In recent years, several government programs were created to address challenges the agriculture industry faces. These programs have been critical to maintaining a strong and financially stable agriculture infrastructure that we so heavily rely on. With each program, however, we see new acronyms, rules, eligibility requirements and limitations to evaluate—providing their own sets of complexities.
A recent report issued by the University of Missouri’s Food and Agricultural Policy Research Institute estimated that nearly 40% of 2020 net farm income will come from government sources. While this rate isn’t a historic high, it does highlight the importance of these programs to a producer’s bottom line and cash flows. With this in mind, we included an overview of some of the more popular programs available to keep you informed.
Market Facilitation Program – MFP
The Market Facilitation Program (MFP) was created to provide aid to producers that were impacted by trade disruptions. While this program has now ended, many producers will report income from the third round of payments as part of their 2020 taxable income.
Coronavirus Food Assistance Program – CFAP
This program is available for producers that continue to face market disruptions and costs related to COVID-19. Participants in CFAP 2, a second iteration of the program, are eligible to receive up to $250,000 per individual or entity based on the applicable rates for covered commodities. The total funds in the program are limited and distributed on a first come, first serve basis. Eligibility for CFAP 2 expires on December 11, 2020.
Conservation Reserve Program – CRP
This is a long-standing, well-known program available to producers to protect environmentally sensitive agricultural lands. There are two options to enroll, general and continuous enrollment. General enrollment for the 2021 season is scheduled to run from January 4 to February 12, 2021. General enrollment is awarded under a competitive bidding process based on environmental benefits. Continuous enrollment is available for environmentally sensitive land and is not subject to the same bidding process. Contracts for CRP programs are typically 10-15 years in duration.
There is a wide array of financing options available, which are offered directly through the Farm Services Agency (FSA) or as guaranteed loans with participating lenders. There are also programs specific to youth and beginning farmers.
Direct loans through the FSA are available for land purchase or construction project financing with a maximum loan amount of $600,000. Direct farm operating loans are available for operating expenses (equipment, seed, livestock, etc.) with a maximum loan amount of $400,000.
Marketing assistance loans are also available to producers to finance their harvested crop to meet cash flow needs and avoid having to sell commodities during seasonal market lows. Non-recourse loans under this program allow the producer to offer the commodity as collateral with the option to deliver the pledged collateral to the Commodity Credit Corporation to repay the loan.
Farm Storage Facility Loans (FSFL) are available specifically for the purposes of improving or expanding a producer’s storage capacity, transportation and handling equipment. The maximum amount available is $500,000 over a 12-year period.
If you are already participating in one of these loan programs and have experienced hardships related to COVID-19, there could be options available for payment deferral, loan restructuring or, in some cases, loan forgiveness. If this applies to your situation, be sure to contact your local FSA office for more information.
Federal crop insurance has been growing in popularity with expansions of the program since the 1990s. The USDA reports that over 80% of the acres of major field crops are covered under federal crop insurance. Federal crop insurance can be classified as crop yield insurance, including Multiple-peril Crop Insurance (MPCI) and catastrophic (CAT) coverage as well as crop revenue insurance, including Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC). The PLC and ARC programs each offer unique benefits based on the specific needs of the policy holder. A participant must consider expected returns, caps on payments, whether supplemental coverage is needed and whether you prefer coverage based on county level or national factors to determine which policy is best suited for your needs. Federal crop insurance is available through a network of authorize crop insurance agents.
As you evaluate these programs, the following steps can help streamline the decision making and application processes:
- Keep up with agriculture-related media for updates on upcoming programs or changes to existing programs.
- Be prepared with the necessary books and records for applications and renewals. Just like meeting with your tax advisor, a clean set of books goes a long way.
- Record retention recommendations are similar for income taxes purposes, with seven years after the expiration of a policy as the standard time period.
- If you have questions about specific programs, the best resources are at your local FSA office.
Each program has unique eligibility requirements and deadlines, and we encourage you to contact your local FSA office for more information. Our tax experts have years of experience serving businesses in the agriculture industry. Please contact us to talk about your situation.