Farm and Commodity Policy: Program Provisions

Farm and Commodity Policy Briefing Room Basics of U.S. Agricultural Policy Background and Issues Government Payments and the Farm Sector What Is Meant by Decoupling? Program Provisions

Direct Payments

Under this new program, farmers and eligible landowners receive annual fixed direct payments (DPs). The amount of the payment is equal to the payment rate of the applicable base crop multiplied by the payment acres times the payment yield for the farm. For example the payment for an individual corn farmer is

DP_corn = (Payment rate)_corn x (Payment yield)_corn x [(Base acres)_corn 0.85 x]

To receive payments on crops covered by the program (wheat, corn, grain sorghum, barley, oats, rice, upland cotton, soybeans, other oilseeds, and peanuts), a producer enters into an agreement for 2002-07.

Farmers must select an option for designating base acres:

1. Choose base acres equal to contract acreage for the commodity that would otherwise have been used for 2002 PFC payments plus average oilseed plantings in crop years (CY) 1998-2001, so long as base acres do not exceed available cropland, or
2. Update base acres to reflect the 4-year average of acres planted, plus those prevented from planting due to weather conditions, during CY 1998-2001.

Each producer must select an option to apply to all covered commodities for both fixed decoupled payments and for counter-cyclical income support payments. Base acres for peanuts can be determined separately, so long as total base acres do exceed available cropland. Payment acres are equal to 85 percent of the base acres.

Owners of farms will have a one-time opportunity to select a method for determining base acreage. An owner who fails to make an election shall be considered to have selected 2002 PFC contract acres and, for oilseed base, the 4-year average of oilseed plantings.

Farmers are given almost complete flexibility in deciding which crops to plant. Participating producers are permitted to plant all cropland acreage on the farm to any crop, except for some limitations on planting fruits and vegetables. The land must be kept in agricultural uses (which includes fallow) and farmers must comply with certain conservation and wetland provisions.

Payment yields are unchanged for those crops previously covered under the PFC program. For soybeans and other oilseeds, which were added to the program, payment yields are the farm’s average yields for 1998 to 2001, multiplied by the national average yield for 1981-85, divided by national average yield for 1998-2001. Peanut payment yields are based on the farm’s average yields for 1998 to 2001.

Direct payments for the 2002 crop are to be made as soon as practicable after enactment of the Farm Act. For crop years (CY) 2003-07, payments are to be made no sooner than October 1 of the year the crop is harvested. Advance payments of up to 50 percent can be made beginning December 1 of the calendar year before the year when the covered commodity is harvested.

The payment limit on direct payments is $40,000 per person, per crop year, and the three-entity rule is retained. Under the three-entity rule an individual can receive a full payment directly and up to a half payment from two additional entities. Producers with adjusted gross income of over $2.5 million, averaged over each of 3 years, are not eligible for payments unless more than 75% of adjusted gross income is from agriculture.

For More Information...

• The 2002 Farm Act: Provisions and Implications for Commodity Markets
• Updating Base Acres and Payment Yields (page 77 of PDF)