for claims against the farm (for instance general partnerships) can potentially have as many payment limit persons as there are members of the partnership.

• Being able to associate more persons with the operations and thereby obtain more payment limits per operation may cause some producers to select a form of business organization that is not in the best interest of business management. For example, a farm may

organize as a general partnership rather than as a corporation, when a corporate organization may be preferable for protection from liability or other reasons.

• An individual who receives payments as an individual by operating a farm as the sole operator, as a member of a joint operation, or as a partner in a general partnership can receive

payments from two other entities (the three-entity rule), effectively doubling the payment

limitation. The two additional entities must be corporations, limited liability companies,

limited partnerships, or similar “entities” or some combination thereof. The three-entity

rule likely creates additional incentives for farmers to organize their farming operation in

ways that would not otherwise occur in the absence of payment limits. The three-entity

rule does not apply to spouses jointly operating a farm.

• If the individual owns more than 50 percent of an entity (for example, a farming corporation), the individual and the entity would not have separate payment limits; that is, the

individual and the entity’s payment limit would be combined into one single payment

limit person.

38 Chapter 2
• To be eligible for payments, individuals and entities (“persons”) must be “actively engaged

in farming.” Generally, persons must contribute time (labor or management) and capital

(land or equipment or operating expenses) to the farming operation to be considered

actively engaged in farming. This actively engaged concept is an effort to define who is

truly a farmer.

• The actively engaged concept is intended to ensure that individuals or entities that do not

share the risks of the operation and do not provide capital and legitimate labor or management to the operation do not qualify for payments. The current rules address this principle; however, who provides active management in a complex operation and how much

they provide are difficult to measure.

• The FSA and the Inspector General have ongoing programs to review enforcement of payment limits. These programs audit samples of farm operations to ensure compliance with

payment limitation rules. A person in violation of payment limitation rules may become

ineligible for farm program payments in that year and the following year.

Administering Payment Eligibility and Limit Rules 39
40
T

his chapter provides information on the size of farm program payments, the characteristics of producers that receive payments, and the distribution of payments across farms,

States, and producers. Since actual data on payments under the 2002 Act were not

available prior to the preparation of this report, much of the chapter focuses on farm program payments made under the 1996 Act that are similar to the payments that the 2002 Act

directs the Commission to study. USDA’s forecasts of future farm program payments are also

included in this chapter. The data contained in this chapter are from two primary sources:

USDA’s FSA and USDA’s Economic Research Service (ERS).

The first section of this chapter examines data on farm program payments as reported by the

FSA. These data are typically reported by crop or fiscal year and include the size of farm program payments in recent years and USDA’s projections of payments through the 2007 crop

year. Information on payments and marketing loan benefits, including information on the

use of certificates, are reported each year by crop. In addition, the FSA, at the request of the

Commission, compiled data on the distribution of farm program payments by payee.

USDA’s forecasts of future farm program payments included in this chapter are from the FY

2004 President’s Budget. The economic analysis supporting these projections was conducted

in late 2002.

The second section of this chapter examines data on farm program payments as reported by

the ERS. These data are reported by calendar year, corresponding with the time period used

to report net farm income. When historical information on payments is available, monthly

reports of farm program payments from the FSA are compiled to derive annual estimates of

farm program payments. When historical information is not available, the ERS uses projections of payments by crop year to forecast calendar-year payments. The ERS uses the information on farm program payments to determine the value added by the agricultural sector

and net farm income. In addition, the ERS conducts an annual survey to obtain information

on producers and their farms and ranches. This survey, referred to as the Agricultural

Resource Management Survey (ARMS), provides information on the characteristics of farms

that receive payments. This information, including special tabulations of the survey data, as

requested by the Commission, is contained in the second section of this chapter.

Farm Service Agency Data on Payments

Under the 1996 Act, participating farmers with base acres of wheat, feed grains, upland cotton, and rice were eligible for production flexibility contract (PFC) payments. PFC payments

are similar to direct payments under the 2002 Act in that PFC payment rates were unrelated

to current market prices and payments were paid on historical production. Wheat, feed

grains, upland cotton, rice, soybeans, and other oilseeds were also eligible for marketing assistance loan benefits under the 1996 Act. In addition, when market prices fell sharply beginning with the 1998 crops, Congress authorized market loss assistance in the form of

supplemental PFC payments for wheat, feed grains, upland cotton, and rice and provided

Level and Distribution of Payments 41

Chapter 3

Level and

Distribution of

Payments
direct payments to producers of soybeans, other oilseeds, peanuts, and other commodities. It

is widely accepted that counter-cyclical payments under the 2002 Act were authorized by

Congress to eliminate the need for market loss assistance payments to producers of wheat,

feed grains, upland cotton, rice, soybeans, other oilseeds, and peanuts.

Payments by Crop Year

For the 1996-2001 crops, PFC payments, market loss assistance, and marketing assistance

loan benefits averaged $13.2 billion per year for the crops that are eligible for direct and

counter-cyclical payments and marketing assistance loan benefits under the 2002 Act

(appendix table 3.1). Total payments to these crops more than tripled from $6.4 billion during the 1997 crop year to $19.4 billion during the 1999 crop year (figure 3.1). During this

2-year period, declining market prices caused marketing assistance loan benefits to increase

from $0.2 billion during the 1997 crop year to $8.0 billion 2 years later. Also contributing to

the sharp increase in payments from 1997 to 1999, Congress authorized market loss assistance of $2.8 billion for the 1998 crops and $6.0 billion for the 1999 crops to compensate

for low prices. Between 1999 and 2001, payments to crops eligible for direct and countercyclical payments and marketing assistance loan benefits declined by $2 billion as PFC payments under the 1996 Act fell by $1.4 billion and market loss assistance declined by $0.9

billion, while marketing assistance loan benefits increased by $0.2 billion.

42 Chapter 3

Figure 3.1. Payments to crop producers, 1996-2001 

Billion dollars

20

15

10

1996 1997 1998

Crop year

1999 2000 2001

5

0

Total payments

Market loss assistance

Marketing loan benefits

PFC payments

Source: USDA Farm Service Agency
Payments to corn producers averaged slightly over $5 billion per year, accounting for nearly

40 percent of total PFC, market loss assistance, and marketing assistance loan benefits paid

out for the 1996-2001 crops (figure 3.2). Over this period, one-fifth of total payments were

paid to wheat producers. Soybean and upland cotton producers each received about 14 percent of total payments, followed by rice producers at 8 percent and other feed grain (grain

sorghum, barley, and oats) producers at 5 percent. Other oilseed and peanut producers

received about 1 percent of payments paid out for the 1996-2001 crops.

Peanut producers were not eligible for PFC payments and marketing assistance loan benefits for

the 1996-2001 crops. Instead, the price of peanuts was supported through a two-tiered price

support program in which quota peanuts were supported at a higher price than non-quota

peanuts. Under the 2002 Act, the peanut price support program was replaced with direct and

counter-cyclical payments, marketing assistance loans, and a buyout for quota holders.

The distribution of payments across the various crops eligible for payments tends to reflect

the relative value of production. During calendar years 1996-2001, cash receipts received by

farmers for feed grains, wheat, rice, upland cotton, soybeans, and peanuts averaged $47.6 billion. Over that period, cash receipts for corn averaged $17.5 billion or 37 percent of total

receipts for all crops eligible for payments. Soybeans accounted for 30 percent of total cash

receipts, followed by wheat and upland cotton, which accounted for 15 and 10 percent,

respectively. Rice and other feed grains each comprised 3 percent and peanuts made up 2

percent of total cash receipts for all crops receiving payments during 1996-2001.

For the 2002-07 crops, payments to wheat, feed grain, upland cotton, rice, soybean, other

oilseed, and peanut producers are projected in the FY 2004 President’s Budget baseline to

average $11.2 billion per year, down $2 billion from the 1996-2001 average and down about

$7 billion from the average for 2000-01 crops (figure 3.3). The decline in payments primarily reflects sharply lower marketing assistance loan benefits. In 2002, adverse weather lowered crop production, causing prices to increase for major crops. The increase in market

Level and Distribution of Payments 43

Figure 3.2. Distribution of payments by crop, 1996-2001

 Other

 feed

grains

5.3%

Corn

38.8%

Wheat

20.1%

Upland cotton

13.7%

Oilseeds

14.6%

Rice

7.5%

Source: USDA Farm Service Agency
44 Chapter 3

Figure 3.3. Projected payments to crop producers, 2002-2007 

Billion dollars

20

15

10

2002 2003 2004

Crop year

2005 2006 2007

5

0

Total payments

Counter-cycllical payments

Marketing loan benefits

Direct payments

Source: USDA Commodity Estimates Book FY2004 President's Budget

Figure 3.4. Prices received for major crops, 1996-2007* 

1999-2001 = 100

200

180

160

140

120

100

80

1996 1998 2000

Crop year

2002 2004 2006

 * For actual data, see appendix table 3.2.

** USDA is prohibited by law from forecasting upland cotton prices.

Source: USDA National Agricultural Statistics Service and USDA Commodity Estimates Book FY2004 President's Budget

60

40

Upland cotton**

Wheat

Soybeans

Corn

Rice
prices is forecast to lower marketing assistance loan benefits from $8.2 billion for the 2001

crops to $1.8 billion for the 2002 crops. While prices for wheat, feed grains, and soybeans

are expected to moderate as weather conditions return to normal, they are not expected to

return to the lows experienced during 1999-2001 (figure 3.4).

For the 2002-07 crops, the proportion of payments going to corn producers is forecast in the

FY 2004 President’s Budget baseline to drop to 31 percent, while the proportion of payments

going to upland cotton producers is forecast to increase to about 18 percent. Wheat producers are forecast to receive about 20 percent of payments for the 2002-07 crops; rice producers, 12 percent; soybean producers, 11 percent; other feed grain producers, 4 percent; and

peanut producers, 3 percent. Other oilseed producers are forecast to receive less than 1 percent of total payments paid out for the 2002-07 crops.

PFC and direct payments 

The 1996 Act specified the total amount of PFC payments that would be paid out for the

1996-2001 crops and how those payments would be allocated among eligible crops each

year. Under the 1996 Act, PFC payments increased from $5.2 billion for the 1996 crops to

$6.3 billion for the 1997 crops, declining thereafter. For the 2001 crops, PFC payments

were $4.1 billion.

During 1996-98, the 1996 Act specified that the amount of PFC payments allocated to each

crop be increased to reflect repayment of 1995-crop advance deficiency payments and be

reduced to reflect deficiency payments paid on the 1994 and 1995 crops, causing the percentage of PFC payments going to each eligible crop to vary each year. Thereafter, the percentage of total PFC payments going to each eligible crop remained essentially fixed. For the

2001 crops, 46 percent of total PFC payments, or $1.9 billion, were paid to corn producers.

Wheat producers received $1.1 billion; upland cotton producers, $0.5 billion; and rice producers, $0.4 billion. Sorghum, barley, and oats accounted for the remaining PFC payments

of $0.3 billion made on the 2001 crops.

The 2002 Act replaced PFC payments for wheat, feed grains, upland cotton, and rice with

direct payments for each commodity. In addition, the 2002 Act made soybeans, other

oilseeds, and peanuts eligible for direct payments. According to the FY 2004 President’s

Budget baseline, producers will receive $5.2 billion annually in direct payments for the

2002-07 crops. Since payment rates and production eligible for payment are fixed through

2007, the amounts of direct payments paid out to each eligible crop are forecast to remain

unchanged for the 2002-07 crops.

Direct payments for the 2002-07 crops are forecast to exceed 2001-crop PFC payments by 5

percent ($89 million) for corn, 6 percent ($68 million) for wheat, and 2 percent ($2 million)

for barley, but fall below 2001-crop PFC payments for grain sorghum by 7 percent ($15 million). Direct payments for upland cotton and rice are expected to be 24 percent ($113 million) and 14 percent ($48 million) higher, respectively, than 2001-crop PFC payments. These

changes in payments reflect differences in base acreage and payment rates under the two payLevel and Distribution of Payments 45
ment programs. For crops that were ineligible for PFC payments, soybean producers are forecast to receive annually $728 million in direct payments for the 2002-07 crops; other oilseed

producers, $33 million; and peanut producers, $65 million. Corn producers are forecast to

receive 38 percent of direct payments; wheat producers, 22 percent; soybean producers, 14

percent; upland cotton producers, 11 percent; rice producers, 8 percent; other feed-grain producers, 6 percent; peanut producers, 1 percent; and other oilseed producers, 1 percent.

Counter-cyclical payments

The 2002 Act replaced market loss assistance payments authorized for the 1998-2001 crops

with counter-cyclical payments. Market loss assistance payments to wheat, feed grain, upland

cotton, rice, soybean, other oilseed, and peanut producers ranged from $2.8 billion for the

1998 crops to $6.0 billion for the 2000 crops and averaged $5.0 billion annually during

1998-2001. Corn producers received slightly over 40 percent; wheat producers, 24 percent;

upland cotton producers, 10 percent; rice producers, 8 percent; soybean and other oilseed

producers, 7 percent; other feed-grain producers, 7 percent; and peanut producers, 1 percent

of total market loss assistance payments made to crop producers during 1998-2001.

Counter-cyclical payments are forecast in the FY 2004 President’s Budget baseline to average

$4.4 billion per year for the 2002-07 crops. On average, about $1.4 billion per year or onethird of counter-cyclical payments for the 2002-07 crops are forecast to go to corn producers.

Wheat and upland cotton producers are each forecast to receive about one-fifth ($0.9 billion

annually) of counter-cyclical payments for the 2002-07 crops, while soybean and rice producers are projected to receive about 10 and 8 percent of counter-cyclical payments, respectively. Peanut and other feed grain producers are each forecast to receive 4 percent of total

counter-cyclical payments.

Counter-cyclical payments vary from year to year, depending on market price levels for the

various crops eligible for counter-cyclical payments. For the 2002 crops, the market price

projections contained in the FY 2004 President’s Budget baseline trigger counter-cyclical

payments for three crops—upland cotton, rice, and peanuts. For each of these crops,

counter-cyclical payment rates are forecast at the maximum rate permitted under the 2002

Act (target price minus the sum of the direct payment rate and the loan rate). For 2002

crops, upland cotton producers are forecast to receive $1.2 billion; rice producers, $0.3 billion; and peanut producers, $0.2 billion in counter-cyclical payments.

Increasing production and declining market prices for wheat, feed grains, and soybeans are

expected to trigger counter-cyclical payments for those crops beginning with the 2003 crop

year and counter-cyclical payments are forecast to reach a peak of $5.8 billion for the 2004-

05 crops. However, if prices for all crops eligible for counter-cyclical payments fall below

their respective loan rate, counter-cyclical payments could rise to $8 billion annually.

Payments by crop could reach $3.5 billion for corn, $1.6 billion for wheat, $0.7 billion for

soybeans and other oilseeds, and $0.2 billion for other feed grains in addition to the $1.2 billion for upland cotton, $0.3 billion for rice, and $0.2 billion for peanuts forecast to be paid

out for the 2002 crops.

46 Chapter 3
Marketing assistance loan benefits

Marketing assistance loans provide an additional safety net for producers when crop prices

are low. The 1996 Act authorized marketing assistance loans for wheat, feed grains, rice,

upland cotton, soybeans, and other oilseeds. The 2002 Act also made peanuts eligible for

marketing assistance loans. For crops eligible for marketing assistance loans, producers

receive benefits in the form of loan deficiency payments, marketing loan gains, certificate

exchange gains, and loan forfeiture gains.

Marketing assistance loan benefits vary from year to year, depending on the level of market

prices. For the 1996-2001 crops, marketing loan benefits averaged $4.6 billion per year, rising from zero in 1996 to a high of $8.2 billion in 2001 (figure 3.5). Marketing assistance

loan benefits for corn reached a high of $2.6 billion for the 2000 crop and marketing assistance loan benefits for wheat peaked at $0.9 billion for the 1999 crop. In contrast, marketing

assistance loan benefits for upland cotton, rice, and soybeans all peaked in 2001. In that year,

low prices caused marketing assistance loan benefits to reach $2.5 billion for upland cotton,

$3.4 billion for soybeans, and $0.7 billion for rice.

For the 1996-2001 crops, loan deficiency payments averaged $3.5 billion. Marketing loan and

certificate exchange gains averaged $1.1 billion per year for the 1996-2001 crops. Congress

amended the 1996 Act to authorize the issuance of commodity certificates in October 1999.

Level and Distribution of Payments 47

Figure 3.5. Marketing assistance loan benefits, 1996-2007 

Billion dollars

10

8

6

4

1996 1998 2000

Crop year

2002 2004 2006

2

0

Total marketing loan benefits

Marketing loan gains

Certificate exchange gains

Loan deficiency payments

Source: USDA Farm Service Agency and USDA Commodity Estimate Book FY2004 President's Budget
Certificate exchange gains increased from $0.1 billion for the 1999 crops to $0.6 billion for

the 2000 crops and reached $2.0 billion for the 2001 crops. In 2001, upland cotton and rice

accounted for 99 percent of the total value of certificate exchange gains for all crops.

Marketing assistance loan benefits are forecast in the FY 2004 President’s Budget baseline to drop

from $1.8 billion for the 2002 crops to $1.2 billion for the 2007 crops. The decline reflects

improvement in market prospects for wheat, feed grains, soybeans, and upland cotton. Certificate

exchange gains are forecast to decline from $0.7 billion for the 2002 crops to $0.2 billion for the

2007 crops. Throughout this period, upland cotton and rice are projected to account for essentially all of the marketing assistance loan benefits realized from using certificates.

Marketing assistance loan benefits are forecast to average $1.6 billion per year for the 2002-07

crops in the FY 2004 President’s Budget baseline, but this forecast is greatly influenced by assumptions on market prices for crops eligible for marketing assistance loans. Low prices pushed marketing loan assistance benefits to $8.2 billion for the 2001 crops, more than four times the peak

projected for the 2002-07 crops. In addition to the potential for low prices to push marketing assistance loan benefits higher, the 2002 Act also increased loan rates for feed grains and wheat.

Adjusting marketing assistance loan benefits for the 1999-2001 crops for the change in loan

rates under the 2002 Act suggests that marketing loan benefits could reach $3.5 billion for

corn, $1.4 billion for wheat, and $2.6 billion for soybeans if market prices returned to the

lows experienced for the 1999-2001 crops. Coupled with potential marketing assistance loan

benefits of $2.5 billion for upland cotton, $0.7 billion for rice, and $0.7 billion for other

feed grains, other oilseeds, and peanuts, total marketing loan benefits could eclipse $11 billion annually under the 2002 Act if market prices fall back to 1999-2001 levels.

The FSA could not provide the Commission with information on forfeiture gains. The FSA

was able to provide information on the amount of each crop forfeited to the Commodity

Credit Corporation (CCC) and the average marketing loan gain by crop year. The quantity

of each crop forfeited was multiplied by the average marketing loan gain to provide an estimate of forfeiture gains for crop years 1999-2001.

Total forfeiture gains for all crops eligible for marketing assistance loans were estimated to be

below $50 million for each of the 1999-2001 crop years, as forfeitures of wheat, feed grains,

upland cotton, rice, and soybeans generally amounted to less than 1 percent of total production of each crop (table 3.1). Forfeitures of wheat exceeded 1 percent of production in 1999

and forfeitures of both rice and upland cotton exceeded 1 percent of production in 2001. In

each instance, forfeitures did not exceed 2 percent of production.

Under the nonrecourse marketing assistance loan, producers may use commodity certificates

to settle the loan and reestablish unencumbered control of all or a portion of the collateral

used to secure the loan. This three-step process is outlined in Chapter 1 and further discussed

in Chapter 4. In the absence of commodity certificates, producers reaching the payment

limit on loan deficiency payments and marketing loan gains would have settled more mar48 Chapter 3
keting assistance loans through forfeiture of the collateral to the CCC. The FSA could not

provide the Commission with an estimate of the additional forfeitures that would have

occurred had commodity certificates not been issued for the 1999-2001 crops.

Distribution of Payments by Person

The producers (persons) on a farm must meet certain requirements to be eligible for payments and marketing assistance loan benefits. These requirements include compliance with

conservation and wetland provisions and restrictions on the planting of fruits, vegetables,

and wild rice on base acres of crops eligible for payments. Payments to individuals and entities are recorded and tracked by the FSA to ensure that each person’s payments do not exceed

the specified limits.

For the 2001 crop year, the FSA indicates that $4.1 billion in PFC payments were paid to 1.2

million payees on 1.7 million farms. These payees include individuals, partnerships, corporations, public institutions, and other payment recipients. Nearly 1.1 million or 91 percent of

the payees receiving PFC payments received $10,000 or less and these payees received 43 percent of all PFC payments (table 3.2). Six percent of the payees receiving PFC payments

received $10,001-$20,000 and this group received 25 percent of all PFC payments. About 3

percent of all payees received $20,001-$40,000 and less than 1 percent received more than

$40,000 in PFC payments in 2001. These two groups accounted for 22 and 10 percent of

Level and Distribution of Payments 49

Table 3.1 Crop forfeitures and estimated forfeiture gains, 1999-2001 crops

Corn bushel 31.7 26.6 0.6 0.32 0.17 0.09 10.1 4.5 0.1

Sorghum bushel 0.8 0.4 -- 0.26 0.21 0.04 0.2 0.1 --

Barley bushel 1.3 0.7 0.2 0.14 0.17 0.06 0.2 0.1 --

Oats bushel -- 0.1 -- 0.19 0.21 0.05 -- -- --

Wheat bushel 30.0 12.7 9.6 0.41 0.43 0.12 12.3 5.5 1.2

Upland cotton pound 2.2 33.2 112.2 0.20 0.09 0.27 0.4 3.0 30.3

Rice hundredweight 0.1 -- 4.4 2.18 3.29 3.29 0.2 -- 14.4

Soybeans bushel 11.5 5.7 1.4 0.80 0.95 1.04 9.2 5.4 1.5

Source: USDA Farm Service Agency

Forfeitures Avg. marketing loan gain Estimated forfeiture gains 

Million units Dollars per unit Million dollars

Crop Unit 1999 2000 2001 1999 2000 2001 1999 2000 2001

Table 3.2 Distribution of production flexibility contract

payments by size of payment, 2001

Source: USDA Farm Service Agency

$10,000 or less 90.9 42.6

$10,001-$20,000 5.9 24.7

$20,001-$30,000 2.0 14.6

$30,001-$40,000 0.8 7.9

$40,001-$50,000 0.1 1.8

$50,001-$100,000 0.3 5.1

More than $100,000 0.1 3.3

Payees Payments

Size of payment Percent
PFC payments, respectively, in 2001. Since PFC payments were limited to $40,000 per person, payees receiving more than $40,000 in payments were either exempt from the payment

limit (public schools) or payees that included multiple persons, such as partnerships.

For the 2001 crops, 730,234 payees received loan deficiency payments and marketing loan

gains. Seventy-nine percent of the payees receiving loan deficiency payments and marketing

loan gains received $10,000 or less (table 3.3). This group accounted for 23 percent of total

loan deficiency payments and marketing loan gains paid that year. Ten percent of the payees

receiving loan deficiency payments and marketing loan gains received $10,001-$20,000 in

payments and 17 percent of payments went to this group. Seven percent of the payees receiving loan deficiency payments and marketing loan gains received $20,001-$40,000 and 3 percent received $40,001-$85,000. Twenty-three and 20 percent of payments went to these two

groups, respectively. Seventeen percent of payments went to the less than 1 percent of payees

that received more than $85,000 in loan deficiency payments and marketing loan gains.

Slightly over 1 percent of all payees received more than the current payment limit of $75,000 in

loan deficiency payments and marketing loan gains. These payees received about one-fifth of

total loan deficiency payments and marketing loan gains paid on 2001 crops. For the 2001

crops, loan deficiency payments and marketing loan gains were limited to $150,000 per person.

The Commission requested that the FSA provide information on certificate exchange gains

by State and the size distribution of certificate exchange gains by payee. The information

provided by the FSA excluded certificate exchange gains on loans administered by grain

cooperative marketing associations, primarily rice, but included certificate exchange gains on

loans administered by other cooperative marketing associations and loan servicing agents.

The payee or recipient of the certificate exchange gain is the individual or entity who was

identified on the loan agreement when the loan was obtained from the CCC and the “contact producer” identified on upland cotton loans administered by cooperative marketing

associations and loan servicing agents. In the case of grain cooperative marketing associations, the FSA only has records pertaining to the grain cooperative marketing association, not

for the individual or entity receiving the certificate exchange gain. The FSA requested that

50 Chapter 3

Table 3.3 Distribution of loan deficiency payments and 

marketing loan gains by size of payment, 2001

Source: USDA Farm Service Agency

$10,000 or less 79.0 22.5

$10,001-$20,000 10.1 17.3

$20,001-$30,000 4.6 13.3

$30,001-$40,000 2.3 9.7

$40,001-$50,000 1.3 7.0

$50,001-$60,000 0.8 5.2

$60,001-$70,000 0.5 3.8

$70,001-$85,000 0.5 4.2

More than $85,000 0.9 17.1

Payees Payments

Size of payment Percent
grain cooperative marketing associations provide the Commission information on certificate

exchange gains by State and the size distribution of certificate exchange gains by payee, but

such information was not provided prior to the completion of this study.

The data provided by the FSA indicate that certificate exchange gains amounted to $1.7 billion for the 2001 crops, with upland cotton producers receiving 98 percent of certificate

exchange gains. In contrast, the FY 2004 President’s Budget baseline indicates that certificate

exchange gains amounted to $2.0 billion for the 2001 crops, with upland cotton and rice

producers receiving 99 percent of certificate exchange gains. The largest discrepancy between

the distributional data provided by the FSA and the FY 2004 President’s Budget baseline was

for rice, followed by upland cotton.

The distributional data suggest that rice producers received $22 million in certificate exchange

gains for the 2001 crop, whereas the FY 2004 President’s Budget baseline indicated rice producers received $206 million in certificate exchange gains that year. This discrepancy reflects

the fact that many producers market their rice through grain cooperative marketing associations and the FSA could not provide the Commission with information on payees receiving

certificate exchange gains through grain cooperative marketing associations. For upland cotton, the distributional data provided by the FSA for the 2001 crops understated certificate

exchange gains by $80 million or 4.6 percent. For wheat, feed grains, and oilseeds, the distributional data understated certificate exchange gains by less than $10 million in 2001.

The data provided by the FSA on certificate exchange gains by State generally reflect upland

cotton marketings in 2001. Texas producers received $300 million in certificate exchange

gains for the 2001 crops, the largest amount of any State (table 3.4). Mississippi producers

received $256 million in certificate exchange gains in 2001, followed by Arkansas ($203 milLevel and Distribution of Payments 51

Table 3.4 Certificate exchange gains by State, 2001 crops

Alabama 61,498,002 Mississippi 256,015,002

Arizona 54,905,041 Missouri 80,542,801

Arkansas 202,854,504 Montana 121

California 188,807,391 Nebraska 517,020

Colorado 405,206 New Mexico 8,137,591

Delaware 92,422 New York 1,312

Florida 10,172,654 North Carolina 111,464,392

Georgia 145,799,675 North Dakota 83,589

Illinois 1,569,924 Ohio 260,240

Indiana 582,003 Oklahoma 15,825,007

Iowa 692,492 South Carolina 30,453,959

Kansas 3,580,883 South Dakota 1,079,445

Kentucky 526,939 Tennessee 99,677,152

Louisiana 113,348,009 Texas 299,663,184

Maryland 477,169 Virginia 9,948,798

Michigan 7,104 Washington 333

Minnesota 162,266 Wisconsin 1,435

U.S. total 1,699,153,065

State Dollars State Dollars

Source: USDA Farm Service Agency
lion), California ($189 million), Georgia ($146 million), Louisiana ($113 million), North

Carolina ($111 million), and Tennessee ($100 million). Producers in each of the remaining

States received less than $100 million in certificate exchange gains in 2001.

For the 2001 crops, the FSA data indicate that 23,465 payees received certificate exchange

gains, averaging $72,412 per payee. Sixty-one percent or 14,419 payees received $50,000 or

less in certificate exchange gains in 2001 and these payees accounted for 12 percent of certificate exchange gains (table 3.5). Payees receiving from $50,001 to $100,000 in certificate

exchange gains accounted for 16 percent of all payees and 16 percent of certificate exchange

gains received, while the 8 percent of payees receiving $100,001 to $150,000 in certificate

exchange gains accounted for 14 percent of the gains. Fourteen percent of all payees received

more than $150,000 in certificate exchange gains, and they accounted for 58 percent of all

certificate exchange gains.

The FSA data on certificate exchange gains do not indicate the amount by which payments

may have exceeded the per-person payment limit of $150,000 in loan deficiency payments

and marketing loan gains for the 2001 crops, for several reasons. First, the contact producer

or payee may be multiple persons, such as a partnership. Second, rice and upland cotton producers market a large portion of their production through cooperatives. These cooperatives

may purchase and use certificates on behalf of their producer members. In order to avoid the

cost and market disruption of tracking payments to individual producers, the cooperatives

use certificates on a much larger portion of their marketings than would be subject to payment limits if producers individually marketed their crop. Lastly, in the absence of certificates, many producers reaching the payment limit on loan deficiency payments and

marketing loan gains would likely forfeit the commodity placed under loan and receive a forfeiture gain. As mentioned earlier, the Commission was unable to determine how large forfeiture gains would have been if producers did not have the option of using certificates to

settle their marketing assistance loans.

52 Chapter 3

Table 3.5 Distribution of certificate exchange gains by

size of payment, 20011

1 Excludes certificate exchange gains associated with grain cooperative marketing

associations.

Source: USDA Farm Service Agency

$50,000 or less 61.4 11.9

$50,001-$100,000 16.1 16.0

$100,001-$150,000 8.5 14.4

$150,001-$200,000 4.9 11.7

$200,001-$250,000 3.1 9.6

$250,001-$300,000 1.7 6.4

$300,001-$350,000 1.2 5.5

$350,001-$400,000 0.7 3.8

$400,001-$450,000 0.5 2.7

$450,001-$500,000 0.5 3.2

$500,001-$1,000,000 1.2 10.6

More than $1,000,000 0.2 4.1

Payees Payments

Size of payment Percent
Economic Research Service Data on Payments

This section provides an overview of government payments as reported in the ERS farm

income accounts, information on the characteristics of farms receiving payments, and data

on the distribution of payments across States and farms. In order to be comparable with

other components of farm income, farm program payments are reported by the ERS on a

calendar-year basis. The information presented on the characteristics of farms receiving payments and payments received by various types of farms are based on data from the ARMS.

Many producers receive conservation payments but Congress did not direct the Commission

to study these payments. Consequently, the Commission requested that the ERS make special tabulations of the ARMS data excluding conservation payments.

Data from the ARMS indicate that 726,062 farming operations received government payments, whereas data from the FSA indicate that 1.7 million farm units received PFC payments in 2001. The FSA relies on the operator to specify the acreage being farmed, while the

ERS has adopted the USDA’s National Agricultural Statistics Service (NASS) definition of a

farming operation—any establishment from which $1,000 or more of agricultural products

were sold or would normally be sold during the year. Since the farm definition used by the

ERS leads to fewer farms receiving payments, average payments per farm are much higher

than would be indicated by the FSA data.

Payments in Relation to Farm Income

During calendar years 1996-2001, direct payments to farmers and ranchers averaged $15.4

billion per year, but declining market prices and emergency assistance authorized by

Congress in the form of market loss and disaster payments caused direct payments to average

$21.7 billion per year during 1999-2001 (figure 3.6 and appendix table 3.3). Producers

received on average $4.7 billion in PFC payments, $6.8 billion in marketing loan benefits,

$8.2 billion in emergency assistance, and $2 billion in conservation and other payments during 1999-2001 (appendix table 3.4). Farm program payments averaged 11 percent of total

farm cash receipts, 23 percent of total crop receipts, and 37 percent of net cash farm income

over the period 1999-2001.

Direct payments dropped to slightly over $11.8 billion in calendar year 2002 (appendix table

3.4). In 2002, payments came from a mix of programs under both the 1996 and 2002 Acts.

PFC payments in 2002 were $3 billion and direct payments under the 2002 Act amounted

to $0.4 billion. Reduced production and higher market prices for wheat, feed grains, upland

cotton, and soybeans reduced marketing loan benefits from $6.2 billion in 2001 to $2.6 billion in 2002. Peanut quota holders received $1 billion under the 2002 Act’s quota buyout

program, $0.9 billion in 2002 Act payments went to dairy producers to compensate for low

prices, and producers participating in conservation programs received $1.8 billion in payments in 2002. In 2002, farm program payments were equivalent to 6 percent of total farm

cash receipts, 12 percent of crop cash receipts, and 27 percent of net cash farm income.

Level and Distribution of Payments 53
During calendar years 2003-07, direct payments to farmers and ranchers are projected under

the FY 2004 President’s Budget baseline to average $16.4 billion per year, reaching a high of

slightly over $17.5 billion in 2003 and falling to a low of $14.4 billion in 2007. Payments

are expected to increase in 2003 as increasing crop production is forecast to lower prices for

wheat, feed grains, and oilseeds. In addition, many producers elected to sign up for payments

under the 2002 Act after December 31, 2002, pushing a large portion of 2002 crop-year

payments into calendar year 2003. Over the period 2003-07, farm program payments are

forecast to average 8 percent of total farm cash receipts, 16 percent of crop cash receipts, and

31 percent of net cash farm income.

Government Payments by State

The ERS reports farm income and government payments by State and the NASS reports the

number of farms by State. Information on the number of farms and government payments

by State provides an indication of the diversity in the level of payments and payments per

farm across States. In many States, conservation payments are a substantial share of government payments, but Congress did not direct the Commission to study conservation payments and they are not considered in the following discussion.

54 Chapter 3

Figure 3.6. Net cash farm income and government payments, 1996-2007 

Billion dollars

70

60

50

40

1996 1998 2000

Calendar year

2002 2004 2006

10

20

30

0

Direct government payments

Net cash farm income

Source: USDA Economic Research Service and USDA Agriculture Baseline Projections to 2012
Farm program payments (excluding conservation payments) vary by State, reflecting the

location of base acres and production of commodities eligible for payments. During 1999-

2001, Iowa received, on average, more than $1.9 billion in PFC payments, marketing assistance loan benefits, and emergency assistance, the largest amount of any State; followed by

Illinois, $1.8 billion; Texas, $1.6 billion; Nebraska, $1.3 billion; Minnesota, $1.3 billion;

Kansas, $1.1 billion; North Dakota, $0.9 billion; Indiana, $0.9 billion; Arkansas, $0.8 billion; and Missouri, $0.7 billion (appendix table 3.5).

Comparing the dollar amount of payments per farm across States during 1999-2001 indicates that average farm payments per farm were the highest in North Dakota, $29,700; followed by Nebraska, $24,100; Illinois, $22,700; South Dakota, $21,100; Iowa, $20,200;

Kansas, $17,600; Arkansas, $17,300; Minnesota, $16,200; Louisiana, $14,300, and Indiana,

$13,600. Payments amounted to 96 percent of net cash farm income in Illinois, 81 percent

in North Dakota, 77 percent in Indiana, and over 60 percent in Minnesota, Kansas,

Louisiana, Iowa, Nebraska, Missouri, and Montana.

These figures indicate that payments are particularly important to the rural economies of several Midwest, Delta, and Northern and Southern Plains States. Producers in other States

receive payments but payments tend to be smaller and tend to account for a smaller portion

of net cash income. In States in which payments are relatively less important, livestock and

fruit and vegetable production tend to account for a higher proportion of total farm receipts

and farm income.

Government Payments by Farm

At the request of the Commission, the ERS made special tabulations of the ARMS data to

provide information on the characteristics of farms that receive government payments. Since

Congress did not direct the Commission to study conservation payments, these payments are

excluded from government payments unless otherwise indicated.

The NASS reports that there were 2.15 million farms in the United States in 2001. The

ARMS indicates that 41 percent of all farms, or 880,000 farms, received government payments, including conservation payments, in calendar year 2001. When conservation payments are excluded, the number of farms receiving payments falls to 726,062 and the

percentage of farms receiving payments drops to 34 percent. On farms receiving government

payments, the average payment per farm amounted to $18,374 in 2001. Government payments were the equivalent of 13 percent of gross cash income and 61 percent of net cash

income on farms receiving government payments. The gross income of farms receiving government payments averaged $145,498 and net cash income averaged $30,063 in 2001. In

comparison, the gross income of all farms averaged $85,612 and net cash income averaged

$16,706 in 2001.

Level and Distribution of Payments 55
Payments by farm typology 

ERS splits farms into three distinct categories—rural residence farms, intermediate farms,

and commercial farms. Rural residence farms are defined as farms in which the farm operator’s major occupation is something other than farming. Sixty percent of farms in the United

States in 2001 fell into the category of rural residence farms. Twenty-one percent of these

farms received government payments (excluding conservation) in 2001 (table 3.6). Rural residence farms receiving payments received on average $4,827 in government payments. These

payments were equivalent to 17 percent of their gross cash income and over 200 percent of

their net cash income. Rural residence farms accounted for 38 percent of all farms receiving

government payments and they received 10 percent of total government payments in 2001.

Intermediate farms are farms in which the farm operator reports farming as the major occupation and the farm had sales of less than $250,000. Thirty-one percent of farms were in this

category in 2001. One-half of all intermediate farms received government payments; payments averaged $13,865. Intermediate farms receiving payments accounted for 45 percent of

all farms receiving payments and these farms received 34 percent of all payments. For farms

in this category receiving payments, government payments were equivalent to 16 percent of

gross cash income and 77 percent of net cash income.

56 Chapter 3

Table 3.6 Number of farms, average government payments (excluding conservation),

and the contribution of payments to farm income by farm typology, 2001

All farms number 2,149,683 1,286,549 659,962 203,172

Average gross cash income dollar 85,612 11,843 66,419 615,087

Average net cash income dollar 16,760 -2,042 12,942 148,221

Average government payments dollar 6,206 1,026 6,925 36,673

Percent of gross cash income percent 7.2 8.7 10.4 6.0

Percent of net cash income percent 37.0 -50.2 53.5 24.7

Farms receiving government payments number 726,062 273,351 329,620 123,091

Percent of all farms percent 33.8 21.2 49.9 60.6

Average gross cash income dollar 145,498 28,647 88,353 558,019

Average net cash income dollar 30,063 2,256 17,961 124,220

Average government payments dollar 18,374 4,827 13,865 60,532

Percent of gross cash income percent 12.6 16.8 15.7 10.8

Percent of net cash income percent 61.1 213.9 77.2 48.7

Average PFC payments dollar 5,853 1,275 4,606 19,357

Average loan deficiency payments dollar 6,674 1,735 4,364 23,831

Average market loss and disaster payments dollar 4,354 1,184 3,814 12,837 

Average other payments 1 dollar 1,493 633 1,081 4,507

Farms receiving no government payments number 1,423,621 1,013,197 330,342 80,082

Percent of all farms percent 66.2 78.8 50.1 39.4

Average gross cash income dollar 64,870 9,109 46,423 715,586

Average net cash income dollar 9,975 -3,202 7,933 185,110

All Rural residence Intermediate Commercial

Unit farms farms farms farms

1 Certificate exchange gains included in other payments.

Source: USDA Economic Research Service, ARMS
Commercial farms are farms with sales of $250,000 or more and the farm operator reports

farming as the major occupation. Ten percent of all farms were commercial farms in 2001. In

2001, 61 percent of commercial farms received government payments; payments averaged

$60,532. Commercial farms receiving payments accounted for 17 percent of all farms receiving payments and these farms received 56 percent of all government payments. Government

payments amounted to 11 percent of gross cash income and 49 percent of net cash income

for commercial farms receiving government payments.

Characteristics of farms receiving government payments 

Since government payments (excluding conservation) are determined by the number of base

acres and the amount of production of crops eligible for payments, payments increase with

farm size and sales. As a result, payments tend to be concentrated among the larger farms.

Even so, government payments often make a significant contribution to farm income regardless of the farm’s size and income.

Level and Distribution of Payments 57

Table 3.7 Characteristics of all farms and farms receiving government payments (excluding conservation), 2001

Payments per

farm receiving

payments

Dollars

Distribution of

total payments

Percent of

all farms

Percent

receiving

payments

Distribution of

farms receiving

payments

Payments as a

percent of gross

cash income1

Payments as a

percent of net

cash income1

All farms 100 100 34 100 13 61 18,374

Economic class

$500,000 or more 30 3 66 6 9 41 89,419

$250,000 to $499,999 25 4 77 9 14 63 48,596

$100,000 to $249,999 25 9 70 18 15 63 24,681

$50,000 to $99,999 11 8 69 16 17 83 12,575

$10,000 to $49,999 8 21 49 30 17 370 4,991

Less than $10,000 1 55 12 20 19 -32 1,093

Farm type

Cash grain 49 10 92 28 20 97 31,898

Oilseeds 8 4 85 9 22 94 15,784

Rice 3 -- 100 1 29 97 116,614

Cotton 7 1 89 2 22 120 55,523

Other crops 12 28 23 18 11 46 12,073

Livestock 21 57 32 42 7 53 9,321

Farm typology

Rural residence farms 10 60 21 38 17 214 4,827

Intermediate farms 34 31 50 45 16 77 13,865

Commercial farms 56 10 61 17 11 49 60,532

Net cash income

$100,000 or more 35 5 67 9 10 27 69,951

$40,000 to $99,999 22 7 72 15 13 44 27,321

$10,000 to $39,999 18 13 59 22 16 67 15,219

$1 to $9,999 7 22 32 20 18 152 5,831

$0 to -$9,999 5 39 19 21 18 -100 4,488

-$10,000 to -$39,000 6 13 23 9 17 -59 11,562

Less than -$40,000 8 2 54 4 13 -26 38,608

1

For farms receiving government payments.

Source: USDA Economic Research Service, ARMS

Percent
In 2001, 7 percent of all farms and 16 percent of farms receiving government payments had

more than $250,000 in sales (table 3.7). Farms with sales of $250,000 or more received 55

percent of government payments in 2001 and they received on average $64,815 in government payments. On these farms, government payments amounted to 11 percent of gross

cash income and 49 percent of net cash income.

Seventeen percent of all farms and 35 percent of farms receiving government payments had

sales of $50,000 to $249,999 in 2001. These farms received 36 percent of government payments and they received on average $19,033 in government payments in 2001. On these

farms, government payments amounted to 16 percent of gross cash income and 68 percent

of net cash income.

Seventy-six percent of all farms and 50 percent of farms receiving government payments sold

less than $50,000 in agricultural products in 2001. These farms received 9 percent of government payments and they received on average $3,437. Government payments amounted to

17 percent of gross cash income and exceeded net cash income on these farms.

Net cash farm income varies considerably across farms receiving government payments. In

2001, 9 percent of farms receiving government payments had net cash farm of $100,000 or

more and they received 35 percent of government payments. These farms received on average

$69,951 in government payments. Government payments amounted to 10 percent of their

gross cash income and 27 percent of their net cash income.

Thirty-six percent of farms receiving government payments in 2001 had net cash income of

$10,000 to $99,999 and they received 40 percent of all government payments. Government

payments averaged $20,125 on these farms. For this group of farms, government payments

were equivalent to 14 percent of gross cash income and 52 percent of net cash income.

Fifty-five percent of farms receiving government payments in 2001 had net cash income of

less than $10,000 in 2001. These farms received 26 percent of all government payments and

received on average $8,602. Government payments amounted to 16 percent of gross cash

income and exceeded net cash income on these farms.

Government payments also vary by farm type. Specialized farms are those where one commodity accounts for 50 percent or more of the total value of production of all commodities.

Farms specializing in the production of crops eligible for government payments receive more

in payments than farms that specialize in the production of fruits, vegetables, or livestock. In

addition, per-farm payments also vary considerably for farms that specialize in the production of crops eligible for payments. While payments vary considerably across farm types, government payments generally contribute significantly to the incomes of farms producing a

wide range of commodities.

In 2001, farms receiving payments and specializing in cotton and rice production received

on average $55,523 and $116,614, respectively, in government payments, greatly exceeding

average payments to other specialized crop farms. Government payments on these two specialized crop farms exceeded 20 percent of gross cash income and amounted to 97 percent of

net cash income for rice farms and 120 percent of net cash income for cotton farms.

58 Chapter 3
Government payments averaged from $31,898 on farms specializing in cash grain (corn,

wheat, and other feed grains) production to $15,784 on farms specializing in oilseed (soybean, other oilseed, and peanut) production. Government payments on specialized cash

grain and oilseed farms ranged from 20 to 22 percent of gross cash income and 94 to 97 percent of net cash income. Many beef cattle, hog, and dairy producers also receive government

payments. For specialized livestock producers receiving payments, government payments

averaged 7 percent of gross cash income and 53 percent of net cash income.

Since government payments increase with farm size, farms with above-average net worth

tend to receive larger than average government payments. In 2001, 59 percent of government payments went to producers on farms with a net worth of $600,000 or more. TwentyLevel and Distribution of Payments 59

Table 3.8 Characteristics of farms receiving payments (excluding conservation) by

size of payment, 2001

Economic class

$500,000 or more 2 1 3 10 14 55

$250,000 to $499,999 1 2 8 19 39 36

$100,000 to $249,999 4 9 27 49 41 9

$50,000 to $99,999 4 12 40 19 – –

$10,000 to $49,999 16 43 22 –– –

Less than $10,000 73 32 ––– –

Acres operated

2,000 acres or more 1 3 7 13 22 50

1,000-1,999 acres 2 5 9 18 38 40

500-999 acres 3 9 27 37 34 8

250-499 acres 8 21 36 26 – –

100-249 acres 20 34 17 5 – –

Less than 100 acres 66 29 ––– –

Net cash farm income

$100,000 or more 2 2 6 14 28 60

$40,000 to $99,999 3 8 20 33 32 17

$10,000 to $39,999 8 18 38 27 16 7

$1 to $9,999 22 28 14 6 4 –

$0 to - $9,999 48 30 13 –– –

Less than - $10,000 17 13 9 15 18 13

Net worth

$900,000 or more 7 12 19 36 43 58

$600,000-$899,999 7 10 21 20 17 11

$300,000-$599,999 24 23 29 25 24 17

$75,000-$299,999 47 41 28 17 13 9

Less than $75,000 15 13 ––– –

Number

– = Insufficient observations prevent estimation.

Source: USDA Economic Research Service, ARMS

No

payments

Less than

$10,000

$10,000-

$19,999

$20,000-

$39,999

$40,000-

$79,999

Over

$80,000

Number of farms 1,423,621 445,333 104,154 87,899 52,677 35,999

Average payment 0 3,051 14,605 27,915 55,924 138,958 

Percent

Dollars
one percent of all farms and 34 percent of farms receiving payments had a net worth of

$600,000 or more in 2001. In contrast, 55 percent of all farms and 42 percent of farms

receiving government payments had net worth of less than $300,000. These farms received

20 percent of government payments in 2001.

Distribution of payments 

Farms that operate larger acreages of program crops and have higher-than-average sales,

income, and net worth generally receive larger payments, but there are exceptions. Sixty-one

percent of the farms receiving government payments received less than $10,000 in government

payments in 2001. These farms received 10 percent of government payments and, on average,

received $3,051. Seventy-five percent of these farms had less than $50,000 in sales and 71 percent had net cash income below $10,000 (table 3.8). The majority of these farms also had net

worth in 2001 of less than $300,000. However, 17 percent of farms receiving less than $10,000

in payments were 500 acres or larger and 22 percent had net worth of $600,000 or more.

In 2001, 36,000 farms received more than $80,000 in payments; their payments averaged

$138,958. These farms, which account for 2 percent of all farms and 5 percent of farms receiving government payments, received 38 percent of all government payments. Fifty-five percent of

these farms had sales of more than $500,000 and another 36 percent had sales of $250,000-

$499,999 in 2001. Sixty percent had net cash farm income of $100,000 or more and about the

same percentage had net worth of $900,000 or more. In contrast, 9 percent of the farms receiving over $80,000 in payments had sales of less than $250,000 and many farms in this group also

had low cash farm income and low net worth. One-fifth of the farms receiving $80,000 or more

in payments had net cash farm income of less than $40,000 and 9 percent had net worth of

$300,000 or less. Without government payments, over one-third of the farms receiving more

than $80,000 in payments would have had negative net cash income in 2001.

Payments in relation to the value of production 

Government payments increase with farm size and sales because of the link between payments, base acres, and production of crops eligible for government payments. As a result,

the distribution of payments tends to reflect the distribution of agricultural production. In

2001, the 34 percent of farms that received government payments (excluding conservation

payments) accounted for 55 percent of the value of agricultural production (table 3.9).

Even though government payments increase with farm size and sales, payments tend to be less

concentrated among farms with large sales and higher net worth than total agricultural production. In 2001, 48 percent of the value of all agricultural production on farms that received

government payments occurred on farms with sales of $500,000 or more, while farms in this

sales category received 30 percent of all government payments (table 3.10). Farms with net

worth of $900,000 or more accounted for 53 percent of the value of agricultural production

on farms receiving government payments and they received 43 percent of government payments in 2001 (table 3.11).

60 Chapter 3
Conclusions

• Government payments (PFC payments, marketing loss assistance, and marketing loan

benefits) averaged $18.5 billion for the 1999-2001 crops. For the 2002 crops, government

payments are forecast to decline to under $9 billion, as declining supplies due to adverse

weather have bolstered crop prices. For the 2003-07 crops, government payments are projected to average $11.6 billion per year.

Level and Distribution of Payments 61

Table 3.9. Distribution of farms, production, and government payments (excluding

conservation) by size of payment, 2001

No payments 66.2 44.9 0 0 0

$1-$9,999 20.7 13.8 61.3 25.1 10.2

$10,000-$19,999 4.8 7.0 14.3 12.8 11.4

$20,000-$39,999 4.1 12.2 12.1 22.2 18.8

$40,000-$79,999 2.5 8.9 7.3 16.1 22.1

$80,000 or more 1.7 13.1 5.0 23.8 37.5

Size of payment

All Farms

Value of 

production

on all farms

Farms

receiving

payments

Value of 

production on

farms receiving

payments Payments

Percent

Source: USDA Economic Research Service, ARMS

Table 3.10. Distribution of farms, production, and government payments (excluding

conservation) by sales class, 2001

Less than $50,000 76.1 6.8 49.9 5.0 9.4

$50,000-$99,999 7.8 5.7 16.1 6.7 11.0

$100,000-$249,999 8.9 16.4 18.4 20.2 24.7

$250,000-$499,999 4.1 15.1 9.4 20.1 24.8

$500,000 or more 3.2 55.9 6.2 48.0 30.1

Sales class

All Farms

Value of 

production

on all farms

Farms

receiving

payments

Value of 

production on

farms receiving

payments Payments

Percent

Source: USDA Economic Research Service, ARMS

Table 3.11. Distribution of farms, production, and government payments (excluding

conservation) by net worth, 2001

Less than $75,000 12.9 4.7 9.8 4.7 4.6 

$75,000-$299,999 42.1 11.2 32.8 11.1 15.2 

$300,000-$599,999 24.2 18.2 24.0 17.5 21.5 

$600,000-$899,999 9.1 11.5 13.4 13.7 15.5 

$900,000 or more 11.7 54.4 20.1 53.1 43.2

Net worth

All Farms

Value of 

production

on all farms

Farms

receiving

payments

Value of 

production on

farms receiving

payments Payments

Percent

Source: USDA Economic Research Service, ARMS
• Direct payments are forecast at slightly over $5 billion per year under the 2002 Act. Corn

is expected to account for about 38 percent of direct payments; followed by wheat, 22 percent; soybeans, 14 percent; upland cotton, 11 percent; rice, 8 percent; other feed grains, 6

percent; and other oilseeds and peanuts, 1 percent each.

• The 2002 Act replaced market loss assistance, which averaged $5 billion annually for the

1998-2001 crops, with counter-cyclical payments. Counter-cyclical payments are projected to average $4.4 billion for the 2002-07 crops, but could reach nearly $8 billion per

year if market prices fall to each eligible crop’s loan rate.

• Marketing assistance loan benefits, including loan deficiency payments, marketing loan

gains, and certificate exchange gains, reached a record of $8.2 billion for the 2001 crops.

Certificate exchange gains also peaked for the 2001 crops at $2 billion. For the 2002-07

crops, marketing assistance loan benefits are projected to average $1.6 billion per year, but

could surge to over $11 billion annually if crop prices fall back to 1999-2001 levels.

• FSA payment data for the 2001 crops indicate that 91 percent of the payees receiving PFC

payments and 79 percent of the payees receiving loan deficiency payments and marketing

loan gains received $10,000 or less. These payees received 43 percent of PFC payments

and 23 percent of loan deficiency payments and marketing loan gains. The 1 percent of

payees who received more that $30,000 in PFC payments received 18 percent of all PFC

payments. About 1 percent of payees received more than $85,000 in loan deficiency payments and marketing loan gains. They accounted for 17 percent of all loan deficiency payments and marketing loan gains received.

• Upland cotton and rice producers are the primary users of certificates. Data provided by the

FSA indicate that 23,465 payees received certificate exchange gains for the 2001 crops, averaging $72,412 per payee. Sixty-one percent of the payees received $50,000 or less and this

group received 12 percent of all certificate exchange gains, while 14 percent of all payees

received more than $150,000, accounting for 58 percent of all certificate exchange gains.

• Certificate exchange gains may not indicate how much payees exceed the per-person payment

limit on loan deficiency payments and marketing loan gains, because payees may be multiple

persons and marketing cooperatives may use more certificates than are needed to cover the

marketings of those who reach the payment limit. Furthermore, producers could choose to

forfeit the commodity and receive a forfeiture gain once the payment limit is reached.

• Payments tend to be concentrated in the Midwest, Plains, and Delta States—areas that

tend to specialize in the production of crops eligible for government payments. Producers

in other States receive payments but payments tend to be smaller and tend to account for a

smaller percentage of net cash income.

• About 40 percent of all farms receive farm program payments, including disaster assistance

and conservation payments. Excluding conservation payments, about one-third of all

farms receive government payments. In 2001, farms receiving government payments

received an average of $18,374.

62 Chapter 3
• Government payments tend to be concentrated among the larger farms. In 2001, 9 percent of farms receiving government payments had net cash income of $100,000 or more

and received 35 percent of all payments. Thirty-six percent of farms receiving payments

had net cash income of $10,000 to $99,999 and received 40 percent of payments, while

26 percent of payments went to the 55 percent of farms receiving payments with net cash

income of $10,000 or less.

• Even though payments tend to be concentrated among larger farms, government payments often make a significant contribution to farm income regardless of farm size and

income. On farms receiving payments and with sales of $250,000 or more, government

payments were equivalent to 11 percent of gross cash income and 49 percent of net cash

income in 2001. Government payments equaled 16 percent of gross cash income and 68

percent of net cash income on farms with sales of $50,000 to $249,999 and payments

amounted to 17 percent of gross cash income and exceeded net cash income on farms with

less than $50,000 in sales.

• For farms specializing in the production of crops eligible for direct and counter-cyclical

payments and marketing assistance loans, government payments averaged about 20 percent of gross cash income and about 100 percent of net cash income in 2001. Government

payments are also important to farms specializing in livestock and other crops (crops not

eligible for direct and counter-cyclical payments and marketing assistance loans) as well.

For these farms, government payments averaged about 10 percent of gross cash income

and about 50 percent of net cash income in 2001.

• Farms that operate larger acreages of program crops and have higher-than-average sales,

income, and net worth generally receive larger payments, but there are many exceptions.

In 2001, 38 percent of government payments went to the 36,000 farms (2 percent of all

farms and 5 percent of farms receiving payments) that received $80,000 or more in payments. Of these farms, 9 percent had sales of less than $250,000, 20 percent had net

cash income of less than $40,000, and 9 percent had net worth of $300,000 or less.

• Since direct and counter-cyclical payments are paid on historical production and total production of eligible crops is eligible for marketing assistance loan benefits, the distribution

of payments tends to reflect the contribution of the largest farms to the total value of agricultural production. In 2001, 6 percent of farms receiving payments with sales of

$500,000 or more received 30 percent of all payments and accounted for more than 48

percent of the value of agricultural production on farms receiving payments.

Level and Distribution of Payments 63
64
T

his chapter examines the economic effects of current payment limitations and the taxpayer and producer costs of administering payment limits. The chapter also discusses

the effects of permitting producers to use commodity certificates to obtain marketing

assistance loan benefits. At the time this study was prepared, the FSA could not provide the

Commission with information on the number of producers affected or the reduction in payments resulting from the 2002 Act’s payment limitations on direct payments, counter-cyclical payments, loan deficiency payments, and marketing loan gains. To estimate the effects of

current payment limitations, the Commission relied on PFC payment data provided by the

FSA for the 2000 and 2001 crops. In both years, PFC payments, which correspond closely to

the 2002 Act’s direct payments, were limited under the 1996 Act to $40,000 per person, the

current limit on direct payments.

The effects of payment limitations on direct payments, counter-cyclical payments, loan deficiency payments, and marketing loan gains depend on the extent to which the limitations

reduce payments to producers and the extent to which producers, who have payments

reduced because of the limits, restructure their farming operations to avoid the reduction in

payments. The FSA tracks and reduces payments when payments would otherwise exceed

the payment limitation.

Total Reduction in Payments

The 1996 Act authorized $4.190 billion in PFC payments for the 2001 crops. In that year,

5,929 or 0.5 percent of the 1,177,366 producers (persons actively engaged in agriculture)

receiving PFC payments had payments reduced because of the $40,000 limit on PFC payments (table 4.1). Producers reaching the payment limit had payments reduced by $38 million or the payment limitation reduced total payments by 0.9 percent. On average, each

producer reaching the payment limit had payments reduced by $6,422 (appendix table 4.2).

Direct payments are projected to total about $5.2 billion annually for the 2002-07 crops. For

the 2000 crops, the 1996 Act authorized almost $5.2 billion in PFC payments and these

payments were also limited to $40,000 per person. In 2000, 1,215,706 producers received

PFC payments and 12,298 or 1 percent of producers had payments reduced because of the

payment limit (table 4.1). On average, each producer reaching the payment limit had payGeneral Effects of Current Payment Limitations 65

Chapter 4

General Effects

of Current

Payment

Limitations

Payments reduced, dollars $82,648,742 $38,078,198

Payments made, dollars $5,066,319,393 $4,101,876,505

Percentage reduction 1.6 0.9

Producers reaching limit 12,298 5,929

Total producers 1,215,706 1,177,366

Percentage of producers affected 1.0 0.5

Table 4.1 Payment reduction and producers affected by the $40,000 payment

limitation on PFC payments

2000 crops 2001 crops

Source: USDA Farm Service Agency
ments reduced by $6,721 and total payments were reduced by $83 million or 1.6 percent

(appendix table 4.1). Since the 2002 Act has a $40,000 limit on direct payments and direct

payments are projected to total $5.2 billion, the payment limitation on direct payments is

also expected to reduce payments by about 1.6 percent or about $85 million per year, assuming producers who reach the payment limit do not restructure further.

The extent to which the $65,000 limitation on counter-cyclical payments lowers payments

to producers depends on the size of the payments, which varies depending on market prices.

When market prices are high, direct payments will likely exceed counter-cyclical payments.

For example, direct payments are projected to exceed counter-cyclical payments for the

2002 crops by $3.5 billion. Since the payment limit on counter-cyclical payments is

$65,000, compared with $40,000 for direct payments, the payment limit on counter-cyclical payments is expected to result in less reduction in payments than the payment limit on

direct payments when direct payments exceed counter-cyclical payments. This relationship

is expected to hold even though, under the 2002 Act, producers updating base acres could

also elect to partially update payment yields for counter-cyclical payments. No updating of

payment yields was permitted for direct payments under the 2002 Act.

If market prices for all eligible crops fall to or below the loan rate, counter-cyclical payments

could reach nearly $8 billion annually for the 2004-07 crops, greatly exceeding direct payments of $5.2 billion. Combining the effects of the larger payments with the higher limit,

the number of producers whose payments are reduced and the percentage reduction in

66 Chapter 4

Figure 4.1. Estimated reduction in direct and counter-cyclical payments 

 (current payment limits)

Million dollars

Low prices

High prices

250

200

150

Direct payments Counter-cyclical payments Total payments

100

50

0

Source: Commission estimates
counter-cyclical payments is expected to be very similar to the number of producers whose

payments are reduced and the percentage reduction in payments because of the $40,000

limit on direct payments. Furthermore, it is very likely that many of the same producers

would have both their direct and counter-cyclical payments reduced under low prices.

The possible impact of current payment limits is shown in figure 4.1. The payment limit on

direct payments could reduce payments by about $85 million, with about 1 percent of producers having payments reduced. In addition, the payment limit on counter-cyclical payments

could reduce payments by about $125 million affecting about 1 percent of producers. When

prices for eligible crops move above each crop’s loan rate, fewer producers would reach the

$65,000 limit on counter-cyclical payments and the reduction in payments could be much less.

The 2002 Act limits loan deficiency payments and marketing loan gains to $75,000 per person. However, there is no limit on marketing loan benefits realized through the use of commodity certificates or through the forfeiture of marketing assistance loans. Thus, the current

payment limit on loan deficiency payments and marketing loan gains does not reduce the

amount of marketing loan benefits a producer may receive.

Reduction in Payments by Commodity

In 2000, the $40,000 limit reduced upland cotton PFC payments by $22.6 million and rice

PFC payments by $10.3 million (figure 4.2). The reduction in payments amounted to 3.8

percent of total payments allocated for upland cotton and 2.3 percent of payments allocated

for rice (appendix table 4.5). The limit reduced PFC payments for wheat by $14.8 million

and lowered corn payments by $25.7 million, the most of any commodity in 2000. For these

two crops, the reduction in payments amounted to 1.1 percent of PFC payments allocated to

each. PFC payments for other feed grains (sorghum, barley, and oats) were reduced by $9.3

million in 2000. The reduction in payments averaged 2.5 percent of total PFC payments for

the three crops. Many of these producers likely had payments reduced because they also

received payments for other crops, such as wheat or corn.

In 2001, the limit on PFC payments resulted in a smaller drop in payments for all crops, as

the decline in PFC payments of about $1 billion from the previous year caused fewer producers to reach the payment limit. In 2001, the payment limitation lowered upland cotton

and rice PFC payments by $12.4 million and $3.7 million, respectively (appendix table 4.6).

PFC payments for upland cotton were reduced by 2.5 percent and payments for rice were

lowered by 1.1 percent, while payments for corn and wheat each were reduced by 0.6 percent

in 2001. PFC payments for corn and wheat were lowered by $11.6 million and $6.9 million,

respectively, because of the limit on PFC payments. Payments for sorghum, barley, and oats

were reduced by $3.5 million or 1.2 percent.

General Effects of Current Payment Limitations 67
68 Chapter 4

Million dollars

2000

2001

30

25

20

Corn Wheat Rice Upland cotton Other feed grains

15

10

5

0

Figure 4.2. Reduction in PFC payments by commodity ($40,000 limit)

Percent

2000

2001

10

8

Corn Wheat Rice Upland cotton Other feed grains

6

4

2

0

Figure 4.3. Percentage of producers having PFC payments reduced ($40,000 limit)

Source: USDA Farm Service Agency

Source: USDA Farm Service Agency
Payment limits tend to lower payments to a higher percentage of producers receiving upland

cotton and rice payments than producers receiving payments for other crops (see appendix

tables 4.3 and 4.4 for the number of producers receiving payments by crop). In 2000, the

$40,000 PFC limit reduced payments to 0.7 percent of producers receiving corn payments

and 0.5 percent of producers receiving wheat payments (figure 4.3). For sorghum, barley, and

oats, from 0.3 to 1.3 percent of producers receiving PFC payments for those crops had payments reduced. In contrast, 2.2 percent of the producers receiving upland cotton and 4.7 percent of the producers receiving rice PFC payments had payments lowered in 2000 because of

the payment limit. In 2001, 0.3 percent of the producers receiving wheat and 0.4 percent of

the producers receiving feed-grain payments had payments reduced, while 1.2 percent of the

producers receiving upland cotton payments and 1.8 percent of the producers receiving rice

payments had payments lowered because of the $40,000 limit on PFC payments.

Direct payment rates for wheat, feed grains, upland cotton, and rice are between the 2000

and 2001 crop PFC payment rates. As a result, the reduction in payments in 2000 and 2001

because of the $40,000 limit on PFC payments can be used to approximate the expected

reduction in payments for those commodities resulting from the $40,000 limit on direct

payments, assuming producers reaching the payment limit do not restructure further. For the

2002-07 crops, the payment limit on direct payments is projected to reduce payments for

corn by about $15 million, other feed grains by about $7 million, wheat by about $10 million, rice by about $7 million, and upland cotton by about $20 million.

The above estimates understate the loss in direct payments due to the payment limitation,

because the 2002 Act made soybeans, other oilseeds, and peanuts eligible for direct payments

and these payments are also subject to limits. For soybeans and other oilseeds, direct payments for these crops will be combined with direct payments for wheat, feed grains, rice, and

upland cotton to determine whether payments exceed the $40,000 limit. Direct payments

on peanuts are subject to a separate limit of $40,000. Therefore, more producers growing

oilseeds will be subject to payment limits than in the past. Making direct payments on soybeans, other oilseeds, and peanuts subject to payment limits is projected to reduce payments

for the 2002-07 crops by about $25 million annually, leading to a total reduction of about

$85 million annually in direct payments because of the $40,000 payment limitation.

As indicated earlier, the $65,000 payment limit on counter-cyclical payments is expected to

lower total counter-cyclical payments by as much as $125 million, if prices for all eligible

crops fall below each crop’s loan rate. Maximum counter-cyclical payments per base acre were

compared to direct payments per acre to arrive at estimates of the reduction in counter-cyclical payments by crop due to the $65,000 limit on counter-cyclical payments. Adjustments

were made to account for differences in the payment limits and payment yields for direct and

counter-cyclical payments.

Under a low-price scenario, the $65,000 payment limit is projected to lower counter-cyclical

payments by as much as $3 million for sorghum, barley, and oats, $3 million for rice, $10

million for wheat, $32 million for corn, and $60 million for upland cotton. Including the

General Effects of Current Payment Limitations 69
counter-cyclical payments that will be paid for oilseeds, the $65,000 limit could further

reduce counter-cyclical payments by an additional $10-$20 million, if the prices for all crops

eligible for counter-cyclical payments fall below each crop’s loan rate. Compared with direct

payment rates, maximum counter-cyclical payment rates are much higher for corn, oats,

upland cotton, and peanuts. When prices are low, the limit on counter-cyclical payments will

lead to a greater reduction in payments for corn, oats, upland cotton, and peanuts than the

limit on direct payments. For the remaining crops eligible for direct and counter-cyclical payments, the payment limit on direct payments is expected to lead to a greater reduction in

payments than the limit on counter-cyclical payments.

A higher percentage of rice and upland cotton producers have their payments reduced

because of payment limitations for two reasons. First, rice and upland cotton farms tend to

be larger than wheat, oilseed, and feed-grain farms and, since direct and counter-cyclical payments are based on historical production (base acres times program yield), payments increase

with farm size. According to the 1997 Census of Agriculture, farms producing rice harvested

on average 336 acres of rice and farms producing upland cotton harvested on average 420

acres of upland cotton. In contrast, farms producing wheat, corn, and soybeans each averaged less than 240 harvested acres. In 1997, less than 10 percent of the farms growing corn,

70 Chapter 4

Corn 37.8 18.1 23.9 12.8 5.8 1.3 0.2 

Sorghum 31.0 21.7 27.9 12.3 5.1 1.5 0.3 

Barley 45.5 16.2 21.4 10.6 4.8 1.1 0.3 

Oats 85.1 9.3 4.6 0.6 0.1 – 1/ 

Wheat 37.5 16.1 20.2 12.0 8.8 4.1 1.1 

Soybeans 31.1 19.5 26.3 14.6 6.7 1.6 0.3 

Upland cotton 15.0 11.8 23.4 20.9 18.7 8.2 1.9 

Rice 8.9 9.9 31.1 30.3 15.4 3.7 0.8 

Peanuts 46.5 19.2 22.6 8.2 2.8 0.5 1

Table 4.2. Distribution of farms by acres harvested, 1997

– Denotes less than 0.05 percent.

1 Combined with previous category because of lack of data.

Source: 1997 Census of Agriculture

1-49 50-99 100-249 250-499 500-999 1,000-1,999 2,000 or more

Percent

Corn bushel .28 102.7 .85 24.4 1,636

Sorghum bushel .35 57.0 .85 17.0 2,359

Barley bushel .24 46.6 .85 9.5 4,208

Oats bushel .024 50.6 .85 1.0 38,751

Wheat bushel .52 34.5 .85 15.2 2,623

Soybeans bushel .44 30.0 .85 11.2 3,565

Upland cotton pound .0667 600 .85 34.0 1,176

Rice hundredweight 2.35 48.15 .85 96.2 416

Peanuts ton 36 1.2 .85 36.7 1,089

Table 4.3 Payments per base acre and base acreage of various crops needed to reach

the payment limit on direct payments, 2002-07 crops

Crop Unit

Payment rate,

dollars per

unit

Average 

program yield,

per acre

Base acreage

factor

Payment per

base acre,

dollars per unit

Base acres to

reach $40,000

payment limit

Source: CCC estimates, FY 2004 President’s Budget baseline
sorghum, barley, oats, soybeans, and peanuts harvested more than 500 acres of those crops

(table 4.2). About 13 percent of the farms growing wheat harvested more than 500 acres of

wheat but nearly one-fifth of the farms growing rice and over one-quarter of the farms growing cotton harvested more than 500 acres of those crops.

The second reason why a higher percentage of rice and upland cotton producers have their

payments reduced is that payments per base acre tend to be higher for rice and upland cotton

than for other commodities eligible for direct and counter-cyclical payments. For an individual producer, the payment per acre depends on the farm’s program yield for each crop eligible

for payments. Using estimates of national average direct payment yields as reported in the FY

2004 President’s Budget baseline, direct payments average about $96 per base acre for rice,

$37 per base acre for peanuts, $34 per base acre for cotton, $24 per base acre for corn, $15

per base acre for wheat, and about $11 per base acre for soybeans (table 4.3). As a result, it

generally takes fewer acres of rice and upland cotton to reach the payment limitation on

direct payments. In regions where program yields are above average, it takes fewer acres to

reach the payment limitation than in regions with below-average program yields.

As with direct payments, counter-cyclical payments per acre vary widely from farm to farm

and from region to region, reflecting differences in payment yields. Using estimates of national

average counter-cyclical payment yields from the FY 2004 President’s Budget baseline,

counter-cyclical payments would average $73 per base acre for upland cotton, $79 per base

acre for rice, and $106 per base acre for peanuts, if market prices are at or below each eligible

crop’s loan rate (table 4.4). In contrast, counter-cyclical payments could average about $40 per

acre for corn, $20 per acre for wheat, and $11 per acre for soybeans under low prices.

Marketing assistance loan benefits per acre also tend to be higher for upland cotton and rice

than for other commodities eligible for marketing assistance loans. For the 1999-2001 crops,

marketing assistance loan benefits, including commodity certificate and forfeiture gains,

averaged $177 per harvested acre for rice, $117 per harvested acre for upland cotton, $38 per

harvested acre for soybeans, $29 per harvested acre for corn, and $12 per harvested acre for

wheat. The changes in loan rates under the 2002 Act could boost marketing loan benefits for

General Effects of Current Payment Limitations 71

Corn bushel .34 .40 127.7 .85 36.9 43.4 1,761 1,497

Sorghum bushel .21 .27 62.0 .85 11.1 14.2 5,873 4,568

Barley bushel .09 .15 55.7 .85 4.3 7.1 15,254 9,153

Oats bushel .026 .086 58.1 .85 1.3 4.2 50,623 15,305

Wheat bushel .54 .65 39.8 .85 18.3 22.0 3,558 2,956

Soybeans bushel .36 .36 36.3 .85 11.1 11.1 5,852 5,852

Upland cotton pound .1373 .1373 625 .85 72.9 72.9 891 891

Rice hundredweight 1.65 1.65 56.32 .85 79.0 79.0 823 823

Peanuts ton 104 104 1.2 .85 106.1 106.1 613 613

Table 4.4. Maximum counter-cyclical payments per base acre and base acreage of various crops needed to reach

payment limit on counter-cyclical payments, 2002-07 crops

Crop Unit

Maximum 

payment rate,

dollars per unit

2002-03 2004-07

Average 

program yield 

per acre

2002-07

Base acreage 

factor

2002-07

Payment per 

base acre,

dollars

2002-03 2004-07

Base acres to reach

$65,000 payment

limit

2002-03 2004-07

Source: CCC estimates, FY 2004 President’s Budget baseline
corn by $10 per acre, sorghum by $16 per acre, barley by $13 per acre, and wheat and oats

by $8 per acre, and reduce marketing loan benefits for soybeans by about $10 per acre.

Marketing assistance loan benefits per acre were left essentially unchanged under the 2002

Act for rice and upland cotton. Even though marketing assistance loan benefits vary from

year to year depending on the level of market prices, marketing assistance loan benefits per

harvested acre are projected to continue to be much higher for rice and upland cotton than

for feed grains, soybeans, and wheat in most years. Marketing assistance loan benefits also

vary widely from farm to farm and region to region reflecting differences in yields per acre

across farms and regions of the country.

Generally, direct and counter-cyclical payment rates and marketing assistance loan benefits

for the various crops eligible for payments reflect differences in production costs, with rice,

upland cotton, and peanuts having higher payments and higher per-unit variable production

cost than wheat, feed grains, and soybeans. For 2003, total support per base acre (the sum of

direct payment, maximum counter-cyclical payment, and the loan rate) for corn amounts to

$2.42 per bushel or 193 percent of variable cost per bushel (table 4.5). For other feed grains,

total support ranges from 145 to 164 percent of variable cost. Total support is equivalent to

218 percent of variable cost for wheat, 170 percent for peanuts, 259 percent for soybeans,

164 percent for upland cotton, and 186 percent for rice.

72 Chapter 4

Corn bushel 0.17 0.26 1.98 2.42 1.23 14 35 193

Sorghum bushel 0.25 0.16 1.98 2.39 1.54 17 28 164

Barley bushel 0.15 0.07 1.88 2.10 1.43 11 15 145

Oats bushel 0.02 0.02 1.35 1.39 0.86 2 4 153

Wheat bushel 0.38 0.45 2.80 3.63 1.62 23 50 218

Soybeans bushel 0.28 0.28 5.00 5.56 2.07 13 26 259

Upland cotton pound 0.05 0.11 0.52 0.69 0.34 29 40 164

Rice hundredweight 1.44 1.18 6.50 9.12 4.68 13 54 186

Peanuts ton 27.39 79.13 355.00 461.53 0.11 10 39 170

Table 4.5. Maximum support per base acre in relation to variable cost of production, 2003

Note: Direct and counter-cyclical payments are decoupled from production. 1 Direct payment rate adjusted for nonpayment acres and direct payment yield relative to projected yield. 2 Counter-cyclical payment rate adjusted for nonpayment acres and counter-cyclical payment yield relative to projected yield.

Source: CCC estimates, FY 2004 President’s Budget baseline and USDA Agricultural Baseline Projections to 2012

Direct 

payment 1

Maximum

counter-cyclical

payment 2

Marketing

assistance

loan rate

Total 

support

Variable

cost

Direct 

payment

divided by

variable cost

Direct plus

maximum

counter-cyclical

payment

divided by

variable cost

Total 

support

divided by

variable cost

Crop Unit Dollars per unit Percent
Reduction in Payments by State

In 2000, California producers reaching the $40,000 limit on PFC payments had payments

reduced by $19.6 million (figure 4.4). A total of 1,146 California producers had their payments reduced by $17,093 on average. Texas producers had PFC payments lowered by $10.0

million. Reduced payments to upland cotton producers accounted for 60 percent of the

reduction in payments in California and 35 percent of the payment reduction in Texas. The

payment reductions in California and Texas represented 36 percent of the total reduction in

payments across all States in 2000 and 39 percent in 2001.

Several other States had PFC payments reduced by $3-$5 million in 2000. Kansas had payments

reduced by $4.85 million, the third most of any State. In Kansas, 1,029 wheat, corn, sorghum,

barley, and oats producers had payments reduced on average by $4,711 in 2000 because of the

limit of $40,000 on PFC payments. The fourth leading State, Arkansas, had PFC payments

reduced by $4.03 million. Other States that had payments reduced by $3-$5 million in 2000

General Effects of Current Payment Limitations 73

Figure 4.4. Reduction in PFC payments by State, 2000 ($40,000 limit) 

Zero

0.1-$1 million

$1 million-$3 million

$3 million-$5 million

More than $5 million

Figure 4.5. Reduction in PFC payments by State, 2001 ($40,000 limit) 

Zero

0.1-$0.5 million

$0.5 million-$1.5 million

$1.5 million-$2.5 million

More than $2.5 million

Source: USDA Farm Service Agency

Source: USDA Farm Service Agency
included: Nebraska, $3.65 million; Illinois, $3.45 million; Montana, $3.11 million; and Louisiana,

$3.08 million. Generally, the relative ranking of States by the amount payments were reduced

because of the $40,000 limit on PFC payments holds for both 2000 and 2001 (figure 4.5).

Another measure of the relative effects of payment limits across States and regions is the percentage reduction in payments. Nationally, the $40,000 limit on PFC payments reduced

payments to producers by 1.6 percent in 2000 and 0.9 percent in 2001, but the percentage

reduction in payments varied widely across States and regions (appendix table 4.3). In 2000,

PFC payments to producers in Florida were reduced by 12.3 percent, the largest percentage

reduction of any State (figure 4.6). Florida was followed by California (reduction of 9.7 percent), and Nevada (7.7 percent). In Nevada, 5 producers had their payments lowered an

average of $13,908. In 2000, the payment limit on PFC payments reduced payments by 3-5

percent in Arizona, Colorado, Delaware, and Oregon. For the most part, the States in which

the percentage reduction in payments exceeded the national average for 2000 also had aboveaverage percentage reductions in payments for 2001 (figure 4.7, appendix table 4.4).

74 Chapter 4

Figure 4.7. Percentage reduction in PFC payments by State, 2001 ($40,000 limit)

Zero

0.01-0.5%

0.5-1.0%

1.0-2.0%

Greater than 2%

Figure 4.6. Percentage reduction in PFC payments by State, 2000 ($40,000 limit)

Zero

0.01-0.75%

0.75-1.5%

1.5-3.0%

Greater than 3%

Source: USDA Farm Service Agency

Source: USDA Farm Service Agency
While the above data support the conclusion that payment limits tend to result in a greater

decline in payments in States and regions where upland cotton and rice production dominate,

producers in other States and regions also are affected by payment limits. Producers in 42 States

in 2000 and producers in 43 States in 2001 had payments reduced because of the $40,000 limit

on PFC payments. The producers affected by payment limits produce a variety of crops and are

scattered throughout the primary wheat, feed-grain, rice, and upland cotton producing States

and regions. Furthermore, making soybeans, other oilseeds, and peanuts eligible for direct and

counter-cyclical payments under the 2002 Act is expected to increase the number of producers

who have payments reduced because of payment limits in the Corn Belt and in other regions

where there is a high level of concentration of production of these crops.

Farm Structure

The limited effects of current payment limitations on payments to producers may be due to

the payment limits being set at a level at which few producers are affected. Alternatively,

many producers may potentially be affected but may be able to reorganize their farming

operation to limit the reduction in payments. There are several ways a farm may restructure

under existing rules and qualify for additional payments. For example, the farm may add

individuals or entities that are actively engaged in the farming operation with these additional persons qualifying for payments (see Chapter 2).

Restructuring of the farming operation in response to payment limits may also change the

sharing of production and price risk between the landowner and the farm operator. An

owner-operator reaching the limit on payments may decide not to create additional entities

and instead cash rent or share rent a portion of the farm to someone else, shifting a portion

of the risk to the renter. In this instance, the owner-operator may be able to capture a major

portion of the payments that would otherwise be lost because of payment limits through a

cash or share rental agreement. The ability of the owner-operator to capture payments by

either cash or share renting would depend on the strength of the local land rental market

and the extent to which government payments are bid into land rents.

The operator who rents land and reaches the payment limit may also reorganize the farming operation by adding additional individuals or entities that are actively engaged in the

farming operation or switching from a cash to a share rental agreement. The acceptability of

such a restructuring depends on the landowner’s willingness and ability to handle risk.

Data on the size distribution of wheat, soybean, corn, rice, and upland cotton farms by State

from the 1997 Census of Agriculture were used to provide an indication of the extent of

farm restructuring and the amount of payments by crop that could be potentially affected by

payment limitations. For each State, the number of acres needed for a farm to reach the payment limitation was determined by dividing the applicable payment limitation by the payment rate times the State average program payment yield for each eligible crop. Each farm

was assumed to be operated by two eligible payment limit persons, doubling the payment

General Effects of Current Payment Limitations 75
limitation for direct and counter-cyclical payments. Under these assumptions, the $40,000

payment limitation on direct payments was estimated to reduce payments to program participants by about $185 million annually, or 3-4 percent. In comparison, the FSA data indicate

that payments are lowered by about 1.6 percent. This suggests that many farms are structured or have restructured to reduce the effects of payment limitations.

One way for farms to restructure to avoid payment limits is to increase the number of producers (persons actively engaged) in the farming operation, thereby increasing the amount of

payments that a farm can receive. At the request of the Commission, the FSA provided data

on the distribution of the number of producers (persons) on FSA farms. Nationally, 87.9

percent of FSA farms had 1-2 producers, 10.9 percent had 3-5 producers, 1.1 percent had 6-

10 producers, and 0.1 percent of farms had 11 or more producers in 2002 (table 4.6). It is

likely that many of the farms with a large number of producers are structured to lessen the

effects of payment limits. In 2002, there were 325 farms with 21 or more producers. Ninety

percent of these farms were located in 9 States—Arkansas, California, Illinois, Louisiana,

Mississippi, Missouri, North Dakota, Texas, and Washington. In many instances, these same

States were among the leading States in terms of the value of payments lost and the number

of producers who had payments reduced because of the limit on PFC payments.

The current limitations on direct and counter-cyclical payments may discourage a small

number of large producers from expanding. If a producer reaching the payment limitation

on direct and counter-cyclical payments is limited in the ability to add additional persons

that are actively engaged in the farming operation, the decision to expand would be based on

the expected returns of owning or renting additional land, excluding those government payments that may be subject to payment limitations. If payments per acre are relatively low and

make up a small portion of the purchase or rental value per acre, the decision to expand is

probably less influenced by payment limitations.

A producer whose payments are restricted by payment limits could elect to expand by purchasing or renting cropland in which a small portion of the acreage is eligible for direct and

counter-cyclical payments. Alternatively, the producer could purchase (or rent) land in which

a high percentage of the land is eligible for direct and counter-cyclical payments, but the base

acreage of the land purchased (or rented) applies to crops in which direct and anticipated

future counter-cyclical payment rates are low compared to other crops. Even though these

effects appear to be very small, current payment limitations may have limited expansion of

farms specializing in upland cotton and rice production more than farms specializing in grain

and oilseed production.

76 Chapter 4
General Effects of Current Payment Limitations 77

Table 4.6 Number of FSA farms categorized by the number of producers per farm

Alabama 29,899 2,477 454 77 0 32,907

Alaska 70 2 0 0 0 72

Arizona 1,675 399 80 16 0 2,170

Arkansas 17,877 7,634 1,415 194 35 27,155

California 9,257 2,416 634 149 35 12,491

Colorado 14,151 3,330 347 35 4 17,867

Connecticut 1,528 52 7 0 0 1,587

Delaware 3,351 253 3 0 0 3,607

Florida 6,619 144 24 3 0 6,790

Georgia 35,815 1,979 176 8 0 37,978

Idaho 14,359 1,808 333 53 0 16,553

Illinois 132,526 24,416 1,571 153 18 158,684

Indiana 94,041 11,543 596 60 5 106,245

Iowa 138,779 10,724 544 42 5 150,094

Kansas 83,540 20,539 1,853 137 4 106,073

Kentucky 51,590 4,871 293 14 0 56,768

Louisiana 17,572 5,262 1,536 439 97 24,906

Maine 2,457 204 3 1 0 2,665

Maryland 11,136 809 12 0 0 11,957

Massachusetts 1,519 124 0 0 0 1,643

Michigan 51,686 3,632 173 23 1 55,515

Minnesota 92,483 5,067 246 8 1 97,805

Mississippi 24,010 3,781 945 179 32 28,947

Missouri 64,220 9,694 735 65 10 74,724

Montana 19,896 2,795 277 30 2 23,000

Nebraska 74,138 11,174 775 47 1 86,135

Nevada 372 35 0 0 0 407

New Hampshire 745 69 0 0 0 814

New Jersey 2,353 33 1 0 0 2,387

New Mexico 3,979 340 26 4 0 4,349

New York 22,271 1,554 59 0 0 23,884

North Carolina 50,261 3,571 361 32 3 54,228

North Dakota 50,589 5,333 458 35 17 56,432

Ohio 79,258 7,254 243 8 0 86,763

Oklahoma 47,691 5,153 451 39 0 53,334

Oregon 7,071 1,076 225 32 6 8,410

Pennsylvania 31,670 1,684 19 1 0 33,374

Rhode Island 142 0 0 0 0 142

South Carolina 20,771 761 210 2 0 21,744

South Dakota 44,640 5,051 349 13 0 50,053

Tennessee 35,916 4,927 455 15 0 41,313

Texas 86,837 19,213 2,453 287 37 108,827

Utah 3,642 212 19 2 0 3,875

Vermont 2,191 220 25 0 0 2,436

Virginia 29,334 1,060 63 0 0 30,457

Washington 7,745 2,878 658 80 12 11,373

West Virginia 3,727 74 3 0 0 3,804

Wisconsin 80,733 2,989 104 6 0 83,832

Wyoming 3,929 274 8 0 0 4,211

U.S. total 1,610,061 198,890 19,222 2,289 325 1,830,787

1-2 3-5 6-10 11-20 21 or more Total

Source: USDA Farm Service Agency
Land Values, Rural Communities, Agribusiness

Infrastructure, Planting Decisions, and Supply and

Prices of Covered Commodities

Current farm programs certainly do affect land values, agribusiness infrastructure, planting

decisions, and the supply and prices of covered commodities. In fact, there is strong evidence that a portion of government payments, which likely varies regionally, is bid into cash

rents and capitalized into land values. Government payments support agribusiness infrastructure and affect the planting decisions and the supply and prices of covered commodities (see Chapter 5 for further discussion of the effects of government payments).

This chapter focuses more narrowly on the effects of current payment limits rather than on

the effects of payments. The effects of current payment limitations on land values, rural

communities, agribusiness infrastructure, planting decisions, and the supply and prices of

commodities eligible for direct and counter-cyclical payments and marketing loan benefits

are largely inconsequential. Few producers are affected by current payment limits and current limits only modestly reduce payments to producers.

Current payment limits reduce direct and counter-cyclical payments, which are decoupled

from production, by about 1.6 percent. Producers can either elect to plant any crop, except

in some instances fruits, vegetables, and wild rice, or not grow a crop and continue to

receive direct and counter-cyclical payments so long as they comply with wetland provisions

and conservation requirements, effectively control noxious weeds, and keep base acres in

agricultural or conserving uses. Since direct and counter-cyclical payments for the most part

do not depend on which crop is planted and few producers have payments reduced because

of payment limits, current payment limits likely have essentially no effect on plantings and

production of program crops.

Loan deficiency payments and marketing loan gains are paid on current production and a

limitation on these benefits could affect supplies and prices of covered commodities.

Currently, loan deficiency payments and marketing loan gains are limited to $75,000 per

person. This limitation does not affect the supplies and prices of covered commodities,

since a producer reaching the payment limitation may capture the marketing loan benefit

by either electing to forfeit the commodity held as collateral for a marketing assistance loan

to the CCC or using commodity certificates to settle the loan.

Administrative Costs

In addition to the reduction in payments, current payment limitations impose other costs

on producers. As indicated above, many producers who would otherwise be affected by payment limitations appear to partially or totally avoid current payment limitations by restruc78 Chapter 4
turing their farming operations. Producers choosing to restructure may incur costs. These

costs could include legal and other consulting fees and time spent to develop the necessary

paperwork and to negotiate new crop share and cash rent agreements.

Producers must complete certain forms as required by the FSA to administer payment limitations. Producers must take time to fill out the forms needed to apply payment limits and to

respond to inquiries if questions arise. The FSA estimated these costs for the Commission at

about $8 million annually (table 4.7). Producers’ legal and consulting fees for forming entities

to garner additional payments are not included in this estimate nor does the estimate include

the cost of maintaining records and gathering information. Some producers may also seek

legal advice and representation and incur additional costs if the farm business structure is challenged as a scheme or device to avoid payment limitations.

Current payment limitations reduce taxpayer costs by lowering payments slightly. These savings are partially offset by the government costs of implementing and enforcing payment limitation regulations. These costs include: employee and other expenses to oversee that forms

related to the administration of payment limitations are filled out and filed properly; costs to

load information electronically and to develop, maintain, and refine software used to track

payments; and costs to investigate, gather evidence, and prosecute instances in which producers have either violated or appear to have violated regulations on payment limits. USDA

spends about $16 million a year on these activities. The estimate covers the cost of administering all payment limits relating to farm programs. The FSA was unable to isolate the costs of

administering payment limits for the programs being considered by the Commission. The

FSA county offices, which interact with producers and process forms used for payment eligibility and payment limitation determinations, incur the bulk of the government cost. USDA

was unable to provide the Commission with an annual estimate of the payments recovered

from those found to be in violation of payment limitation regulations.

General Effects of Current Payment Limitations 79

Table 4.7. Annual government and producer costs of implementing farm

program payment limits

FSA county offices 1 12,063,188

FSA State offices 2 3,112,545

FSA Washington, D.C. staff 3 122,183

FSA cost for forms 4 28,157

USDA Office of the Inspector General 5 850,327

Total annual government cost 16,176,400

Producer cost for completing paperwork 6 7,883,952

Total annual government and producer cost 24,060,352

Item Dollars

I Source: FSA work measurement data. The estimate is an average for FY 1999 through FY 2002 and includes benefits and overhead.

2 For this estimate, each FSA State office provided information on its FY 2002 expenses for implementing payment limitations.

3 Cost of staff that writes regulations and handbooks and provides guidance to field staff.

4 Source: FSA estimate submitted to the Office of Management and Budget in packet for approval of payment eligibility and payment

limit forms. The estimate includes expenses for form development, printing, distribution, and storage.

5 Source: Office of the Inspector General administrative data. The estimate is an average for FY 1999 through FY 2002 and includes

the cost of audits and investigations primarily related to payment limitations. The estimate does not include the cost of audits and

investigations that identified payment limitation issues incidental to the primary objectives or allegations.

6 Source: FSA estimate submitted to the Office of Management and Budget in packet for approval of payment eligibility and payment

limit forms. The estimate includes time needed to fill out forms and travel time. It is based on an average hourly wage of $12.00.
Commodity Certificate Exchanges

The Joint Explanatory Statement of the Committee of Conference for the 2002 Act states,

“The Managers intend for the Commission to examine the feasibility of improving the application and effectiveness of payment limitation requirements, including the use of commodity

certificates and unlimited forfeiture of loan collateral.” Consequently, the Commission

examined how certificates are used, how they are accounted for and tracked by USDA, and

the general effects of their use.

Evolution of Certificates

The use of certificates in the operation of farm commodity programs became prominent in

1983 as a way to pay producers and dispose of government-owned inventory (Payment-inKind). Some farm program payments were paid in certificates rather than cash. The certificates were transferable and could be redeemed for surplus inventory. Redeeming certificates

for government inventory became associated with the marketing assistance loan program

when forfeitures of loan collateral became a concern in the late 1990s.

In the late 1990s, farm prices fell sharply as the world economy slowed, currencies of Asian

countries and others depreciated sharply, and good weather resulted in large farm production. With prices well below loan rates, producers increasingly began to reach the $75,000

payment limit on loan deficiency payments and marketing loan gains. As part of broad

financial assistance to producers, Congress responded to the limitation on loan deficiency

payments and marketing loan gains in two ways. In the Agriculture, Rural Development,

Food and Drug Administration and Related Agencies Appropriations Act of 2000 (Public

Law 106-78), enacted in October 1999, the per-person limit was increased from $75,000 to

$150,000. In addition, the legislation amended the 1996 Act to provide the Secretary of

Agriculture discretionary authority to make commodity certificates available to producers.

The authority to issue commodity certificates was continued in the 2002 Act and the limit

on loan deficiency payments and marketing loan gains was lowered to $75,000 per person.

How Certificates Are Currently Used

Current law provides the Secretary of Agriculture discretionary authority to use four possible

methods to make in-kind payments:

• delivery of the commodity at a warehouse or similar facility;

• transfer of negotiable warehouse receipts;

• issuance of negotiable certificates which the CCC exchanges for a commodity owned or

controlled by the CCC in accordance with applicable regulations; or

• other methods deemed appropriate by the CCC to promote the efficient, equitable, and

expeditious receipt of in-kind payments so that a person receiving the payments receives

the same total return as if the payment had been made in cash.

80 Chapter 4
In February 2000, the Secretary of Agriculture chose to implement commodity certificate

provisions based on the third method listed above. For producers with outstanding nonrecourse loans, a three-step commodity certificate exchange mechanism was instituted to allow

CCC to first acquire and then dispose of quantities of commodities pledged as loan collateral. The three-step process is outlined in the following table.

The AWP is used for cotton and rice, and the CCC determined value is the Posted County

Price (PCP) for other commodities. The AWP is the world market price adjusted to U.S.

location and the PCP is the current U.S. terminal cash or spot market price adjusted for location. The certificate exchange process is not permitted if the AWP or the PCP is above the

loan rate. The income gained from the use of certificates is essentially identical to that gained

through a loan deficiency payment or marketing loan gain. After the certificate exchange, the

producer’s income is the receipts from the sale of the commodity at the market price plus the

difference between the loan rate and the loan repayment rate—the AWP for cotton and rice

and the PCP for other commodities.

The AWP is used as the alternative loan repayment rate for upland cotton and rice and the

PCP is used as the alternative loan repayment rate for other crops eligible for marketing assistance loans. These two alternative loan repayment rates reflect the marketing assistance loan

provisions contained in the 2002 Act. Under the 2002 Act, the Secretary is required to permit producers to repay marketing assistance loans for upland cotton and rice at a rate that is

the lesser of loan rate or the world market price adjusted to United States quality and location (AWP). For other crops eligible for marketing assistance loans, the 2002 Act requires the

Secretary to set the repayment rate at a rate that the Secretary determines will minimize

potential loan forfeitures, minimize the accumulation of stocks, minimize the cost incurred

in storing the commodity, and allow the commodity to be marketed freely and competitively

in domestic and international markets. In response to this mandate, USDA has used the current cash or spot market price adjusted for location (PCP) to establish the loan repayment

rate for all crops except upland cotton and rice.

General Effects of Current Payment Limitations 81

The certificate three-step process

Step Action taken

1 Producer secures a marketing assistance loan from CCC, offering a specified quantity of a commodity as 

collateral, and receives the applicable loan rate for each unit of the commodity placed under loan.

2 Producer turns the loan collateral over to the CCC in full satisfaction of the loan and purchases a 

commodity certificate at the alternative repayment rate, which is the adjusted world price (AWP) 

or “CCC determined value,” as applicable.

3 Producer exchanges the certificate for the quantity that was momentarily in CCC’s possession.
Data on the Use of Certificates

Certificate use has grown sharply for two reasons. First, the lower market prices of the late

1990s and early 2000s caused an increase in producers reaching the $75,000 ($150,000 in

some years) limit on loan deficiency payments and marketing loan gains. Cotton and rice

prices were particularly low during the 2001 crop year. Second, certificates are used by Cooperative Marketing Associations (CMAs) and Loan Servicing Agents (LSAs) as a means to settle

loans without having to track benefits received by each person in relation to payment limits.

This reduces their administrative costs and allows CMAs to LSAs to freely market cotton and

rice based on market conditions without considering whether a portion of the crop being marketed on behalf of their members is subject to payment limits (Bell).

If certificates were not available, the CMA or LSA would have to check with the FSA to

determine if a member has reached the limit on loan deficiency payments and marketing

loan gains. It may take the FSA several days to determine whether the producer’s payment

limit has been reached and to provide that information to the CMA or LSA. If a producer

has reached the limit on payments, that producer’s production would be ineligible for a loan

deficiency payment or marketing loan gain. In order to avoid the additional administrative

costs and additional marketing decisions involved when a producer reaches the limit on

loan deficiency payments and marketing loan gains, many CMAs and LSAs have adopted

the use of certificates as the preferred mechanism for obtaining marketing loan benefits for

their members. As a result, not all certificate exchanges are a result of producers reaching the

payment limit (GAO).

Table 4.8 shows the marketing assistance loan benefits derived from the use of certificates in

recent years.

Another reason certificates and certificate exchanges are used is to encourage producers to settle marketing assistance loans when market prices are below loan rates rather than forfeit and

deliver loan collateral to the CCC at loan maturity. Marketing assistance loans are a marketing

tool for producers. Rather than market a commodity, a producer can choose to use current

production as collateral for a nonrecourse loan. Access to the loan is not limited, giving all producers the option of forfeiting the collateral held for the nonrecourse loan to the CCC if market prices do not rise above the loan rate plus interest.

If, after harvesting a loan-eligible crop, market prices are below loan rates, a producer may

obtain a loan deficiency payment on the crop and forgo the use of the loan program. Or, the

producer may use the loan program and receive a marketing loan gain by placing the crop

under loan and repaying the loan at some point during its life at the loan repayment rate. If

82 Chapter 4

Certificate exchange gains 0.099 0.616 1.974 0.739

Gains as a share of total marketing loan benefits 1.2 8.2 24.1 40.8

Share of gains accounted for by cotton and rice 93.9 85.9 98.9 100

Table 4.8. Certificate exchange gains by crop year

1999/00 2000/01 2001/02 2002/03F

Billion dollars

Percent

F = forecast.
certificates are not available, once a producer reaches the $75,000 limit on loan deficiency

payments and marketing loan gains, the producer could leave any remaining collateral under

loan (or place additional production under loan, if eligible), and upon loan maturity, forfeit

that collateral to the CCC. The producer would forfeit, because the gain realized by forfeiting

the collateral to the CCC is not subject to the payment limit on loan deficiency payments and

marketing loan gains.

Certificates help to prevent loan forfeitures. The gains realized by a producer from using

certificates are also not subject to payment limits. This gives producers reaching the payment limit the additional option of purchasing certificates and using the certificates to

purchase the loan collateral transferred to the CCC. The current $75,000 limit applies to

loan deficiency payments and marketing loan gains, while the certificate exchange is

viewed as neither; it is a transfer of title of the producer’s loan collateral to the CCC with

the CCC then exchanging the commodity for a certificate that was sold to the producer at

the market price.

Economic Effects of the Current Use of Certificates

The Commission examined the consequences of issuing certificates under current law to

avoid forfeiture of commodities to the government. As a example of the costs and benefits of

permitting the use of certificates, consider a cotton producer having a single payment limit

(one person only) of $75,000 on loan deficiency payments and marketing loan gains, who

harvests 1,000 acres of cotton with a yield 800 pounds per acre. The loan rate is $0.52 per

pound and the adjusted world price (AWP) is assumed to be $0.395 per pound, making the

loan deficiency payment rate $0.125 per pound. The market price is assumed to be $0.42 per

pound, as the domestic market price is usually somewhat above the AWP for cotton.

With no payment limit, assume this producer could elect at harvest to receive $100,000

in loan deficiency payments (1,000 acres x 800 pounds per acre x $0.125 = $100,000).

The producer would then be free to market the crop at any time. With the payment

limit in effect, the producer would receive $75,000 in loan deficiency payments on

three-quarters of the cotton production and payments are reduced by $25,000 (table

4.9). The producer could use the remaining one-quarter of production as collateral for a

marketing assistance loan.

The crop used as collateral for a loan is assumed to remain under loan until loan maturity

and then be forfeited to the CCC, if prices remain below the loan rate. Assuming the CCC

disposes of the cotton immediately after forfeiture by selling it at the market price, the

CCC would incur estimated storage charges of $0.04 per pound (current law requires

CCC to pay storage for cotton but not for other commodities eligible for marketing assistance loans) and interest to the Treasury is estimated at $0.005 per pound. In addition, the

CCC would incur the difference between the loan principal paid to the producer and the

revenue from the sale of the cotton.

General Effects of Current Payment Limitations 83
In this example, the producer is also worse off because the producer was unable to receive the

difference between the domestic market price and the AWP on the crop that was put under

loan and forfeited to the CCC. If the producer did not have the option of forfeiting the crop,

the producer’s income would decline by $25,000 rather than by $5,000 as indicated in the

above table, assuming the entire crop was marketed at harvest.

Whether CCC costs decrease or increase depends on several factors, such as the relationship

between the AWP and the domestic market price and the level of these prices during the

marketing year. If the market price is below the loan rate at harvest and the market price does

not increase after the crop is forfeited, the government can reduce farm program costs by

issuing certificates to avoid forfeitures. However, if prices are expected to rise, the government may be able to reduce outlays by not issuing certificates and encouraging forfeiture. If

the AWP is below the domestic market price, the income of the producer affected by the payment limit would decline if the government did not issue certificates.

84 Chapter 4

Table 4.10. Effects of loan forfeiture on farm income and CCC costs (corn example) 1

Item

$75,000 limit on

LDPs and MLGs

with certificates

$75,000 limit on LDPs and MLGs without 

certificates that results in forfeiture

N.A. = Not applicable.

1 Example: A producer harvests 3,000 acres of corn; yield of 150 bushels per harvested acre; producer receives loan deficiency payments up

to the payment limit; receives loan at $1.98 per bushel; PCP $1.78 per bushel; producer markets crop at $1.80 per bushel.

Source: Commission estimates

CCC resale price N.A. PCP - $0.10 PCP PCP + $0.10

(1) LDP paid by CCC (20.0 cents/bu.) $90,000 $75,000 $75,000 $75,000

(2) Storage N.A. 0 0 0

(3) Interest N.A. $1,400 $1,400 $1,400

(4) Net resale cost N.A. $22,500 $15,000 $7,500

(5) Total cost to CCC (sum of 1-4) $90,000 $98,900 $91,400 $83,900

(6) Loan principal N.A. $148,500 $148,500 $148,500

(7) Producer cash receipts $810,000 $675,000 $675,000 $675,000

(8) Producer gross income (1+6+7) $900,000 $898,500 $898,500 $898,500

Table 4.9. Effects of loan forfeiture on farm income and CCC costs (cotton example) 1

Item

$75,000 limit on

LDPs and MLGs

with certificates

$75,000 limit on LDPs and MLGs without 

certificates that results in forfeiture

N.A. = Not applicable.

1 Example: A producer with single payment limit harvests 1,000 acres of cotton yielding 800 pounds per acre; Adjusted World Price is 39.5

cents per pound; current market prices is 42 cents per pound; loan rate is 52 cents per pound.

Source: Commission estimates

CCC resale price N.A. AWP- $0.025 AWP + $0.025 AWP + $0.075

(1) LDP paid by CCC (12.5 cents/lb.) $100,000 $75,000 $75,000 $75,000

(2) Storage cost N.A. $8,000 $8,000 $8,000

(3) Interest N.A. $1,000 $1,000 $1,000

(4) Net resale cost N.A. $30,000 $20,000 $10,000

(5) Total cost to CCC (sum of 1-4) $100,000 $114,000 $104,000 $94,000

(6) Loan principal N.A. $104,000 $104,000 $104,000

(7) Producer cash receipts $336,000 $252,000 $252,000 $252,000

(8) Producer gross income (1+6+7) $436,000 $431,000 $431,000 $431,000
While the above example applies to upland cotton, the results generally hold for other commodities (table 4.10). For other commodities, the CCC does not pay storage costs, reducing

the cost to the CCC when the commodity is placed under loan. However, market prices

must increase somewhat during the marketing year to cover interest costs incurred by the

CCC and for total CCC costs under forfeiture to fall below the cost incurred by CCC when

certificates are issued.

With certificates, the harvested crop would be marketed during the marketing year as determined by market conditions. If CCC does not issue certificates, the producer reaching the payment limit would likely keep the portion of the crop not eligible for loan deficiency payments

or marketing loan gains under loan until maturity, at which time the loan collateral is forfeited.

This interruption of usual marketing patterns could affect availability to users and market

prices during the marketing year and could result in reduced international competitiveness and

lost export sales. A partially offsetting market behavior is that when stocks are isolated from the

market due to government programs, private stockholders may reduce their stocks. To the

extent that this substitution occurs, the disruptive effects just described may be reduced.

Another potential market disruption of not using certificates is the timing of government

sales. Most forfeitures are likely to occur late in the marketing year. Government sales at that

time, or carried into the harvest period of the subsequent crop year, may weaken market

prices at a time when prices are already low because of harvest-time pressure.

Conclusions

• The $40,000 payment limit on direct payments in the 2002 Act is projected to reduce

payments to producers by about 1.6 percent or $85 million per year, assuming producers

reaching the payment limit do not restructure further. The $65,000 limit on countercyclical payments is also forecast to reduce payments by about 1.6 percent or $125 million

per year when market prices for all crops eligible for counter-cyclical payments are at or

below their respective loan rates. About 1 percent of all producers are expected to have

payments reduced because of current payment limits.

• A larger proportion of upland cotton and rice producers are affected by payment limits

than producers of other crops eligible for direct and counter-cyclical payments. A higher

percentage of upland cotton and rice producers reach the limit on direct and countercyclical payments, because direct and counter-cyclical payment rates per acre (payment

rate times program yield) and average acreage per farm are generally higher for rice and

upland cotton than for other crops eligible for direct and counter-cyclical payments.

• Many producers affected by payment limits are located outside of the traditional upland

cotton and rice production areas. In 2001, producers in 43 States reached the limit on

PFC payments. Furthermore, making soybeans, other oilseeds, and peanuts eligible for

General Effects of Current Payment Limitations 85
direct and counter-cyclical payments under the 2002 Act will increase the number of producers that have payments reduced because of payment limits in the Corn Belt and in

other regions that are important producers of these crops.

• Producers currently have many options available to them to organize their business operation, and farm organizational structure has greatly reduced the effectiveness of limits on

direct and counter-cyclical payments. Nationally, 87.9 percent of farms had 1-2 producers

(persons actively engaged), 10.9 percent had 3-5 producers, 1.1 percent had 6-10 producers,

and 0.1 percent of farms had 11 or more producers in 2002. It appears likely that a number

of the farms with a high number of producers may be structured for the primary purpose of

lessening the reduction in payments that would otherwise result from payment limits.

• In 2002, there were 325 farms with 21 or more producers. Ninety percent of these farms

were located in 9 States—Arkansas, California, Illinois, Louisiana, Mississippi, Missouri,

North Dakota, Texas, and Washington. These States were among the leading States in

terms of the reduction in payments and the number of producers that had payments

reduced because of the 1996 Act’s limit on PFC payments.

• Current payment limits have very little effect on land values, rural communities and

agribusiness infrastructure, planting decisions, and supplies and prices of covered commodities. The limited effects reflect the fact that only a small percentage of producers of all

covered commodities reach the current limits on direct and counter-cyclical payments;

further, payments to those reaching the limits are reduced only modestly and many of the

largest farms are structured to lessen the extent to which the limits reduce payments.

• Producers must complete certain forms as required by the FSA to administer payment limitations. The FSA estimates this cost to producers at about $8 million annually. This estimate does not include producers’ legal and consulting fees for restructuring the farming

operation in response to payment limits or the cost of legal advice and representation, if the

farm business structure is challenged as a scheme or device to avoid payment limitations.

• USDA spends about $16 million a year to administer all regulations related to farm program payment eligibility and payment limits, including payment limit regulations that

pertain to conservation and disaster programs. These costs include: employee and other

expenses to oversee that forms related to the administration of payment limitations are

filled out and filed properly; costs to load information electronically and to develop, maintain, and refine software used to track payments; and costs to investigate, gather evidence,

and prosecute instances in which producers have either violated or appear to have violated

regulations on payment limits.

• Producers can avoid the current limit on loan deficiency payments and marketing loan

gains by forfeiting nonrecourse marketing assistance loans or using commodity certificates.

The use of commodity certificates avoids loan forfeitures, which are not currently subject

to payment limits.

86 Chapter 4
• The use of certificates under current marketing loan provisions results in little expected

savings or costs to the taxpayer and only a slight increase in income for producers who

would otherwise reach the payment limit and forfeit crops held as collateral for marketing

assistance loans. Certificate exchanges arguably avoid potential market disruption both

during the marketing season, as stocks that would otherwise be held under loan are free to

be marketed, and at the end of the season, when the government would otherwise likely

sell forfeited loan stocks.

References

Bell, Richard E. “Statement Before the Commission on the Application of Payment Limitations for

Agriculture.” Washington, D.C., June 17, 2003.

United States General Accounting Office (GAO). Farm Programs: Changes to the Marketing

Assistance Loan Program Have Had Little Impact on Payments. GAO-01-964, Washington D.C.,

September 2001.

General Effects of Current Payment Limitations 87
88
T

his chapter examines the effects of further payment limitations on farm income, land

values, rural communities, agribusiness infrastructure, producer planting decisions, and

supply and prices of agricultural commodities. The chapter begins by summarizing the

effects of government payments on farm income, which provides a basis for analyzing the

effects of further payment limitations on other factors. The effects of further limitations on

farm income vary, depending on the reduction in the various limits, the payments affected by

further payment limitations, and the ways in which affected producers respond to the further

limits, including the extent to which they may be able to restructure their farming operations

to avoid further limitations. Despite the many uncertainties and vast number of possible

options for further limiting payments to producers, this chapter attempts to draw some general conclusions as to the range of effects of further payment limitations.

Effects of Further Payment Limitations on 

Farm Income

Background

Past studies are in agreement that government payments increase farm income (farm cash

receipts plus government payments less production expenses) and several studies indicate

that $1 billion in government payments increases farm income by $600-$900 million

(FAPRI, 2002; Westcott and Price). Furthermore, a payment that is decoupled from production is thought to increase farm income more than an equivalent payment that is linked to

the volume of production of a specific crop. Payments that are directly tied to the volume of

production of a specific crop provide an incentive for producers to expand production by

increasing total returns (market returns plus government payments) on each unit of production. In addition, farm programs reduce risk and the reduction in risk may also lead to

increased investment and greater agricultural production. An increase in production raises

aggregate production costs and lowers prices to producers, partially offsetting the additional

income derived from government payments.

Government payments also raise producers’ production expenses by increasing land values

and land rents (see the next section of this chapter for a discussion of the relationship

between government payments, land values, and land rents). Higher land values increase

interest expenses for those producers who purchase land that is eligible for government payments. For producers who rent land eligible for government payments, higher land rents

increase operating costs.

In the case of decoupled payments, payments are not tied to current production of a particular

crop. Rather payments are determined by a producer’s historical production. Since payments

are not tied to the volume of current production, they do not increase with production and

the incentive for producers to expand production of the crop receiving payments is greatly

muted. Even though payments are decoupled from current crop-specific production, the link

Effects of Further Payment Limitations 89

Chapter 5

Effects of

Further

Payment

Limitations
between payments and historical production may create an incentive for some producers to

increase production in the belief that higher production will eventually lead to larger payments in the future (see the final section of this chapter for a discussion of the relationship

between government payments and the supply and prices of agricultural commodities).

Discussion

Since government payments raise farm income and reduce risk, further payment limitations

would likely lower aggregate farm income and may increase risk. The magnitude of the

decline in farm income and the effects on risk would depend on the reduction in the various

limits, the payments affected by further payment limitations, the effects on supply and prices

of agricultural commodities, and the extent to which affected producers may be able to

restructure their farming operations to lessen the effects of further limitations. The effects of

further payment limitations on farm income and risk are expected to vary across producers

and regions and over time. As indicated earlier, a decoupled payment is expected to increase

farm income by a larger amount than an equivalent payment tied to production. As a result,

a payment limit that reduces decoupled payments is expected to reduce farm income more

than a limit on payments tied to current production, assuming both payment limits reduce

payments by an equivalent amount.

Short-run effects 

In the short run, producers directly affected by further payment limits may have limited

opportunity to restructure. For example, if further limitations are imposed only a few months

prior to planting, affected producers may not have time to review the regulations, seek out

legal advice, and develop and implement a restructuring plan that minimizes the potential

effects of further limitations on farm income. Because of the short amount of time between

imposition of further limitations and planting, many producers may have decided how much

land they are going to plant to various crops in the coming year and pre-purchased fertilizer,

seed, and chemicals. Nevertheless, lower payment limits could make it more difficult for those

producers affected by further limitations to borrow money to cover operating expenses, causing some producers to adjust plantings. In the short run, producers may have entered into

cash and crop share rental agreements, which establish who receives government payments

and how those payments are to be divided between the landowner and the tenant.

In this instance, the effects of further limitations on farm income would largely depend on

the number of producers affected and the amount of either historical or current production

that would no longer be eligible for payments. If further limitations apply to payments and

benefits that vary with market prices, such as counter-cyclical payments and marketing loan

benefits, the decline in farm income from further payment limitations would also vary

depending on market conditions.

Assuming producers do not restructure further, current payment limitations are estimated to

reduce direct payments by 1.6 percent annually. When market prices for eligible crops are

near each crop’s national average loan rate, current payment limits are also estimated to lower

90 Chapter 5
counter-cyclical payments by 1.6 percent. In total, the two limits are projected to reduce government payments by about $210 million when market prices for eligible crops are near each

crop’s loan rate and $85 million annually when counter-cyclical payments fall to zero.

The 1996 Act authorized nearly $5.2 billion in PFC payments for the 2000 crops and payments were limited to $40,000 per person. Under the 2002 Act, direct payments are also projected to be about $5.2 billion and are limited to $40,000 per person. Since the limit and value

of payments are nearly the same for PFC payments in 2000 and direct payments for the 2002-

07 crops, the Commission requested that the FSA use the data on the distribution of 2000-

crop PFC payments to analyze the effects of further payment limitations. Two alternative

scenarios were analyzed. Under the first scenario, the payment limitation on 2000 PFC payments was reduced from $40,000 to $30,000. The FSA analysis indicated that the reduction in

the payment limit to $30,000 would have reduced 2000-crop PFC payments by $264 million.

A total of 37,314 producers (payees) would have payments reduced under this scenario.

The second scenario reduced the payment limitation on 2000-crop PFC payments from

$40,000 to $20,000. Lowering the payment limit from $40,000 to $20,000 would have

reduced payments to an estimated 74,610 producers and reduced 2000-crop PFC payments

by $792 million. The estimated reductions in payments under the $30,000 and $20,000

payment limit scenarios are in addition to the reduction in payments caused by the $40,000

limit on PFC payments.

The analysis of FSA PFC payment data for 2000 indicates that if the per-person limit on

direct payments is reduced from $40,000 to $30,000, and assuming producers reaching the

limit on payments have the same organizational structure as in 2000, direct payments would

be reduced by 5 percent or by $255-$275 million annually (table 5.1). Reducing the payment limit on counter-cyclical payments from $65,000 to $50,000 would lower countercyclical payments by about 5 percent or by $400-$425 million annually when market prices

for eligible crops are at or below each crop’s national average loan rate. Under these payment

Effects of Further Payment Limitations 91

Direct payments

$30,000 255-275 

$20,000 780-800

Counter-cyclical payments

$50,000 400-425 

$35,000 1,100-1,200

Marketing loan benefits

$75,000 400-500

Table 5.1. Estimated annual reduction (increase above current limits) in payments

under various payment limits, assuming no further restructuring

Counter-cyclical Marketing loan

Direct payments payments 1 benefits 2

Payment limit Million dollars

1 Assumes market prices are at or below each eligible crop’s national average loan rate. 2 Assumes market prices are at 1999-2001 levels.

Source: Commission estimates
limits, the number of producers who would have payments reduced would increase to

35,000-40,000 or from about 1 percent under current payment limits to about 3 percent of

all producers eligible to receive direct and counter-cyclical payments.

Lowering the payment limit on direct payments from $40,000 to $20,000 would reduce

payments by 15 percent or by $780-$800 million annually. Assuming market prices for eligible crops are at or below each crop’s national average loan rate, lowering the payment limit

on counter-cyclical payments from $65,000 to $35,000 would reduce counter-cyclical payments an estimated $1.1-$1.2 billion or about 15 percent. The further reduction in payment

limits would increase the number of producers reaching the payment limit to 75,000 or

about 6 percent of all producers eligible for direct and counter-cyclical payments.

If marketing loan benefits, including certificate exchanges and loan forfeitures, were made

subject to the current $75,000 limitation on marketing loan benefits and market prices fell

back to 1999-2001 levels, government payments could decline by as much as $400-$500

million or 4-5 percent annually. Again, the effects on government payments and farm

income depend greatly on the level of market prices for crops eligible for marketing assistance loans, with the loss in income dropping off sharply as loan repayment rates approach

each eligible crop’s loan rate.

As noted in Chapter 4, the producers affected by payment limits produce a variety of crops

and nearly every State has some producers whose payments are reduced because of payment

limits. The FSA analysis on PFC payments for 2000 suggests that producers in 42 States

would have payments reduced under current payment limitations. The number of States in

which producers would have payments reduced could increase to 43 if the payment limit on

direct payments or counter-cyclical payments is reduced by 50 percent (figures 5.1 and 5.2).

92 Chapter 5

Figure 5.1. Reduction in payments under $30,000 limit on 2000-crop PFC payments

Zero

$0.1-$5 million

$5 million-$10 million

$10 million-$20 million

More than $20 million

Source: USDA Farm Service Agency
The FSA analysis of lowering the payment limit on 2000-crop PFC payments may provide

an indication of the regional declines in government payments and farm income that would

occur under further payment limitations for direct and counter-cyclical payments. As mentioned earlier, the value of PFC payments for the 2000 crops is nearly identical to the projected value of direct payments for the 2002-07 crops. In addition, the FSA data on

payments to producers for the 2000 crops provide the best information available on the distribution of payments to producers eligible for direct and counter-cyclical payments. Since

oilseeds were not eligible for PFC payments, lowering the payment limit on 2000-crop PFC

payments likely understates the effects of further payment limits in areas where there is a

high level of concentration of production of these crops.

The FSA analysis of lowering the payment limit on PFC payments indicates that lowering

the payment limit from $40,000 to $30,000 on direct payments could reduce payments to

Texas producers by $36 million, the most of any State (appendix table 5.1). California and

Arkansas producers could have payments reduced by $28 million and $25 million, respectively. Producers in Illinois, Iowa, Kansas, Louisiana, Mississippi, and Nebraska could have

direct payments reduced by $10-$20 million.

Lowering the payment limit from $40,000 to $20,000 on direct payments could lower payments to Texas producers by $103 million and Arkansas and California producers could have

payments reduced by $70-$80 million. Producers in Illinois, Iowa, Kansas, Louisiana,

Mississippi, and Nebraska could have payments reduced by $30-$60 million.

Depending on the severity of the reduction in payment limits, many producers who in the

past were unaffected by payment limits could see their payments reduced for the first time.

In the short run, many of these producers may be unaware that their current business structure may dictate how much they are eligible to receive in government payments.

Effects of Further Payment Limitations 93

Figure 5.2. Reduction in payments under $20,000 limit on 2000-crop PFC payments

Zero

$0.1-$15 million

$15 million-$30 million

$30 million-$60 million

More than $60 million

Source: USDA Farm Service Agency
The above estimates of the reduction in government payments from further limitations do

not take into account any farm restructuring or adjustment in supply and prices of agricultural commodities that might occur under further payment limitations. Furthermore, as

indicated earlier, the drop in government payments from further payment limitations could

be partially offset by lower production expenses, reducing the decline in farm income. As

mentioned earlier, those further payment limitations that reduce direct and counter-cyclical

payments are expected to have much smaller effects on supply and prices of agricultural commodities than further payment limitations that reduce marketing loan benefits. As a result,

the reduction in direct and counter-cyclical payments may closely approximate the short-run

reduction in farm income that would occur under further limitations on direct and countercyclical payments.

There are no empirical estimates of how many producers could restructure or would choose to

restructure under further payment limitations. In the short run, producers that have payments

reduced under further payment limitations may be limited in their ability to restructure the

farming operation and lessen the effects of further limitations on farm income. Nevertheless,

there is no way to gauge how much restructuring may occur in the short or long run.

Long-run effects 

To examine the long-run effects of further payment limitations, several example farms were

constructed to illustrate the effects of further payment limitations and the actions producers

might take in response to further payment limitations. These example farms included a

3,000-acre Midwest corn and soybean farm, a 4,500-acre Northern Plains wheat and barley

farm, a 3,000-acre Mississippi cotton farm, a 2,000-acre Delta rice farm, and a 1,000-acre

Georgia peanut farm (peanuts are generally produced in combination with other crops, but

because peanuts have a separate payment limitation other crops are not included on this

farm). These farms represent the largest 1 percent of farms in each region according to the

1997 Census of Agriculture. Each example farm is assumed to have two persons qualifying

for payments. Market prices for determining counter-cyclical and marketing loan benefits are

assumed to reflect the experience of 1999-2001, a period in which crop prices were generally

low for a variety of reasons (good weather, strong dollar, slow world economic growth, etc.).

For the Midwest corn and soybean, Northern Plains wheat and barley, and Georgia peanut

farms, payments are generally below the current payment limits for two persons of $80,000

($40,000 per person) for direct payments and $130,000 ($65,000 per person) for countercyclical payments. The only exception is counter-cyclical payments for the Georgia peanut

farm, which are estimated to exceed the limit for two persons by $2,600. Lowering the payment limits to $30,000 per person for direct payments and $50,000 per person for countercyclical payments would not reduce payments going to the Midwest corn and soybean or the

Northern Plains wheat and barley farms, while payments to the Georgia peanut farm would

be reduced by $30,000 or $30 per acre (table 5.2). Since marketing loan benefits are projected to be less than $150,000 for the Midwest corn and soybean farm, Northern Plains

wheat and barley farm, and the Georgia peanut farm, limiting marketing loan benefits,

including certificate exchanges and loan forfeiture, to $75,000 per person would not reduce

94 Chapter 5
marketing loan benefits to producers on these farms. Some large feed-grain, wheat, and

oilseed farms would have payments and income reduced under further payment limitations

by a larger amount than suggested by the three examples. Nevertheless, the example farms

suggest that further payment limits may not lead to a sharp reduction in payments and

income for many large feed-grain, wheat, and oilseed farms.

Further payment limitations would lead to a much sharper reduction in payments on the

example cotton and rice farms. Assuming each farm has two persons, current limitations

reduce direct payments by nearly $51,000 on the 3,000-acre Mississippi cotton farm and by

nearly $84,000 on the 2,000-acre Delta rice farm. Current limitations lower counter-cyclical

payments by nearly $140,000 on the Mississippi cotton farm and by over $13,000 on the

Delta rice farm. Lowering per-person payment limits to $30,000 for direct payments and

$50,000 for counter-cyclical payments would reduce payments going to both farms by

$50,000. The drop in payments would reduce per-acre net returns by 40 percent on the

Mississippi cotton farm and 60 percent on the Delta rice farm.

Effects of Further Payment Limitations 95

3,000-acre Midwest corn/soybean farm

Government payments 265,533 264,843 264,543 264,843

Net cash income 372,783 372,093 372,093 372,093

Return per acre 124 124 124 124

4,500-acre Northern Plains wheat and barley farm

Government payments 144,521 144,521 144,521 144,521

Net cash income 105,071 105,071 105,071 105,071

Return per acre 23 23 23 23

3,000-acre Mississippi cotton farm

Government payments 487,200 467,200 437,200 310,000

Net cash income 125,700 105,700 75,700 -51,500

Return per acre 42 35 25 -17

2,000-acre Delta rice farm

Government payments 479,500 459,500 429,500 310,000

Net cash income 82,500 62,500 32,500 -87,000

Return per acre 41 31 16 -44

1,000-acre Georgia peanut farm

Government payments 258,400 258,400 228,400 228,400

Net cash income 192,400 192,400 162,400 162,400

Return per acre 192 192 162 162

Table 5.2. Effects of alternative payment limits and various example farms 1

1 Each farm is assumed to have two persons qualifying for payments.

See appendix tables 5.2 to 5.6 for additional information.

Source: Commission estimates

$30,000 limit on direct

payments, $50,000 limit

on counter-cyclical 

payments, and $75,000

limit on marketing loan 

Current limits benefits

$30,000 limit on

direct payments

$30,000 limit on

direct payments

and $50,000 limit

on counter-cyclical

payments
If, in addition, marketing loan benefits, including the gains realized from using certificates and

through forfeitures of marketing assistance loans, are limited to $75,000 per person, payments

going to the cotton and rice farms would be further reduced by more than $100,000. For

both farms, the lower payment limits on direct and counter-cyclical payments coupled with

the $75,000 per person limit on marketing loan benefits would cause returns per acre to go

negative. Thus, under more restrictive payment limits, the cotton and rice farms could be

under financial pressure unless they restructure. Cotton and rice farms of similar size in other

regions would likely face similar financial pressure, and farms in areas with higher yields, such

as those in Arizona and California, would have payments reduced more than the two example

cotton and rice farms. Also, higher yielding grain and oilseed farms, such as those in irrigated

areas, could have payments reduced much more than indicated by the example farms.

The Food and Agricultural Policy Research Institute (FAPRI) analyzed the possible implications of limiting a farm operation as defined by the Census of Agriculture to no more than

$40,000 in direct payments, $60,000 in counter-cyclical payments, and $175,000 in marketing loan benefits. FAPRI examined the effects of this stylized payment limitation scenario on

the supply and prices of agricultural commodities, government payments, and farm income

over the 2004-12 period. The assumptions supporting FAPRI’s analysis are:

• The payment limit applies to a farming operation as defined by the Census of Agriculture.

• Producers are unable to avoid further limitations simply by “paper” reorganizations, certificates cannot be used to redeem marketing loans, and producers are prohibited from

using loan forfeitures to avoid limitations.

• The size distribution of farms has changed since 1997 in much the same way as it changed

between 1992 and 1997.

• The estimates of production ineligible for payment can be used to estimate both crop supply response and payments to producers.

• Limitations on direct payments have little effect on crop supplies, limitations on countercyclical payments have only a modest effect, and limitations on marketing loan benefits

have much larger consequences.

• Producers adjust so that 50 percent of the acreage that would otherwise be ineligible for

payments would retain eligibility for payments the first year and this proportion increases

to 75 percent after 5 years.

In calendar year 2004, FAPRI estimates the stricter payment limits would reduce government payments by $464 million or 2.5 percent and farm income by $352 million or 0.7 percent (table 5.3). Farm income declines less than government payments as lower production

costs, including rent paid to non-operators, more than offset lower crop marketing receipts.

Over the period 2004-12, FAPRI projects government payments would decline on average

96 Chapter 5
by $435 million (2.5 percent) per year and farm income would drop by an average of $238

million (0.5 percent) per year. The largest annual decline in government payments is projected to occur in 2005 with government payments declining by over $700 million.

FAPRI indicates that the results of their analysis are very sensitive to the level of market

prices, and the changes in government payments and farm income could be much more or

less than indicated by the above averages. To indicate the sensitivity of the results to underlying assumption on market prices, FAPRI provided information on the likelihood that govEffects of Further Payment Limitations 97

Table 5.3. FAPRI estimated average impacts of stricter payment limitations 1

Stricter

limits

Absolute

difference

Percentage

difference

Current

policy

Stricter

limits

Absolute

difference

Percentage

difference

Current 

policy

2004 2004-2012 Average

Crop area planted Million acres Percent Million acres Percent

Cotton 13.98 13.47 -0.51 -3.66% 13.65 13.45 -0.20 -1.48%

Rice 3.14 2.89 -0.25 -7.92% 3.14 3.07 -0.07 -2.23%

Corn 79.64 79.65 0.01 0.01% 80.72 80.70 -0.02 -0.03%

Soybeans 73.41 73.52 0.11 0.15% 73.67 73.71 0.03 0.04%

Wheat 62.01 61.99 -0.02 -0.04% 61.40 61.35 -0.05 -0.08%

Sorghum 9.68 9.74 0.06 0.61% 9.51 9.51 -0.01 -0.07%

6 major crops 241.85 241.25 -0.61 -0.25% 242.10 241.79 -0.32 -0.13%

Crop prices, marketing year Dollars Dollars

Cotton/lb. 0.482 0.493 0.011 2.30% 0.514 0.520 0.006 1.13%

Rice/cwt. 4.845 5.243 0.399 8.23% 5.475 5.620 0.146 2.66%

Corn/bu. 2.097 2.096 -0.001 -0.04% 2.181 2.182 0.001 0.06%

Soybeans/bu. 5.008 4.999 -0.008 -0.17% 5.201 5.199 -0.002 -0.04%

Wheat/bu. 3.091 3.092 0.002 0.05% 3.230 3.232 0.002 0.07%

Sorghum/bu. 1.959 1.955 -0.004 -0.19% 2.060 2.062 0.002 0.07%

Government outlays, fiscal year

Cotton 2,899 2,841 -57 -1.98% 2,513 2,321 -192 -7.63%

Rice 1,305 1,223 -82 -6.29% 1,142 1,044 -98 -8.60%

Corn 4,954 4,926 -28 -0.57% 5,304 5,225 -79 -1.49%

Soybeans 2,163 2,156 -8 -0.36% 2,044 2,032 -12 -0.59%

Wheat 2,290 2,269 -21 -0.91% 2,124 2,084 -40 -1.89%

Sorghum 393 389 -4 -0.94% 413 404 -9 -2.11%

Net CCC+Conservation 19,933 19,733 -200 -1.00% 19,952 19,520 -431 -2.16%

Million dollars Million dollars

Farm income, calendar year

Government payments 18,832 18,368 -464 -2.46% 17,648 17,213 -435 -2.47%

Crop marketing receipts 103,408 103,302 -106 -0.10% 112,767 112,761 -6 -0.01%

Other income plus inventory change 134,222 134,092 -130 -0.10% 138,446 138,423 -22 -0.02%

Rent to non-operators 13,135 13,047 -89 -0.68% 14,108 13,998 -110 -0.78%

Other production costs 194,165 193,906 -259 -0.13% 205,316 205,202 -114 -0.06%

Net farm income 49,162 48,810 -352 -0.72% 49,437 49,198 -238 -0.48%

Million dollars Million dollars

Land value, end of year 1,335.21 1,332.71 -2.50 -0.19% 1,485.32 1,479.55 -5.78 -0.39%

Dollars per acre Dollars per acre

1 Results represent average of stochastic results for 500 alternative futures.
ernment payments and other variables would fall within a prescribed range. FAPRI indicated

that during the period FY 2004-12 average annual government payments are projected to fall

by $325 to $600 million 95 percent of the time under their stylized payment limit scenario.

Assuming the same payment limitation applies to all crops, a higher percentage of upland

cotton and rice producers would be affected by further limitations, and payments to these

producers would likely decline by a larger percentage than payments to producers of other

crops. Under FAPRI’s stylized scenario, 44 percent of rice, 23 percent of cotton, and 1-3 percent of grain and oilseed Census of Agriculture farms would have payments reduced if direct

payments were limited to $40,000, counter-cyclical payments were limited to $60,000, and

marketing loan benefits were limited to $175,000.

Over time, lawyers, consultants, business analysts, and affected producers may develop a

range of strategies to restructure farming operations to lessen the effects of further payment

limits. These strategies could involve adding additional partners or other entities to the farming operation, thereby increasing the number of persons eligible for payments and the

amount of payments going to the farm operation.

Another strategy by owner-operators to reduce the effects on farm income of further payment limitations would be to try to recapture any loss in payments through cash or cropshare rental agreements (figure 5.3). Alternatively, an owner-operator could choose to sell the

acreage subject to further limitations. For many of those affected by further payment limitations, selling or renting out land may be a difficult decision.

If a producer cash rents most of the land being farmed and is affected by further payment

limitations and unable to add persons to the operation, the producer may choose to operate

less land, share rent with the landowner, or try to negotiate a lower cash rental rate (figure

98 Chapter 5

Figure 5.3. Payment limit decisions for an owner-operator

Cash rent some land out

Sell some farmland

Continue as is

If marketing loan benefits are 

limited, plant less or alternative 

crops depending on returns

If renting land, rent less or try

to renegotiate lease

Add persons

Reach 

payment 

limit?

No.

No change 

in operation

Yes. Can 

restructure 

to add

additional

persons?

Yes.

No.

Source: Prepared by the Commission with assistance 

from the USDA Farm Service Agency
5.4). Lowering the amount of rent paid or the portion of the crop going to the landowner

under a crop share lease could put the renter who reaches the payment limitation at a competitive disadvantage relative to other renters. If the landowner chooses not to share rent or

reduce the cash rent, the landowner could seek out another renter who is not subject to further payment limitations, not grow a crop and, if eligible, receive direct and counter-cyclical

payments, or, if practical, farm the land and be eligible for direct and counter-cyclical payments and marketing loan benefits.

A share-rent landowner who is affected by further payment limitations may be able to add

persons by transferring some of the land to a family member or someone else (figure 5.5).

Alternatively, the share-rent landowner could shift from share rent to cash rent on some of

the land, sell some farmland, or try to renegotiate the lease. The ability of the landowner to

renegotiate the lease would depend on the strength of the land rental market, which varies

considerably from region to region.

Landowners who cash rent out their land and whose tenant is affected by further payment

limitations could elect under further payment limitations not to rent and receive direct and

counter-cyclical payments so long as the landowner keeps the land in agricultural uses.

During a period of low prices, direct and counter-cyclical payments for rice and to a lesser

extent for upland cotton may be large enough to cause some landowners to decide not to

rent out their land, as evidenced in rice areas in Texas in recent years (ERS rice study). This

option could become more appealing to some landowners in some high-cost producing

areas, especially if increasing numbers of renters have payments reduced because of further

payment limitations. In this instance, the payments that previously went to the farm operator would now go to the landowner.

Effects of Further Payment Limitations 99

Figure 5.4. Payment limit decisions for a tenant

Relinquish lease, rent less land

Shift from cash rent to share rent 

(with landowner negotiation) 

Continue as is

If marketing loan benefits are 

limited, plant less or alternative 

crops depending on returns

(with landowner negotiation)

Try to renegotiate lease rates 

Add persons

Reach 

payment 

limit?

No. 

No change 

in operation

Yes.

Can add

additional

persons?

Yes.

No.

Source: Prepared by the Commission with assistance 

from the USDA Farm Service Agency
In many instances, payments would be redistributed from producers affected to producers

unaffected by further limits, partially negating the effects of further payment limits on government payments and aggregate farm income. In addition to payments being redistributed,

the sharing of production and price risk also may be affected by further payment limitations.

For example, a share-rent landowner reaching the payment limit could decide to cash rent,

shifting more of the production and price risk to the renter.

Producers affected by further payment limitations could alter their farming operation by

reducing production of crops that receive government payments and planting more profitable crops that either are not eligible for government payments or that have per-acre payments that are lower than the crops currently produced. These shifts in crop acreage could

increase cash receipts and lower payments for those crops in which farmers reduce acreage

and lower cash receipts and raise payments for those crops in which farmers increase acreage.

These effects are discussed later in this chapter.

If the most efficient producers reduce production in response to further payment limitations,

economic efficiency could be reduced, although the principal effect is expected to be a reduction in the profits attributed to economies of scale. However, smaller, less efficient producers

may expand production as they purchase or rent additional land from those affected by further payment limitations and in the process become more efficient. Presently, there is not

sufficient information on how farms might adjust to further payment limitations or on cost

differences by farm size to reach a conclusion as to the effects of further payment limitation

on economic efficiency (Gardner).

100 Chapter 5

Figure 5.5. Payment limit decisions for a share-rent landowner

If marketing loan benefits are limited, have 

tenant plant less or alternative crops 

Sell some farmland

Continue as is

Shift from share rent to cash rent 

on some of the land

Try to renegotiate lease 

Add additional persons by transferring 

ownership of some of the land

Reach 

payment 

limit?

No.

No change 

in operation

Yes.

Source: Prepared by the Commission with assistance 

from the USDA Farm Service Agency
Conclusions

• Past studies indicate that for each $1 billion reduction in government payments farm

income declines by $600-$900 million. The magnitude of the decline in farm income

would depend on the reduction in the various limits, the payments affected by further

payment limitations, the effects on crop supplies and prices, and the extent to which

affected producers may be able to restructure and lessen the effects of further limits. A payment limit that reduces decoupled payments tends to lead to a greater reduction in farm

income than a payment limit that reduces payments tied to current production.

• Initially, producers affected by further payment limits may have limited opportunity and

limited information on which to develop a restructuring plan that lessens the effects of

further limits on payments and farm income. Over time, many affected producers in consultation with business advisors, lawyers, and others are likely to develop a range of strategies to lessen the effects of further payment limitations.

• In 2000, PFC payments of nearly $5.2 billion were authorized and payments were limited to $40,000 per person. Since direct payments are projected to be $5.2 billion annually and subject to a $40,000 limit, FSA data on the distribution of PFC payments for

2000 were used to analyze the effects of further payment limits. Based on the FSA data

for 2000, reducing the limit on direct payments from $40,000 to $30,000 and assuming

producers reaching the limit do not restructure further, direct payments would be

reduced by $255-$275 million or 5 percent per year. Reducing the limit on countercyclical payments from $65,000 to $50,000 could lower counter-cyclical payments by as

much as $400-$425 million or 5 percent annually, assuming prices are at or below each

eligible crop’s loan rate. These reductions in payments would be in addition to savings

under current payment limits.

• Reducing the payment limit on direct payments to $30,000 would likely increase the

number of producers reaching the payment limit from about 12,300 currently to 35,000-

40,000. A similar number of producers would reach the limit on counter-cyclical payments if the limit were reduced from $65,000 to $50,000 and crop prices fell back to

1999-2001 levels.

• Lowering the limit on direct payments to $20,000 and counter-cyclical payments to

$35,000 could reduce direct payments by $780-$800 million annually and counter-cyclical payments by as much as $1.1-$1.2 billion annually. The lower payment limits would

reduce payments by about 15 percent. The number of producers reaching the payment

limit on direct payments would increase to about 75,000 or 6 percent of all producers eligible for direct and counter-cyclical payments.

• If marketing loan benefits, including certificate exchanges and loan forfeitures, are limited

to $75,000 and assuming no supply response, marketing loan benefits could decline by as

much as $400-$500 million annually.

Effects of Further Payment Limitations 101
• The decline in government payments resulting from limits on counter-cyclical payments

and marketing loan benefits is extremely sensitive to the level of market prices. As market

prices increase, the decline in payments and farm income from further payment limits

drops off sharply. Conversely, as prices decline, payments increase, providing an income

safety net, but further payment limitations would tend to reduce the safety net that is provided to some, or perhaps, many producers.

• Generally, payment limits more adversely affect the incomes of cotton and rice producers

than feed-grain, oilseed, and wheat producers. And, it would appear that further payment

limitations could put financial pressure on upland cotton and rice farms unless they are able

to restructure. Even so, further payment limitations would also lower payments and incomes

of many large feed-grain, wheat, and oilseed farms. Nearly every State would have some producers that would have payments and incomes reduced under further payment limits.

• In the short run, producers in some regions previously unaffected by payment limits may

be unaware that their current business structure may dictate how much they are eligible to

receive in government payments. They also may be unaware of viable restructuring

options that would lessen the effects of further payment limits.

• Producers affected by payment limits have a number of options for mitigating the effects

of payment limits on farm income. Options available to owner-operators include increasing the number of persons eligible for payments, increasing the acreage cash rented, or

selling some or all of the acreage for which the producer is ineligible for payments because

of payment limits. In many instances, payments would be redistributed from the producers affected to producers unaffected by further payment limits, partially negating the

effects of further payment limits on government payments and aggregate farm income.

Also, any further limitation could affect who shares in production and price risk.

• Producers who rent land and have their payments reduced because of further payment

limits would likely be unable to compete with other renters for that land on which they

are no longer eligible to receive payments. In addition, landowners could elect to not grow

a crop and collect direct and counter-cyclical payments rather than leasing the land out.

• During a period of low prices, direct and counter-cyclical payments for rice and to a lesser

extent for upland cotton may be large enough to cause some landowners to decide not to

rent out their land. This option could become more appealing to landowners if increasing

numbers of renters have payments reduced because of further payment limitations. In this

instance, a large portion of the payments previously going to the farm operator would go

to the landowner.

• Payment limitations affect the largest producers and these producers generally have lower

per-unit production costs than other producers. Smaller, less efficient producers may

expand production and become more efficient under further payment limitations. Lack of

102 Chapter 5
information on how farms might adjust to further payment limitations and on cost differences by farm size prevent reaching any conclusion on the effects of further payment limitations on economic efficiency.

References

Food and Agricultural Policy Research Institute, University of Missouri and Iowa State University.

“The House and Senate Farm Bills: A Comparative Study.” FAPRI Policy Working Paper #01-02,

March 2002.

Food and Agricultural Policy Research Institute, University of Missouri. “FAPRI Analysis of Stricter

Payment Limitations, Testimony to the Commission on the Application of Payment Limitations.”

FAPRI-UMC Report #05-03, June 2003.

Food and Agricultural Policy Research Institute, University of Missouri. “FAPRI Analysis of Stricter

Payment Limitations: Additional Information.” June 2003.

Gardner, Bruce. “Payment Limit Issues: What Do We Really Know, What is Plausible but Uncertain,

and Where Are We Totally in the Dark?” Testimony presented to the Commission on the

Application of Payment Limitations for Agriculture, Washington, D.C., June 17, 2003.

Tweeten, Luther. “Farm Commodity Programs: Essential Safety Net or Corporate Welfare?”

Agricultural Policy for the 21st Century, edited by Luther Tweeten and Stanley R. Thompson. Iowa

State Press, 2002.

U.S. Department of Agriculture, Economic Research Service. Farm Program Payments and the

Economic Viability of Production Agriculture, A Report to Congress. August 2002.

Westcott, Paul and Mike Price. Estimates done at the request of the Commission on the

Application of Payment Limitations for Agriculture utilizing the Economic Research Service’s

FAPSIM model, 2003.

Effects of Further Payment Limitations 103
Effects of Further Payment Limitations on 

Farmland Values

Background

Farm real estate, essential for agricultural production, is a crucial factor affecting the equity

and well-being of farm households. Today, land in farms accounts for over one-half of the

total area of the contiguous 48 States. Most farms continue to be owned by the operator;

however, these wholly owned farms are smaller than the national average farm size and thus

account for only about one-third of the total land in farms. Producers who rent all or a portion of the land they farm account for the remaining two-thirds of the land in farms. About

40 percent of all the land in farms is rented out by landowners who are not directly engaged

in farming. Thus, much of the benefits of higher land values go to landowners, many of

whom are not directly involved in the production of agricultural products.

This section uses the term “non-operator landlords” to be consistent with the farm operator

concept used by USDA in reporting economic data on farms and farm operator households. 

A farm operator is the person who makes the day-to-day management decisions on the farm,

and there is one primary operator per farm. For the purposes of payment limits, non-operator

landlords may not make the day-to-day management decisions on the farm, but they may be

actively engaged in agriculture and eligible for farm program payments, if they own the land

and share in the risk of production by receiving rent in the form of the crop produced on the

land. Many non-operator landlords have a strong association with agriculture—29 percent

live on the farm rented out and another 28 percent live within 5 miles (Barnard et al. 2001).

104 Chapter 5

Figure 5.6. Average value of U.S. farm real estate and direct government payments, 

 1960-2002

Dollars per acre Billion dollars

Government payments

Real estate

1400

1200

25

20

15

10

5

0

1000

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

800

600

400

200

0

Source: USDA Economic Research Service and USDA National Agricultural Statistics Service
As a productive asset, the land generates income in the form of rental payments to the nonoperator landlord and in the form of returns to the land from the sale of agricultural products

for the owner-operator. Landlords usually receive a cash rental payment (cash rent) or a share

of the crop (share rent) from the renter in exchange for the right to produce crops on the land.

The value of U.S. farmland at the end of 2002 is estimated at $1,039 billion, accounting for

nearly 80 percent of the total asset value of farms. The value of farmland has steadily risen

since the farm credit crisis of the mid-1980s (figure 5.6). Farmland increased at an annual

average rate of 4 percent during the 1990s and rose 4 percent last year.

The value of an income-producing asset generally is expected to reflect the present value of

the anticipated income that can be earned from that asset over its life, which for land is long

into the future. The present value of the expected income stream from owning farmland

depends on the market value of the products that can be produced on the land each year into

the future, other income, including government payments, that may be associated with the

land, the cost of production, the cost of maintaining the land and adhering to any regulations related to the use of the land, and the discount rate or rate of interest. These concepts

depend on many factors, such as yield per acre or productivity, land quality, production risks,

expected future market prices of farm products, expected future prices of production inputs,

expected environmental requirements, expected government farm program payments or benefits, and others (e.g., Roka and Palmquist, Gardner).

The value of farmland is also influenced by its value in nonagricultural uses. For example, the

value of farmland may exceed the present value of the expected income stream in agricultural

use if the land has a greater expected value for its use in a housing development, a commercial business, recreational use, or other such nonfarm uses. ERS estimates that urban influence affects the value of an estimated 17 percent of U.S. farmland (Barnard, 2001). Because

there are many factors that influence the value of farmland, farmland values vary substantially by region (figure 5.7) and the relationship with total government payments is quite

variable as reflected in figure 5.6.

Figure 5.7. Average value per acre of farm real estate, January 1, 2002

2,000-8,000

1,001-1,999

0-1,000

Value per acre

Effects of Further Payment Limitations 105

AL 1900

AR 1370

AZ1 1520

CA 3100

CT 7300

CO 710

DE 2950

FL 2800

GA 2300

IA 1980

ID 1240

IL 2640

IN 2600

KS 620

KY 1850

LA 1310

MA 7200

MD 4000

ME 1400

MI 2500

MN 1450

MO 1520

MS 1300

MT 385

NC 2900

ND 440

NE 765

NH 2600

NJ 8000

NM1 225

NV1 470

NY 1600

OH 2700

OK 710

OR 1100

PA 2950

RI 7200

SC 1700

SD 440

TN 2350

TX 720

UT1 1050

VT 1900

VA 2490

WA 1230

WI 2150

WV 1370

WY 285

1

Excludes Native American Reservation Lands.

Source: USDA National Agricultural Statistics Service
A number of studies have examined government payments as a factor in explaining farmland values. The logic for how land values are affected by government payments is generally

this: if government payments are directly associated with the land, then returns from investing in that land would be higher than investing in other land, and a land buyer would be

willing to pay more for the land that is directly eligible for government payments. The

effects of government payments on farmland values are particularly strong when the eligibility to receive farm commodity program payments is attached to specific land or the production of specific crops, payments make up a substantial portion of producers’ net returns,

and payments are expected to continue several years into the future.

Farmland is often the principal source of collateral for farm loans. Higher farmland values

increase the wealth of those who own farmland, enabling farm operators who own farmland

to more readily finance operating expenses and the purchase of additional land and equipment. But, higher farmland values increase the amount of capital needed to purchase farmland, making it more difficult for farmers with limited assets to obtain the financing needed

to expand their farming operation. In addition, higher farmland values may be of little benefit to operators farming mostly rented land.

In early 1997, professional farm managers indicated that in areas where competition for

rental land was intense, PFC payments were almost immediately captured by landowners

and reflected in rental rates and land values. Given the intense competition for leased land

in many areas, tenants operating on cash leases found their lease rates being bid up until the

landowner had captured most of the tenant’s share of PFC payments. Producers with share

leases reported that some landowners reduced their share of expenses, retained a larger crop

share, or converted from share leases to cash leases. However, in areas where competition for

rental land was less intense, tenants retained much of their PFC payments (Ryan et al).

Goodwin and Mishra estimate that each additional dollar per acre of PFC payments

increased U.S. average rents by $0.81 to $0.83 per acre during 1998-2000.

Barnard et al. (2001) estimated that $62 billion or 20 percent of the value of the land producing

the 8 major program crops (wheat, rice, corn, sorghum, barley, oats, soybeans, and cotton) was

due to PFC payments, market loss assistance, disaster payments, and marketing loan benefits

under the provisions of the 1996 Act and subsequent disaster legislation. The study also found

that most of the increase in land values due to government payments accrued to non-operator

landlords, since they owned over 60 percent of the land planted to the 8 major program crops.

Another study examined the likely effect of a permanent decoupled payment of $6 billion per

year, similar to production flexibility contract payments or direct payments, and concluded that

average U.S. farmland values would be 8 percent higher (Burfisher and Hopkins).

The effects of farm commodity payments on cropland values vary geographically, reflecting

differences in relative productivity, cost of production, payments for crops eligible for direct

and counter-cyclical payments and marketing loan benefits, and the influence of nonagricultural uses on farmland values. A number of counties do not produce any crops eligible

for direct and counter-cyclical payments and marketing loan benefits, and thus do not

receive any farm commodity payments. Regions receiving the largest amount of direct and

counter-cyclical payments and marketing loan benefits in 2001 were the Corn Belt, Delta,

106 Chapter 5
Plains, and West Coast. Barnard et al. (2001) found that farm commodity program payments raised the value of the land producing the 8 major program crops by nearly 25 percent in the Corn Belt and the Plains States and about 15 percent in the Delta, but 10 percent or less in the Northeast, Southeast, and most Western States.

Discussion

Since government payments raise land values and cash rents, further payment limitations would

likely lower land values and cash rents by some amount. The magnitude of the change in land

values and cash rents would depend on the reduction in the various payment limits, the effects

on production and prices of agricultural commodities, the strategies selected by those affected by

further payment limits, and the competition for land in agricultural and nonagricultural uses.

The effects of further payment limitations on land values and cash rents are expected to vary considerably from region to region, reflecting regional differences in land markets and the number of

producers and amount of payments affected by further limitations.

Currently, about 1 percent of all producers have payments reduced under current payment limits. In other words, 99 percent of all producers are not affected by current payment limits. Since

the vast majority of producers are unaffected by current limits and their earnings from additional land purchases would include government payments, it is very unlikely land values and

cash rents are reduced by current payment limits. A possible exception could be upland cotton

and rice acreage in some areas. About 2 percent of upland cotton producers and 5 percent of

rice producers have payments reduced under current limits, and in some areas the percentage is

much higher. In 2000, 14 percent of Arizona producers, and 10 percent of California producers, 4 percent of Arkansas producers, and 3 percent of Mississippi producers reached the

$40,000 limit on PFC payments. In all of the remaining States, less than 2 percent of producers

reached the limit on PFC payments. The majority of producers reaching the payment limit in

Arizona, California, Arkansas, and Mississippi were upland cotton and rice producers. Still, the

vast majority of producers in these States were unaffected by payment limits.

Under further payment limitations, increasing numbers of producers could have payments

reduced. As more and more producers have their payments reduced, competition for land

could decline, leading to lower cash rents and land values. Landowners whose payments are

reduced because of payment limits would be ineligible to receive payments on purchased land.

For those operators who rent land and whose payments are reduced by further payment limitations, the amount of rent they would be able to pay would decline unless they accepted a

reduced return. As a result, further payment limits could reduce the extent to which government payments become capitalized into cash rents and land values.

Further payment limits may have little effect on cash rents and land values when averaged over

all regions, for a variety of reasons. As mentioned earlier, land values in many areas are influenced by nonagricultural uses and in certain areas crops eligible for direct and counter-cyclical

payments and marketing loan benefits are either not grown or make up a relatively small proportion of total farmland. In these areas, it is very unlikely that further payment limitations

would reduce cash rents and land values.

Effects of Further Payment Limitations 107
In areas that primarily grow crops eligible for government payments, the effects of further payment limits would depend on the number of producers affected by further limits, the reduction in payments, and importance of government payments in determining the value of farmland and cash rents. The FSA analysis of lower payment limits on 2000-crop PFC payments

suggests that reducing the payment limit on direct payments from $40,000 to $30,000 per

person would increase the percentage of producers whose payments are reduced because of

payment limitations from about 1 percent currently to about 3 percent, assuming producers

do not restructure further. The 3 percent of producers who would have payments reduced

under a $30,000 limit on direct payments account for an estimated 25-30 percent of the value

of program crop production. Lowering the payment limit on direct payments to $20,000 per

person would increase the percentage of producers whose payments are reduced to about 6

percent. These farms are estimated to account for 40-50 percent of the value of program crop

production. The substantial share of the value of program crop production on farms subject to

108 Chapter 5

Figure 5.8. Percentage of producers having payments reduced under $30,000 limit on 

 2000-crop PFC payments

Zero

0.01-3.0 percent

3.0-10.0 percent

10.0-20.0 percent

More than 20 percent

Figure 5.9. Percentage of producers having payments reduced under $20,000 limit on 

 2000-crop PFC payments

Zero

0.01-5.0 percent

5.0-15.0 percent

15.0-30.0 percent

More than 30 percent

Source: USDA Farm Service Agency

Source: USDA Farm Service Agency
further payment limits could reduce the competition for land to produce program crops and

land values, especially in areas where a high percentage of the cropland is devoted to program

crop production.

Assuming affected producers do not restructure their farming operations, the percentage of

producers reaching the payment limit in some States could rise sharply under further payment

limitations, causing cash rents and land values to decline. For example, lowering the limit on

direct payments from $40,000 to $30,000 could raise the percentage of Arizona and California producers reaching the limit on direct payments to 30 percent or higher (figure 5.8). Producers reaching the limit on direct payments in these two States could account for over 60 percent of the value of program crop production in these two States. If the limit on direct

payments was reduced to $20,000, over three-fourths of Arizona producers could have payments reduced and nearly one-half of California producers, and these producers could

account for over 85 percent of the value of program crop production (figure 5.9). In these two

States, competition for land for the production of nonprogram crops and nonagricultural uses

may limit the decline in land values under further payment limits.

Increasing numbers of producers in States other than Arizona and California would also have

their payments reduced under further payment limits. Further payment limitations could

reduce cash rents and land values more in the Plains and Delta than in other regions. In these

two regions, government payments are an important source of income and cropland is primarily used in the production of program crops. In 2001, government payments averaged 5 percent or less of total cropland value in all regions except the Northern Plains, Southern Plains,

and Delta (figure 5.10). Within these three regions, the effects of further payment limits

would be more pronounced in areas in which there is little competition for land for the production of nonprogram crops and nonagricultural uses.

Effects of Further Payment Limitations 109

Figure 5.10. Government payments as a percentage of cropland value, 2001 

Percent

12

10

8

6

4

2

0

Northeast

Pacific

Appalachia

Corn Belt

Lake States

Southeast

Mountain

Northern Plains

Southern Plains

Delta

1

Northeast CT, DE, ME, MD, MA,

NH, NJ, NY, PA, RI, VT

Pacific CA, OR, WA

Appalachia KY, NC, TN, VA, WV

Corn Belt IL, IN, IA, MO, OH

Lake States MI, MN, WI

Southeast AL, FL, GA, SC

Mountain AZ, CO, ID, MT, NV,

NM, UT, WY

Northern Plains KS, NE, ND, SD

Southern Plains OK, TX

Delta AR, LA, MS

1

Payment data for calendar 2001 from ERS; cropland value for 2002 from NASS.
Barnard et al. (2001) estimate that government payments in the Northern Plains, Southern

Plains, and Delta account for 15-25 percent of the value of cropland and about 10 percent of

the value of cropland in Arizona and California. Since further payment limits would not

completely eliminate all payments, farmland values would certainly fall by less than 15-25

percent in the Plains and Delta and by less than 10 percent in Arizona and California under

further payment limits. In addition, the extent to which further payment limits reduce farmland values would also depend on the ability of producers to restructure their farming operations and lessen the decline in payments. As indicated in the previous section, producers may

have limited opportunity to restructure in the short run. In the long run, increasing numbers

of producers may find ways to restructure, lessening the effects of further payment limits on

farm income, cash rents, and farmland values.

Economists invited to testify before the Commission concluded that farmland prices would

decline under further payment limits, but that the declines would be variable (Sumner) and

likely modest overall (Gardner, Ray, and FAPRI). FAPRI estimated the effects on land values and cash rents of payment limits of $40,000 for direct payments, $60,000 for countercyclical payments, and $175,000 for marketing loan benefits (with no loan forfeiture gains

above this level) per farm. Under this payment limit scenario, FAPRI estimated that land

values would average 0.39 percent lower and rental rates would average 0.78 percent lower

nationally during 2004-12 (table 5.4). On average, FAPRI estimates land values would

decline by about $6 per acre and the decline is estimated to range from slightly over $4 to

about $8 per acre with 95 percent confidence. The largest regional declines in land values

and rental rates were predicted to occur in the Delta, Southern Plains, Far West, and

Southeast. In each of these regions, FAPRI projected land values would decline on average

by 0.78 percent or more and rental rates would fall on average by 1.57 percent or more during 2004-12. In all of the remaining regions, land values on average were projected to fall by

0.22 percent or less and rental rents on average were projected to fall by 0.44 percent or less.

110 Chapter 5

Table 5.4. FAPRI’s estimates of stricter payment limitations on land values and rental

rates 1

Land values Rental rates

2004 2004-12 average 2004 2004-12 average

Percentage change from baseline

United States -0.19 -0.39 -0.68 -0.78

Corn Belt -0.09 -0.18 -0.33 -0.37

Central Plains -0.11 -0.22 -0.39 -0.44

Delta States -0.49 -1.18 -1.79 -2.38

Far West -0.38 -0.85 -1.36 -1.72

Lake States -0.09 -0.17 -0.31 -0.34

Northeast -0.09 -0.19 -0.34 -0.39

Northern Plains -0.10 -0.20 -0.37 -0.41

Southeast -0.39 -0.78 -1.39 -1.57

Southern Plains -0.49 -1.02 -1.76 -2.05

1 Limitation of $40,000 in direct payments, $60,000 in counter-cyclical payments, and $175,000 in marketing loan benefits per Census of

Agriculture farm. Results assume producers adjust so that 50 percent of acreage otherwise ineligible remains eligible for payments in the

first year, rising to 75 percent in 5 years.
Government payments increase land values and cash rents. Since land is used as collateral to

finance purchases of farmland and equipment, some argue that farm programs promote the

growth of large farms, and the competitive advantages of large farms are putting financial

pressure on small and medium-size farms. Others counter that the competitive advantages of

large farms are not enhanced by government payments and growth in large farms largely

reflects the efficiencies that can be garnered through larger operations. Large operations

would exist in the absence of government programs because of their increased efficiencies.

This group also argues that government payments help to support small and medium-size

farms and this support leads to more small and medium-size farms and less concentration in

agriculture. Farm structural issues are examined further in the next section.

Conclusions

• About 40 percent of all farmland is rented out by landowners who do not operate farms (nonoperator landlords). Thus, a substantial portion of benefits of higher land values and cash rents

go to individuals who are not directly involved in the production of agricultural products.

• The value of farmland depends on the market value of the products that can be produced

on the land in the future, the cost of producing those products, other income, including

government payments that may be associated with owning the land, the value of the land

in nonagricultural uses, and the discount rate.

• Higher farmland values increase the wealth of those who own farmland, enabling them to

more readily finance the purchase of additional land. Higher farmland values may also

make it more difficult for farmers with limited resources to purchase cropland.

• In areas where competition for rental land is intense, government payments are almost

immediately captured by landowners and reflected in rental rates. In areas where competition for rental land is less intense, rental rates are slower to adjust and tenants may retain

some of the benefits of government payments.

• Government payments in the form of direct payments, counter-cyclical payments, and

marketing loan benefits affect the value of farmland and land rents. Several studies indicate that government payments in recent years have increased farmland values nationally

by 15-25 percent. The effects on farmland values vary regionally reflecting regional differences in productivity, cost of production, payments for crops eligible for direct and

counter-cyclical payments and marketing loan benefits, and the influence of nonagricultural uses on farmland values.

• Under further payment limitations, more producers could have payments reduced, which

could reduce competition for land, leading to lower cash rents and land values. The effects

of further payment limitations on land values are likely to vary considerably from region

to region, reflecting regional differences in land markets and rental arrangements, and the

number of producers and the amount of payments affected by further limitations.

Effects of Further Payment Limitations 111
• Further payment limits may have little effect on farmland values when averaged over all

regions. Land values in many areas are influenced by nonagricultural uses and crops eligible

for direct and counter-cyclical payments and marketing loan benefits are either not grown

or account for a small portion of total cropland. In many areas that primarily grow crops

eligible for government payments, further payment limitations may not affect enough producers to materially reduce competition for farmland, helping to maintain land values.

• Assuming affected producers do not restructure their farming operations, the percentage

of producers reaching the payment limit could rise sharply in some regions under further

payment limitations, causing cash rents and land values to decline. In Arizona and

California, the percentage of producers reaching the limit on direct payments could rise to

30 percent or more if the payment limit on direct payments is reduced from $40,000 to

$30,000 and 50 percent or more of producers could have payments reduced if the limit on

direct payments is lowered to $20,000 per person. In these two States, competition for

land for the production of nonprogram crops and nonagricultural uses may limit the

decline in land values under further payment limits.

• Increasing numbers of producers in States other than Arizona and California would also have

their payments reduced under further payment limits. Further payment limitations could

reduce cash rents and land values more in the Northern Plains, Southern Plains, and Delta

States than in other regions. In these three regions, government payments are an important

source of income and cropland is primarily used in the production of program crops.

• FAPRI estimated that land values would average 0.39 percent lower and rental rates would

average 0.78 percent lower nationally during 2004-12, if each Census of Agriculture farm

was limited to receiving $40,000 in direct payments, $60,000 in counter-cyclical payments, and $175,000 in marketing loan benefits. The largest regional declines in land values and rental rates were predicted to occur in the Delta, Southern Plains, Far West, and

Southeast, with land values declining 0.78 percent or more and rental rates declining by

1.57 percent or more in each of these regions.

112 Chapter 5
References

Barnard, Charles, Gerald Whittaker, David Westenbarger, and Mary Ahearn. “Evidence of

Capitalization of Direct Government Payments into U.S. Cropland Values.” Amer. J. Agr. Econ.

79(November 1997): 1642-50.

Barnard, Charles, Richard Nehring, James Ryan, and Robert Collender. “Higher Cropland Value from

Farm Program Payments: Who Gains?” Agricultural Outlook, November 2001, pp. 26-30.

Economic Research Service, USDA.

Burfisher, Mary E. and Jeffrey Hopkins, editors. “Decoupled Payments: Household Income Transfer

in Contemporary Agriculture.” Agricultural Economic Report No. 822, February 2003. Economic

Research Service, USDA.

Food and Agricultural Policy Research Institute, University of Missouri. “FAPRI Analysis of Stricter

Payment Limitations, Testimony to the Commission on the Application of Payment Limitations.”

FAPRI-UMC Report #05-03. June 17, 2003.

Gardner, Bruce. “U.S. Commodity Policies and Land Prices.” Paper presented at Conference on

Government Policy and Farmland Markets, Economic Research Service, USDA, Washington,

D.C., May 6, 2002, 23 p.

Gardner, Bruce. “Payment Limit Issues: What Do We Really Know, What is Plausible but Uncertain,

and Where Are We Totally in the Dark?” Testimony presented to the Commission on the

Application of Payment Limitations for Agriculture, Washington, D.C., June 17, 2003.

Goodwin, Barry K. and Ashok K. Mishra. “Explaining Regional Differences in the Capitalization of

Policy Benefits into Agricultural Land Values.” Chapter in Government Policy and Farmland

Markets: Implications of the New Economy, Ed. A. Schmitz and C. Moss, Iowa State Press, forthcoming.

Ray, Daryll E. “Payment Limitations.” Testimony presented to the Commission on the Application of

Payment Limitations for Agriculture, Washington, D.C., June 17, 2003.

Roka, Fritz M. and Raymond Palmquist. “Examining the Use of National Databases in a Hedonic

Analysis of Regional Farmland Values.” Amer. J. Agr. Econ. 79(November 1997): 1651-56.

Ryan, James, Charles Barnard, and Robert Collender. “Government Payments to Farmers Contribute

to Rising Land Values.” Agricultural Outlook, June/July 2001, pp. 22-26. Economic Research

Service, USDA.

Sumner, Daniel A. “Consequences of Additional Farm Program Payment Limits.” Testimony presented to the Commission on the Application of Payment Limitations for Agriculture, Washington,

D.C., June 17, 2003.

Effects of Further Payment Limitations 113
Effects of Further Payment Limitations on Rural

Communities and Agribusiness Infrastructure

This section evaluates the implications of further payment limitations for rural communities

and agribusiness infrastructure. In the following discussion, rural areas are defined as outside

of metropolitan areas. Metropolitan areas are counties having at least one city of at least

50,000 residents, or are urbanized areas as determined by the Census Bureau, and include

counties that are economically tied to metropolitan counties. The effects of further payment

limits on a rural area and its infrastructure depend on the effects of the further limits on farm

income, land values, and agricultural production, and the importance of these factors to the

overall economic activity of the area, as well as economic opportunities off the farm.

Background

Rural America consists of about 80 percent of the Nation’s land and in 2001 was home to 56

million people, about 20 percent of the U.S. population (Hamrick). Throughout much of the

Nation’s history, the term “rural” was interchangeable with agriculture. Today, many rural areas

continue to be defined by agriculture, both in terms of its visibility on the landscape and its

contribution to economic activity and growth. However, rural areas differ widely across the

United States in terms of population density, available resources, income levels, and sources of

economic growth, including farming (Gale). In the 20th century, the farm economy grew

much more slowly than the nonfarm economy, progressively reducing the dependence of many

rural areas on agriculture for job creation and income growth. Population moved off the farm

and into the nonfarm economy in both urban and rural areas. Both the urban and rural population grew as the number people living on farms declined. The farm share of the U.S. rural

population fell from about two-thirds to about one-tenth during the 20th century.

Despite the decline in farming in relation to the U.S. economy and the rural economy, agriculture continues to make a substantial contribution to U.S. economic activity in terms of the

more broadly defined food and fiber system. The food and fiber system includes the economic

activity in farm input, production, processing, distribution, wholesaling, and retailing industries. The agribusiness infrastructure accounts for the vast majority of the economic activity

and jobs generated by the food and fiber system. In 2001, the food and fiber system accounted

for 12.3 percent of total U.S. gross domestic product (GDP) and 16.7 percent of total U.S.

employment. In 2001, farming accounted for 0.7 percent of GDP; farm production inputs,

4.2 percent; and food manufacturing and distribution, 7.4 percent (table 5.5).

Nationally, farming accounted for about 8 percent of employment in farm and farm-related

industries in 2001. In comparison, food service accounted for 27 percent; wholesale and retail

trade, 34 percent; food manufacturing and transportation, 8 percent: and farm production

inputs, 19 percent. There is some difference regionally in these shares, such as textiles accounting

for over 7 percent total employment in farm and farm-related industries in the South but less than

1 percent in the North Central States, and wholesale and retail trade accounting for 39 percent of

total employment in farm and farm-related industries in the Northeast but about 30 percent in

the Midwest (Schluter et al). Despite these differences, the relative shares of employment provided by various segments of the food and fiber system are similar by region.

114 Chapter 5
The declining trend in the importance of farm income to the U.S. and rural economy is illustrated in figure 5.11. Net farm income fell as a share of the personal income of rural areas from

about 10 percent in the early 1970s to under 2 percent by 2001. While this decline occurred

during most of the 20th century, the household incomes of farm families steadily improved

relative to that of both urban and rural nonfarm families.

Although the growth of the nonfarm economy has been responsible for the bulk of the job creation in most rural areas, farming remains the primary economic activity in many counties. In

1997, farm and farm-related industries accounted for 23 percent of employment in nonmetro

Effects of Further Payment Limitations 115

Table 5.5. Contribution of the food and fiber system (FFS) to the U.S. economy, 2001

Value added

to GDP

Share of FFS

contribution

to GDP

Share of

GDP

Number of

workers

Share of FFS

employment

Share of

total U.S.

employment

Source: USDA Economic Research Service

Farming 73.8 5.9 0.7 1,922 8.1 1.4

Total inputs 422.781 34.0 4.2 4,528 19.1 3.2

Mining 17.1 1.4 0.2 59 0.2 --

Forestry, fishing, and agricultural services 14.5 1.2 0.1 394 1.7 0.3

Manufacturing 84.0 6.8 0.8 1,128 4.8 0.8

Services 307.2 24.7 3.0 2,947 12.4 2.1

Manufacturing and distribution 748.4 60.1 7.4 17,295 72.9 12.2

Manufacturing:

Food processing 168.3 13.5 1.7 1,278 5.4 0.9

Textiles 30.3 2.4 0.3 810 3.4 0.6

Leather 0.1 -- -- 1 -- --

Tobacco 16.8 1.3 0.2 26 0.1 --

Distribution:

Transportation 41.3 3.3 0.4 568 2.4 0.4

Wholesaling and retailing 334.4 26.9 3.3 8,145 34.3 5.7

Foodservice 156.9 12.6 1.6 6,461 27.2 4.6

Total food and fiber system 1,244.6 100.0 12.3 23,740 100.0 16.7

Billion dollars Percent Thousands Percent

Figure 5.11. Farm income as a share of personal income,1970-2001

Percent

14

12

10

8

6

4

2

1970 1973 1976

Crop year

1979 1982 1985 1988 1991 1994 1997 2000

0

U.S.

Rural

Metro

Source: USDA Economic Research Service and Bureau of Economic Analysis, Department of Commerce
counties, ranging from a low of 12.3 percent in Nevada to a high of 31.2 percent in Nebraska

(Majchrowicz). The share of farm and farm-related industry jobs in nonmetro counties was

generally lowest in the coastal States but 20 percent or more in 31 States.

Another measure of the importance of farm production to a local economy is the portion of

local income derived from farming. ERS classifies nonmetro counties that receive 20 percent

or more of labor and proprietors’ income from farming as “farming-dependent” counties

(figure 5.12). In the mid-1990s, there were 316 farming-dependent counties, down from

556 in 1989 (Kassel et al.). In another 312 counties, farming accounted for 10 and 20 percent of total labor and proprietor income (“farming-important” counties) in the mid-1990s.

In 1997, the farming-dependent and farming-important counties accounted for about onefourth of the Nation’s rural counties but only 16 percent of the rural population, contained

400,000 farms, and produced one-third of U.S. agricultural production.

The dramatic decline in the number of producers over the past several decades has been

accompanied by readily observable impacts on rural communities. The market for crop

inputs has been largely unaffected but the market for inputs related to the number of people

involved in farming has generally declined. In addition, the decline in the number of people

living on farms, particularly in farming-dependent counties, has had an effect on the delivery

of public services in rural areas including education, health care, and a range of other social

services. The decline in public services has been exacerbated to the extent that State and

Federal assistance is based on population. At the same time, the size of trade territories has

shifted toward larger and more distant cities and towns, with a consequent further impact on

the level of economic buoyancy of smaller communities.

116 Chapter 5

Figure 5.12. Nonmetro counties with at least 10 percent of income from farming

Farming dependent (20% or more)

Farming important (10 to 19.9%)

Metro

Note: Farming-dependent counties derived at least 20 percent of labor and proprietor income (LPI) from farming.

Farming-important counties derived 10 to 19 percent LPI from farming.

Source: Prepared by ERS using data from the Bureau of Economic Analysis
Discussion

Examining the role of payments in all rural areas and in farming-dependent and farmingimportant counties may provide insight into the potential effects of further payment limits

on rural communities and agribusiness infrastructure. Farm program payments were equal to

only 1.3 percent of total personal income in all U.S. rural counties in 2001 (table 5.6).

However, in a few States, notably in the Northern Plains, Western Corn Belt, and Southern

Plains, farm program payments were equal to 3 to 10 percent of total personal income in

rural counties. In 2001, farm program payments accounted for 3 percent or more of nonmetro personal income in Illinois, Iowa, Kansas, Minnesota, Montana, Nebraska, North

Dakota, and South Dakota. The FSA analysis of 2000 PFC payment data suggests that

reducing the limit on direct payments from $40,000 to $30,000 would reduce payments

going to these States by 3-5 percent and reducing the payment limit to $20,000 would lower

payments to these States by 8-16 percent. While many producers would have payments

reduced, the reduction in payments probably would have very limited effects on most rural

communities in these States.

Within a State, the effects of further limits on rural economies would be greater in counties

where farm program payments are an important source of farm income and farming is important to the local economy. The rural farming-dependent and farming-important counties are

Effects of Further Payment Limitations 117

Table 5.6. Farm program payments as a share of State nonmetro 

personal income, 2001

State

Source: Bureau of Economic Analysis, Department of Commerce

Alabama 0.5 Montana 3.3

Alaska 0.0 Nebraska 6.3

Arizona 0.2 Nevada 0.1

Arkansas 2.5 New Hampshire 0.0

California 0.7 New Jersey 0.0

Colorado 1.5 New Mexico 0.6

Connecticut 0.0 New York 0.1

Delaware 0.3 North Carolina 0.4

Florida 0.2 North Dakota 10.0

Georgia 0.7 Ohio 0.9

Hawaii 0.0 Oklahoma 1.3

Idaho 1.1 Oregon 0.4

Illinois 3.0 Pennsylvania 0.1

Indiana 1.5 Rhode Island 0.0

Iowa 4.5 South Carolina 0.3

Kansas 3.7 South Dakota 5.6

Kentucky 0.5 Tennessee 0.5

Louisiana 1.6 Texas 2.1

Maine 0.0 Utah 0.3

Maryland 0.4 Vermont 0.1

Massachusetts 0.1 Virginia 0.2

Michigan 0.4 Washington 1.0

Minnesota 3.0 West Virginia 0.0

Mississippi 1.4 Wisconsin 0.6

Missouri 1.8 Wyoming 0.4

U.S. 1.3

Percent State Percent
located in the same areas where direct government payments are concentrated. The dependence on farming and the high share of government payments in farm income make these

counties especially sensitive to changes in farm programs. Payments in 2000 were equal to 25

percent or more of cash receipts in many counties throughout the Corn Belt, Northern and

Southern Plains, Delta, and Southeast.

Farm programs provide a stable source of income to producers of program crops and benefit

other agriculture-related businesses. Increased farm income generated in part by the payments

results in additional goods and services purchased in the local economy, which contributes to

economic expansion in the nonfarm economy. Over time, government payments are capitalized into higher farmland values, stabilizing the property tax base for rural communities.

Based on the concentration of payments, the dependency on farming, and the reduction in

payments that could occur under further payment limitations (which depends on market

prices and the levels at which limits are established), further payment limitations would likely

have the greatest effect on the rural communities and agribusiness infrastructure located in the

Delta States of Arkansas, Louisiana, and Mississippi; in west Texas; and in rural areas of Arizona and California. The FSA analysis of 2000-crop PFC payments indicates that lowering

the payment limit on direct payments to $30,000 could reduce payments in these States by 8-

15 percent and reducing the limit to $20,000 could lower payments by 24-40 percent (figure

5.13 and 5.14). Depending on the reduction in payments under further payment limitations,

some rural counties in several other States would be affected as well.

The nature of the effects would depend on what adjustments are made by producers affected by

further limits. The largest negative impacts would occur if program payments decline and producers reduce production. Under a stylized payment limit scenario of $40,000 for direct payments, $65,000 for counter-cyclical payments, and $175,000 for marketing loan benefits, FAPRI

estimated that cotton acreage could decline by 0.2-1.4 million acres (1-10 percent) and rice

acreage could fall by 0.1-0.6 million acres (3-19 percent) in 2004 compared with baseline levels

(95-percent confidence interval).

118 Chapter 5

Figure 5.13. Percentage reduction in payments under $30,000 limit on 2000-crop 

 PFC payments

Zero

0.01-3.0 percent

3.0-6.0 percent

6.0-10.0 percent

More than 10 percent

Source: USDA Farm Service Agency
Cotton and rice have crop-specific agribusiness infrastructure. For example, in 2001, there

were 379 cotton gins in the United States, employing 2,997 persons with a payroll of $94

million (Census of Manufacturing). There were 65 rice mills employing 3,831 with a payroll

of $121 million. To the extent that further payment limits put some of these businesses in

jeopardy, their closure could reduce potential market outlets for all producers, including

those not affected by further payment limits.

Further payment limits would have a range of effects on rural communities and agribusiness

infrastructure. Possible effects of further payment limitations could include: lower farm

income for those producers affected, lower planted acreage and production of program crops,

higher planted acreage and production of nonprogram crops, higher prices for commodities

in which production is reduced, lower prices for commodities in which production is

increased, smaller scale production, lower expenditures by producers in the local economy,

and lower land values and rental rates. In the short run, the effects of further payment limitations may be negative for rural communities and agribusiness infrastructure, especially in

those areas that depend on farming and those where farm program payments are an important source of farm income.

Some comments to the Commission suggested that the effects of further payment limitations

could be beneficial to rural communities and rural economic activity in the long run. In the

long run, further payment limitations could increase the competitive position of small versus

large farms. Whether this would have appreciable long-run positive effects for rural

economies and agribusiness infrastructure is unknown. Some studies have compared counties

with smaller farms and counties with larger farms and concluded that counties with a higher

percentage of smaller farms have stronger economies. However, many other factors may

explain the differences in economic performance between counties other than the size distribution of their farms (Gardner, 2002, p. 126). Analyzing county data, Gardner found that

growth in agriculture is primarily driven by investment, advances in productivity, and government support of research. Variables such as the portion of acreage planted to program

Effects of Further Payment Limitations 119

Figure 5.14. Percentage reduction in payments under $20,000 limit on 2000-crop 

 PFC payments

Zero

0.01-7.0 percent

7.0-15.0 percent

15.0-25.0 percent

More than 25 percent

Source: USDA Farm Service Agency
crops (which could be viewed as a proxy for program payments) did not explain growth in

agriculture in the county. In testimony before the Commission on the effects of further payment limits, Gardner concluded, “Therefore, we are quite in the dark about consequences for

rural communities” (Gardner, 2003).

Research examining counties that have lost population also provides some insight on the possible long-run effects of payments and payment limits. Although the rural population grew

overall during the 20th century, many counties experienced population declines tied to the

decline in the farm population. Population decline reduces the demand for and the ability to

provide public services and threatens long-term community survival. During the 1990s, over

half of the farming-dependent counties and about 40 percent of farming-important counties

lost population, compared with only about 20 percent for other rural counties. Population

losses occurred mainly in the Plains States, in areas where the concentration of payments is

high (figure 5.15). Population increases occurred in the eastern Corn Belt, the South, the

Mountain States, and some other areas. ERS associates the population increases with nonfarm job opportunities, new value-added agricultural processing, and natural amenities.

Goetz and Debertin discuss various ways farm program payments affect outmigration from

agriculture. Farm program payments may affect outmigration through the capitalization of

payments into land values. Two outcomes are possible: higher land values may act as a deterrent to farm consolidation by increasing the capital needed to finance expansion or, alternatively, higher land values may act as a barrier to entry to new farmers and hasten

consolidation by those already in farming. Government payments may also affect outmigration by increasing investment in agriculture, thereby fostering expansion and farm consolidation. The authors concluded, based on data for 1980-90, that outmigration increased as

government payments made up a larger share of farm market receipts. The effects of farm

structure on outmigration generally indicated that the greater the proportion of farms in

high sales categories, the smaller the county population loss.

120 Chapter 5

Figure 5.15. Rural population loss, 1990-2000, and farm program payments, 

 1999-2000 (average)

Payment as ratio to total 

county household income, 

1999

10 to 20 %

Over 20 %

Population loss over 5%

Figure 5.15. Rural population loss, 1990-2000, and farm program payments,

1999-2000 average

Sources: Censuses of Population, 1990 & 2000 and USDA Economic Research Service
A study by Huang, Orazem, and Wohlgemuth examined the causes of rural population

change during 1950-90. They concluded that there is no evidence that higher farm income

raises rural county population. Their analysis indicates that higher farm income is associated

with higher farm population, but higher farm income does not lead to an increase in the

rural nonfarm population and thereby results in no significant increase in the rural population. Their results indicate that rural economies that are more diversified have stronger population growth than rural economies that depend on a few industries for the bulk of their

employment and economic activity.

Conclusions

• Farming’s role in rural economies has declined over time as growth in the nonfarm sector

has exceeded that in farming. The number of farming-dependent counties—those where

farming accounts for 20 percent of more of personal income—has declined as well, falling

from 556 in 1989 to 316 in the mid-1990s, out of 2,450 rural U.S. counties.

• While farming has declined as a share of rural economic activity, and the farm population

has declined, the rural population has grown and average farm household income has risen

to the point where it is on a par with average urban household income and exceeds average

nonfarm rural household income.

• Despite the long-term decline in farming in the rural economy overall, agriculture, more

broadly defined as farming plus input-supplying industries and processing, distribution,

and delivery to consumers domestically or abroad, remains a crucial part of the rural and

national economy, accounting for 17 percent of U.S. employment and 12 percent of U.S.

gross domestic product in 2001.

• In addition, many rural counties that are farming-dependent (20 percent or more of

income coming from farming) or farming-important (10 to 20 percent of income from

farming) continue to depend heavily on government payments. Large areas of the Plains

States, Corn Belt, and Delta have farm program payments equal to 25 percent or more of

farm cash receipts and 50 percent or more of net farm income. The greatest effects of further payment limitations on rural communities and agribusiness infrastructure potentially

occur in counties where payments are most concentrated, farm income is most dependent

on payments, and the likelihood of producers being affected by further payment limits is

highest. Such areas are found in: the Delta States of Arkansas, Louisiana, and Mississippi;

in west Texas and the rice-growing regions of the upper Gulf Coast; and in rural areas of

Arizona and California, where rice and cotton payments are concentrated. Depending on

the reduction in payments under further payment limitations, counties in western Kansas,

central and eastern Nebraska and South Dakota, western Iowa, and a few other areas could

potentially be affected as well.

• In the short run, further payment limitations are expected to affect negatively rural communities and agribusiness infrastructure. If producers reduce planted acreage, which economic modeling suggests would most likely occur if marketing assistance loan benefits are

limited, including certificate and loan forfeiture gains, and prices are below the loan rate

Effects of Further Payment Limitations 121
for program crops, then in the most affected counties, farm income declines, farm input

use declines, purchases of agribusiness services decline, and farm land values decline. These

negative effects on rural communities and agribusiness infrastructure would be partially

offset by higher prices for commodities whose acreage is reduced, increased acreage of

alternative crops, and lower production costs to the extent cash rents decline.

• The long-run effects on rural economies of further payment limits are generally unknown.

The short-run negative effects on rural communities and agribusiness infrastructure are

likely to diminish over time as producers adjust in a variety of ways to further payment

limits. While the competitive position of small farms relative to large farms may be

enhanced, little is known as to whether that would translate into positive rural community

and agribusiness effects over time. Economic studies do not suggest that farm structure is

an important factor explaining a county’s economic or population growth. Instead, studies

suggest other factors, ranging from nonfarm technology developments (from roads to

telecommunications), to economic diversity, to natural amenities, to human capital investment, are prime factors.

References

Gale, Fred. “Nonfarm Growth and Structural Change Alter Farming’s Role in the Rural Economy.”

Rural Conditions and Trends, Vol. 10, No. 2, 2000, pp. 2-6. Economic Research Service, USDA.

Gardner, Bruce L. American Agriculture in the Twentieth Century, How It Flourished and What It

Cost. Cambridge, Massachusetts and London England: Harvard University Press, 2002.

Gardner, Bruce. “Payment Limit Issues: What Do We Really Know, What is Plausible but Uncertain,

and Where Are We Totally in the Dark?” Testimony presented to the Commission on the

Application of Payment Limitations for Agriculture, Washington, D.C., June 17, 2003.

Goetz, Stephan J., and David Debertin. “Rural Population Decline in the 1980s: Impacts of Farm

Structure and Federal Farm Programs.” Amer. J. Agr. Econ. 78(August 1996): 517-529.

Hamrick, Karen, editor. “Rural America at a Glance.” Rural Development Research Report No.

RDRR94-1, September 2002. Economic Research Service, USDA.

Huang, Tzu-Ling, Peter F. Orazem, and Darin Wohlgemuth. “Rural Population Growth, 1950-1990:

The Roles of Human Capital, Industry Structure, and Government Policy.” Amer. J. Agr. Econ.

84(November 1997): 615-627.

Kassel, Kathleen and Thomas Carlin. “Economic Growth in Farming Areas Lags the Rest of Rural

America.” Rural Conditions and Trends, Vol. 10, No. 2, 2000, pp. 10-16. Economic Research

Service, USDA.

Majchrowicz, Alex. “Agricultural Wholesale and Retail Trade Jobs Account for Two-Thirds of Farm

and Farm-Related Employment.” Rural America, Vol. 16, No. 1, 2001, pp. 53-55.

Schluter, Gerald and William Edmondson. “Where is Agriculture Important?” Rural Conditions and

Trends, Vol. 10, No. 2, 2000, pp. 17-21. Economic Research Service, USDA.

122 Chapter 5
Effects of Further Payment Limitations on Planting

Decisions and the Supply and Prices of Crops

Background

Many studies have examined the effects of government payments on producers’ planting decisions and the supply and prices of crops. While the estimates vary considerably, past studies

generally conclude that government payments increase crop production and lower crop prices.

Depending on the relative levels of government support and the extent to which such support is

tied to current production, government payments may increase production of one crop at the

expense of another. For example, the 2002 Act raised marketing assistance loan rates for wheat

and feed grains relative to soybeans. This change in relative loan rates provides an incentive for

producers to switch some acreage formerly planted to soybeans to wheat and feed grains.

Increased plantings of wheat and feed grains would lead to lower prices for those crops, while

reduced plantings of soybeans would lead to higher prices for soybeans.

Westcott et al., analyzed the impacts of the 2002 Act on commodity markets. The analysis

assumed that direct and counter-cyclical payments did not affect production. Direct and

counter-cyclical payments are paid on historical acreage and yield and do not depend on current plantings. Production could be affected because of increased wealth and investment and

reduced risk provided by direct and counter-cyclical payments. However, Westcott et al., argue

the effects of direct and counter-cyclical payments on production are small and conclude that

most of the impacts on commodity markets of the 2002 Act initially come from the change in

marketing assistance loan rates, since these benefits are fully coupled to current production.

With higher loan rates for most commodities, total plantings for major crops are projected to

increase about 2 million acres per year, or less than 1 percent, during 2002-04 and by a lesser

amount thereafter. Acreage is projected to increase for wheat, corn, and sorghum but decline for

soybeans, reflecting the relative change in loan rates under the 2002 Act.

FAPRI (2002) also conducted an analysis of the 2002 Act. FAPRI projects total plantings of

major crops would increase on average by 1.8 million acres per year during 2002-04. Reflecting the relative change in loan rates, soybean acreage declines while plantings of other major

crops increase in the short run. Soybean prices are forecast to average about $0.08 per bushel

higher in response to the decline in plantings. Larger plantings of wheat and feed grains cause

prices for those crops to average about $0.05 per bushel lower during 2002-04.

The FAPRI and Westcott et al., studies provide estimates of the change in crop supplies and

prices under the 2002 Act as opposed to continuation of the 1996 Act. Several studies have

also examined the impacts on commodity markets of completely eliminating all farm programs. Elimination of all farm programs would lead to larger adjustments in planted

acreage and prices of major crops. Various studies indicate that government payments

increase crop production by 1 to 6 percent (Tweeten). However, the estimates depend heavily on the time period of analysis. During periods of relatively strong market prices, government payments have much less effect on crop production and market prices than when

market prices are historically weak.

Effects of Further Payment Limitations 123
Discussion

Further payment limitations will likely lead to some reduction in total acreage planted to

major crops and a relative shift in acreage away from those crops most adversely affected to

crops less adversely affected by further payment limitations. The magnitude of the change in

total acreage and shifts between crops would depend on the payments affected by further

limitations, the level of prices for crops affected by further payment limits, the extent to

which producers may be able to restructure to avoid further limitations, and the competition

for land in agricultural and nonagricultural uses.

A drop in acreage of crops affected by further payment limitations would boost prices for

those crops. The price increases would raise the cash receipts of producers not directly

affected by the tighter limits and help cushion the drop in income by those directly affected.

Returns to producers who continue to plant these crops would likely be affected only modestly, because higher prices would reduce marketing loan benefits and counter-cyclical payments. If producers affected by further payment limitations shift to the production of other

program crops, the income of producers who traditionally plant these crops would likely be

only modestly reduced because lower prices would increase marketing loan benefits and

counter-cyclical payments for those crops. Increased plantings of crops that are not eligible

for payments and marketing loan benefits would lower returns to producers of those crops.

Decoupled payments, such as direct and counter-cyclical payments, are generally believed to

be much less production-distorting than payments that are directly linked to current production, such as marketing loan benefits. Under the 2002 Act, participating producers are permitted to plant all the acreage eligible for direct and counter-cyclical payments to any crop,

except for some limitations on plantings of fruits, vegetables, and wild rice. As a result, producers’ planting decisions are expected to be largely unaffected by direct and counter-cyclical

payments and producers are expected to select the mix of crops to plant based on relative

market returns and agronomic considerations. In contrast, marketing loan benefits do

depend on how much and which crops are planted and, thereby, alter producers’ planting

decisions. Marketing assistance loans and to a lesser extent counter-cyclical payments reduce

risk, which may be an important factor farmers use in deciding how much acreage to allocate

to various crops. This suggests that further limitations that reduce direct and counter-cyclical

payments would tend to have considerably less impact on crop supplies and prices than further limitations that reduce marketing loan benefits.

The elimination of marketing loan benefits may provide an upper bound for the adjustment

in acreage and prices that could occur under further payment limits, since further limits on

direct and counter-cyclical payments are expected to result in considerably less adjustment in

acreage and prices. Westcott and Price analyzed the effects of eliminating marketing loans on

production and prices of major crops over the period from 1998 through 2005. The baseline

used for the analysis was the USDA 2000 baseline, which did not anticipate the sharp

decline in cotton price for 2001 crop year. That study suggests that elimination of marketing

loan benefits would have reduced plantings of major crops by 2 to 4 million acres (1-2 percent). Elimination of marketing loan benefits would have lowered cotton acreage by an esti124 Chapter 5
mated 1.5 million acres in 2000 or by over 10 percent, the largest percentage decline in

acreage for all major crops. In response to the decline in acreage, cotton prices would have

been about 5 cents per pound higher. Lower rice acreage would have raised rice prices by 10

to 20 cents per hundredweight.

The Commission requested that the above study be updated to take into account the sharp

decline in cotton prices for the 2001 crop (Westcott). The updated analysis indicated that

elimination of marketing loan benefits for the 2001 crop would have lowered cotton acreage

by 2.5 to 3.0 million acres or 15-20 percent and reduced rice acreage by 300,000 acres or 10

percent. The much larger decline in cotton acreage projected in the updated analysis indicates that the effects of further payment limitations on marketing loan benefits on supply

and prices of agricultural commodities and on producer income are very dependent on the

level of market prices.

FAPRI (2003) examined the possible implications of limiting any operation as defined by the

Census of Agriculture to no more than $40,000 in direct payments, $60,000 in countercyclical payments, and $175,000 in marketing loan benefits over the period 2004-12. In

2004, FAPRI estimates the stricter payment limitation would reduce the area planted to cotton by about 510,000 acres and the area planted to rice by about 250,000 acres (table 5.3).

Cotton acreage is estimated to decline by 4 percent and rice acreage drops by 8 percent while

acreage of other major crops changes by less than 1 percent. Longer-run impacts on planted

acreage are assumed to be much smaller as producers adjust to the stricter limits on payments

and reduced acreage leads to higher market returns. In response to the drop in acreage,

FAPRI projected cotton prices would increase by 2 percent and rice prices would increase by

8 percent in 2004, while prices for other major crops would not change significantly (table

5.3). The effects on prices also tend to moderate after 2004, reflecting the smaller adjustment

in planted acreage.

The effects of further payment limits on marketing loan benefits, acreage, and commodity

prices depend on the level of market prices for major crops. If the loan repayment rate is at or

above the loan rate for a crop, further payment limits would have essentially no effect on

marketing loan benefits. In this situation, acreage for the crop could increase if further limits

reduce marketing loan benefits for competing crops. In contrast, if the loan repayment rate is

considerably below the loan rate for a crop, further payment limits on marketing loan benefits could lead to a significant reduction in planted acreage.

FAPRI examined the adjustment in cotton acreage that would occur under further limits at

different cotton prices. If cotton prices average below 40 cents per pound as they did during

the 2001 crop year, cotton acreage would have declined by 1.2 million acres in 2004, up

from 0.5 million acres under the higher baseline price of 40-50 cents per pound. If cotton

prices average over 50 cents per pound, FAPRI projects cotton acreage would fall by 0.2 million acres under stricter payment limits. This suggests that higher cotton prices combined

with higher prices for other program crops could lead to little or no change in cotton acreage

Effects of Further Payment Limitations 125
under further payment limits. The sensitivity of acreage adjustments under further payment

limits to the level of market prices increases the difficulty of drawing definitive conclusions

on the effects of further payment limitations on the supply and prices of crops.

Producers affected by further payment limits could decide to increase production of crops

that are relatively less affected by further payment limits. For rice and upland cotton producers, competing crops might include grains, oilseeds, hay, or other nonprogram crops. The

decision to shift acreage to another crop would depend on relative returns, share rental agreements, the additional investment and machinery needed to plant an alternative crop, and

other agronomic considerations. For many producers, planting alternative crops may not be a

feasible option because climatic conditions may restrict which crops can be profitably grown.

In addition, further payment limitations may restrict a producer’s ability to finance new

equipment that would be needed to plant and harvest crops not currently grown on the farm.

FAPRI’s analysis of stricter limits suggests that most of the acreage affected by further payment limitations would not be planted to alternative crops. Instead, most of the acreage

affected by further payment limitations would continue to be planted to the same crop by

either the producer affected by further payment limitations or rented to another producer

not affected by further payment limitations who also chooses to plant the same crop. For

example, FAPRI’s analysis of limiting any operation as defined by the Census of Agriculture

to no more than $40,000 in direct payments, $60,000 in counter-cyclical payments, and

$175,000 in marketing loan benefits indicates that cotton and rice acreage would decline by

760,000 acres in the first year, while acreage of other major crops would increase by 150,000

acres. These acreage adjustments also suggest that some producers may elect to not to grow a

crop on some acreage under further payment limits.

If a producer who rents land is subject to further payment limitations, lower payments would

reduce the amount of rent the producer could pay unless the producer elected to accept a

lower return. If the producer elects to reduce the amount of rent paid on the land no longer

eligible for payments, the landowner could decide to either rent that land to another producer not affected by further payment limits or not grow a crop and receive the payments

that previously went to the renter. Not growing a crop and receiving payments previously

going to the renter could be an option for landowners in some areas, especially if many

renters have payments reduced under further payment limitations. However, this option is

generally less desirable than renting out all the land that would not qualify for payments to

another producer who is not affected by further payment limitations. Thus, the decline in

total planted area under further limitations would depend on the number of producers

affected by further payment limitations and the strength of land rental markets, which could

vary considerably from region to region.

Producers affected by further payment limitations may consider planting fruits, vegetables, hay,

or other crops that are not eligible for direct and counter-cyclical payments or marketing assistance loans. Although fruits and vegetables are produced commercially in every State, this industry is concentrated in some key cotton-producing regions (Arizona State University, National

126 Chapter 5
Food and Agricultural Policy Project). California is currently the second largest cotton-producing State and the largest producer of fruits and vegetables. In fact, the value of fruit and vegetable

production in California exceeds the Nation’s total value of cotton production. In California, the

leading cotton-producing counties with significant fruit and vegetable production are Fresno,

Kern, Kings, and Merced counties. In addition to cotton, each county has large areas committed

to the production of several fruit and vegetable crops, such as grapes, tomatoes, almonds, cantaloupes, oranges, walnuts, peaches, and sweet potatoes. Arizona is another leading producer of

cotton and fruits and vegetables, as is Texas (table 5.7). In these three States, many producers

would have payments reduced under further payment limitations.

Under the 2002 Act, producers receiving direct and counter-cyclical payments may plant any

commodity on base acres except fruits, vegetables, and wild rice (planting flexibility provision). Producers in regions where there is a history of double cropping fruits, vegetables, and

wild rice can expand plantings of these crops without giving up eligibility for direct and

counter-cyclical payments. In addition, producers with a history of planting those crops can

expand plantings of them, but lose direct and counter-cyclical payments on each base acre

planted to fruits, vegetables, and wild rice. Producers who violate these exceptions to planting fruits, vegetables, and wild rice on base acres are generally ineligible for direct and

counter-cyclical payments. It is unclear whether these provisions, if retained, would be effective in limiting the expansion in acreage devoted to fruits, vegetables, and wild rice under

further payment limitations. Other factors, such as the increase in investment and equipment, availability of market outlets, and volatility in prices and returns, may be more important in limiting the expansion in area planted to fruits, vegetables, and wild rice under

further payment limitations.

There is no available research that indicates the extent to which further payment limitations

would lead to an increase in supplies of fruits, vegetables, hay, or other nonprogram crops

and the resulting adjustment in prices and returns that would occur in those markets. Even

so, small shifts in acreage out of upland cotton or other crops affected by further payment

Effects of Further Payment Limitations 127

Table 5.7. Cotton and fruit and vegetable production in leading cotton-producing

States, 2001

Cotton Fruits and vegetables

Production National U.S. share of Production National U.S. share of

value rank production value rank production

State Million dollars Percent Million dollars Percent

Texas 1,001 1 20 604 7 2

California 706 2 14 13,412 1 49

Georgia 570 3 12 499 10 2

Arkansas 503 4 10 42 36 --

North Carolina 412 5 8 356 12 1

Mississippi 370 6 7 49 33 --

Louisiana 271 7 5 102 27 --

Alabama 217 8 4 65 31 --

Missouri 215 9 4 45 34 --

Arizona 209 10 4 927 4 3

-- Denotes less than 0.5 percent.

Source: National Food and Agricultural Policy Project, Arizona State University
limits could have negative effects on some fruit and vegetable producers. For example, there

are more than 300,000 acres of upland cotton in Fresno and Kern counties of California and

less than 30,000 acres of garlic. Shifting just 1 percent of the cotton acreage to garlic would

cause a 10-percent increase in garlic acreage, which could reduce already depressed garlic

prices by 25 percent (Sumner).

Further payment limitations could lead to an increase in acreage devoted to hay. Producers can

plant hay on base acres with no reduction in direct and counter-cyclical payments. In addition, many producers already devote some acreage to hay, market outlets are readily available,

and little additional investment would be required to expand the area devoted to hay. In 2002,

64.5 million acres were planted to hay. Some shifting of acreage from program crops into hay

under further payment limitations probably would not have much effect on hay prices.

Conclusions

• Various studies indicate that government payments increase crop production by 1 to 6

percent. However, the estimates depend on the time period of analysis. During periods of

strong market prices, government payments have much less effect on crop production and

market prices than when market prices are historically weak.

• Decoupled payments, such as direct and counter-cyclical payments, are generally believed

to be much less production-distorting than payments that are directly linked to current

production, such as marketing assistance loan benefits. This suggests that further limitations that reduce direct and counter-cyclical payments would have considerably less

impact on crop supplies and prices than further limitations that reduce marketing assistance loan benefits.

• The elimination of marketing assistance loan benefits may provide an upper bound to the

adjustment in acreage and prices that could occur under further payment limits. During

1999-2000, a period of very weak crop prices and record marketing loan benefits, the

elimination of marketing loan benefits would have reduced plantings of major crops by an

estimated 2.5 to 3.0 million acres in 2000, with cotton acreage falling by an estimated 1.5

million acres or by over 10 percent, the largest percentage decline in acreage for all major

crops. In response to the decline in acreage, cotton prices would have been about 5 cents

per pound higher and lower acreage would have raised rice prices by 10 to 20 cents per

hundredweight.

• FAPRI (2003) examined the possible implications of limiting any operation as defined by

the Census of Agriculture to no more than $40,000 in direct payments, $60,000 in

counter-cyclical payments, and $175,000 in marketing loan benefits over the period

2004-12. In 2004, FAPRI estimates the stricter payment limitation would reduce the area

planted to cotton by about 510,000 acres and the area planted to rice by about 250,000

128 Chapter 5
acres. In response to this drop in acreage, FAPRI projected cotton prices to increase by 2

percent and rice prices increase by 8 percent in 2004, while prices for other major crops

would not change significantly.

• If cotton prices average below 40 cents per pound as they did during the 2001 crop year,

cotton acreage could decline by 1.2 million acres in 2004, up from FAPRI’s estimate of

0.5 million acres under the higher baseline price of 40-50 cents per pound. If cotton prices

average over 50 cents per pound, FAPRI projects cotton acreage could fall by 0.2 million

acres under stricter payment limits. Another study examined the effects of elimination of

marketing loan benefits for the 2001 crop year, when cotton prices averaged 30 cents per

pound, and concluded that cotton acreage would have fallen by 2.5 to 3.0 million acres.

The sensitivity of acreage adjustments under stricter payment limits to the level of market

prices increases the difficulty of drawing definitive conclusions as to the effects further

payment limitations would have on the supply and prices of crops.

• Producers affected by further payment limits could decide to increase production of crops

that are relatively less affected by further payment limits. The decision to shift acreage to

another crop would depend on relative returns, share rental agreements, the additional

investment and machinery needed to plant an alternative crop, and other agronomic considerations. For many producers, planting alternative crops may not be a feasible option

because climatic conditions restrict which crops can be profitably grown.

• Not growing a crop may be an option under further payment limitations for some producers when market prices are considerably below the loan rate. This option is generally less

desirable than renting out all the land that would not qualify for payments to another producer who is not affected by further payment limitations. Thus, the decline in total

planted area under further limitations would depend on the number of producers affected

by further payment limitations and the strength of land rental markets, which could vary

considerably from region to region.

• Many of the producers affected by further payment limitations would be located in States

that also produce a wide variety of nonprogram crops, including fruits, vegetables, and

hay. The 2002 Act’s limitations on planting fruits and vegetables along with other factors,

such as the increase in investment and equipment, availability of market outlets, and

volatility in prices and returns, may prevent many producers affected by further payment

limitations from shifting additional acreage into fruits and vegetables. Nevertheless, small

shifts in acreage into fruits and vegetables could have negative price effects on some fruit

and vegetable crops.

• Further payment limitations could lead to an increase in acreage devoted to hay. Some

shifting of acreage from program crops into hay, such as alfalfa in western States, probably

would occur. The effect on hay prices may be limited, since nearly 65 million acres were

planted to hay in 2002.

Effects of Further Payment Limitations 129
References

Food and Agricultural Policy Research Institute, University of Missouri. Farm Security and Rural

Investment Act of 2002: Preliminary FAPRI Analysis. May 2002.

Food and Agricultural Policy Research Institute, University of Missouri. “FAPRI Analysis of Stricter

Payment Limitations, Testimony to the Commission on the Application of Payment Limitations.”

FAPRI-UMC Report #05-03. June 17, 2003.

National Food and Agricultural Policy Project. “Farm Program Payment Limitations: Potential

Implications for the Produce Industry.” Arizona State University, Policy Briefing Paper NFAPP #3-

02, June 2003.

Sumner, Daniel A. “Consequences of Additional Farm Program Payment Limits.” Testimony

Presented to the Commission on Application of Payment Limitations for Agriculture, Washington,

D.C., June 17, 2003.

Tweeten, Luther. “Farm Commodity Programs: Estimated Safety Net or Corporate Welfare?”

Agriculture Policy for the 21st Century, edited by Luther Tweeten and Stanley R. Thompson. Iowa

State University Press, 2002.

Westcott, Paul C. “Marketing Loans and Payment Limitations.” Presentation to the Commission on

the Application of Payment Limitations for Agriculture, May 2003.

Westcott, Paul C., and J. Michael Price. Analysis of the U.S. Commodity Loan Program with

Marketing Loan Provisions. Agricultural Economic Report 801, April 2001. Economic Research

Service, USDA.

Westcott, Paul C., C. Edwin Young and Michael Price. The 2002 Farm Act: Provisions and

Implications for Commodity Markets. Agriculture Information Bulletin 778, November 2002.

Economic Research Service, USDA.

130 Chapter 5
Appendix A 131

Appendix A

Supplemental

Tables for

Chapter 3
132 Appendix A

PFC/Direct payments

Corn 1,745 3,384 2,632 2,545 2,350 1,895 1,984 1,984 1,984 1,984 1,984 1,984 

Sorghum 201 338 286 277 257 209 194 194 194 194 194 194 

Barley 137 113 120 115 107 88 90 90 90 90 90 90 

Oats 9 8 9 8 8 6 4 4 4 4 4 4 

Wheat 1,940 1,397 1,496 1,445 1,337 1,076 1,144 1,144 1,144 1,144 1,144 1,144 

Upland cotton 699 597 637 614 575 474 587 587 587 587 587 587 

Rice 455 448 478 465 433 352 400 400 400 400 400 400 

Soybeans N.A. N.A. N.A. N.A. N.A. N.A. 728 728 728 728 728 728 

Other oilseeds N.A. N.A. N.A. N.A. N.A. N.A. 33 33 33 33 33 33 

Peanuts N.A. N.A. N.A. N.A. N.A. N.A. 65 65 65 65 65 65 

Total 5,186 6,285 5,658 5,469 5,067 4,100 5,229 5,229 5,229 5,229 5,229 5,229 

Market loss payments

Corn N.A. N.A. 1,308 2,544 2,545 2,157 N.A. N.A. N.A. N.A. N.A. N.A.

Sorghum N.A. N.A. 141 277 276 236 N.A. N.A. N.A. N.A. N.A. N.A.

Barley N.A. N.A. 59 115 114 97 N.A. N.A. N.A. N.A. N.A. N.A.

Oats N.A. N.A. 4 8 8 7 N.A. N.A. N.A. N.A. N.A. N.A.

Wheat N.A. N.A. 745 1,445 1,444 1,223 N.A. N.A. N.A. N.A. N.A. N.A.

Upland cotton N.A. N.A. 316 613 613 524 N.A. N.A. N.A. N.A. N.A. N.A.

Rice N.A. N.A. 238 464 464 398 N.A. N.A. N.A. N.A. N.A. N.A.

Soybeans N.A. N.A. 0 438 475 402 N.A. N.A. N.A. N.A. N.A. N.A.

Other oilseeds N.A. N.A. 0 22 24 20 N.A. N.A. N.A. N.A. N.A. N.A.

Peanuts N.A. N.A. 0 55 56 62 N.A. N.A. N.A. N.A. N.A. N.A.

Total N.A. N.A. 2,811 5,981 6,019 5,126 N.A. N.A. N.A. N.A. N.A. N.A.

Counter-cyclical payments

Corn N.A. N.A. N.A. N.A. N.A. N.A. 0 1,052 2,191 2,191 1,753 1,315 

Sorghum N.A. N.A. N.A. N.A. N.A. N.A. 0 54 133 163 133 103 

Barley N.A. N.A. N.A. N.A. N.A. N.A. 0 31 67 67 67 45 

Oats N.A. N.A. N.A. N.A. N.A. N.A. 0 5 17 17 17 17 

Wheat N.A. N.A. N.A. N.A. N.A. N.A. 0 228 1,142 1,396 1,396 1,269 

Upland cotton N.A. N.A. N.A. N.A. N.A. N.A. 1,247 1,247 1,001 793 705 610 

Rice N.A. N.A. N.A. N.A. N.A. N.A. 331 331 331 331 331 331 

Soybeans N.A. N.A. N.A. N.A. N.A. N.A. 0 421 721 621 521 321 

Other oilseeds N.A. N.A. N.A. N.A. N.A. N.A. 0 0 0 0 0 0 

Peanuts N.A. N.A. N.A. N.A. N.A. N.A. 175 175 175 175 175 175 

Total N.A. N.A. N.A. N.A. N.A. N.A. 1,753 3,544 5,778 5,754 5,098 4,186 

Loan deficiency payments

Corn 0 0 1,002 1,992 2,352 1,099 0 0 156 158 4 0 

Sorghum 0 0 57 149 81 5 2 11 38 61 39 18 

Barley 0 0 79 37 67 16 5 23 27 27 28 18 

Oats 0 0 19 28 44 3 0 35 42 38 32 33 

Wheat 0 0 414 889 781 168 10 0 92 328 328 212 

Upland cotton 0 3 303 685 152 744 433 348 262 178 130 132 

Rice 0 0 1 161 278 308 238 204 189 186 170 166 

Soybeans 0 0 882 2,106 2,245 3,154 16 17 227 114 36 0 

Other oilseeds 0 0 23 164 212 87 2 3 3 5 6 7 

Peanuts N.A. N.A. N.A. N.A. N.A. N.A. 75 69 74 76 77 78 

Total 0 3 2,780 6,211 6,212 5,584 781 710 1,110 1,171 850 664 

Appendix table 3.1. Government payments by type and commodity, crop years 1996-2007

1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03F 2003/04F 2004/05F 2005/06F 2006/07F 2007/08F

Million dollars
Appendix A 133

Appendix table 3.1. Continued

1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03F 2003/04F 2004/05F 2005/06F 2006/07F 2007/08F

Million dollars

Marketing loan gains

Corn 0 98 379 410 197 86 0 0 18 18 0 0 

Sorghum 0 1 4 4 1 0 0 0 1 2 1 1 

Barley 0 2 4 1 1 0 0 2 2 3 3 2 

Oats 0 0 0 0 0 0 0 1 1 1 1 1 

Wheat 0 16 62 47 30 5 1 47 48 41 32 19 

Upland cotton 0 26 230 815 50 46 57 28 16 9 7 6 

Rice 0 0 13 183 150 200 207 222 222 212 216 213 

Soybeans 0 16 337 218 257 277 0 2 9 4 0 0 

Other oilseeds 0 0 8 8 6 2 0 0 0 0 0 0 

Peanuts N.A. N.A. N.A. N.A. N.A. N.A. 26 53 62 68 69 71 

Total 0 159 1,037 1,686 692 616 291 355 379 358 329 313 

Certificate exchange gains

Corn 0 0 0 3 31 3 0 0 0 0 0 0 

Sorghum 0 0 0 0 1 0 0 0 0 0 0 0 

Barley 0 0 0 0 1 0 0 0 0 0 0 0 

Oats 0 0 0 0 0 0 0 0 0 0 0 0 

Wheat 0 0 0 0 13 2 0 0 0 2 2 1 

Upland cotton 0 0 0 36 360 1,746 521 250 141 84 60 49 

Rice 0 0 0 57 169 206 218 198 184 177 163 154 

Soybeans 0 0 0 2 33 17 0 0 0 0 0 0 

Other oilseeds 0 0 0 1 8 0 0 0 0 0 0 0 

Peanuts N.A. N.A. N.A. N.A. N.A. N.A. 0 0 0 0 0 0 

Total 0 0 0 99 616 1,974 739 448 325 263 225 204 

Total marketing loan benefits

Corn 0 98 1,381 2,405 2,580 1,188 0 0 174 176 4 0 

Sorghum 0 1 61 153 83 5 2 11 39 63 40 19 

Barley 0 2 83 38 69 16 5 25 29 30 31 20 

Oats 0 0 19 28 44 3 0 36 43 39 33 34 

Wheat 0 16 476 936 824 175 11 47 140 371 362 232 

Upland cotton 0 29 533 1,536 562 2,536 1,011 626 419 271 197 187 

Rice 0 0 14 401 597 714 663 624 595 575 549 533 

Soybeans 0 16 1,219 2,326 2,535 3,448 16 19 236 118 36 0 

Other oilseeds 0 0 31 173 226 89 2 3 3 5 6 7 

Peanuts N.A. N.A. N.A. N.A. N.A. N.A. 101 122 136 144 146 149 

Total 0 162 3,817 7,996 7,520 8,174 1,811 1,513 1,814 1,792 1,404 1,181 

Total payments

Corn 1,745 3,482 5,321 7,494 7,475 5,240 1,984 3,036 4,349 4,351 3,741 3,299 

Sorghum 201 339 488 707 616 450 196 259 366 420 367 316 

Barley 137 115 262 268 290 201 95 146 186 187 188 155 

Oats 9 8 32 44 60 16 4 45 64 60 54 55 

Wheat 1,940 1,413 2,717 3,826 3,605 2,474 1,155 1,419 2,426 2,911 2,902 2,645 

Upland cotton 699 626 1,486 2,763 1,750 3,534 2,845 2,460 2,007 1,651 1,489 1,384 

Rice 455 448 730 1,330 1,494 1,464 1,394 1,355 1,326 1,306 1,280 1,264 

Soybeans 0 16 1,219 2,764 3,010 3,850 744 1,168 1,685 1,467 1,285 1,049 

Other oilseeds 0 0 31 195 250 109 35 36 36 38 39 40 

Peanuts 0 0 0 55 56 62 341 362 376 384 386 389 

Total 5,186 6,447 12,286 19,446 18,606 17,400 8,793 10,286 12,821 12,775 11,731 10,596 

N.A. = Not applicable. F = Forecast.

Source: Historical data from USDA’s Farm Service Agency and forecasts from USDA’s Farm Service Agency Commodity Estimates Book FY 2004 President’s Budget.
134 Appendix A

Corn $/bu. 2.71 2.43 1.94 1.82 1.85 1.97 2.40 2.20 2.10 2.10 2.15 2.20

Grain sorghum $/bu. 2.34 2.21 1.66 1.57 1.89 1.94 2.45 2.10 2.00 1.95 2.00 2.05

Barley $/bu. 2.74 2.38 1.98 2.13 2.11 2.22 2.60 2.35 2.30 2.30 2.30 2.35

Oats $/bu. 1.96 1.60 1.10 1.12 1.10 1.59 1.80 1.35 1.25 1.25 1.30 1.30

Wheat $/bu. 4.30 3.38 2.65 2.48 2.62 2.78 3.80 3.25 2.95 2.85 2.85 2.90

Upland cotton Cents/lb. 69.3 65.2 60.2 45.0 49.8 29.8 N.F. N.F. N.F. N.F. N.F. N.F.

Rice $/cwt. 9.96 9.70 8.89 5.93 5.61 4.25 3.85 3.82 3.88 3.95 4.05 4.18

Soybeans $/bu. 7.35 6.47 4.93 4.63 4.54 4.38 5.40 5.15 5.00 5.05 5.10 5.20

Peanuts $/ton 562 566 568 508 548 468 360 348 346 348 352 360

Appendix table 3.2. Crop-year prices for crops eligible for direct and counter-cyclical payments and marketing loan

benefits, 1996/97-2007/081

F = Forecast

N.F. = Not forecast.

1

USDA is prohibited by law from forecasting upland cotton prices.

Source: Historical data from USDA National Agricultural Statistics Service and forecasts from USDA Farm Service Agency Commodity Estimates Book, FY 2004 President’s Budget

Units 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03F 2003/04F 2004/05F 2005/06F 2006/07F 2007/08F

Appendix table 3.3. Cash farm income by calendar year

F = Forecast.

Source: USDA Economic Research Service and USDA Agricultural Baseline Projections to 2012, Staff Report WAOB-2003-1

1996 1997 1998 1999 2000 2001 2002 2003F 2004F 2005F 2006F 2007F

Billion dollars

Cash receipts 199.3 207.7 196.0 187.5 193.7 202.8 192.1 200.5 205.8 209.4 214.6 221.3

Crops 106.3 111.2 101.9 91.9 94.1 96.4 98.6 101.6 103.4 104.3 106.7 110.0

Livestock 92.9 96.5 94.1 95.6 99.6 106.4 93.5 98.9 102.4 105.1 107.9 111.4

Direct government payments 7.3 7.5 12.4 21.5 22.9 20.7 11.8 17.6 15.6 17.5 16.8 14.4

Farm-related income 11.0 12.1 13.9 15.0 13.8 14.9 15.8 16.9 17.4 17.8 18.3 18.8

Gross cash income 217.7 227.3 222.3 224.0 230.4 238.5 219.7 234.9 238.8 244.6 249.6 254.5

Cash expenses 159.9 166.9 165.5 166.9 172.0 178.8 175.9 183.6 187.1 190.1 195.3 199.7

Net cash income 57.7 60.4 56.8 57.1 58.4 59.7 43.8 51.3 51.7 54.5 54.4 54.8

Total direct payments 7.3 7.5 12.4 21.5 22.9 20.7 11.8 17.6 15.6 17.5 16.8 14.4

Production flexibility contract 6.0 6.1 6.0 5.0 5.0 4.0 3.0 N.A. N.A. N.A. N.A. N.A.

Direct payments N.A. N.A. N.A. N.A. N.A. N.A. 0.4 9.2 5.2 5.2 5.2 5.2

Counter-cyclical payments N.A. N.A. N.A. N.A. N.A. N.A. 0.2 2.5 4.1 5.4 5.2 3.6

Loan deficiency payments 0 0 1.8 5.9 6.4 5.5 2.1 1.6 1.5 1.8 1.4 0.9

Marketing loan gains 1 0 0 0.2 0.9 1.1 0.7 0.5 0.8 0.6 0.5 0.4 0.4

Compensation to peanut quota holders N.A. N.A. N.A. N.A. N.A. N.A. 1.0 0.3 0.2 0.2 0.2 0

Milk income loss payments N.A. N.A. N.A. N.A. N.A. N.A. 0.9 0.6 0.5 0.4 0 0

Conservation payments 1.8 1.7 1.5 1.5 1.6 1.8 1.8 2.0 2 22 2

Emergency assistance payments 3 N.A. N.A. 2.8 7.8 8.5 8.4 0.2 0 0 0 0 0

Miscellaneous payments -0.4 -0.3 0.1 0.4 0.2 0.3 1.8 0.5 3.4 3.8 4.3 4.2

Appendix table 3.4. Direct government payments by calendar year

F = Forecast.

N.A. = Not applicable.

1 Includes marketing loan benefits realized from using commodity certificates. 2 Conservation payments included in miscellaneous payments after 2003. 3 Includes disaster assistance and market loss assistance payments.

Source: USDA Economic Research Service and USDA Agricultural Baseline Projections to 2012, Staff Report WAOB-2003-1

1996 1997 1998 1999 2000 2001 2002 2003F 2004F 2005F 2006F 2007F

Billion dollars
Appendix A 135

Alabama 32,945 29,542 3,006 99,860 165,353 27 47,000 3,518 30 1,528,968 10.8 38 

Alaska 101 0 0 565 666 50 580 1,149 45 17,703 3.8 47 

Arizona 35,887 15,696 1,400 48,294 101,277 32 7,500 13,504 11 880,640 11.5 37 

Arkansas 227,529 211,336 68,085 324,526 831,477 9 48,000 17,322 7 1,914,026 43.4 13

California 171,279 84,392 55,773 314,501 625,945 13 87,500 7,154 19 5,168,544 12.1 33

Colorado 78,637 67,043 4,541 120,911 271,132 23 29,500 9,191 14 1,073,364 25.3 20 

Connecticut 758 1,093 0 9,048 10,900 42 3,900 2,795 34 165,698 6.6 45 

Delaware 3,957 11,050 370 6,858 22,237 39 2,600 8,553 15 180,486 12.3 30 

Florida 6,724 6,199 526 56,475 69,925 35 44,000 1,589 42 2,669,526 2.6 50 

Georgia 66,552 84,733 6,298 208,860 366,442 18 50,000 7,329 18 2,363,474 15.5 26 

Hawaii 0 26 0 4,607 4,633 46 5,500 842 49 123,597 3.7 48 

Idaho 57,904 37,851 3,329 87,111 186,196 26 24,500 7,600 17 1,099,883 16.9 25 

Illinois 390,642 781,351 71,950 525,610 1,769,553 2 78,000 22,687 3 1,846,513 95.8 1 

Indiana 191,334 358,778 42,492 275,848 868,452 8 64,000 13,570 10 1,129,365 76.9 3

Iowa 444,490 705,013 169,339 604,687 1,923,529 1 95,000 20,248 5 2,994,150 64.2 7 

Kansas 337,014 317,265 13,875 455,794 1,123,948 6 64,000 17,562 6 1,624,651 69.2 5 

Kentucky 47,848 80,874 3,266 162,514 294,503 22 90,000 3,272 32 1,709,520 17.2 24 

Louisiana 120,187 98,384 19,454 182,410 420,434 16 29,500 14,252 9 642,204 65.5 6 

Maine 724 2,243 3 5,289 8,259 45 6,800 1,215 44 127,600 6.5 46 

Maryland 13,141 33,417 1,147 25,871 73,576 34 12,400 5,934 24 498,823 14.7 28 

Massachusetts 493 726 11 8,291 9,521 44 6,100 1,561 43 66,999 14.2 29 

Michigan 81,030 115,066 12,211 144,278 352,585 20 52,000 6,780 21 668,723 52.7 11 

Minnesota 265,534 456,145 136,857 421,754 1,280,291 5 79,000 16,206 8 1,846,218 69.3 4 

Mississippi 114,923 97,620 23,838 186,549 422,930 15 43,000 9,836 13 988,403 42.8 14 

Missouri 146,684 260,478 31,486 252,024 690,672 10 109,000 6,336 22 1,154,529 59.8 9 

Montana 104,602 56,074 3,225 196,257 360,159 19 27,600 13,049 12 609,845 59.1 10 

Nebraska 331,821 434,381 72,053 464,143 1,302,398 4 54,000 24,118 2 2,092,093 62.3 8 

Nevada 751 191 0 2,504 3,446 47 3,000 1,149 46 110,257 3.1 49 

New Hampshire 362 657 0 2,382 3,401 48 3,100 1,097 47 29,362 11.6 35 

New Jersey 2,244 4,111 225 9,297 15,877 40 9,600 1,654 41 233,570 6.8 44 

New Mexico 16,255 10,550 364 39,312 66,480 36 15,200 4,374 29 744,694 8.9 39 

New York 25,201 17,593 2,855 77,333 122,981 28 38,000 3,236 33 1,016.603 12.1 34 

North Carolina 54,265 101,362 3,731 178,709 338,067 21 57,000 5,931 25 2,932,394 11.5 36

North Dakota 207,139 282,606 20,476 389,974 900,194 7 30,300 29,709 1 1,109,115 81.2 2

Ohio 131,507 270,062 22,474 210,033 634,076 12 80,000 7,926 16 1,368,612 46.3 12

Oklahoma 125,664 48,306 3,410 233,510 410,890 17 85,000 4,834 28 1,265,128 32.5 17 

Oregon 31,087 10,697 871 48,709 91,364 33 40,000 2,284 37 504,009 18.1 23 

Pennsylvania 19,520 20,361 1,385 66,770 108,036 31 59,000 1,831 39 1,258,052 8.6 40 

Rhode Island 26 28 0 615 669 49 700 956 48 9,546 7.0 43 

South Carolina 25,053 26,705 1,933 67,429 121,121 29 24,000 5,047 27 611,511 19.8 22 

South Dakota 135,951 263,959 45,897 238,870 684,677 11 32,500 21,067 4 1,834,065 37.3 16 

Tennessee 46,549 58,577 20,473 114,043 239,642 24 90,000 2,663 35 591,428 40.5 15 

Texas 403,438 263,818 18,651 917,764 1,603,671 3 226,000 7,096 20 5,358,079 29.9 18 

Utah 6,105 3,404 269 16,565 26,343 38 15,500 1,700 40 340,035 7.7 41 

Vermont 1,206 2,357 6 10,725 14,295 41 6,700 2,134 38 186,568 7.7 42 

Virginia 18,123 33,011 2,334 60,395 113,863 30 49,000 2,324 36 762,737 14.9 27 

Washington 76,262 32,035 4,507 122,707 235,510 25 40,000 5,888 26 991,481 23.8 21 

West Virginia 1,802 1,422 158 6,918 10,299 43 20,500 502 50 84,550 12.2 32 

Wisconsin 103,648 132,431 15,392 208,069 459,540 14 77,000 5,968 23 1,649,912 27.9 19 

Wyoming 6,764 4,914 156 18,390 30,225 37 9,200 3,285 31 245,477 12.3 31 

United States 4,711,660 5,935,933 910,102 8,233,963 19,791,657 2,172,280 9,111 58,422,687 33.9

Appendix table 3.5. Government payments, number of farms, and net cash income by State, 1999-2001 calendaryear average1

Production

flexibility

contracts

Thous. dol.

Loan 

deficiency

payments

Thous. dol.

Marketing

loan 

gains 2

Thous. dol.

Emergency

assistance 3

Thous. dol.

Total 

payments

Thous. dol.

State

Rank

Number

Number

of farms

Number

Payments

per farm

Dollars

State

Rank

Number

State

Rank

Number

Net cash

income

Thous. dol.

Payments 

as a percent 

of income

State Percent

1 Conservation payments are excluded from government payments since the 2002 Act does not direct the Commission to study those payments. 2 Includes certificate exchange gains.

3 Includes disaster assistance and marketing loss assistance payments.

Source: USDA Economic Research Service
136 Appendix B

Appendix B

Supplemental

Tables for

Chapter 4
Appendix B 137

U.S. total Reduction, dollars 82,648,742 14,783,906 10,291,772 22,579,642 25,659,595 5,751,064 3,555,533 27,230

Producers 12,298 4,158 1,554 2,735 6,345 3,838 2,475 992

Dollars per producer 6,721 3,556 6,623 8,256 4,044 1,498 1,437 27

Alabama Reduction, dollars 157,813 6,933 0 111,716 32,232 6,844 0 88

Producers 73 22 0 48 36 19 0 4

Dollars per producer 2,162 315 0 2,327 895 360 0 22

Alaska Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Arizona Reduction, dollars 1,915,887 126,008 0 1,731,381 26,716 11,956 19,824 2

Producers 183 36 0 163 73 86 117 2

Dollars per producer 10,469 3,500 0 10,622 366 139 169 1

Arkansas Reduction, dollars 4,029,354 220,313 2,356,307 1,188,458 80,611 183,496 0 169

Producers 806 190 489 267 90 346 0 23

Dollars per producer 4,999 1,160 4,819 4,451 896 530 0 7

California Reduction, dollars 19,588,144 1,859,660 3,996,672 11,686,884 1,329,630 114,313 600,001 984

Producers 1,146 320 485 497 487 236 479 30

Dollars per producer 17,093 5,811 8,241 23,515 2,730 484 1,253 33

Colorado Reduction, dollars 2,633,492 1,113,562 0 0 1,361,308 96,284 61,525 813

Producers 253 167 0 0 126 88 115 22

Dollars per producer 10,409 6,668 0 0 10,804 1,094 535 37

Connecticut Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Delaware Reduction, dollars 140,304 4,475 0 0 117,048 3,646 15,135 0

Producers 19 7 0 0 17 5 11 0

Dollars per producer 7,384 639 0 0 6,885 729 1,376 0

Florida Reduction, dollars 1,037,436 243 939,472 48,484 46,558 2,637 0 42

Producers 19 6 5 11 12603

Dollars per producer 54,602 41 187,894 4,408 3,880 440 0 14

Georgia Reduction, dollars 1,273,973 70,228 0 793,054 386,565 22,380 1537 209

Producers 330 87 0 196 211 106 18 32

Dollars per producer 3,861 807 0 4,046 1,832 211 85 7

Idaho Reduction, dollars 1,461,803 1,036,789 0 0 31,380 0 392,986 648

Producers 193 142 0 0 23 0 156 27

Dollars per producer 7,574 7,301 0 0 1,364 0 2,519 24

Illinois Reduction, dollars 3,446,069 97,413 0 0 3,316,539 31,900 82 135

Producers 709 142 0 0 684 68 8 33

Dollars per producer 4,860 686 0 0 4,849 469 10 4

Appendix table 4.1. Payment reduction and producers affected by the $40,000 payment limitation on production

flexibility contract payments, 20001

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
138 Appendix B

Indiana Reduction, dollars 1,733,416 34,003 0 0 1,698,215 604 491 103

Producers 380 101 0 0 369 7 5 13

Dollars per producer 4,562 337 0 0 4,602 86 0 8

Iowa Reduction, dollars 2,949,912 6,889 0 0 2,940,414 1,388 120 1,101

Producers 659 26 0 0 654 22 4 77

Dollars per producer 4,476 265 0 0 4,496 63 30 14

Kansas Reduction, dollars 4,848,030 1,439,751 0 0 1,862,865 1,495,515 49,222 677

Producers 1,029 615 0 0 420 763 264 100

Dollars per producer 4,711 2,341 0 0 4,435 1,960 186 7

Kentucky Reduction, dollars 323,963 29,902 0 0 291,091 2,768 199 3

Producers 121 46 0 0 108 21 3 1

Dollars per producer 2,677 650 0 0 2,695 132 66 3

Louisiana Reduction, dollars 3,076,164 72,442 1,397,921 1,320,801 157,534 127,263 0 203

Producers 452 44 201 188 92 140 0 7

Dollars per producer 6,806 1,646 6,955 7,026 1,712 909 0 29

Maine Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Maryland Reduction, dollars 129,515 6,107 0 0 114,317 24 9,067 0

Producers 43 14 0 0 36 1 21 0

Dollars per producer 3,012 436 0 0 3,175 0 432 0

Massachusetts Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Michigan Reduction, dollars 724,610 31,635 0 0 685,658 0 6,626 691

Producers 141 51 0 0 129 0 24 23

Dollars per producer 5,139 620 0 0 5,315 0 276 30

Minnesota Reduction, dollars 1,679,309 491,451 0 0 989,321 0 197,342 1,195

Producers 361 140 0 0 276 0 123 71

Dollars per producer 4,652 3,510 0 0 3,584 0 1,604 17

Mississippi Reduction, dollars 1,937,993 66,589 543,469 1,253,336 18,122 56,397 0 80

Producers 505 120 160 343 77 179 0 25

Dollars per producer 3,838 555 3,397 3,654 235 315 0 3

Missouri Reduction, dollars 1,155,678 207,604 134,509 94,932 488,900 229,094 86 553

Producers 350 122 33 51 198 186 3 15

Dollars per producer 3,302 1,702 4,076 1,861 2,469 1,232 29 37

Montana Reduction, dollars 3,106,250 1,855,964 0 0 21,071 183 1,225,483 3,549

Producers 246 175 0 0 11 4 209 54

Dollars per producer 12,627 10,606 0 0 1,916 46 5,864 66

Appendix table 4.1 Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
Nebraska Reduction, dollars 3,652,234 174,820 0 0 3,222,856 238,867 13,514 2,177

Producers 718 163 0 0 585 250 43 76

Dollars per producer 5,087 1,073 0 0 5,509 955 314 29

Nevada Reduction, dollars 69,541 26,9290000 42,597 15

Producers 53000051

Dollars per producer 13,908 8,9760000 8,519 15

New Hampshire Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

New Jersey Reduction, dollars 12,941 1,122 0 0 11,648 0 169 2

Producers 32003021

Dollars per producer 4,314 561 0 0 3,883 0 85 2

New Mexico Reduction, dollars 507,556 61,614 0 47,081 312,803 80,474 5,581 3

Producers 52 9 0 19 25 37 7 3

Dollars per producer 9,761 6,846 0 2,478 12,512 2,175 797 1

New York Reduction, dollars 118,435 941 0 0 114,694 0 2,777 23

Producers 22 6 0 0 22 0 11 5

Dollars per producer 5,383 157 0 0 5,213 0 252 5

North Carolina Reduction, dollars 728,106 52,326 0 283,902 379,884 6,421 5,276 297

Producers 189 82 0 94 165 39 23 8

Dollars per producer 3,852 638 0 3,020 2,302 165 229 37

North Dakota Reduction, dollars 1,253,594 681,028 0 0 280,785 355 289,873 1,553

Producers 360 235 0 0 102 6 242 57

Dollars per producer 3,482 2,898 0 0 2,753 59 1,198 27

Ohio Reduction, dollars 530,022 16,256 0 0 513,434 258 19 55

Producers 164 42 0 0 156148

Dollars per producer 3,232 387 0 0 3,291 258 5 7

Oklahoma Reduction, dollars 1,039,061 489,464 0 184,008 161,319 199,863 4,072 335

Producers 182 147 0 24 43 84 40 24

Dollars per producer 5,709 3,330 0 7,667 3,752 2,379 102 14

Oregon Reduction, dollars 1,046,498 822,730 0 0 112,211 990 110,272 295

Producers 99 93 0 0 14 1 82 12

Dollars per producer 10,571 8,847 0 0 8,015 990 1,345 25

Pennsylvania Reduction, dollars 133,210 6,669 0 0 125,172 636 596 137

Producers 21 10 0 0 21 1 7 11

Dollars per producer 6,343 667 0 0 5,961 636 85 12

Rhode Island Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Appendix table 4.1. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats

Appendix B 139
140 Appendix B

South Carollina Reduction, dollars 237,838 15,902 0 69,438 149,649 1,643 1,183 23

Producers 72 26 0 30 58 20 11 5

Dollars per producer 3,303 612 0 2,315 2,580 82 108 5

South Dakota Reduction, dollars 1,848,585 651,337 0 0 871,592 168,980 150,715 5,961

Producers 264 142 0 0 150 82 122 74

Dollars per producer 7,002 4,587 0 0 5,811 2,061 1,235 81

Tennessee Reduction, dollars 395,214 35,357 0 262,477 85,719 11,655 0 6

Producers 205 60 0 118 83 54 0 4

Dollars per producer 1,928 589 0 2,224 1,033 216 0 2

Texas Reduction, dollars 10,042,024 1,045,114 923,422 3,500,819 1,870,138 2,653,198 46,159 3,174

Producers 1,520 345 181 681 567 972 109 75

Dollars per producer 6,607 3,029 5,102 5,141 3,298 2,730 423 42

Utah Reduction, dollars 52,191 19,086 0 0 3,398 0 29,697 10

Producers 52004052

Dollars per producer 10,438 9,543 0 0 850 0 5,939 5

Vermont Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Virginia Reduction, dollars 309,283 31,606 0 2,871 264,450 992 9,277 87

Producers 34 19 0 5 32 6 15 2

Dollars per producer 9,097 1,663 0 574 8,264 165 618 44

Washington Reduction, dollars 2,426,768 1,848,432 0 0 318,725 18 259,397 196

Producers 204 160 0 0 30 1 150 13

Dollars per producer 11,896 11,553 0 0 10,624 18 1,729 15

West Virginia Reduction, dollars 1,900 582 0 0 1,318000

Producers 22002000

Dollars per producer 950 291 0 0 659000

Wisconsin Reduction, dollars 878,151 12,307 0 0 860,599 22 3,587 1,636

Producers 153 34 0 0 151 1 36 49

Dollars per producer 5,740 362 0 0 5,699 22 100 33

Wyoming Reduction, dollars 16,475 12,323 0 0 3,106 0 1046 0

Producers 63003010

Dollars per producer 2,746 4,108 0 0 1,035 0 1,046 0

Appendix table 4.1. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats

1 Since a producer may grow several crops, summing the number of producers reaching the payment limit across crops greatly overstates the total number of producers affected by 

payment limits.

Source: USDA Farm Service Agency
Appendix B 141

Appendix table 4.2. Payment reduction and producers affected by the $40,000 payment limitation on production

flexibility contract payments, 20011

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats

U.S. total Reduction, dollars 38,078,198 6,906,399 3,720,550 12,361,974 11,560,095 2,167,329 1,350,031 11,820

Producers 5,929 2,157 590 1,468 3,113 1,597 1,088 499

Dollars per producer 6,422 3,202 6,306 8,421 3,713 1,357 1,241 24

Alabama Reduction, dollars 53,542 2,097 0 37,519 10,125 3,800 0 1

Producers 48 10 0 34 24 14 0 1

Dollars per producer 1,115 210 0 1,104 422 271 0 1

Alaska Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Arizona Reduction, dollars 1,025,503 49,048 0 961,626 7,165 2,010 5,654 0

Producers 90 15 0 88 40 26 41 0

Dollars per producer 11,394 3,270 0 10,928 179 77 138 0

Arkansas Reduction, dollars 1,615,477 103,139 878,015 567,971 16,627 49,696 0 29

Producers 391 96 181 164 24 106 0 6

Dollars per producer 4,132 1,074 4,851 3,463 693 469 0 5

California Reduction, dollars 10,906,990 1,083,274 1,188,659 7,560,493 652,659 66,741 354,247 917

Producers 624 218 212 328 290 129 302 24

Dollars per producer 17,479 4,969 5,607 23,050 2,251 517 1,173 38

Colorado Reduction, dollars 1,461,934 584,293 0 0 787,267 62,311 27,705 358

Producers 145 96 0 0 71 36 53 9

Dollars per producer 10,082 6,086 0 0 11,088 1,731 523 40

Connecticut Reduction, dollars 622 0 0 0 622 0 0 0

Producers 10001000

Dollars per producer 622 0 0 0 622 0 0 0

Delaware Reduction, dollars 39,743 1,754 0 0 36,079 429 1,481 0

Producers 82008140

Dollars per producer 4,968 877 0 0 4,510 429 370 0

Florida Reduction, dollars 809,213 283 746,073 14,817 42,919 5,101 0 20

Producers 123638701

Dollars per producer 67,434 94 124,346 4,939 5,365 729 0 20

Georgia Reduction, dollars 378,066 22,119 0 218,449 129,634 7,383 197 284

Producers 160 49 0 87 97 43 3 16

Dollars per producer 2,363 451 0 2,511 1,336 172 66 18

Idaho Reduction, dollars 756,730 559,089 0 0 11,239 0 186,015 387

Producers 89 75 0 0 18 0 70 22

Dollars per producer 8,503 7,455 0 0 624 0 2,657 18

Illinois Reduction, dollars 1,425,308 39,794 0 0 1,377,373 7,949 48 144

Producers 359 87 0 0 347 24 5 26

Dollars per producer 3,970 457 0 0 3,969 331 10 6
142 Appendix B

Appendix table 4.2. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats

Indiana Reduction, dollars 534,874 7,365 0 0 527,037 416 0 56

Producers 152 31 0 0 148408

Dollars per producer 3,519 238 0 0 3,561 104 0 7

Iowa Reduction, dollars 1,368,089 2,685 0 0 1,363,986 917 3 498

Producers 310 30 0 0 306 13 1 56

Dollars per producer 4,413 90 0 0 4,457 71 3 9

Kansas Reduction, dollars 1,821,262 576,212 0 0 776,714 456,398 11,685 253

Producers 490 325 0 0 201 331 89 46

Dollars per producer 3,717 1,773 0 0 3,864 1,379 131 6

Kentucky Reduction, dollars 138,085 6,401 0 0 130,766 765 149 4

Producers 57 20 0 0 53 15 2 1

Dollars per producer 2,423 320 0 0 2,467 51 75 4

Louisiana Reduction, dollars 1,207,685 4,086 396,882 742,420 31,013 33,274 0 10

Producers 216 26 87 104 45 52 0 2

Dollars per producer 5,591 157 4,562 7,139 689 640 0 5

Maine Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Maryland Reduction, dollars 28,763 1,048 0 0 27,203 0 501 11

Producers 21 11 0 0 21081

Dollars per producer 1,370 95 0 0 1,295 0 63 11

Massachusetts Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Michigan Reduction, dollars 363,163 10,959 0 0 351,029 0 974 201

Producers 56 18 0 0 52076

Dollars per producer 6,485 609 0 0 6,751 0 139 34

Minnesota Reduction, dollars 626,724 184,658 0 0 386,504 0 55,178 384

Producers 193 78 0 0 140 0 62 31

Dollars per producer 3,247 2,367 0 0 2,761 0 890 12

Mississippi Reduction, dollars 587,754 16,479 127,540 410,096 8,672 24,935 0 32

Producers 210 51 32 153 20 49 0 4

Dollars per producer 2,799 323 3,986 2,680 434 509 0 8

Missouri Reduction, dollars 502,688 124,993 29,701 30,043 210,581 106,775 223 372

Producers 176 69 7 19 125 79 3 12

Dollars per producer 2,856 1,811 4,243 1,581 1,685 1,352 74 31

Montana Reduction, dollars 934,174 603,693 0 0 244 141 329,198 898

Producers 92 68 0 0 4 1 72 15

Dollars per producer 10,154 8,878 0 0 61 141 4,572 60
Nebraska Reduction, dollars 1,816,762 84,050 0 0 1,677,909 49,072 5,023 708

Producers 321 75 0 0 271 74 17 27

Dollars per producer 5,660 1,121 0 0 6,192 663 295 26

Nevada Reduction, dollars 44,418 14,7980000 29,620 0

Producers 43000040

Dollars per producer 11,105 4,9330000 7,405 0

New Hampshire Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

New Jersey Reduction, dollars 5,443 762 0 0 4,586 0 94 1

Producers 33002011

Dollars per producer 1,814 254 0 0 2,293 0 94 1

New Mexico Reduction, dollars 301,910 51,268 0 25,170 158,893 62,457 4,110 12

Producers 24 11 0 14 12 15 5 3

Dollars per producer 12,580 4,661 0 1,798 13,241 4,164 822 4

New York Reduction, dollars 38,247 220 0 0 37,350 0 675 2

Producers 63005031

Dollars per producer 6,375 73 0 0 7,470 0 225 2

North Carolina Reduction, dollars 356,164 19,151 0 169,204 161,489 3,391 2,720 209

Producers 98 35 0 53 67 19 8 5

Dollars per producer 3,634 547 0 3,193 2,410 178 340 42

North Dakota Reduction, dollars 334,627 168,935 0 0 103,277 14 62,023 378

Producers 127 77 0 0 55 3 78 21

Dollars per producer 2,635 2,194 0 0 1,878 5 795 18

Ohio Reduction, dollars 196,573 6,616 0 0 189,710 0 203 44

Producers 92 30 0 0 82033

Dollars per producer 2,137 221 0 0 2,314 0 68 15

Oklahoma Reduction, dollars 422,949 196,227 0 89,798 87,490 47,904 1,389 141

Producers 91 70 0 11 20 43 10 11

Dollars per producer 4,648 2,803 0 8,163 4,375 1,114 139 13

Oregon Reduction, dollars 528,300 413,260 0 0 63,736 637 50,650 17

Producers 45 41 0 0 9 1 38 4

Dollars per producer 11,740 10,080 0 0 7,082 637 1,333 4

Pennsylvania Reduction, dollars 72,932 2,523 0 0 69,777 0 528 104

Producers 12 6 0 0 12 0 4 8

Dollars per producer 6,078 421 0 0 5,815 0 132 13

Rhode Island Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Appendix table 4.2. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats

Appendix B 143
144 Appendix B

South Carolina Reduction, dollars 143,476 23,824 0 54,361 62,619 1,961 646 65

Producers 55 27 0 30 48 10 5 17

Dollars per producer 2,609 882 0 1,812 1,305 196 129 4

South Dakota Reduction, dollars 901,960 324,796 0 0 433,310 85,502 55,001 3,351

Producers 127 69 0 0 80 41 51 47

Dollars per producer 7,102 4,707 0 0 5,416 2,085 1,078 71

Tennessee Reduction, dollars 118,349 7,514 0 79,140 26,704 4,991 0 0

Producers 98 19 0 62 41 30 0 0

Dollars per producer 1,208 395 0 1,276 651 166 0 0

Texas Reduction, dollars 4,024,400 347,252 353,680 1,398,029 824,484 1,082,180 17,298 1,477

Producers 703 181 65 315 231 417 43 35

Dollars per producer 5,725 1,919 5,441 4,438 3,569 2,595 402 42

Utah Reduction, dollars 46,533 23,558 0 0 2,560 0 20,392 23

Producers 65002064

Dollars per producer 7,756 4,712 0 0 1,280 0 3,399 6

Vermont Reduction, dollars 00000000

Producers 00000000

Dollars per producer 00000000

Virginia Reduction, dollars 171,512 13,095 0 2,838 152,242 116 3,208 13

Producers 31 18 0 3 27692

Dollars per producer 5,533 728 0 946 5,639 19 356 7

Washington Reduction, dollars 1,569,524 1,205,302 0 0 242,820 15 121,340 47

Producers 97 87 0 0 21 1 67 7

Dollars per producer 16,181 13,854 0 0 11,563 15 1,811 7

West Virginia Reduction, dollars 1,978 149 0 0 1,781 48 0 0

Producers 77007700

Dollars per producer 283 21 0 0 254700

Wisconsin Reduction, dollars 375,216 2,098 0 0 371,526 0 1,223 369

Producers 79 10 0 0 77 0 13 16

Dollars per producer 4,750 210 0 0 4,825 0 94 23

Wyoming Reduction, dollars 20,536 17,532 0 0 2,374 0 630 0

Producers 32001010

Dollars per producer 6,845 8,766 0 0 2,374 0 630 0

Appendix table 4.2. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats

1 Since a producer may grow several crops, summing the number of producers reaching the payment limit across crops greatly overstates the total number of producers affected by 

payment limits.

Source: USDA Farm Service Agency
Appendix B 145

Appendix table 4.3. Number of producers receiving production flexibility contract payments, 2000

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats

U.S. total 1,215,706 777,014 33,235 124,528 863,795 324,277 191,230 381,883

Alabama 17,960 10,480 2 6,814 13,218 7,004 111 1,919

Alaska 54 11 49 29

Arizona 1,273 950 1,191 408 551 652 127

Arkansas 23,033 18,631 12,737 7,654 3,072 14,045 12 2,372

California 11,042 7,389 3,431 3,885 4,495 1,463 4,108 1,104

Colorado 17,311 15,293 7,087 4,699 7,861 3,625

Connecticut 368 12 366 10 4 6

Delaware 1,015 767 914 302 541 34

Florida 4,350 2,203 36 913 3,755 1,347 2 994

Georgia 20,201 15,025 8,347 16,275 7,922 1,454 5,193

Idaho 13,499 12,199 3,455 51 11,513 2,781

Illinois 117,569 65,025 115,784 14,758 1,139 18,844

Indiana 59,297 38,028 58,746 1,418 706 8,491

Iowa 96,685 10,584 96,502 1,502 1,265 52,124

Kansas 98,407 95,737 105 31,040 82,560 17,175 27,373

Kentucky 47,311 20,056 3 2 45,917 4,897 1,803 1,555

Louisiana 24,556 9,320 11,731 8,214 6,538 7,317 5 1,418

Maine 1,125 77 672 265 578

Maryland 3,881 2,917 3,674 612 1,798 499

Massachusetts 466 9 464 9 7 27

Michigan 28,094 21,216 26,940 276 4,315 14,754

Minnesota 55,006 28,828 50,884 340 13,844 36,810

Mississippi 17,471 9,463 1,166 8,783 9,146 7,676 19 972

Missouri 58,523 48,746 1,151 3,617 45,645 29,335 2,273 10,218

Montana 19,295 18,329 1,824 107 16,612 6,699

Nebraska 67,088 42,210 3 55,212 32,134 4,891 28,446

Nevada 313 228 82 5 241 141

New Hampshire 277 277 3 4 4

New Jersey 741 521 673 85 299 204

New Mexico 3,265 2,323 1,241 1,017 2,101 689 450

New York 10,317 3,706 10,197 94 1,967 5,954

North Carolina 24,399 17,013 5,663 22,563 5,014 3,628 4,972

North Dakota 37,113 36,605 14,805 962 30,240 21,878

Ohio 48,351 39,754 46,966 287 1,178 15,531

Oklahoma 40,383 39,621 10 7,525 3,296 13,076 2,549 9,290

Oregon 6,860 6,572 1,163 28 4,779 2,385

Pennsylvania 11,719 5,893 11,619 542 3,568 7,969

Rhode Island 39 39 3

South Carolina 10,145 7,702 1 2,666 8,334 2,213 1,291 3,004

South Dakota 35,442 24,876 30,595 8,761 16,551 28,019

Tennessee 29,880 16,734 11 8,290 24,287 9,185 698 916

Texas 83,831 52,343 3,021 49,332 29,000 60,225 2,950 14,825

Utah 2,728 2,085 1,257 89 2,133 865

Vermont 1,158 48 1,154 3 101 190

Virginia 13,428 8,165 897 12,437 2,486 3,755 2,044

Washington 12,742 12,472 1,232 26 10,381 1,442

West Virginia 2,489 619 2,451 65 304 815

Wisconsin 42,885 11,339 42,517 747 10,667 33,704

Wyoming 3,152 1,689 1,235 61 1,887 1,672

Source: USDA Farm Service Agency
146 Appendix B

U.S. total 1,177,366 753,178 32,917 121,832 835,768 314,678 185,904 358,576

Alabama 17,716 10,331 2 6,754 12,983 6,892 110 1,801

Alaska 43 7 43 19

Arizona 1,250 922 1,175 428 546 638 128

Arkansas 22,647 18,244 12,540 7,558 3,061 13,840 7 2,257

California 10,914 7,374 3,370 3,809 4,506 1,449 4,111 1,048

Colorado 16,763 14,805 6,921 4,496 7,600 3,370

Connecticut 350 10 349 8 4 6

Delaware 998 764 898 301 537 34

Florida 4,248 2,181 28 933 3,707 1,328 2 961

Georgia 19,973 14,870 8,331 15,981 7,786 1,469 4,920

Idaho 13,216 11,938 3,386 47 11,255 2,571

Illinois 113,548 63,141 111,808 14,406 1,129 17,473

Indiana 57,114 36,701 56,591 1,403 703 7,780

Iowa 92,190 10,229 92,012 1,490 1,215 48,762

Kansas 95,199 92,622 106 29,988 79,826 16,782 25,380

Kentucky 45,781 19,260 3 3 44,419 4,712 1,740 1,428

Louisiana 24,052 9,118 11,735 7,931 6,321 7,161 5 1,319

Maine 1,107 74 666 267 557

Maryland 3,819 2,865 1 3,616 592 1,759 476

Massachusetts 468 7 466 6 7 19

Michigan 27,474 20,635 26,377 276 4,244 13,928

Minnesota 53,056 27,942 49,143 332 13,453 34,866

Mississippi 17,124 9,177 1,139 8,614 8,933 7,503 21 906

Missouri 56,684 47,173 1,165 3,563 44,255 28,449 2,251 9,450

Montana 18,698 17,753 1,837 101 16,023 6,406

Nebraska 64,392 40,509 3 52,852 30,851 4,811 26,539

Nevada 338 239 82 7 262 142

New Hampshire 278 278 3 4 4

New Jersey 717 517 648 83 297 196

New Mexico 3,094 2,194 1,201 962 1,993 683 405

New York 9,776 3,553 9,662 84 1,893 5,528

North Carolina 24,122 16,869 5,634 22,260 5,023 3,648 4,738

North Dakota 35,638 35,165 14,577 979 28,860 20,714

Ohio 46,605 38,185 45,348 287 1,180 14,449

Oklahoma 39,101 38,331 6 7,309 3,171 12,737 2,521 8,838

Oregon 6,687 6,405 1,112 28 4,641 2,200

Pennsylvania 11,522 5,725 11,422 528 3,501 7,657

Rhode Island 34 33 2

South Carolina 9,866 7,524 1 2,652 8,070 2,186 1,271 2,868

South Dakota 33,950 23,952 29,356 8,526 15,997 26,606

Tennessee 29,538 16,479 10 8,394 23,876 8,963 694 848

Texas 80,869 50,167 2,980 47,605 28,002 58,074 2,790 13,857

Utah 2,732 2,100 1,268 98 2,144 833

Vermont 1,122 49 1,118 4 93 171

Virginia 13,222 8,063 869 12,255 2,441 3,729 1,927

Washington 12,605 12,339 1,186 23 10,231 1,359

West Virginia 2,445 589 2,410 64 295 739

Wisconsin 41,604 10,952 41,285 756 10,243 31,811

Wyoming 3,050 1,670 1,194 57 1,808 1,579

Source: USDA Farm Service Agency

Appendix table 4.4. Number of producers receiving production flexibility contract payments, 2001

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
Appendix B 147

Appendix table 4.5. Total payments received and reduction in payments due to the $40,000 payment 

limitation on production flexibility contract payments, 2000

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats

U.S. total Payment reduction 82,648,742 14,783,906 10,291,772 22,579,642 25,659,595 5,751,064 3,555,533 27,230

Payment received 5,066,319,393 1,337,251,240 433,112,471 574,723,052 2,350,049,045 256,619,460 106,790,290 7,773,836

% reduction 1.61 1.09 2.32 3.78 1.08 2.19 3.22 0.35

Alabama Payment reduction 157,813 6,933 0 111,716 32,232 6,844 0 88

Payment received 35,241,833 5,041,000 63 23,816,127 5,389,045 962,858 4,685 28,055

% reduction 0.45 0.14 0.00 0.47 0.59 0.71 0.00 0.31

Alaska Payment reduction 0 0 0 0 0 0 0 0

Payment received 109,691 872 0 0 0 0 107,966 853

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Arizona Payment reduction 1,915,887 126,008 0 1,731,381 26,716 11,956 19,824 2

Payment received 38,165,887 4,483,077 0 31,977,403 1,107,315 243,301 350,327 4,464

% reduction 4.78 2.73 0.00 5.14 2.36 4.68 5.36 0.04

Arkansas Payment reduction 4,029,354 220,313 2,356,307 1,188,458 80,611 183,496 0 169

Payment received 242,529,720 26,479,908 166,242,659 39,355,963 1,792,407 8,611,111 267 47,405

% reduction 1.63 0.83 1.40 2.93 4.30 2.09 0.00 0.36

California Payment reduction 19,588,144 1,859,660 3,996,672 11,686,884 1,329,630 114,313 600,001 984

Payment received 182,293,653 24,213,771 85,783,438 61,138,339 7,754,414 281,637 3,075,379 46,675

% reduction 9.70 7.13 4.45 16.05 14.64 28.87 16.32 2.06

Colorado Payment reduction 2,633,492 1,113,562 0 0 1,361,308 96,284 61,525 813

Payment received 84,899,799 48,899,436 0 0 29,940,574 3,312,085 2,702,451 45,254

% reduction 3.01 2.23 0.00 0.00 4.35 2.82 2.23 1.76

Connecticut Payment reduction 0 0 0 0 0 0 0 0

Payment received 811,581 707 0 0 810,127 657 30 60

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Delaware Payment reduction 140,304 4,475 0 0 117,048 3,646 15,135 0

Payment received 4,188,673 849,894 0 0 2,961,078 85,890 291,636 175

% reduction 3.24 0.52 0.00 0.00 3.80 4.07 4.93 0.00

Florida Payment reduction 1,037,436 243 939,472 48,484 46,558 2,637 0 42

Payment received 7,400,378 897,715 394,936 3,514,863 2,335,923 241,091 4 15,846

% reduction 12.30 0.03 70.40 1.36 1.95 1.08 0.00 0.26

Georgia Payment reduction 1,273,973 70,228 0 793,054 386,565 22,380 1537 209

Payment received 71,665,022 14,203,342 0 40,722,723 15,356,054 1,193,375 107,818 81,710

% reduction 1.75 0.49 0.00 1.91 2.46 1.84 1.41 0.26

Idaho Payment reduction 1,461,803 1,036,789 0 0 31,380 0 392,986 648

Payment received 62,491,006 48,839,529 0 0 2,000,847 9,482 11,605,473 35,675

% reduction 2.29 2.08 0.00 0.00 1.54 0.00 3.28 1.78

Illinois Payment reduction 3,446,069 97,413 0 0 3,316,539 31,900 82 135

Payment received 418,533,546 34,069,432 0 0 380,233,236 4,010,999 42,004 177,875

% reduction 0.82 0.29 0.00 0.00 0.86 0.79 0.19 0.08
148 Appendix B

Indiana Payment reduction 1,733,416 34,003 0 0 1,698,215 604 491 103

Payment received 206,611,406 17,694,643 0 0 188,615,259 217,385 29,423 54,696

% reduction 0.83 0.19 0.00 0.00 0.89 0.28 1.64 0.19

Iowa Payment reduction 2,949,912 6,889 0 0 2,940,414 1,388 120 1,101

Payment received 479,956,064 1,618,697 0 0 477,267,362 139,539 57,592 872,874

% reduction 0.61 0.42 0.00 0.00 0.61 0.98 0.21 0.13

Kansas Payment reduction 4,848,030 1,439,751 0 0 1,862,865 1,495,515 49,222 677

Payment received 358,949,618 217,953,060 0 37,370 57,548,247 81,269,583 1,913,994 227,365

% reduction 1.33 0.66 0.00 0.00 3.14 1.81 2.51 0.30

Kentucky Payment reduction 323,963 29,902 0 0 291,091 2,768 199 3

Payment received 51,731,384 9,588,037 14,712 5,481 41,071,918 808,771 235,306 7,159

% reduction 0.62 0.31 0.00 0.00 0.70 0.34 0.08 0.04

Louisiana Payment reduction 3,076,164 72,442 1,397,921 1,320,801 157,534 127,263 0 203

Payment received 127,547,136 4,922,731 67,738,786 46,348,356 5,102,419 3,416,967 145 17,733

% reduction 2.35 1.45 2.02 2.77 2.99 3.59 0.00 1.13

Maine Payment reduction 0 0 0 0 0 0 0 0

Payment received 767,332 8,574 0 0 648,964 0 75,150 34,644

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Maryland Payment reduction 129,515 6,107 0 0 114,317 24 9,067 0

Payment received 14,171,229 2,686,114 0 336 10,850,746 158,993 471,221 3,819

% reduction 0.91 0.23 0.00 0.00 1.04 0.02 1.89 0.00

Massachusetts Payment reduction 0 0 0 0 0 0 0 0

Payment received 521,403 690 0 0 520,227 247 57 182

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Michigan Payment reduction 724,610 31,635 0 0 685,658 0 6,626 691

Payment received 86,884,990 14,499,174 0 0 71,724,097 18,634 394,673 248,412

% reduction 0.83 0.22 0.00 0.00 0.95 0.00 1.65 0.28

Minnesota Payment reduction 1,679,309 491,451 0 0 989,321 0 197,342 1,195

Payment received 287,371,918 61,243,926 0 0 215,164,222 11,726 9,971,447 980,597

% reduction 0.58 0.80 0.00 0.00 0.46 0.00 1.94 0.12

Mississippi Payment reduction 1,937,993 66,589 543,469 1,253,336 18,122 56,397 0 80

Payment received 122,040,725 9,365,241 34,391,966 71,769,256 3,560,305 2,939,433 312 14,212

% reduction 1.56 0.71 1.56 1.72 0.51 1.88 0.00 0.56

Missouri Payment reduction 1,155,678 207,604 134,509 94,932 488,900 229,094 86 553

Payment received 158,955,121 42,891,904 14,387,241 12,864,551 70,070,113 18,555,088 116,782 69,441

% reduction 0.72 0.48 0.93 0.73 0.69 1.22 0.07 0.79

Montana Payment reduction 3,106,250 1,855,964 0 0 21,071 183 1,225,483 3,549

Payment received 114,734,132 92,910,098 0 0 1,602,320 12,806 20,039,712 169,196

% reduction 2.64 1.96 0.00 0.00 1.30 1.41 5.76 2.05

Appendix table 4.5. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
Appendix B 149

Nebraska Payment reduction 3,652,234 174,820 0 0 3,222,856 238,867 13,514 2,177

Payment received 358,840,558 51,311,654 0 57 264,256,162 42,023,427 800,663 448,595

% reduction 1.01 0.34 0.00 0.00 1.20 0.57 1.66 0.48

Nevada Payment reduction 69,541 26,929 0 0 0 0 42,597 15

Payment received 837,478 555,548 0 0 34,530 5,599 237,121 4,680

% reduction 7.67 4.62 0.00 0.00 0.00 0.00 15.23 0.32

New Hampshire Payment reduction 0 0 0 0 0 0 0 0

Payment received 379,339 0 0 0 378,685 376 269 9

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

New Jersey Payment reduction 12,941 1,122 0 0 11,648 0 169 2

Payment received 2,386,314 402,738 0 0 1,910,348 9,269 61,323 2,636

% reduction 0.54 0.28 0.00 0.00 0.61 0.00 0.27 0.08

New Mexico Payment reduction 507,556 61,614 0 47,081 312,803 80,474 5,581 3

Payment received 17,610,721 6,048,459 0 3,559,687 3,268,871 4,458,918 270,189 4,597

% reduction 2.80 1.01 0.00 1.31 8.73 1.77 2.02 0.07

New York Payment reduction 118,435 941 0 0 114,694 0 2,777 23

Payment received 26,842,714 2,806,923 0 0 23,744,867 3,448 148,658 138,818

% reduction 0.44 0.03 0.00 0.00 0.48 0.00 1.83 0.02

North Carolina Payment reduction 728,106 52,326 0 283,902 379,884 6,421 5,276 297

Payment received 57,192,644 10,361,722 0 18,728,592 27,232,254 482,031 337,371 50,673

% reduction 1.26 0.50 0.00 1.49 1.38 1.31 1.54 0.58

North Dakota Payment reduction 1,253,594 681,028 0 0 280,785 355 289,873 1,553

Payment received 223,952,369 173,605,785 0 0 19,906,706 78,679 29,405,013 956,186

% reduction 0.56 0.39 0.00 0.00 1.39 0.45 0.98 0.16

Ohio Payment reduction 530,022 16,256 0 0 513,434 258 19 55

Payment received 140,318,789 26,241,185 0 0 113,846,788 25,329 45,673 159,814

% reduction 0.38 0.06 0.00 0.00 0.45 1.01 0.04 0.03

Oklahoma Payment reduction 1,039,061 489,464 0 184,008 161,319 199,863 4,072 335

Payment received 135,062,522 111,610,380 165,946 13,163,968 3,520,278 6,307,048 190,999 103,903

% reduction 0.76 0.44 0.00 1.38 4.38 3.07 2.09 0.32

Oregon Payment reduction 1,046,498 822,730 0 0 112,211 990 110,272 295

Payment received 33,064,812 29,260,140 0 0 992,783 13,020 2,741,559 57,310

% reduction 3.07 2.73 0.00 0.00 10.15 7.07 3.87 0.51

Pennsylvania Payment reduction 133,210 6,669 0 0 125,172 636 596 137

Payment received 20,780,681 1,642,704 0 0 18,642,537 65,835 295,992 133,613

% reduction 0.64 0.40 0.00 0.00 0.67 0.96 0.20 0.10

Rhode Island Payment reduction 0 0 0 0 0 0 0 0

Payment received 26,340 0 0 0 26,234 106 0 0

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Appendix table 4.5. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
150 Appendix B

South Carolina Payment reduction 237,838 15,902 0 69,438 149,649 1,643 1,183 23

Payment received 26,664,507 6,631,000 48 10,369,699 9,277,814 220,975 122,292 42,679

% reduction 0.88 0.24 0.00 0.67 1.59 0.74 0.96 0.05

South Dakota Payment reduction 1,848,585 651,337 0 0 871,592 168,980 150,715 5,961

Payment received 147,688,971 58,073,590 0 0 75,921,425 5,611,361 6,686,430 1,396,165

% reduction 1.24 1.11 0.00 0.00 1.13 2.92 2.20 0.43

Tennessee Payment reduction 395,214 35,357 0 262,477 85,719 11,655 0 6

Payment received 50,378,729 9,466,287 128,495 23,179,542 15,847,620 1,701,518 49,941 5,326

% reduction 0.78 0.37 0.00 1.12 0.54 0.68 0.00 0.11

Texas Payment reduction 10,042,024 1,045,114 923,422 3,500,819 1,870,138 2,653,198 46,159 3,174

Payment received 436,354,972 79,665,715 63,864,180 172,523,649 50,857,472 68,783,716 381,840 278,399

% reduction 2.25 1.29 1.43 1.99 3.55 3.71 10.78 1.13

Utah Payment reduction 52,191 19,086 0 0 3,398 0 29,697 10

Payment received 6,611,325 4,299,457 0 0 987,525 16,081 1,298,515 9,747

% reduction 0.78 0.44 0.00 0.00 0.34 0.00 2.24 0.10

Vermont Payment reduction 0 0 0 0 0 0 0 0

Payment received 1,303,640 7,274 0 0 1,287,322 10 7,377 1,657

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Virginia Payment reduction 309,283 31,606 0 2,871 264,450 992 9,277 87

Payment received 19,197,005 4,892,599 0 1,647,091 11,586,501 275,704 783,852 11,258

% reduction 1.59 0.64 0.00 0.17 2.23 0.36 1.17 0.77

Washington Payment reduction 2,426,768 1,848,432 0 0 318,725 18 259,397 196

Payment received 81,501,506 69,751,846 0 0 2,523,102 1,750 9,204,138 20,670

% reduction 2.89 2.58 0.00 0.00 11.22 1.02 2.74 0.94

West Virginia Payment reduction 1,900 582 0 0 1,318 0 0 0

Payment received 1,944,945 149,695 0 0 1,750,229 5,350 34,777 4,894

% reduction 0.10 0.39 0.00 0.00 0.08 0.00 0.00 0.00

Wisconsin Payment reduction 878,151 12,307 0 0 860,599 22 3,587 1,636

Payment received 111,367,681 3,044,134 0 0 106,767,990 24,611 810,499 720,447

% reduction 0.78 0.40 0.00 0.00 0.80 0.09 0.44 0.23

Wyoming Payment reduction 16,475 12,323 0 0 3,106 0 1046 0

Payment received 7,437,584 4,060,833 0 0 2,053,782 3,641 1,281,946 37,382

% reduction 0.22 0.30 0.00 0.00 0.15 0.00 0.08 0.00

Source: USDA Farm Service Agency 

Appendix table 4.5. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
Appendix B 151

U.S. total Payment reduction 38,078,198 6,906,399 3,720,550 12,361,974 11,560,095 2,167,329 1,350,031 11,820

Payment received 4,101,876,505 1,076,644,654 352,287,202 474,226,968 1,895,388,781 209,303,121 87,960,797 6,064,982

% reduction 0.92 0.64 1.05 2.54 0.61 1.02 1.51 0.19

Alabama Payment reduction 53,542 2,097 0 37,519 10,125 3,800 0 1

Payment received 28,699,585 4,042,041 51 19,523,571 4,329,633 778,494 4,058 21,737

% reduction 0.19 0.05 0.00 0.19 0.23 0.49 0.00 0.00

Alaska Payment reduction 0 0 0 0 0 0 0 0

Payment received 90,829 702 0 0 0 0 89,475 652

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Arizona Payment reduction 1,025,503 49,048 0 961,626 7,165 2,010 5,654 0

Payment received 32,375,176 3,765,728 0 27,175,964 916,392 204,250 309,013 3,829

% reduction 3.07 1.29 0.00 3.42 0.78 0.97 1.80 0.00

Arkansas Payment reduction 1,615,477 103,139 878,015 567,971 16,627 49,696 0 29

Payment received 197,203,236 21,372,342 134,827,994 32,511,241 1,456,278 6,997,901 215 37,265

% reduction 0.81 0.48 0.65 1.72 1.13 0.71 0.00 0.08

California Payment reduction 10,906,990 1,083,274 1,188,659 7,560,493 652,659 66,741 354,247 917

Payment received 152,201,721 19,830,271 70,524,188 52,255,828 6,671,131 251,235 2,632,434 36,634

% reduction 6.69 5.18 1.66 12.64 8.91 20.99 11.86 2.44

Colorado Payment reduction 1,461,934 584,293 0 0 787,267 62,311 27,705 358

Payment received 68,441,943 39,213,975 0 0 24,295,890 2,682,473 2,214,282 35,323

% reduction 2.09 1.47 0.00 0.00 3.14 2.27 1.24 1.00

Connecticut Payment reduction 622 0 0 0 622 0 0 0

Payment received 638,261 561 0 0 637,140 488 24 48

% reduction 0.10 0.00 0.00 0.00 0.10 0.00 0.00 0.00

Delaware Payment reduction 39,743 1,754 0 0 36,079 429 1,481 0

Payment received 3,411,620 674,795 0 0 2,419,231 69,730 247,725 139

% reduction 1.15 0.26 0.00 0.00 1.47 0.61 0.59 0.00

Florida Payment reduction 809,213 283 746,073 14,817 42,919 5,101 0 20

Payment received 5,979,713 719,804 313,900 2,879,711 1,860,332 193,580 4 12,382

% reduction 11.92 0.04 70.39 0.51 2.26 2.57 0.00 0.16

Georgia Payment reduction 378,066 22,119 0 218,449 129,634 7,383 197 284

Payment received 58,356,968 11,373,627 0 33,394,214 12,466,654 969,975 88,743 63,755

% reduction 0.64 0.19 0.00 0.00 1.03 0.76 0.22 0.44

Idaho Payment reduction 756,730 559,089 0 0 11,239 0 186,015 387

Payment received 51,058,448 39,798,197 0 0 1,606,100 7,667 9,618,568 27,916

% reduction 1.46 1.39 0.00 0.00 0.69 0.00 1.90 1.37

Illinois Payment reduction 1,425,308 39,794 0 0 1,377,373 7,949 48 144

Payment received 337,326,257 27,363,418 0 0 306,559,325 3,230,481 34,227 138,806

% reduction 0.42 0.15 0.00 0.00 0.45 0.25 0.14 0.10

Appendix table 4.6. Total payments received and reduction in payments due to the $40,000 payment limitation on

production flexibility contract payments, 2001

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
152 Appendix B

Indiana Payment reduction 534,874 7,365 0 0 527,037 416 0 56

Payment received 166,783,404 14,278,720 0 0 152,256,729 172,704 25,376 49,875

% reduction 0.32 0.05 0.00 0.00 0.34 0.24 0.00 0.11

Iowa Payment reduction 1,368,089 2,685 0 0 1,363,986 917 3 498

Payment received 386,170,274 1,295,085 0 0 384,038,415 110,675 46,887 679,212

% reduction 0.35 0.21 0.00 0.00 0.35 0.82 0.01 0.07

Kansas Payment reduction 1,821,262 576,212 0 0 776,714 456,398 11,685 253

Payment received 290,762,452 175,620,946 0 30,520 47,075,591 66,274,651 1,583,334 177,410

% reduction 0.62 0.33 0.00 0.00 1.62 0.68 0.73 0.14

Kentucky Payment reduction 138,085 6,401 0 0 130,766 765 149 4

Payment received 41,495,574 7,641,841 11,881 4,477 33,001,151 637,732 192,905 5,587

% reduction 0.33 0.08 0.00 0.00 0.39 0.12 0.08 0.07

Louisiana Payment reduction 1,207,685 4,086 396,882 742,420 31,013 33,274 0 10

Payment received 103,486,596 3,991,279 54,772,131 37,750,690 4,170,049 2,788,318 119 14,010

% reduction 1.15 0.10 0.72 1.93 0.74 1.18 0.00 0.07

Maine Payment reduction 0 0 0 0 0 0 0 0

Payment received 609,905 6,928 0 0 516,330 0 59,750 26,897

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Maryland Payment reduction 28,763 1,048 0 0 27,203 0 501 11

Payment received 11,416,796 2,146,788 0 276 8,749,138 126,169 391,435 2,990

% reduction 0.25 0.05 0.00 0.00 0.31 0.00 0.13 0.37

Massachusetts Payment reduction 0 0 0 0 0 0 0 0

Payment received 408,192 482 0 0 407,340 198 47 125

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Michigan Payment reduction 363,163 10,959 0 0 351,029 0 974 201

Payment received 69,942,558 11,675,377 0 0 57,731,117 14,947 326,616 194,501

% reduction 0.52 0.09 0.00 0.00 0.60 0.00 0.30 0.10

Minnesota Payment reduction 626,724 184,658 0 0 386,504 0 55,178 384

Payment received 231,681,126 49,348,514 0 0 173,429,632 9,485 8,130,995 762,499

% reduction 0.27 0.37 0.00 0.00 0.22 0.00 0.67 0.05

Mississippi Payment reduction 587,754 16,479 127,540 410,096 8,672 24,935 0 32

Payment received 99,520,200 7,481,289 27,983,348 58,819,814 2,848,176 2,376,088 254 11,231

% reduction 0.59 0.22 0.45 0.69 0.30 1.04 0.00 0.28

Missouri Payment reduction 502,688 124,993 29,701 30,043 210,581 106,775 223 372

Payment received 128,468,551 34,453,551 11,713,537 10,544,762 56,546,532 15,060,035 95,968 54,167

% reduction 0.39 0.36 0.25 0.28 0.37 0.70 0.23 0.68

Montana Payment reduction 934,174 603,693 0 0 244 141 329,198 898

Payment received 93,053,761 74,943,525 0 0 1,307,371 10,314 16,659,325 133,226

% reduction 0.99 0.80 0.00 0.00 0.02 1.35 1.94 0.67

Appendix table 4.6. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
Appendix B 153

Nebraska Payment reduction 1,816,762 84,050 0 0 1,677,909 49,072 5,023 708

Payment received 289,699,044 41,259,595 0 48 213,414,427 34,017,985 656,728 350,261

% reduction 0.62 0.20 0.00 0.00 0.78 0.14 0.76 0.20

Nevada Payment reduction 44,418 14,798 0 0 0 0 29,620 0

Payment received 701,828 462,804 0 0 26,392 4,534 204,465 3,633

% reduction 5.95 3.10 0.00 0.00 0.00 0.00 12.65 0.00

New Hampshire Payment reduction 0 0 0 0 0 0 0 0

Payment received 302,884 0 0 0 302,354 303 221 6

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

New Jersey Payment reduction 5,443 762 0 0 4,586 0 94 1

Payment received 1,887,292 318,812 0 0 1,510,402 7,211 48,902 1,965

% reduction 0.29 0.24 0.00 0.00 0.30 0.00 0.19 0.05

New Mexico Payment reduction 301,910 51,268 0 25,170 158,893 62,457 4,110 12

Payment received 14,354,172 4,871,568 0 2,899,865 2,732,011 3,628,127 218,994 3,607

% reduction 2.06 1.04 0.00 0.86 5.50 1.69 1.84 0.33

New York Payment reduction 38,247 220 0 0 37,350 0 675 2

Payment received 21,478,838 2,253,991 0 0 18,991,965 2,736 122,411 107,735

% reduction 0.18 0.01 0.00 0.00 0.20 0.00 0.55 0.00

North Carolina Payment reduction 356,164 19,151 0 169,204 161,489 3,391 2,720 209

Payment received 46,416,225 8,362,831 0 15,360,521 21,987,012 390,624 279,315 35,922

% reduction 0.76 0.23 0.00 1.09 0.73 0.86 0.96 0.58

North Dakota Payment reduction 334,627 168,935 0 0 103,277 14 62,023 378

Payment received 181,402,771 140,227,538 0 0 16,156,869 64,494 24,207,447 746,423

% reduction 0.18 0.12 0.00 0.00 0.64 0.02 0.26 0.05

Ohio Payment reduction 196,573 6,616 0 0 189,710 0 203 44

Payment received 112,914,453 21,105,084 0 0 91,626,645 20,765 37,493 124,466

% reduction 0.17 0.03 0.00 0.00 0.21 0.00 0.54 0.04

Oklahoma Payment reduction 422,949 196,227 0 89,798 87,490 47,904 1,389 141

Payment received 109,160,742 89,859,535 134,035 10,815,541 2,896,501 5,216,587 157,355 81,188

% reduction 0.39 0.22 0.00 0.82 2.93 0.91 0.87 0.17

Oregon Payment reduction 528,300 413,260 0 0 63,736 637 50,650 17

Payment received 26,845,502 23,710,890 0 0 827,034 9,755 2,253,069 44,754

% reduction 1.93 1.71 0.00 0.00 7.16 6.13 2.20 0.04

Pennsylvania Payment reduction 72,932 2,523 0 0 69,777 0 528 104

Payment received 16,512,167 1,295,504 0 0 14,824,130 52,495 237,669 102,369

% reduction 0.44 0.19 0.00 0.00 0.47 0.00 0.22 0.10

Rhode Island Payment reduction 0 0 0 0 0 0 0 0

Payment received 20,199 0 0 0 20,130 69 0 0

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Appendix table 4.6. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
154 Appendix B

South Carolina Payment reduction 143,476 23,824 0 54,361 62,619 1,961 646 65

Payment received 21,393,104 5,265,128 39 8,402,336 7,422,022 172,685 97,894 33,000

% reduction 0.67 0.45 0.00 0.64 0.84 1.12 0.66 0.20

South Dakota Payment reduction 901,960 324,796 0 0 433,310 85,502 55,001 3,351

Payment received 119,093,955 46,686,557 0 0 61,262,422 4,554,042 5,499,544 1,091,390

% reduction 0.75 0.69 0.00 0.00 0.70 1.84 0.99 0.31

Tennessee Payment reduction 118,349 7,514 0 79,140 26,704 4,991 0 0

Payment received 40,740,543 7,612,209 103,787 18,905,835 12,702,059 1,371,921 40,558 4,174

% reduction 0.29 0.10 0.00 0.42 0.21 0.36 0.00 0.00

Texas Payment reduction 4,024,400 347,252 353,680 1,398,029 824,484 1,082,180 17,298 1,477

Payment received 355,776,745 63,843,901 51,902,311 141,606,900 41,325,828 56,555,449 326,325 216,031

% reduction 1.12 0.54 0.68 0.98 1.96 1.88 5.03 0.68

Utah Payment reduction 46,533 23,558 0 0 2,560 0 20,392 23

Payment received 5,283,909 3,411,349 0 0 792,825 12,721 1,059,390 7,624

% reduction 0.87 0.69 0.00 0.00 0.32 0.00 1.89 0.30

Vermont Payment reduction 0 0 0 0 0 0 0 0

Payment received 1,043,727 5,938 0 0 1,030,472 11 6,026 1,280

% reduction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Virginia Payment reduction 171,512 13,095 0 2,838 152,242 116 3,208 13

Payment received 15,523,058 3,948,096 0 1,344,854 9,352,397 223,934 644,943 8,834

% reduction 1.09 0.33 0.00 0.21 1.60 0.05 0.49 0.15

Washington Payment reduction 1,569,524 1,205,302 0 0 242,820 15 121,340 47

Payment received 64,751,625 55,283,862 0 0 2,070,365 1,375 7,380,112 15,911

% reduction 2.37 2.13 0.00 0.00 10.50 1.08 1.62 0.29

West Virginia Payment reduction 1,978 149 0 0 1,781 48 0 0

Payment received 1,563,857 121,106 0 0 1,406,398 4,606 27,935 3,812

% reduction 0.13 0.12 0.00 0.00 0.13 1.03 0.00 0.00

Wisconsin Payment reduction 375,216 2,098 0 0 371,526 0 1,223 369

Payment received 89,427,994 2,440,992 0 0 85,745,166 20,131 660,345 561,360

% reduction 0.42 0.09 0.00 0.00 0.43 0.00 0.18 0.07

Wyoming Payment reduction 20,536 17,532 0 0 2,374 0 630 0

Payment received 5,998,725 3,257,578 0 0 1,667,278 2,971 1,041,877 29,021

% reduction 0.34 0.54 0.00 0.00 0.14 0.00 0.06 0.00

Source: USDA Farm Service Agency

Appendix table 4.6. Continued

Upland Grain

Total Wheat Rice cotton Corn sorghum Barley Oats
Appendix C 155

Appendix C

Supplemental

Tables for

Chapter 5

Alabama 1,215,823 3.45 1.09 4,461,670 12.66 2.78

Arizona 4,452,673 11.67 46.82 12,255,048 32.11 77.38

Arkansas 24,775,102 10.22 16.86 76,165,216 31.40 27.97

California 27,925,046 15.32 32.23 71,159,496 39.04 46.18

Colorado 4,768,455 5.62 3.90 14,528,115 17.11 8.07

Connecticut 0 0.00 0.00 12,161 1.50 0.54

Delaware 341,676 8.16 4.24 881,572 21.05 6.70

Florida 383,257 5.18 1.26 1,137,087 15.37 2.80

Georgia 6,050,763 8.44 4.09 16,359,358 22.83 6.80

Idaho 3,783,797 6.05 3.70 10,431,207 16.69 6.93

Illinois 12,414,212 2.97 1.47 38,838,134 9.28 3.47

Indiana 7,381,428 3.57 1.81 23,490,625 11.37 4.12

Iowa 12,167,919 2.54 1.82 40,243,933 8.38 4.69

Kansas 18,157,366 5.06 2.51 52,894,370 14.74 5.09

Kentucky 1,881,932 3.64 0.53 5,266,431 10.18 1.06

Louisiana 10,711,883 8.40 6.35 32,490,380 25.47 11.95

Maine 0 0.00 0.00 0 0.00 0.00

Maryland 770,971 5.44 2.58 2,083,395 14.70 4.69

Massachusetts 0 0.00 0.00 0 0.00 0.00

Michigan 2,860,656 3.29 1.44 8,761,513 10.08 3.28

Minnesota 7,413,337 2.58 2.03 25,717,139 8.95 5.48

Mississippi 12,874,083 10.55 11.00 38,794,050 31.79 19.89

Missouri 6,815,228 4.29 1.69 19,877,463 12.51 3.31

Montana 5,919,779 5.16 4.24 17,972,746 15.66 9.16

Nebraska 14,606,437 4.07 3.14 46,830,708 13.05 7.49

Nevada 100,000 11.94 3.19 216,152 25.81 4.15

New Hampshire 0 0.00 0.00 0 0.00 0.00

New Jersey 44,443 1.86 1.08 144,522 6.06 1.89

New Mexico 931,249 5.29 3.98 2,774,062 15.75 8.18

New York 522,154 1.95 0.73 1,634,445 6.09 1.67

North Carolina 3,311,274 5.79 1.79 9,154,849 16.01 3.33

North Dakota 8,039,255 3.59 3.44 28,695,735 12.81 9.07

Ohio 3,197,990 2.28 0.97 10,898,204 7.77 2.49

Oklahoma 3,853,624 2.85 1.47 13,150,443 9.74 3.85

Oregon 2,089,753 6.32 4.17 5,813,899 17.58 7.38

Pennsylvania 334,311 1.61 0.38 943,482 4.54 0.79

Rhode Island 0 0.00 0.00 0 0.00 0.00

South Carolina 1,580,212 5.93 2.25 4,785,513 17.95 4.46

South Dakota 5,043,660 3.42 1.94 14,927,521 10.11 4.37

Tennessee 3,301,400 6.55 1.53 9,627,274 19.11 3.13

Texas 35,542,881 8.15 6.04 103,021,610 23.61 10.89

Utah 146,464 2.22 0.81 429,453 6.50 2.16

Vermont 0 0.00 0.00 0 0.00 0.00

Virginia 634,948 3.31 0.67 1,807,667 9.42 1.45

Washington 4,265,183 5.23 5.05 14,303,010 17.55 11.68

West Virginia 25,570 1.31 0.12 77,507 3.99 0.36

Wisconsin 2,999,933 2.69 0.92 8,657,989 7.77 1.94

Wyoming 137,663 1.85 0.63 429,645 5.78 1.52

Total 263,773,790 5.21 3.09 792,144,799 15.64 6.21

Source: USDA Farm Service Agency

Appendix table 5.1. Reduction (increase above current limits) in payments under

alternative limits on 2000-crop PFC payments

$30,000 limit $20,000 limit

Payment Payment Producers Payment Payment Producers

reduction reduction affected reduction reduction affected

State Dollar value Percent Dollar value Percent
156 Appendix C

Market receipts 731,250 731,250 731,250 731,250 585,000 585,000 0

Government payments 265,533 265,533 264,843 264,843 239,868 220,637 139,968

Fixed 60,690 60,690 60,000 60,000 60,000 56,763 60,000

Counter-cyclical 79,968 79,968 79,968 79,968 79,968 63,974 79,968

Loan deficiency 124,875 124,875 124,875 124,875 99,900 99,900 0

Gross income 996,783 996,783 996,093 996,093 824,868 805,637 139,968

Operating expense 376,500 376,500 376,500 376,500 301,200 301,200 30,000

Capital replacement 186,000 186,000 186,000 186,000 148,800 148,800 0

Other costs 61,500 61,500 61,500 61,500 61,500 61,500 21,000

Total listed expenses 624,000 624,000 624,000 624,000 511,500 511,500 51,000

Cash rent 00000 72,000 0

Residual return 372,783 372,783 372,093 372,093 313,368 366,137 88,968

Residual return per acre 124 124 124 124 104 122 30

Appendix table 5.2. 3,000-acre, two-person, Midwest corn/soybean farm

1 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments. 2 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments with marketing loan benefits, including loan forfeitures and 

certificate gains, limited to $75,000 per person.

Source: Commission estimates

Planted acres Updated base Actual yield Updated yield Program yield Market price

Corn 1,500 1,500 150 bushels/ac 140 bushels/ac 115 bushels/ac $1.90 per bushel

Soybeans 1,500 1,500 45 bushels/ac 42 bushels/ac 35 bushels/ac $4.50 per bushel

No payment

limit

With current

payment limits

Reduced direct

and countercyclical limits 1

No change in

operation

Reduce 

plantings by

20%

Landlord 

idles land

Cash rent out

20%

Reduced limits and cap on loan benefits 2

Market receipts 440,550 440,550 440,550 440,550 352,440 352,440 0

Government payments 144,521 144,521 144,521 144,521 132,971 115,617 86,771

Fixed 51,326 51,326 51,326 51,326 51,326 41,061 51,326

Counter-cyclical 35,445 35,445 35,445 35,445 35,445 28,356 35,445

Loan deficiency 57,750 57,750 57,750 57,750 46,200 46,200 0

Gross income 585,071 585,071 585,071 585,071 485,411 468,057 86,771

Operating expense 238,500 238,500 238,500 238,500 190,800 190,800 45,000

Capital replacement 192,000 192,000 192,000 192,000 153,600 153,600 0

Other costs 49,500 49,500 49,500 49,500 49,500 49,500 18,000

Total listed expenses 480,000 480,000 480,000 480,000 393,900 393,900 63,000

Cash rent 00000 27,000 0

Residual return 105,071 105,071 105,071 105,071 91,511 101,157 23,771

Residual return per acre 23 23 23 23 20 22 5

Appendix table 5.3. 4,500-acre, two-person, Northern Plains wheat and barley farm

1 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments. 2 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments with marketing loan benefits, including loan forfeitures and 

certificate gains, limited to $75,000 per person.

Source: Commission estimates

Planted acres Updated base Actual yield Updated yield Program yield Market price

Wheat 3,000 3,000 33 bushels/ac 32 bushels/ac 29 bushels/ac $2.70/bushel

Barley 1,500 1,500 55 bushels/ac 52 bushels/ac 44 bushels/ac $2.10/bushel

No payment

limit

With current

payment limits

Reduced direct

and countercyclical limits 1

No change in

operation

Reduce 

plantings by

20%

Landlord 

idles land

Cash rent out

20%

Reduced limits and cap on loan benefits 2
Appendix C 157

Market receipts 1,039,500 1,039,500 1,039,500 1,039,500 831,600 831,600 0

Government payments 677,754 487,200 437,200 310,000 310,000 310,000 160,000

Fixed 130,965 80,000 60,000 60,000 60,000 60,000 60,000

Counter-cyclical 269,589 130,000 100,000 100,000 100,000 100,000 100,000

Loan deficiency 277,200 277,200 277,200 150,000 150,000 150,000 0

Gross income 1,717,254 1,526,700 1,476,700 1,349,500 1,141,600 1,141,600 160,000

Operating expense 939,000 939,000 939,000 939,000 751,200 751,200 30,000

Capital replacement 363,000 363,000 363,000 363,000 290,400 290,400 0

Other costs 99,000 99,000 99,000 99,000 99,000 99,000 45,000

Total listed expenses 1,401,000 1,401,000 1,401,000 1,401,000 1,140,600 1,140,600 75,000

Cash rent 00000 33,000 0

Residual return 316,254 125,700 75,700 -51,500 1,000 34,000 85,000

Residual return per acre 105 42 25 -17 0 11 28

Appendix table 5.4. 3,000-acre, two-person, Mississippi cotton farm

1 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments. 2 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments with marketing loan benefits, including loan forfeitures and 

certificate gains, limited to $75,000 per person.

Source: Commission estimates

Planted acres Updated base Actual yield Updated yield Program yield Market price

Upland cotton 3,000 3,000 770 pounds 770 pounds 770 pounds 0.45

No payment

limit

With current

payment limits

Reduced direct

and countercyclical limits 1

No change in

operation

Reduce 

plantings by

20%

Landlord 

idles land

Cash rent

20%

Reduced limits and cap on loan benefits 2

Market receipts 473,000 473,000 473,000 473,000 378,400 378,400 0

Government payments 576,350 479,500 429,500 310,000 310,000 310,000 160,000

Fixed 163,795 80,000 60,000 60,000 60,000 60,000 60,000

Counter-cyclical 143,055 130,000 100,000 100,000 100,000 100,000 100,000

Loan deficiency 269,500 269,500 269,500 150,000 150,000 150,000 0

Gross income 1,049,350 952,500 902,500 783,000 688,400 688,400 160,000

Operating expense 616,000 616,000 616,000 616,000 492,800 492,800 20,000

Capital replacement 168,000 168,000 168,000 168,000 134,400 134,400 0

Other costs 86,000 86,000 86,000 86,000 86,000 86,000 34,000

Total listed expenses 870,000 870,000 870,000 870,000 713,200 713,200 54,000

Cash rent 00000 30,800 0

Residual return 179,350 82,500 32,500 -87,000 -24,800 6,000 106,000

Residual return per acre 90 41 16 -44 -12 3 53

Appendix table 5.5. 2,000-acre, two-person, Delta rice farm

1 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments. 2 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments with marketing loan benefits, including loan forfeitures and 

certificate gains, limited to $75,000 per person.

Source: Commission estimates

Planted acres Base acres Actual yield Updated yield Program yield Market price

Rice 2,000 2,000 55 cwt. 51 cwt. 41 cwt. $4.30/cwt.

No payment

limit

With current

payment limits

Reduced direct

and countercyclical limits 1

No change in

operation

Reduce 

plantings by

20%

Landlord 

idles land

Cash rent

20%

Reduced limits and cap on loan benefits 2
158 Appendix C

Market receipts 480,000 480,000 480,000 480,000 384,000 384,000 0

Government payments 261,000 258,400 228,400 228,400 211,900 202,720 145,900

Fixed 45,900 45,900 45,900 45,900 45,900 36,720 45,900

Counter-cyclical 132,600 130,000 100,000 100,000 100,000 100,000 100,000

Loan deficiency 82,500 82,500 82,500 82,500 66,000 66,000 0

Gross income 741,000 738,400 708,400 708,400 595,900 586,720 145,900

Operating expense 390,000 390,000 390,000 390,000 312,000 312,000 10,000

Capital replacement 118,000 118,000 118,000 118,000 94,400 94,400 0

Other costs 38,000 38,000 38,000 38,000 38,000 38,000 14,000

Total listed expenses 546,000 546,000 546,000 546,000 444,400 444,400 24,000

Cash rent 00000 7,000 0

Residual return 195,000 192,400 162,400 162,400 151,500 149,320 121,900

Residual return per acre 195 192 162 162 152 149 122

Appendix table 5.6. 1,000-acre, two-person, Georgia peanut farm

1 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments. 2 Payment limits reduced to $30,000 per person for direct payments and $50,000 per person for counter-cyclical payments with marketing loan benefits, including loan forfeitures and 

certificate gains, limited to $75,000 per person.

Source: Commission estimates

Planted acres Base acres Actual yield Updated yield Program yield Market price

Peanuts 1,000 1,000 1.5 tons/ac 1.5 tons/ac 1.5 tons/ac $320/ton

No payment

limit

With current

payment limits

Reduced direct

and countercyclical limits 1

No change in

operation

Reduce 

plantings by

20%

Landlord 

idles land

Cash rent

out 20%

Reduced limits and cap on loan benefits 2
List of Figures and Tables 159

Chapter 1. Overview of Payments and Payment Limitations

Table 1.1. Comparison of payment rates for the production flexibility contract and direct

payment programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Table 1.2. Target prices for the counter-cyclical payment program . . . . . . . . . . . . . . . .22

Table 1.3. National marketing assistance loan rates . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Table 1.4. Current payment limitations for direct and counter-cyclical payments and

marketing assistance loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Chapter 2. Administering Payment Eligibility and Limit Rules

No figures or tables

Chapter 3. Level and Distribution of Payments

Figure 3.1. Payments to crop producers, 1996-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Figure 3.2. Distribution of payments by crop, 1996-2001 . . . . . . . . . . . . . . . . . . . . . . .43

Figure 3.3. Projected payments to crop producers, 2002-07 . . . . . . . . . . . . . . . . . . . . . .44

Figure 3.4. Prices received for major crops, 1996-07 . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Figure 3.5. Marketing assistance loan benefits, 1996-2007 . . . . . . . . . . . . . . . . . . . . . . .47

Table 3.1. Crop forfeitures and estimated forfeiture gains, 1999-2001 crops . . . . . . . . .49

Table 3.2. Distribution of production flexibility contract payments by size of payment,

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

Table 3.3. Distribution of loan deficiency payments and marketing loan gains by size of

payment, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Table 3.4. Certificate exchange gains by State, 2001 crops . . . . . . . . . . . . . . . . . . . . . . .51

Table 3.5. Distribution of certificate exchange gains by size of payment, 2001 . . . . . . .52

Figure 3.6. Net cash farm income and government payments, 1996-2007 . . . . . . . . . . .54

Table 3.6. Number of farms, average government payments (excluding conservation),

and the contribution of payments to farm income by farm typology, 2001 .56

Table 3.7. Characteristics of all farms and farms receiving government payments

(excluding conservation), 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57

Table 3.8. Characteristics of farms receiving payments (excluding conservation) by size of

payment, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Table 3.9. Distribution of farms, production, and government payments (excluding

conservation) by size of payment, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Table 3.10. Distribution of farms, production, and government payments (excluding

conservation) by sales class, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Table 3.11. Distribution of farms, production, and government payments (excluding

conservation) by net worth, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

List of Figures

and Tables
160 List of Figures and Tables

Chapter 4. General Effects of Current Payment Limitations

Table 4.1. Payment reduction and producers affected by the $40,000 payment limitation

on PFC payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

Figure 4.1. Estimated reduction in direct and counter-cyclical payments (current payment

limits) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66

Figure 4.2. Reduction in PFC payments by commodity ($40,000 limit) . . . . . . . . . . . .68

Figure 4.3. Percentage of producers having PFC payments reduced ($40,000 limit) . . .68

Table 4.2. Distribution of farms by acres harvested, 1997 . . . . . . . . . . . . . . . . . . . . . . .70

Table 4.3. Payments per base acre and base acreage of various crops needed to reach

payment limit on direct payments, 2002-07 crops . . . . . . . . . . . . . . . . . . . .70

Table 4.4. Maximum counter-cyclical payments per base acre and base acreage of 

various crops needed to reach payment limit on counter-cyclical payments,

2002-07 crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Table 4.5. Maximum support per base acre in relation to variable cost of production,

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

Figure 4.4. Reduction in PFC payments by State, 2000 ($40,000 limit) . . . . . . . . . . . .73

Figure 4.5. Reduction in PFC payments by State, 2001 ($40,000 limit) . . . . . . . . . . . .73

Figure 4.6. Percentage reduction in PFC payments by State, 2000 ($40,000 limit) . . . .74

Figure 4.7. Percentage reduction in PFC payments by State, 2001 ($40,000 limit) . . . .74

Table 4.6. Number of FSA farms categorized by the number of producers per farm . . .77

Table 4.7. Annual government and producer costs of implementing farm program

payment limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

Table 4.8. Certificate exchange gains by crop year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82

Table 4.9. Effects of loan forfeiture on farm income and CCC costs (cotton example) .84

Table 4.10. Effects of loan forfeiture on farm income and CCC costs (corn example) . . .84

Chapter 5. Effects of Further Payment Limitations

Table 5.1. Estimated annual reduction (increase above current limits) in payments 

under various payment limits, assuming no further restructuring . . . . . . . . .91

Figure 5.1. Reduction in payments under $30,000 limit on 2000-crop PFC payments .92

Figure 5.2. Reduction in payments under $20,000 limit on 2000-crop PFC payments .93

Table 5.2. Effects of alternative payment limits and various example farms . . . . . . . . . .95

Table 5.3. FAPRI estimated average impacts of stricter payment limitations . . . . . . . . .97

Figure 5.3. Payment limit decisions for an owner-operator . . . . . . . . . . . . . . . . . . . . . . .98

Figure 5.4. Payment limit decisions for a tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99
List of Figures and Tables 161

Figure 5.5. Payment limit decisions for a tenant share-rent landowner . . . . . . . . . . . . .100

Figure 5.6. Average value of U.S. farm real estate and direct government payments, 

1960-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104

Figure 5.7. Average value per acre of farm real estate, January 1, 2002 . . . . . . . . . . . . .105

Figure 5.8. Percentage of producers having payments reduced under $30,000 limit on

2000-crop PFC payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108

Figure 5.9. Percentage of producers having payments reduced under $20,000 limit on

2000-crop PFC payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108

Figure 5.10. Government payments as a percentage of cropland value, 2001 . . . . . . . . .109 

Table 5.4. FAPRI’s estimates of stricter payment limitations on land values and 

rental rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110

Table 5.5. Contribution of the food and fiber system (FFS) to the U.S. economy, 

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 

Figure 5.11. Farm income as a share of personal income, 1970-2001 . . . . . . . . . . . . . . .115

Figure 5.12. Nonmetro countries with at least 10 percent of income from farming . . . .116

Table 5.6. Farm program payments as a share of State nonmetro personal income, 

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117

Figure 5.13. Percentage reduction in payments under $30,000 limit on 2000-crop 

PFC payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118 

Figure 5.14. Percentage reduction in payments under $20,000 limit on 2000-crop 

PFC payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119 

Figure 5.15. Rural population loss, 1990-2000, and farm program payments, 

1999-2000 average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120

Table 5.7. Cotton and fruit and vegetable production in leading cotton producing 

States, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127

Appendix A. Supplemental Tables for Chapter 3

Appendix table 3.1. Government payments by type and commodity, crop years 

1996-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132

Appendix table 3.2. Crop-year prices for crops eligible for direct and counter-cyclical

payments and marketing loans benefits, 1996/97-2007/08 . . . . . . .134

Appendix table 3.3. Farm income by calendar year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134

Appendix table 3.4. Direct government payments by calendar year . . . . . . . . . . . . . . . .134

Appendix table 3.5. Government payments, number of farms, and net cash income by

State, 1999-2001 calendar-year average . . . . . . . . . . . . . . . . . . . . . .135
162 List of Figures and Tables

Appendix B. Supplemental Tables for Chapter 4

Appendix table 4.1. Payment reduction and producers affected by the $40,000 payment

limitation on production flexibility contract payments, 2000 . . . . .137

Appendix table 4.2. Payment reduction and producers affected by the $40,000 payment

limitation on production flexibility contract payments, 2001 . . . . .141

Appendix table 4.3. Number of producers receiving production flexibility contract

payments, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145

Appendix table 4.4. Number of producers receiving production flexibility contract

payments, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146

Appendix table 4.5. Total payments received and reduction in payments due to the

$40,000 payment limitation on production flexibility contract

payments, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147

Appendix table 4.6. Total payments received and reduction in payments due to the

$40,000 payment limitation on production flexibility contract

payments, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151

Appendix C. Supplemental Tables for Chapter 5

Appendix table 5.1. Reduction (increase above current limits) in payments under

alternative limits on 2000-crop PFC payments . . . . . . . . . . . . . . . .155

Appendix table 5.2. 3,000-Acre, two-person, Midwest corn/soybean farm . . . . . . . . . . .156

Appendix table 5.3. 4,500-Acre, two-person, Northern Plains wheat and barley farm . .156

Appendix table 5.4. 3,000-Acre, two-person, Mississippi cotton farm . . . . . . . . . . . . . .157

Appendix table 5.5. 2,000-Acre, two-person, Delta rice farm . . . . . . . . . . . . . . . . . . . . .157

Appendix table 5.6. 1,000-Acre, two-person, Georgia peanut farm . . . . . . . . . . . . . . . .158