Adjusted Gross Income, Commodity Payments, Eligibility, Means Test, Resource /Energy Economics and Policy, Q12, Q18,

Ahrendsen, Bruce L.

Chavez, Eddie C.

Danforth, Diana M.

Dixon, Bruce L.

Wailes, Eric J.

English

Research Papers in Economics

 
4th Quarter 2011 | 26(4) 
DISTRIBUTIONAL IMPACTS OF CAPPING ELIGIBILITY FOR COMMODITY PROGRAM 
PAYMENTS 
Eric Wailes, Eddie Chavez, Diana Danforth, Bruce Ahrendsen, and Bruce Dixon 
JEL Classification Code: Q12, Q18 
Keywords: Adjusted Gross Income, Commodity Payments, Eligibility, Means Test 
U.S. government farm commodity program funding is being targeted for reduction to help decrease the federal budget 
deficit. While commodity program payments are mandatory, program funding can be altered annually through the 
fiscal year appropriations. Toward that end, Congress has initiated a review of the current legislation which will expire 
in 2012 (Harwood, 2009). Currently, forces influencing the review include the burgeoning federal budget deficit, 
historically high but volatile farm commodity prices, and agricultural trade agreements which seek to reduce trade 
distortions (Chavez and Wailes, 2011). To help reduce government expenditures, capping eligibility using a means 
test for commodity program payments was used in both the 2002 and 2008 farm bills and may be one of the items 
Congress looks at to reduce farm commodity program expenditures. This paper examines the impact of limiting 
eligibility to recipients who have an Adjusted Gross Income (AGI) of more than $250,000. 
 
Adjusted Gross Income and Government Program Payments 
In the United States, government farm program payments are an important component of income for farm 
businesses. For the period 2000-2009, the government spent an average of $10.84 billion annually on various 
commodity support programs such as commodity payments, marketing loans, counter-cyclical payments, ACRE 
payments and crop market loss assistance (FAPRI-MU, 2010). Means testing income for eligibility for farm program 
payments became effective with the passage of the 2002 Farm Security and Rural Investment Act. Eligibility was to 
be denied to an individual taxable entity with average adjusted gross income (AGI) over $2.5 million for the previous 
three taxable years, with an exception granted for operations with 75% or more of the average AGI from farming, ranching or forestry. The Food, Conservation and Energy 
Act of 2008 further tightened eligibility limits. First, it 
separated AGI into two components—farm AGI and 
nonfarm AGI. The eligibility limit on farm AGI is $750 
thousand and on nonfarm AGI, $500 thousand. Congress 
may seek to lower the current income eligibility cap for 
commodity program payments to reduce federal 
expenditures. Using 2004 IRS tax data and Agricultural and 
Resource Management Survey (ARMS) data, Durst (2007) 
analyzed the effects of a $200,000 AGI eligibility cap on 
2004 farm program payments. His results indicated that a 
$200,000 AGI cap on eligibility would have affected an 
estimated 1.5% of all farm operator households. Qiu and 
Goodwin (2011) analyzed separate limits for farm AGI and 
non-farm AGI at $200,000 and reported results by 
commodity and region. They found that current limits and 
the $200,000 limits had the most significant impact on rice 
and cotton as percentages of number of producers and 
acreage affected. Total impact, however, was found to be 
greatest on corn, soybean and wheat producers because of 
the much larger acreages planted to these crops. 
Imposing a $250,000 Cap on AGI 
The present study focuses on analyzing the impact on 
recipients of government farm program payments that 
results from imposing a $250,000 cap on combined farm 
and non-farm AGI. This proposed cap failed as an 
amendment to the Fiscal Year 2012 House Agriculture 
Appropriations Bill submitted by Rep. Flake (R-AZ) (House 
Appropriations Committee, 2011). While the amendment 
failed, efforts to reduce the federal budget deficit will persist, 
including reduction of farm program spending through 
means testing. 
For this study, data were obtained for the three-year period 
2007-2009 from the ARMS, conducted by USDA’s 
Economic Research Service, (ERS) and National 
Agricultural Statistics Service, (NASS). A limit of $250,000 
or less in AGI was used as the eligibility criterion for 
receiving commodity program payments.  
AGI is defined as net farm income plus off-farm income with 
capital gains minus adjustments. Adjustments are allowable 
deductions, including health and dental insurance costs, 
out-of-pocket health/medical expenses, contribution to 
retirement/pension plans, and other contributions such as 
alimony, child support, and charitable donations. 
Commodity program payments are defined as direct 
government payments minus conservation payments. Thus, 
the full farm population is divided into two groups based on 
AGI: 1) Those with AGI equal to or less than $250,000, and 
2) those with AGI greater than $250,000. Because IRS tax 
data was not available, the estimates of this study are upper 
limits, since we have assumed the term “farm operator” to 
be an individual taxable entity. In this study, the appropriations bill amendment offered by Rep. Flake 
of Arizona is interpreted to mean that those farm operators with AGI 
greater than $250,000 would be considered ineligible for commodity 
farm program payments. These payments are described in section 
1001D(b)(1)(C) of the Food Security Act of 1985 (7 U.S.C. 1308-
3a(b)(1)(C)). The program payment eligibility criterion for the current 
crop year is established based on the annual average of the three-
year period AGI preceding the previous crop year. The three-year 
annual average criterion is similar to the means test formulation 
currently in effect as mandated by the 2002 and 2008 Farm Bills. For 
example, the eligibility for 2011 is based on the annual average AGI 
for the three-year period 2007-2009. Since the latest ARMS data 
available to the authors are for 2009, it is not possible to compare our 
results with actual payments for 2011. Thus, the annual average 
payments for the three-year period 2007-2009 are used to estimate 
the 2011 payments for ineligible farm operators, which become the 
estimated potential government savings for 2011.  
Distributional Impacts 
The results are presented in Tables 1 through 4.  Table 1 shows the 
average number of farm operators by AGI group for the three-year 
period of 2007-2009—which is used to establish payment limit 
eligibility for crop year 2011—by production specialty. Production 
specialty in the ARMS data set is determined by the dominant crop or 
livestock enterprise by income source. Table 2 shows the commodity 
payments received by U.S. farm operators with government program 
payments by AGI group for the three-year eligibility period of 2007-
2009 by production specialty. Tables 3 and 4 show the same 
information for average farm numbers and average payments 
received by state. All farm numbers and commodity payment levels 
are estimates based on the ARMS data and the expansion factors 
provided in the ARMS data set. To preserve clarity, we do not preface 
each number below with “estimated” but the figures are estimates.  
For the three-year period 2007-2009, Table 1 shows that an annual 
average of 840,178 U.S. farm operators received government farm 
program payments of which 763,592—or 90.9%—had average annual 
AGI equal to or less than $250,000 and 76,586—or 9.1%—had 
average annual AGI greater than $250,000.  
Of the annual average number of farms receiving government farm 
program payments over the same period, 560,478 were crop farms—
66.7%—and 279,700 were livestock farms—33.3%.  For crops, 
58,903—10.5%—had AGI greater than $250,000 while for livestock, 
17,682—6.3%—had AGI greater than $250,000. 
On the basis of production specialty, Table 1 shows that the largest 
percent shares of farm operators with AGI greater than $250,000 were 
rice—27.7%, cotton—24.4%, hogs—21.6%, corn—18.8%, and 
general cash grain—15.8%.  The lowest value was for tobacco at 
3.8%.  If the $250,000 eligibility AGI cap had been implemented for 
2011, 9.1% of all farm operators would be affected. 
Table 2 shows that the annual average commodity program payments 
for all farm operators with AGI equal to or less than $250,000 was 
$5.45 billion—70.7%—while the annual average commodity program 
payments for farm operators with AGI greater than $250,000 totaled 
$2.26 billion—29.3%. By production specialty, the largest annual 
average percent shares of commodity program payments for farms 
with AGI greater than $250,000 were to farms dominated by cotton—
46.6%, hogs—41.5%, corn—39.2%, poultry—37.6%, and general 
cash grain—36.7%.  The lowest value was for farms with mostly beef cattle—13.7%. The top dollar recipients of commodity program payments for farms with AGI over $250,000 were to 
those dominated by corn—$628.0 million, general cash grain—$402.3 
million, general crops—$206.0 million, cotton—$191.4 million, and 
wheat—$134.1 million. 
Ignoring tobacco because of the buyout program, the top dollar recipients 
of commodity program payments per farm operator with AGI over 
$250,000, were farms with large portions of cotton—$107,104, peanuts—
$86,113, rice—$70,475, and grain sorghum—$53,151. If the $250,000 
eligibility cap had been implemented for 2011, the potential government 
savings for crop year 2011 would have been $2.26 billion from all farm 
operators—of which $1.90 billion—84.2%—would come from crop farms, 
and $355.6 million—15.8%—would come from livestock farms. 
The average numbers of farms by state by AGI group are shown in Table 
3.  The percent of farm operators with AGI greater than $250,000 was 
highest for California—22.6%, Arizona—15.1%, South Dakota—15.1%, 
Illinois—14.6%, and Nebraska—13.7%. Alabama had the lowest value, at 
3.2%. 
Table 4 presents the commodity program payments received by state by 
AGI group. On an annual average basis, the top ten recipient states of 
commodity program payments for farms with AGI over $250,000 were 
Texas—$199.0 million, Iowa—$178.0 million, Illinois—$161.7 million, 
North Dakota—$146.1 million, Minnesota—$131.6 million, Nebraska—
$106.7 million, North Carolina—$103.3 million, Arkansas—$100.2 million, 
California—$97.9 million, and Indiana—$87.6 million. If these payments 
were eliminated, these ten states would account for 58.1% of the 
potential government commodity program savings. 
On a per farm operator basis, the top recipients of commodity program 
payments for farms with AGI over $250,000 were in Arizona—$113,677, 
North Carolina—$93,391, Arkansas—$91,104, Florida—$60,502, 
California—$51,608, and Texas—$50,928.  Nevada and Utah received 
the lowest average payments of $11,738. 
If the $250,000 AGI limit were effective, the percent loss of program 
payments would be highest for North Dakota—44.8%, followed by 
Arkansas—40.6%, California—39.3%, Indiana—39.1%, and North 
Carolina—36.2%. 
Concluding Observations 
During the FY 2012 agricultural appropriations markup an attempt was 
made to restrict commodity program payment eligibility even more than 
under the law existing at that time. A 2012 appropriations bill amendment 
which came very close to being adopted would have made an individual 
or taxable entity with a combined AGI greater than $250 thousand 
ineligible for commodity program payments. This study estimates the 
upper limit of the potential budget savings and distributional impacts by 
state and commodity had this more restrictive eligibility means test been 
applied in 2011. Since access to actual tax returns used to determine cap 
eligibility was not available this upper limit was used. Based on the ARMS 
data set, an estimated 9.1% of all farms—10.5% of crop farms, and 6.3% 
of livestock farms—would have been ineligible to receive commodity 
program payments under the proposal. Estimated budget savings in 2011 
would be $2.3 billion from all farms. Corn farms would account for the 
largest annual savings of $628 million. Ten states would account for 58% 
of savings in 2011. The percent loss of total commodity program 
payments to farmers by state would have been largest for North Dakota—
44.8% and Arkansas—40.6% and smallest for Nevada/Utah—about 10%. This analysis shows that $2.3 billion in annual expenditure savings could be achieved potentially by lowering the 
eligibility cap on current commodity program payments to $250,000 of AGI. However, the distribution of these impacts 
is far from uniform when viewed by crop and by State. Some states and commodities will experience disproportional 
reductions in payments.  As the debate continues on how best to reduce the federal deficit by reformulating farm 
policy, distributional impacts of proposed policy changes as presented here need to be considered. 
For More Information 
Chavez, Eddie C. and Eric J. Wailes. 2011. Analysis of U.S. rice policy in a global stochastic framework. Paper 
presented at the Southern Agricultural Economics Association Annual Meeting, Corpus Christi, TX, February 5-8. 
Available at: 
http://ageconsearch.umn.edu/bitstream/98846/2/AGRMStochasticAnalysis_Chavez%20and%20Wailes_2_2011.pdf 
Durst, Ron L. 2007. Effects of reducing the income cap on eligibility for farm program payments. EIB-27. U.S. Dept. of 
Agriculture, Econ. Res. Serv. September 2007. Available at: 
http://ageconsearch.umn.edu/bitstream/59027/2/eib27.pdf 
FAPRI-MU. 2010. Crop insurance: background statistics on participation and results. FAPRI-MU report #10-10. 
Available at: http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_10_10.pdf 
Food Security Act of 1985 (7 U.S.C. 1308-3a(b)(1)(C)). Section 1001D(b)(1)(C). 
Harwood, Joy. 2009. An overview of the U.S. agricultural economy and the 2008 farm bill. Agricultural and Resource 
Economics Review 38(1) 8-17. 
House Appropriations Committee. 2011. Summary: fiscal year 2012 agriculture appropriations bill. June 13, 2011. 
Available at: http://appropriations.house.gov/UploadedFiles/6.13.11_FY_12_Agriculture_Conference_Summary.pdf 
Qiu, Feng and Barry K. Goodwin. 2011. The implications of binding farm program payment limits associated with 
income means testing. Poster presented at the Agricultural and Applied Economics Association Annual Meeting, 
Pittsburgh, PA, July 24-26. Available at: 
http://ageconsearch.umn.edu/bitstream/103733/2/AAEAPoster_MeansTest_201107.pdf 
U.S.Department of Agriculture, Farm Service Agency. 2009. fact sheet. average adjusted gross income 2009 and 
subsequent crop years. March 2009. 
Eric Wailes (ewailes@uark.edu) is Distinguished Professor, Department of Agricultural Economics and Agribusiness, 
University of Arkansas, Fayetteville, Arkansas. Eddie Chavez (echavez@uark.edu) is Program Associate, 
Department of Agricultural Economics and Agribusiness, University of Arkansas, Fayetteville, Arkansas. Diana 
Danforth (ddanfort@uark.edu, is a Senior Program Associate, Department of Agricultural Economics and 
Agribusiness, University of Arkansas, Fayetteville, Arkansas. Bruce Ahrendsen (ahrend@uark.edu) is Professor, 
Department of Agricultural Economics and Agribusiness, University of Arkansas, Fayetteville, Arkansas. Bruce Dixon 
(bdixon@uark.edu) is Professor, Department of Agricultural Economics and Agribusiness, University of Arkansas, 
Fayetteville, Arkansas. This study was funded in part by the Arkansas Rice Research and Promotion Board, the 
Arkansas Soybean Research Board, AgHeritage Farm Credit Services, and Farm Credit Midsouth 
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve 
Bank of Kansas City, the Federal Reserve System, or Purdue University. 
© 1999-2011 Choices. All rights reserved. Articles may be reproduced or electronically distributed as long as 
attribution to Choices and the Agricultural & Applied Economics Association is maintained. 
 

DISTRIBUTIONAL IMPACTS OF CAPPING ELIGIBILITY FOR COMMODITY PROGRAM PAYMENTS

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