Feds recommend changes to the Direct Payment Program

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Because of billions of dollars in overpayments, direct payments to agriculture producers should be reconsidered by Congress and possibly stopped, a federal report stated.

This recommendation comes from the Government Accountability Office in a June 2012 report that analyzed the effectiveness of current U.S. Department of Agriculture direct payment programs.

High, stable market prices for commodities and lack of timely oversight on the part of the Farm Service Agency were among the reasons cited for this recommendation.

Direct payments are fixed annual distributions made to producers based on their farms’ historical crop production. Direct payments were initiated as part of the 1996 farm bill in order to stabilize farm income. Since 2003 the USDA has paid out more than $46 billion in direct payments.

Crops currently eligible for the direct payment program include: barley, canola, corn, cotton (upland), crambe, flax, mustard, oats, peanuts, rapeseed, rice, safflower, sesame, sorghum, soybeans, sunflower, and wheat.

The trade associations for the corn, cotton, wheat, rice and soybean industries have stated direct payments may need to be eliminated in favor of other elements of the government farm safety net.

Almost one-fourth of the direct payments have gone to producers who did not, in a given year, produce the crop linked to the subsidy.  This accounted for over $10 billion in payments from 2003 to 2011.

Furthermore, approximately 2,300 farms reported growing no crop of any kind, yet received $2.9 million in 2011.

States with the highest number of fallow farms were Georgia, Louisiana, South Carolina, North Carolina and Texas, respectively. The primary crops associated with fallow land are crambe, rapeseed, mustard, sesame, safflower, and flax. Over 70 percent of eligible base acres were not planted with any of the related crop.

“In 2011, the top 10 percent of payment recipients received 51 percent of direct payments, and the top 25 percent of payment recipients received 73 percent of direct payments,” according to the federal report.

Since the program is based on the total number of acres dedicated to a crop, the study indicates farm subsidies lead to higher land purchase and lease prices. Fewer producers are able to purchase land at the elevated prices, which results in a concentration of land ownership. Tenant producers are able to lease land, however direct payments are funneled through them to the land owner to offset higher land lease fees.

Several issues related to the Farm Service Agency end-of-year review process were presented. In 2008 and 2009 the Farm Service Agency selected .04 percent of operations enrolled in the program for review. Comparatively, for a similar timeframe, the Internal Revenue Service selected 1.1 percent for review.

Farm Service Agency administrators told analysts the reduced level of reviews is tied to staff cutbacks in the organizations. Conducting audits of operations takes a considerable amount of manpower, which Farm Service Agency officials feel they simply do not have.

Data related to Farm Service Agency oversight also indicated that, “in July 2007 U.S.D.A. made $1.1 billion in potentially improper farm program payments, including direct payments, to more than 170,000 deceased individuals.”

The shortage of Farm Service Agency employees was also linked to the length of time it took for reviews to be completed. According to Farm Service Agency guidelines reviews are to be completed within a year. However, many reviews in actuality took years to complete.

In May 2012 the Farm Service Agency reported that nearly 24 percent of pending reviews for 2008 and 45 percent of reviews for 2009 were still not complete as of February 2012. In 2008 only 403 farm operations were selected for review and 23 of those operations received waivers from the audit.

Additionally, Farm Service Agency reported as of February 2012 some county offices in California, Louisiana and Mississippi had yet to complete reviews for 2006 and 2007.

Farm Service Agency officials said they did not regularly collect data on the completion rate of end-of-year reviews; however they plan to make changes to this practice. Another area were data was not available was related to enforcement of program requirements and penalties for misuse.

Under the direct payment guidelines producers who are found to be in violation can be barred for up to five years from further participation. Additionally, producers must pay back funds that were improperly disbursed.

However, when asked for records related to program enforcement Farm Service Agency was unable to provide data to G.A.O. “Farm Service Agency headquarters officials stated that most payment recipients are honest and comply with direct payment eligibility requirements, and that the level of enforcement is appropriate.” County agents were said to be leery of procedures that would discourage producers from enrolling in the program.

Farm Service Agency did acknowledge it lacked a national, centralized tracking system and list of producers who had been found to be in violation of requirements.

When presented with the study findings and recommendations, U.S.D.A. committed to implementing a timelier and representative end-of-year review process, as well as a centralized tracking system on misrepresentation and enforcement actions. These measures, according to U.S.D.A. will be addresses within its current budget and staffing limitations.

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