NCC Submits Comments to a Key Farm Program Interim Rule

The National Cotton Council submitted comments on the interim rule issued by the Department of Agriculture on December 23, 2008, making changes in payment eligibility and payment limitation rules. 

Although the 2008 farm bill made several important changes to payment eligibility and payment limitation provisions, including instituting a system of direct attribution of payments, reducing and tightening the adjusted gross income means test, and ending the discriminatory treatment of spouses, the NCC comments focused on changes in the regulations that were not included or required by the 2008 bill.  The comments stated that in many instances, the interim regulations went beyond the 2008 farm bill amendments and in some cases are arguably contrary to existing law. 

The comments focused on the following issues:   

·        The interim regulations introduced significant new requirements for producers to be considered to be "actively engaged" in farming -- none of which were mandated by the statute.  The interim regulations introduce vague, overlapping standards that cannot help but be implemented differently across the country.  Among other things, the regulations introduce a new requirement that all members of a farming entity (partnership or corporation) must make a regular, identifiable, documentable, separate and distinct contribution of active personal labor or active personal management.  Regarding corporations, the statute is clear that eligibility should be determined based upon the collective action of all shareholders and not based upon each shareholder's individual actions.  With respect to partnerships, the "separate and distinct" requirements run contrary to normal farming operations where management is usually undertaken jointly by the partners.

·        The regulation contains unreasonable restrictions on farm financing, which could prohibit any guarantee, cosigning or backing of a loan by any person, legal entity, or joint operation that has an interest in the underlying farming operation.  It is common in husband and wife operations for both spouses to sign loan documents, thus, guaranteeing the loan of the other.  Likewise, members of partnerships typically sign and guarantee the partnership loans.  Disallowing such loan guarantees and financing arrangements ignores the economic and legal realities of how these farming entities operate and could make it impossible for many farming operations to secure necessary financing for 2009.

·        The regulation introduces new "actively engaged" requirements for participation in certain conservation programs, even though this is not included in the law.

The interim rule also narrowly construes the spousal eligibility amendments, effectively continuing a level of discrimination against spouses in family farming operations, treating spouses unfairly if the farming operation is structured as a corporation or a limited liability company. The rules ignore the importance of being able to organize farming operations appropriately to address liability and other legitimate business concerns.

The interim rule also introduces a bright-line test for a substantive change in farming operations not involving family members that is not included in the 2008 amendments.  The new rule requires an increase of 20 percent or more of base acreage involved in a farming operation in order for such a change to be considered bona fide and substantive.  Under this provision, an increase of 3000% in base acreage would only support the addition of one person or legal entity to a farming operation, unless the State FSA office is convinced based on unspecified criteria that the increase supports additional persons or legal entities.

In its comments, the NCC urged the Department of Agriculture to correct these and other deficiencies in the interim regulations.