July 31, 2001

House Farm Bill would Increase Payment Limitations

The farm bill approved by the U.S. House Agriculture Commuittee would increase combined payment limits per farm from $115,000 to $275,000 per year, according to a North Dakota State University agricultural economist.

Those payment limits are looser than those of the 1996 "Freedom to Farm" bill, which had a $40,000 limit on transition payments and a $75,000 limit on marketing loan gains and loan deficiency payments, says Andrew Swenson of the NDSU Extension Service. The U.S. Senate has yet to approve farm legislation and differences between the two legislative bodies will have to be resolved in the coming months.

Under the bill passed by the House, the limit on transition payments is raised to $50,000, the limit on marketing loan gains and loan deficiency payments is increased to $150,000 and a new "counter-cyclical" payment has a $75,000 limit.

"This increase in payment limits will be helpful to large producers, whose government subsidies were restrained by payment limitations, and will heighten their competitiveness relative to small and mid-sized farms," Swenson says. "It may also allow some producers to save legal, accounting and organizational costs associated with creating legal entities to qualify for multiple limits."

Swenson says the increase in limits indicates that politicians believe that support for the traditional family farm structure is waning and subsidies are better spent on large farms that can produce at lower costs because of economies of size. "The reasoning must be that any social benefits of the traditional family farm do not outweigh the cost and marketing efficiencies of large farms which are more apt to survive in a competitive world market," he says. "Ironically, higher subsidies are typically bid into land, thus increasing costs of production and reducing international competitiveness."

However, the increase in payment limits could erode public support for future subsidies, Swenson warns. Higher limits mean increased costs to the government. Also, government expenditures in the past have been promoted to the public as helping family farms.

"Any farm receiving additional government aid will benefit in the short run. However, higher payment limits will lead to fewer farms in the long run. If maintaining the family farm structure is no longer a forthright reason for subsidies to agriculture, it will be more difficult to justify why agriculture is unique and deserving of government transfer payments," Swenson says.

###

Source: Andrew Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu