The 2014 Farm Bill provides options for tenants and landowners, who must agree on a farm-by-farm basis. Those options, once chosen, will be in force through the 2019 crop year. The 2014 Farm Bill also allows for updates to crop acreage bases and yields in some cases.
The 2014 Farm Bill continues with many of the provisions of past legislation when it comes to eligibility criteria, but with changes in many categories. An eligibility determination for most USDA programs requires a producer, sharing in the risk of growing a crop, to submit an eligibility form that provides FSA County Committees with an overview of the farming operation. The information then goes into detail with regards to the person(s) who supply management, labor, equipment and land for the farming operation.
To be deemed “Actively Engaged in Farming” and eligible to receive program benefits, the county committee will look at the contributions of each individual and entity applying for benefits, whether those contributions are at “risk” and whether those contributions are commensurate with the benefits requested. Actively Engaged in Farming requires a significant contribution of 1) Capital, Land, Equipment, or a combination of all three; AND 2) Active personal labor, active personal management, or a combination of the two; AND 3) those contributions must be at risk for a loss. One exemption still applies to landowners. Landowners are deemed eligible through their role as owner, however, their shares must still be “commensurate” with the risk of loss.
Commensurate is simply that the amount of those contributions must be the same as the requested share of benefits for that particular farm program (CRP, PLC, ARC and others). When the actively engaged determination is for an individual, it is fairly easy to determine whether the shares requested are commensurate and the individual is actively engaged.
The 2014 Farm Bill changes the way Entities, such as LLCs, Partnerships and Corporations, will be deemed “actively engaged.” Under new regulations, each partner, stockholder, or member must make a contribution of Active Personal Labor and/or Active Personal Management to the farming operation, and those contributions must be 1) performed on a regular basis, 2) identifiable and documented, and 3) separate and distinct from the contributions of any other partner, stockholder or member of the farming operation. The failure of any partner, stockholder or member to meet these requirements will result in a reduction of payments to the entity.
As regulations are released, it will be important for individuals and entities to stay up-to-date so the operation can make necessary adjustments to remain eligible for program benefits. In addition, there are a number of regulations that must also be reviewed and followed under the “Substantive Change” rule if the farming operation is going to request an increase in the number of persons eligible for benefits. Substantive Change requires 1) a 20 percent or more increase in the number of base acres; 2) that the transfer of land or equipment by sale or gift from a present member to a new member is commensurate; based on fair market value; is not financed by the former owner; or any agreements that allow the former owner to retain residual control or repurchase at a later date.
Payment eligibility, especially for entities, requires a great deal of focus and patience. The person in charge of working with USDA employees needs to understand that the regulations are there to benefit all, but at times seem to limit what is permissible. Changes can be made, sometimes requiring legal changes to an entity that will provide maximum benefits to the farming operation.
Just don’t expect USDA employees to offer any advice as to which changes can be made. They can only act on the information provided. It is the “person” requesting program benefits who must be in compliance with regulations.
Once the “actively engaged” and “person” determination is completed, that ‘person’ is subject to a payment limitation for each commodity program under the 2014 Act. This payment limit is an amount, by program, that the “person” is not to exceed. As an example, a ‘person’ who enrolls in ARC or PLC will not receive payments in excess of $125,000 annually. This amount includes combined benefits from PLC or ARC, Loan Deficiency Payments and Marketing Loan Gains. For the Conservation Reserve Program (CRP) the payment limit is $50,000 per “person” per fiscal year. Other programs have the same or different payment limits.
Using information that is currently available, all farming operations are encouraged to look at how the operation is setup, who is handling all of the day to day activities, who is at risk and which benefits will mostly likely be requested for the 2014 crop year. It may be next fall before signup is completed, so it is necessary that the farming operation be working in a manner that will meet eligibility requirements, since it will be very hard to go back and make changes after the fact.