Friday, February 25, 2011

Don't mess with these farm women

By Sara Wyant

There are a lot of things that arrive in my inbox everyday, but few made my blood boil like the Environmental Working Group’s release this week, criticizing the Common Ground effort. It seems like every time people in agriculture come up with a good idea for reaching out and building relationships with mainstream consumers, the anti-production agriculture groups come up with a dozen reasons why they are wrong.

For those of you who haven’t heard, Common Ground is a new program, initially rolling out in five states — Iowa, Indiana, Kentucky, South Dakota and Nebraska. Project leaders are training female farmers to be spokespersons and to get their message out via social media, partnerships with grocery stores and media outreach efforts. Funding is provided by the National Corn Growers Association and the United Soybean Board.

The EWG release suggests that, because “big ag” no longer has effective spokespersons, they are recruiting women to make their case---even though few women are actually in leadership positions within the major commodity organizations. But if you read between the lines, this seems like an attempt to belittle the women who have signed up to work on the Common Ground project, suggesting that they are just dumb figureheads who are blindly delivering messages for their male-dominated interest groups.

Give me a break!

Anyone who knows the women involved in American Agri-Women, Women Involved in Farm Economics, or the Iowa Women in Agriculture, as I do, knows that these are strong-willed, bright and incredibly capable women. They are not figureheads for anyone. They care about their farms, their families and the environment. They are perfectly capable of saying “yes” or “no” to public relations campaigns funded by others. For EWG to even slightly suggest otherwise, is to employ the most sexist inuendo I have seen in decades.

Could there be more women in leadership for the nation’s largest commodity organizations? Yes. I agree with EWG on that point. But how do you forget to mention that there are several womens’ organizations at the state and national level that are strong and growing, absent of men in leadership? Many of them are involved in the Common Ground project.

Why? Well, perhaps it didn’t fit into the tale they were trying to tell, that somehow the
women who rule the organic organizations, are somehow more “real” and credible.

What about women who raise both organic and conventional farm products? Apparently, in the EWG world, they don’t exist either. Maybe the organization could find a few, stop trying to pit women against each other and look for their own version of “common ground.”

(In the interest of full disclosure, I spoke to the AAW annual meeting last year and I am an honorary member of WIFE, but I am not affiliated with the Common Ground project.)

Sara Wyant is the Editor of Agri-Pulse, the nation's leading farm and rural policy e-newsletter. For a four-week free trial, go to

Wednesday, October 20, 2010

How Walmart’s sustainability efforts could impact on-farm production

by Sara Wyant

It’s been said that when Walmart Corporation takes a giant step, the rest of the food industry feels the earth move. The nation’s largest grocer, based in Bentonville, Arkansas, has more than 8,600 stores under 55 different banners in 15 countries, 2.1 million employees and 2010 sales of $408 billion.

If that’s the case, the supply chain might have been shaking Oct. 14 when Walmart announced the company’s new global sustainable agriculture goals. Company officials say their plan will help small and medium-sized farmers expand their businesses, get more income for their products, and reduce the environmental impact of farming, while strengthening local economies and providing customers around the world with long-term access to affordable, high-quality, fresh food.

Critics say much of Walmart’s sustainability plan is more image than substance. It’s part of a broader public relations campaign to improve perception of the global behomoth by linking their “big box” stores with local farmers, they suggest. This strategy allows the firm to offer some organic and local products to get younger, health conscious consumers in the door, while offering the types of inexpensive food products that the majority of their customer base already depends on.

However, other industry sources think that Walmart officials are on the march toward a more sustainable future, even if they don’t exactly know what that will look like when they find it. This latest announcement expands upon a broader 2005 initiative that aimed to improve energy efficiency, cut waste, use more renewable energy and encourage suppliers to adopt sustainable practices.

Over time, this latest initiative could lead to the development of social and environmental benchmarks that all producers would have to meet before selling products to Walmart. And eventually, these supply chain decisions could lead to industry-wide changes in U.S. food production by requiring, for example, “soil health” to meet certain measurements.

“Over time, may not need the U.S. government setting standards for how we plant, spray and harvest. We will just have to follow Walmart’s rules,” noted a farmer who has been in discussions with Walmart officials.

Walmart officials say they are just one part of a broader food industry push toward sustainability.

“Through sustainable agriculture, Walmart is uniquely positioned to make a positive difference in food production -- for farmers, communities and customers. Our efforts will help increase farmer incomes, lead to more efficient use of pesticides, fertilizer and water, and provide fresher produce for our customers,” explained Mike Duke, Walmart President and CEO, in a company release. Duke, who grew up on a Georgia farm, has first hand-knowledge of the complexities of food production and he’s spent time touring farms in different parts of the U.S. to better understand the technologies being employed.

Certainly, Walmart is not alone in the rush to “go green” in the U.S. and around the globe. Other major farm and food players, like Cargill, Monsanto, Syngenta, General Mills, Kelloggs, Pepsico, Mars, Dairy Management Inc., and Stonyfield Farms are also on the hunt for measurable sustatinability goals.

They joined Walmart in funding the Sustainability Consortium, which plans to develop “transparent methodologies, tools and strategies to drive a new generation of products and supply networks that address environmental, social and economic imperatives, according to their web site. Ironically, the very farmers who might be most impacted by their benchmarks, are not part of the Consortium, where first tier membership costs $100,000 per year.

The Consortium, which is jointly managed by the University of Arkansas and Arizona State University and includes research from universities around the globe, has been developing an index which can be used to evaluate and measure sustainable practices on the farm and throughout the supply chain.

Eventually, this might lead to products in your local Walmart that are “scored” according to their level of sustainability, says Matt Kistler, the Senior Vice President of Marketing for Walmart and the man who previously served as Senior Vice President for Sustainability.

Already, Walmart surveyed 100,000 global suppliers to answer some basic questions around their business, explains Kistler. The questions focused on four areas: energy and climate; material efficiency; natural resources; and people and community

For example, “Do they measure greenhouse gas emissions? Do they supply that information to the Carbon Discloser Project? What is your total water use from facilities that produce your product?”

As more research data becomes available through the Consortium, Walmart may ask farmers what inputs they can reduce or what the optimized level of pesticides and herbicides and water to use on a given crop, says Kistler. Once there is a baseline established, Walmart buyers can ask suppliers how they perform against the baseline.

Will that include looking at corn that’s fed to hogs and cattle? Exactly how far will they go in trying to establish a baseline? Kistler says that some of those answers are yet to be determined.

“The deeper supply chains get and the more complex they are, it will take more time and we may get to a point of diminishing returns,” he adds. “You can imagine, in the scale we purchase in, that doing things better by just a small percentage can make tremendous differences. We want to make sure we do them the right way.”

In the meantime, Walmart is focusing on acquiring more food from small and medium size farmers, sourcing more items locally, reducing food waste, providing training, and a number of other initiatives around the globe.

In emerging markets, Walmart will help many farmers gain access to markets by selling $1 billion in food sourced from 1 million small and medium farmers and providing training to 1 million farmers and farm workers by 2015. The focus will be on crop selection and sustainable farming practices – with about half of those trained expected to be women.

The company will require sustainably sourced palm oil for all Walmart private brand products globally by the end of 2015. And it will expand the already existing practice for Walmart Brazil of only sourcing beef that does not contribute to the deforestation of the Amazon rainforest to all Walmart companies worldwide by the end of 2015.

In the U.S., Walmart’s Heritage Agriculture program will help the company double the sale of locally grown food, defined as fruits and vegetables sold in the same state. The program focuses on sourcing produce from states and regions with long histories of agricultural production and reaching a level of 9% of the produce in U.S. stores. Three of Walmart’s largest Heritage Agriculture programs are in the 1-95 corridor along the East coast, the Delta region in the South and the Mid-America region of the Midwest.

For a link to a map showing these regions:

For more background on the regions:

Mid-America ProjectIn the Midwest, where more families are relying on their farms for subsistence, we are increasing our purchases of crops such as apples and potatoes. States in this area have long histories of agriculture production with outstanding soil and water resources. Other examples of crops in this area include onions, cherries, celery, peaches, melons, sweet corn, blueberries and peppers.

I-95 Corridor ProjectIn the I-95 corridor along the East Coast, there is a high concentration of women- and minority-owned growers that benefit as we expand purchases of vegetables, such as bell peppers, cucumbers and squash. By taking advantage of the growing season beginning in Florida and moving northward, we can source tomatoes, peaches, greens, melons, sweet corn, blueberries, apples and broccoli.

Delta States ProjectThe Delta region of the South has a long history of cash crops, such as tobacco and cotton, which are in decline. We are replacing these with produce, such as blueberries in Mississippi and Arkansas where the growing season is longer. Other items include tomatoes, peaches, cabbage, onions, melons, strawberries, peppers, cucumbers and potatoes.
Source: Walmart Corporation web site


Monday, October 11, 2010

How the mid-term elections will impact the next farm bill

New members likely to bring renewed focus on cutting federal budget

By Sara Wyant

With the dust barely dry on the 2008 Farm Bill, it almost seems too early to be thinking about writing another one. But the current Chairman of the House Agriculture Committee, Collin Peterson (D-MN), has made no bones about it: he wants to get started early next year and complete a bill prior to 2012.

In fact, Peterson has been meeting with several farm organization leaders, telling them that he intends to write a “baseline” bill, or one that uses existing funds for programs, rather than trying to find “new” money. Other House Agriculture Committee Democrats have been urging interest groups to get all of their farm bill ideas in by December so they can hold hearings and start drafting new legislation early next year.

There’s only one problem. We won’t know who is going to be in charge of the Committee until after Nov. 2. With many pollsters pointing to a tidal wave of frustrated voters willing to throw out dozens of incumbents, there could be over 100 new lawmakers this fall.

Chairman Peterson’s own seat appears to be safe, but if Republicans pick up at least 39 seats in the House of Representatives, there could be a new Chairman in charge. And that’s likely to be Oklahoma Republican Frank Lucas.

Lucas is not in quite as much of a hurry to write a new farm bill. In an exclusive interview last week, he told me that the fiscal environment will likely be better if we wait a year.

“If we write a Farm Bill a year early, we’ll wind up with less resources to work with and a more difficult environment,” Lucas explained. “Everything of course is subject to what happens in the election in November. Everything is subject to what the majority in the spring will do budget-wise, but from my own perspective, I think we’re better to wait until 2012.”

In the Senate, Agriculture Committee Chairman Blanche Lincoln is more inclined to accept the later time frame for working on a new farm bill. However, there is also a lot of uncertainty about who will be chairman of the Agriculture Committee next year.

Most polls indicate that current Chairman Blanche Lincoln (D-AR) is trailing her challenger, Rep. John Boozman by large margins. If she loses and the Democrats retain control of the Senate, Michigan Senator Debbie Stabenow may take the committee’s helm. If the GOP gains 10 seats in the Senate this fall and regains the majority, ranking member Saxby Chambliss (R-GA) could once again be in charge of the committee and he’s not eager to write a new farm bill next year either.

In most mid-term elections, the party in control of the White House usually loses some seats. But the expectation increases dramatically when the President’s job approval rating hovers below 50%, as is the case with President Barack Obama. In 1993, President Bill Clinton’s approval rating was at 46%, according to Gallup polling data, and the Democrats lost 53 seats to the GOP.

New members

Regardless of who is in the majority, there could be as many as 100 new members of Congress next year and most will have no prior experience with working on farm bills.

“We’ll need to put a great deal of effort in educating these folks early,” says Mary Kay Thatcher, director of public policy at the American Farm Bureau Federation, who noted that a high percentage of the incoming freshmen members will likely represent rural congressional districts.

Rep. Lucas (R-OK), the likely Ag Committee Chairman in a GOP-controlled House, says he expects to spend a huge amount of time in January and February educating new members.

“We’ve got to explain to them what rural America and production agriculture and processing are all about,” he said.

Current Chairman Collin Peterson (D-MN), told us that he fears the election of a lot of Tea Party-leaning Republicans would “be a problem for farm bills and farm policy.”

Chandler Goule, vice president of government relations at the National Farmers Union, offered a more blunt assessment.

“If the Tea Party gets a lot of their members into Congress, I think you kiss a good chunk of the farm bill goodbye,” Goule said, predicting that commodity and even conservation programs would face significant budget cutting pressure.

Fiscal focus

Whether or not the renewed focus on deficit reduction is driven by the Tea Party movement or other newly “reborn” fiscal conservatives, several members tell us there is likely to be a renewed push to cut all federal programs next year. If that’s the case, farm programs will certainly be under the microscope.

Farm and commodity groups will be working to help the incoming lawmakers understand that gutting ag programs alone won’t make a dent in the budget deficit.

While acknowledging that trillion-dollar deficits “do have have consequences,” Sam Willett, senior director of public policy at the National Corn Growers Association, hopes the ag community is able have an adult conversation with the freshman class about the value of a reliable risk management safety net for producers.

“We have a challenge in terms of letting them know where our priorities are and, in some cases, they have may have received different messages during their campaigns,” Willett explained.

At the National Cattlemen’s Beef Association, VP of government affairs Colin Woodall thinks the likelihood of having so many new members of Congress increases the chances for progress on other key issues that are haunting many farmers and ranchers. He cites issues such as regulatory overkill by the Environmental Protection Agency and estate taxes.

“I think we’re going to have a much easier time making the case to them on why the ‘death’ tax needs to be reformed,” he said, adding that depending on how many Tea Party-backed candidates are elected, “the talk of repeal could come up again.”


Tuesday, September 14, 2010

The search for a better safety net continues

By Sara Wyant

It’s that time of year again. Yes, farmers are gearing up their combines for the annual fall harvest. But as this long, hot summer starts to fade, members of each state farm and commodity organization are also preparing for their annual meetings and deciding what they’d like to see changed in their policy books. One of the items that comes up year after year is the status of the farm safety net.

Ever since federal farm programs were first developed in the 1930’s, lawmakers have fiddled with trying to build something better and longer-lasting. We’ve had farm programs trying to manage supplies, cover the cost of production and support prices. In more recent years, the focus has been on managing both yield and revenue risks. Along the way, we’ve spent a few billions on ad hoc disaster payments and we’ve had to learn more acronyms than you can hardly count. (PIK, AMTA, CRP, CCP, ACRE, etc.) . So what will be next as policy makers prepare for the 2012 Farm Bill?

There are a number of options under consideration, ranging from minor tweaks to elimination of entire programs. Delegates attending the recent Iowa Farm Bureau meeting voted to get rid the approximately $5 billion spent on direct payments annually if those funds could be invested in a revenue protection product.
“Voting delegates discussed a wide range of options and acknowledged regional differences, but agreed this Farm Bill must provide a dependable, fiscally responsible safety net for all farmers,” said IFB President Craig Lang in a press release. “Instead of direct payments, we agreed the money should be used to enhance a sound revenue insurance program, risk management and fair trade,” said Lang. Their policy also calls for the ACRE program to be based on county, rather than state, yields and revenue—and to include revenue protection for livestock as well.

Iowa Farm Bureau’s new policy is generating some headlines, but you will likely hear lively debate this fall as farm groups consider changes in several of the major programs which are currently in place. Here’s a preview of those debates.
Direct payments. These fixed, annual payments were first established in 1996 (Freedom to Farm Bill) and were pitched as a way to gradually transition farmers away from the previous system of target prices and deficiency payments. Direct payments have long come under fire from non-farm interests because they are paid regardless of whether or not anything is produced on the land. Critics also point out that direct payments can inflate land prices and rental rates because at least a portion of the payments accrue to the landlord.

Yet, many landowners say that direct payments give them stability, year-in and year-out, that they might not otherwise have for planning and financing. Their lenders love them perhaps more than they do. Another plus: because direct payments are not influenced by current production and prices, they are well-accepted by the World Trade Organization (WTO) and not considered to be “trade-distorting.”
ACRE: Introduced as part of the 2008 Farm Bill debate, the Average Crop Revenue Election (ACRE) program was designed to protect farmers against revenue losses, regardless of whether the loss was a result of price and/or yield. The ACRE program pays when two conditions are met: the state-level revenue for a crop falls below a guaranteed level and when a farmer actually loses revenue on a farm.

The handful of farmers who did participate in ACRE are likely to benefit handsomely. For example, wheat growers are likely to receive almost $90/acre in Illinois and $70/acre in Missouri, says Troy Dumler, Extension Agricultural Economist, Kansas State University. For corn, Texas non-irrigated growers are projected to receive about $70/acre and in Oklahoma, payments could exceed $140/acre. In time, supporters believe that more growers will “warm” to ACRE and the risk management benefits.

Yet, critics complain that the program is too complex and cumbersome, which they say explains why only 8% of the total number of eligible farms elected to participate in ACRE for 2009. To participate, you had to sign up for all program years (2008-2012) rather than just one year. It’s a tough sell to landlords, who may not be accustomed or willing to make a long-term commitment. Participants also had to forgo 20% of their direct payments and and would be eligible for loan rates which are reduced by 30%. Some would like to see the program be annual, rather than multi-year. Others want to see the state-based trigger changed to a county-based trigger, although it would be an expensive proposition.

SURE: The Supplemental Revenue Assistance Payments (SURE) was included in the 2008 Farm Bill as a way to finally put an end to “ad hoc” disaster programs. It compensates growers who farm in or border a county designated as an agricultural disaster area for a portion of crop losses that are not eligible for payments under the crop insurance program or the Noninsured crop disaster assistance program (NAP). Payment calculations are based on a farmer’s revenue from all crops in all counties (including farm program and crop insurance payments) compared to a guaranteed level based on expected yields and prices. If the actual level is less than the guarantee, a payment is made, based on 60% of the difference between the two.

Critics say the payments are too little, too late. Because the law requires the crop year to be finished so that the season-average farm price can be determined, payments may be delayed for months until after the disaster occurred. Southern farmers, say SURE doesn’t work for them, and have been pushing Senate Agriculture Committee Chairman Blanche Lincoln (D-AR) for another $1.5 billion in ad hoc disaster assistance---the same type that SURE advocates pledged would no longer be necessary. The White House promised Lincoln that those funds would be forthcoming, although Secretary Vilsack recently said that he’s still not sure how his agency will find and administer the aid.

Crop and livestock insurance. One of the most widely used and accepted form of price and yield risk management, crop insurance covered over 265 million acres last year, according to USDA’s Risk Management Agency. The Noninsured crop disaster assistance program (NAP) fills in some of the gaps in counties where crop insurance is not offered, but RMA is making a major push to expand coverage to historically underserved areas. In recent years, new policies have been developed to cover livestock and dairy producers from individual loss or gross margin. Other policies, such as Adjusted Gross Revenue (AGR) offer revenue protection for the whole farm.
Growers have the freedom to choose the type and level of coverage, and most growers report that insurance policies are relatively easy to understand and use. Delivered by the private sector as part of a private/public partnership, growers usually don’t have to wade through complex program calculations or the federal bureacracy to get paid.

However, growers---especially in the South----complain that crop insurance needs to be substantially improved for cotton and rice. Non-farm ritics charge that policies are heavily subsidized by the federal government. In addition, the Federal Crop Insurance Corporation (FCIC) pays private insurance companies to administer the program and underwrites a large share of the loss risk---although those payments were cut by $6 billion/year as part of an industry-wide renegotiation this year.
Making changes in any of these programs will likely have budget implications, and that’s where the rubber will really start meeting the road. Lawmakers have already signalled that the next farm bill is likely to be a baseline bill, which means there will not be any “new” money added for programs. So before anyone suggests any changes to the farm safety net, he or she will have to be prepared to say where the money is going to come from. “Show me the money” could become the commonly used phrase in the next farm bill debate.


Wednesday, August 25, 2010

Estate tax debate makes planning for death even more difficult

By Sara Wyant

“My wife and I are trying to do estate planning, but we don’t know how Congress is going to change the law,” lamented an elderly Kansas farmer during a recent meeting. “Do you have any idea of what they are going to do?”

Unfortunately, the estate tax picture, as well as the general tax picture in Congress, is about as clear as mud right now. As you may know, the federal estate tax expired December 31, 2009 after Congress was unable to reach an agreement on either a permanent or short-term extension. There is no federal tax on estates if you die this year, but then the death tax comes back with a vengeance.
The tax will be re-instated on January 1, 2011, with only a $1 million exemption and a 55% tax on amounts over that level--- unless Congress takes action to change the law. As a result, even smaller farms and businesses could end up paying a bucketful of taxes when the owner dies next year.

Several lawmakers have introduced bills to raise the exemption and change the tax rates. But changing the law won’t be easy. The Statuatory Pay-As-You-Go Act of 2010, enacted in February 2010, requires that any changes to the estate tax beyond a two-year extension of 2009 law must be fully offset by cuts in programs or revenue raisers. In 2009, there was a $3.5 million exemption on estate taxes with a 45% top tax rate. An estate tax bill was passed by the House last year that would basically reinstate the 2009 exemption and rates.

In addition to the estate tax, there are a multitude of tax issues that need to be tackled before year’s end. The biodiesel tax incentive lapsed at the end of 2009 and has yet to be renewed. As a result, dozens of biodiesel plants are idling and investors are losing their confidence in renewable energy. Later this year, the Volumetric Ethanol Excise Tax Credit (VEETC), widely known as the "Blenders' Credit" is set to expire. Last, but certainly not least, are the “Bush” tax cuts that you hear about so often about in political debates. If these tax cuts are not renewed, you could see tax increases in individual rates, capital gains, and dividends.

Fiscal war?

Tax issues could brew into a fiscal war of sorts for the country. President Obama wants to allow the Bush tax cuts to expire for individuals making more than $200,000 a year and for couples making more than $250,000. Regarding the estate tax, Administration sources say the president’s position is to restore the estate tax and extend it at the 2009 rates.

Several GOP lawmakers are fighting to reduce the estate tax and continue the previous tax cuts. They argue that, with the economy sagging and millions unemployed, it’s exactly the wrong time to force small business owners to pay more taxes. Doing so will place an additional damper on economic recovery.
Yet, others say that continuing the current tax cuts will be fiscally irresponsible and add to an already alarming federal deficit. The Congressional Budget Office recently forecast that the federal deficit will reach $1.34 trillion for this fiscal year.

Even former Federal Reserve Chairman Alan Greenspan, an influential voice in favor of the first Bush tax cut in 2001, weighed in recently. On NBC's Meet the Press Aug. 1 he said that extending the cuts without making offsetting spending reductions could prove "disastrous."

"I'm very much in favor of tax cuts, but not with borrowed money," said Greenspan.
Tax package ahead?

When the Senate returns in mid-September, lawmakers are likely to consider a small business bill which could include a “fix” for the estate tax problem. The American Farm Bureau Federation is supporting an amendment to the small business bill that was introduced by Sens. Blanche Lincoln (D-AR) and John Kyl (R-AZ.). Their measure would set the estate tax exemption at $5 millionwith a 35 percent maximum rate.

Another bill, introduced by Sen. Diane Feinstein (D-CA), would defer estate taxes on farms and ranches if a number of conditions are met. Her “Family Farm Estate Tax Referral Act of 2010, includes provisions that the farm must be passed on to an individual or family member who has been materially engaged in its management and operation for at least five years, and the heirs must continue to use the land for farming purposes.

A “recapture tax” would be owed if the farm or ranch was subsequently sold outside the family or was no longer used for farming or ranching. The tax due would be based on the value of the estate at the time the property is sold or ceases to be used for farming or ranching.

Yet another measure has been introduced by Sen. Bernie Sanders (I-VT.). His bill is cosponsored by Sens. Tom Harkin (D-IA), Sheldon Whitehouse (D-R.I.), and Sherrod Brown (D-OH). The bill would exempt the first $3.5 million of an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009, and create a progressive rate so the so called “super wealthy” pay more. The tax rate for estates valued between $3.5 million and $10 million would be 45 percent, the rate on estates worth more than $10 million and below $50 million would be 50 percent; and the rate on estates worth more than $50 million would be 55 percent.

The AFBF supports the Lincoln/Kyl amendment because it seeks a permanent forgiveness of estate taxes while the Feinstein bill is a deferral with taxes owed if property were ever sold outside the family or ceased to be used for agriculture.
The National Farmers Union sent a letter of support for the Lincoln/Kyl bill, but their policy actually calls for a $4 million individual exemption. Chandler Goule, NFU’s VP for Government Relations says the Lincoln/Kyl measure is preferable to current law and says a conference between the two chambers could come close to what NFU has been supporting.

Failure to include estate tax reform in the Small Business bill increases the likelihood that estate tax reform will be included in a major tax package that is expected to be considered in a “lame duck” session after the mid-term election, says Patricia Wolff, Director, Public Policy for AFBF.

Where the offsets would come from to pay for estate tax reform or other changes in the tax code is still anyone’s guess.

Sen. Maria Cantwell (D-WA) has circulated an idea that would allow individuals to prepay their estate tax, based on current value. Conceivably, the federal government would receive more money up-front, but could lose money if an individual’s assets appreciate considerably between the time they pay and the time they die.

One relatively piece of good news for those of you trying to plan: There is little opposition to a stepped-up basis on asset values, says Wolff, so any of the proposed “fixes” will likely allow any appreciation of the affected property that occurred during a person’s lifetime to never be taxed.

Tuesday, August 10, 2010

More red tape for your farm?

Congress created new record-keeping requirements that could burden farms, small businesses

By Sara Wyant

A little-known provision tucked into the health care reform bill that President Obama signed into law this spring could have costly and confusing impacts on farmers and small business owners.

The new regulations, which kick in at the start of 2012, require any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services that year and report on forms filed in 2013. That means supplies, parts, or any of the goods that you might purchase to run your farming operation or business.

“A laundromat that buys soap each week would now have to issue a 1099 to their supplier and the IRS at the end of the year. A landscaper who buys lawn fertilizer a couple of times a month will now be forced to issue 1099s to the companies they do business with, and no one is excluded,” lamented Sen. Mike Johanns (R-NE) in a recent speech on the Senate floor where he argued for full repeal of the new regulations.

The Patient Protection and Affordable Care Act (PPACA) provision would apply to businesses of all sizes, charities and other tax-exempt organizations, and government entities. These would include two million farming businesses, 26 million non-farm sole proprietorships, four million S corporations, two million C corporations, three million partnerships, one million charities and other tax-exempt organizations, and probably more than 100,000 federal, state, and local government entities, according to a report released by National Taxpayer Advocate Nina Olson.
The provision has nothing to do with health care, other than to help generate more tax revenue to pay for the mammoth reform package by reducing the “tax gap.” The federal government misses out on over $300 billion each year from tax underpayment, according to a report issued by the General Accountability Office in 2007. Requiring the additional 1099 paper trails are an attempt to help the Internal Revenue Service (IRS) find businesses that may not be paying their fair share of taxes.

But along with additional tax revenues, the new regulations will likely create a paperwork nightmare for farmers and small business owners and yes, even the IRS. Although the rules have not yet been finalized, Olson highlighted a number of the challenges in her report: “National Taxpayer Advocate's FY 2011 Objectives Report to Congress”.

“First, vendors will have to furnish, and businesses will have to collect, TINs (Tax Identification Numbers). If the vendor is a sole proprietor who uses his or her Social Security number (SSN) as the TIN, there could be identity theft concerns, especially if TINs essentially become public through routine printing on receipts. Alternatively, such a vendor could obtain an Employer Identification Number (EIN). If a vendor fails to furnish a correct TIN, the business is required by law to impose back-up withholding at the rate of 28 percent of the purchase price.”
“Second, businesses will now have to keep records of all purchases sorted by TIN. Under prior law, a business may have retained sufficient records to substantiate lump-sum ex-pense deductions. Under the new law, the business will have to segregate its records by vendor TIN to determine whether the $600 annual threshold is met for each vendor.

“Third, businesses will have to produce and transmit information reports, including many not previously required. For this purpose, small businesses may have to acquire new software or pay for additional accounting services, incurring additional costs. Moreover, if a business makes qualifying purchases from at least 250 vendors during the calendar year, it will be required to file Forms 1099 electronically, which may require the business to pay a per-report fee charged by an e-file service provider.
“Fourth, the IRS will face challenges making productive use of this new volume of information reports. In general, the IRS’s document-matching system (known as the Automated Underreporter (AUR) program) compares amounts shown on a taxpayer’s tax return with amounts shown on third-party information reports like Forms W-2, Wage and Tax Statement, and Forms 1099.

For example, it matches wages shown on a Form W-2 with wages reported on a tax return and interest shown on a Form 1099-INT, Interest Income, with interest reported on a tax return.Under the expanded reporting regime, however, the amounts on the information reports and the tax returns will not match under the rules for at least two reasons. First, total annual payments under $600 will not be reported by the purchaser on Form 1099 but must be reported by the vendor. While the $600 threshold existed under prior law, if a significant proportion of a vendor’s proceeds comes from small purchases, PPACA reporting would be underinclusive. Second, the goods market is subject to a high rate of returned items that result in refunds to the purchaser. If a business purchases and then returns goods, the vendor does not have any income. Yet depending on how the purchaser’s record-keeping system is set up, a Form 1099 may be filed showing the purchase (particularly if the purchase occurs in one tax year and the return occurs in the following tax year).”

At any rate,”it will be challenging for the IRS to sort these payments out,” reports Olson in her report to Congress. “In our view, it is highly likely that the IRS will improperly assess penalties that it must abate later, after great expenditure of taxpayer and IRS time and effort.”

Under a proposed regulation to streamline data collection, many business purchases made with credit or debit cards would be exempt from the new reporting requirement because they are already reported by banks and other payment processors. But even this proposed rule has come under attack from small business groups that want to pay with cash or check to avoid costly credit card fees. The IRS is accepting public comments on the new rule until Sept. 29, 2010.

Will Congress repeal?

Even before the new rules take effect, several lawmakers are trying to repeal this proposal altogether and a key Senate vote is scheduled for mid-Sept. Both Republicans and Democrats want to change the rule, but they differ in their approaches and methods of paying for them.

For example, Sen. Mike Johanns (R-NE) introduced S.3578, the Small Business Paperwork Mandate Elimination Act, which would totally repeal this provision and prevent what he describes as “a massive new paperwork requirement from being imposed on businesses.” This is a companion legislation to H.R. 5141 introduced in May be Rep. Dan Lungren (R-CA).

"This mandate forces businesses to waste staff time and resources on paperwork that even the IRS says will likely be of little value," Johanns said. "One more mandate that stifles small businesses at the same time that Washington urges them to hire workers. For businesses already struggling to emerge from a recession this would be particularly burdensome, requiring government paperwork for common, everyday purchases. It is nothing more than a government-imposed obstacle to economic growth and job creation.”

Co-sponsors include: Sen. Pat Roberts (R-KS), Sen. John Thune (R-SD), Sen. Christopher Bond (R-MO), Sen. Tom Coburn (R-OK), Sen James Inhofe (R-OK), Sen. Kay Bailey Hutchinson (R-TX), Sen. John Cornyn (R-TX), Sen. Mike Enzi (R-WY), Sen. John Barrasso (R-WY), Sen. Mike Crapo (R-ID),Sen. James Risch (R-ID), Saxby Chambliss (R-GA), Sen. Johny Isakson (R-GA), Sen. Richard Burr (R-NC), Sen. Lamar Alexander (R-TN), Sen. John McCain (R-AZ),Sen. Lindsey Graham (R-SC), Sen. Richard Lugar (R-IN), Sen. Lisa Murkowski (R-AR), Sen. John Ensign (R-NV), Sen. David Vitter (R-LA), Sen. George Voinovich (R-OH), and Sen. Scott Brown (R-MA). The lone Democrat to sign on this far is the chairman of the Senate Agriculture Committee: Sen. Blanche Lincoln (D-AR).

To pay for the change, Johanns lowers the affordability exemption for the new individual mandate from 8 percent to 5 percent, making fewer people subject to the individual health insurance mandate. The amendment also proposes that a $15 billion fund for wellness programs not be funded until 2018.

Sen. Bill Nelson (D-FL) plans to offer another amendment that would not repeal the record-keeping measure but would change the reporting threshold to from $600 to $5,000. His alternative is paid for by changing Section 199 of the tax code, which allows the nation’s largest oil companies to deduct six percent of their income from oil and gas production from their tax liability, effective Dec. 31, 2010.
Some of the nation’s largest small business groups and the American Farm Bureau Federation are lobbying for full repeal.

“The only option to address this widely-agreed upon onerous 1099 provision on small businesses is full repeal,” emphasized Susan Eckerly, senior vice president at the National Federation of Independent Business in a statement. “Congress needs to stop speaking out of both sides of their mouth. If they are truly interested in helping small businesses – whatever their size – they will pass legislation that fully repeals this burdensome new requirement.”


Wednesday, June 16, 2010

Dairy producers lead the drive for major changes in the 2012 Farm Bill

Will other livestock groups join in?

By Sara Wyant

“Tough times never last, but tough people do.”

That quote, from Minister Robert Schuller, describes plenty of farmers, but is especially applicable to the dairy men and women who have been at the mercy of extremely volatile milk and feed grain markets for the last three years. Decades-old federal dairy policies did little to stop the economic “bleeding.”
Out of those difficult times grew some creative thinking about the type of safety net that dairy producers need going forward. After working more than a year with fellow dairymen, staff and economists, the National Milk Producers Federation (NMPF) rolled out their “wish list” for future federal dairy policy last week, dubbed “Foundation for the Future.”

“Producers, like me, agree that the more than 70-year-old safety net programs need revamping,” emphasized Nebraska dairy farmer and NMPF board member Doug Nuttelman during a Senate Agriculture Committee hearing last fall while the group was developing their plan. “It needs to be made more relevant for the future to avoid the conditions we are now experiencing.”

In 2007, milk prices spiked over $19/cwt. and guess what? Dairymen expanded production, only to watch milk prices respond to the oversupply and drop closer to $11/cwt last year. In what seemed like a perfect storm, the price of feed grains skyrocketed during the same time period, squeezing margins and driving many out of business.

“It’s clear we need a new safety net that focuses on margins, not just milk prices,” said NMPF’s CEO Jerry Kozak. “It’s also clear we need a system that sends timely, unmistakable signals to farmers that less milk is needed during periods of relative imbalance. The Foundation for the Future addresses both of those key issues, and it does so in a fiscally responsible, politically‐realistic fashion.”

It’s complicated

For those of you who think U.S. dairy policy is already complicated, this new proposal won’t change your perspective. In fact, it may make it worse.
The Federation’s proposal to revamp the federal safety net involves several components, including the creation of an insurance program tied to the margin between the national average cost of feed, and the national average milk price. In a huge philosophical shift, the program protects margins rather than milk prices.
Conceptually, it is similar to a program currently offered in most states by USDA’s Risk Management Agency, Livestock Gross Margin (LGM), for dairy, swine and cattle. The LGM Dairy program provides protection to dairy producers when feed costs rise or milk prices drop. But this program has failed to attract much interest, with only 474 producers enrolling in 2010, and was rejected by NMPF as a workable solution.

NMPF’s plan would use different benchmarks and be administered by your local Farm Service Agency (FSA) offices, rather than private insurance agents.
After farmers choose to enroll in the base level of the Dairy Producer Margin Protection Program at no cost to them, they would receive indemnity payments during periods when their margins are tight. In addition, farmers would have the option of purchasing supplemental coverage to protect a higher margin level between feed costs and milk prices, up to 90 percent.

No annual payments

In a conference call with reporters last week, Kozak said payments will kick in only when farmers face serious financial peril. "It's not intended to give a payment out every year, and it's not intended to give a payment when it's not needed," he explained.

The dairymen don't want payment limits, which is understandable, but perhaps not realistic. Crop farmers have been unable to avoid them for years.
The insurance program would pay farmers when the difference between milk prices and feed costs falls below $6 per 100 pounds of milk. Dairy farmers would establish a "base" level of milk production which includes annual production over the past three years. Milk production beyond that level would not qualify for insurance payments.

Another key element of the Foundation for the Future will be a Dairy Market Stabilization Program that sends a signal to producers that a small percentage of additional milk production may impact their margins. This program would encourage producers to lower their milk marketings at appropriate times.

This proposal also includes other measures, such as expanding dairy exports, ending the current federal dairy price support program and the Milk Income Loss Contract program, which pays smaller and mid-size farmers when milk prices fall below a federal target of $16.94 per cwt. Major revisions to the federal milk marketing orders are also part of this comprehensive policy overhaul.

Other parts of the dairy industry are advocating a much stronger supply management program in the next farm bill, but NMPF sources suggested that, if this new proposal is allowed to work, supply management terms might be unnecessary.

That may be true from an economic standpoint, but politically, it will be tough to embrace this large package of changes without building political support from large and small dairy producers, ranging from Vermont to California. And there will be plenty of questions from the cowboys and the pork producers, wondering why one part of the four-legged lobby gets margin protection, while they don’t.

Clearly the dairymen who developed the policy have learned from their tough times and are willing to embrace a much bigger vision for the future. Whether or not politicians will also embrace this “tough love,” remains to be seen.

For more information, go to: Agriculture News, Farm Policy, and Rural Policy