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4/18/2004

Earnings to define family farming

The Associated Press

WASHINGTON — The revered family farm would be redefined in strict dollar terms under a government loan proposal. Some farmers fear the change would make it harder for them to stay in business or for other to get into it.

A multibillion-dollar loan program in the Agriculture Department would define family farms as meeting one of two conditions: They either bring in less than $750,000 in gross annual income or they cannot be in the top 5 percent in their state in gross annual income.

That hard-dollar determination has many farmers worried about their ability to get financing. Some expect they will have to choose between expanding to remain successful or staying small to qualify for low-cost federal financing.

The program provides a tremendous amount of financial support to farmers: some $750 million or so in direct loans to family farms every year, and another $2.5 billion in loan guarantees.

The proposed changes mark the first time the program has sought to strictly define just what is a family farm.

The most vocal complaints have come from dairy farmers. Measuring by gross income, they argue, ignores the higher operating costs inherent for cows, feed, milking machines and other costs.

Tim Servais of Stoddard, Wis., used the loan program to buy machinery and consolidate other higher-interest loans for his dairy farm. He said he would not qualify if the changes go into effect.

“I wouldn’t be farming right now if it wasn’t for the loan,” said Servais, 40, who has 300 cows.

Servais fears the new rules will make it harder for him and others to improve, expand or start a family farm.

Smaller operations in his area “are falling to the wayside,” and most family farms need to get bigger to stay afloat, he said.

The National Milk Producers Federation estimates the $750,000 bar would be reached by farms with 230 or more cows, at a time when the economics of the dairy industry push farmers to have more animals to be profitable.

The proposal does create an exemption that could help some farms below the limit. A farm run as a limited liability company could divide its gross income among partners in the company and as long as no single partner’s share exceeded $750,000, the operation would qualify as a family farm.

The federation claims the other standard, which would exclude only the top 5 percent of farms in terms of gross income in any given state, would still be disproportionately painful. More than half the dairy farms in California, Arizona and Colorado would not fall within the definition of a family farm, the group says.

The Agriculture Department is tinkering with “the holy grail of farm programs, and it is raising a lot of hackles,” said Chris Galen, a spokesman for the milk producers.

Rep. John McHugh, R-N.Y., said the proposal could make thousands of other small farm operations ineligible for loans. These include greenhouse, fruit and vegetable sellers who have high operating costs and relatively low profit margins.

Government officials say the proposal seeks to streamline and improve the program, which has depended for decades on vague descriptions of what a family farm is, resulting in uneven application of the rules.

“Numbers seem to be the most straightforward and objective way to make sure everyone that applies gets consistent treatment,” said Jim Radintz, director of the Farm Service Agency’s loan-making division.

If the change is approved, it probably would not go into effect until the end of 2004 or early 2005.