MorrisonGrants

USDA has released proposed rules for the 2010 Value-Added Producer Grant (VAPG) program, with a comment period open through June 27, 2010.  Comments may be submitted by any of the following methods:

• Federal eRulemaking Portal:  http://www.regulations.gov
• Mail:  Branch Chief, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, Stop 0742, 1400 Independence Avenue, SW., Washington, DC 20250–0742.
• Hand Delivery/Courier/FedEx/UPS:  Branch Chief, Regulations and Paperwork Management Branch, U.S. Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, DC 20024.

There are many proposed changes with varying degrees of impact; we invite you to provide USDA your comments on provisions that may impact you. 

Following is our assessment of some of the more significant provisions.

Requirement to List Owners and Owners of Owners:

One of the biggest problems with the 2009 VAPG rules was a requirement for applicants to list their owners/members by name and the owners of all their owners/members organized as any type of legal entity other than as individuals.  This posed a significant problem for cooperatives, agricultural trade associations, and other applicants with multiple owners/members that might be LLCs, partnerships, corporations, etc.  In many cases the applicants did not have the required information on the owners of their owners/members on file, and found it challenging or impossible to get it.  Legal issues were also raised regarding the release of such information in certain states, even if it were available. 

We are aware of several potential applicants that declined to apply in 2009 due to this requirement.  The proposed 2010 rules are silent on the matter, which presumably means that the requirement has been dropped.  However, this is not necessarily the case; we have seen several instances over the years in which very significant provisions appeared in the final rules that were not in the comment draft.  If this is an issue for your organization, we suggest that you comment on it; another nail in the coffin of this provision can’t hurt. 

Limitations on Branding, Packagin, and Product Differentiation:

Perhaps the most perplexing proposal is rule 4284.922(7)(c) on page 28829 of the proposed rules, which reads: “Branding activities. Applications that propose only branding, packaging, or other similar means of product differentiation are not eligible under this subpart. However, applications that propose branding, packaging, or other product differentiation activities that are no more than 25 percent of total project costs of a value-added project for products otherwise eligible in one of the five value-added methodologies specified in paragraphs (1)(i) through (v) of the definition of value-added agricultural product are eligible.”

The 2009 program contained a provision that disallowed applications that proposed “only branding, packaging, or other similar means of product differentiation.”  This struck us as odd but fairly meaningless as such a project would be fairly unusual.  Limiting these very valuable tools to 25 percent (or any significant limitation), however, would impact a large number of applicants, raise interpretation issues, and seems to directly conflict with the purpose of the VAPG program.

According to Section I.B of the proposed rules, “The primary objective of this grant program is to help Independent Producers of Agricultural Commodities, Agriculture Producer Groups, Farmer and Rancher Cooperatives, and Majority-Controlled Producer-Based Business Ventures develop strategies to create marketing opportunities and to help develop Business Plans for viable marketing opportunities regarding production of bio-based products from agricultural commodities. As with all value-added efforts, generating new products, creating expanded marketing opportunities, and increasing producer income are the end goal.”  Further, the Definitions for “Value-added agricultural product” states “As a result of the change in physical state or the manner in which the agricultural commodity or product was produced, marketed, or segregated: (i) The customer base for the agricultural commodity or product is expanded and (ii) A greater portion of the revenue derived form the marketing, processing, or physical segregation of the agricultural commodity or product is available to the producer of the commodity or product.”  These being the ultimate purposes and goals of the VAPG program, we are uncertain of the purpose of limiting some of the most important tools to accomplish them. 

There are many examples of value created by packaging and branding alone.  For example, a current Frito Lay campaign for its Sun Chips brand touts “The World’s First 100% Compostable Chip Bag;” the proposed rules would exclude growers from VAPG funding to add value with similar green packaging.  In addition, the term “product differentiation” covers a lot of territory; product differentiation in several forms is the very purpose of a value-added process.  Asking one to create a value-added product without product differentiation is arguably an oxymoron.

Additional Points for Projects in Rural Areas:

Proposed rule 4284.942 grants 10 additional scoring points (above the 100 ordinarily possible) to “projects located in a rural area,” generally defined as areas with less than 50,000 in population.  This could pose many applicants problems – including those located in rural areas.

The VAPG is a marketing grant.  Marketing projects are often performed in areas with large populations because, to state the obvious, that is where the people are.  This rule would apparently penalize projects that involve market launches, promotions, and advertizing campaigns located in areas with the highest concentration of customers.  A similar question arises when a planning project involves contracting with advertising venues, specialists, or consultants located in urban areas, which would presumably conduct much of their work in their hometowns. 

Many cooperatives, agricultural trade associations, and other applicants are headquartered in locations that exceed 50,000 in population (Austin, Des Moines, Fresno, Kansas City, Omaha, Salem, or Tallahassee, anyone?), however the growers that actually benefit are by-and-large rural.  The new rule would seem to penalize an applicant conducting a project in its headquarters city even thought the benefits would flow to rural areas.  This scoring bias seems contrary to the VAPG’s stated purpose of increasing income to growers.

Filing Deadlines, Requirements to Submit Studies and Plans, and no VAPGs for Calendar 2010:

Section II.T of the proposed rules sets the annual application deadline as March 15 of each year; proposed rule 4284.915(d)(2) indicates that the annual application period must be open within 60 days of the due date.

In general, we like the idea of a fixed due date, which would bring predictability to the timing of the program.  However we would much prefer to see a 90 day application period due to the requirement to submit an independent feasibility study and business plan that is specific to the proposed project with working capital proposals.  (Up to now the feasibility study and business plan had to be submitted after a grant was awarded but they did have to be completed by the proposal due date.)  It is time consuming and costly to have a feasibility study and business plan done for a specific project; a short lead time does not give many organizations enough time, particularly smaller applicants with fewer resources.  Further, USDA occasionally changes what it wants in a feasibility study and business plan, limiting the ability to prepare too far in advance.

The lead time in the past has been as short as 30 days and as long as 100; 60 days is certainly a lot better that 30 but we think 90 days would allow for better and less costly studies, and be less likely to dissuade smaller applicants from applying.

It is important to note that the proposed March 15 due date, beginning in 2011, would mean that there will be no VAPG proposal period in calendar year 2010.

Set-asides for Socially Disadvantaged Groups:

A provision reserving a portion of VAPG funding for members of socially disadvantaged groups that was introduced in 2009 is continued in the 2010 proposed rules.  The Definitions for such groups state “In the event that there are multiple farmer or rancher owners of the applicant organization, the Agency requires that at least 51 percent of the ownership be held by members of a socially disadvantaged group.” 

This raised a question last year as to whether the qualifying 51 percent all had to belong to the same socially disadvantaged group or could belong to different groups (e.g., qualified ethic groups, Caucasian females).  USDA staff had no firm guidance on this last year, which is understandable for a new rule.  We’d like to see it clarified in the 2010 rules.  The 2009 rules stated that the 51 percent was decided by head count rather than ownership share; the proposed 2010 rule seems more ambiguous.

Open VAPG Projects:

Proposed rule 4284.920(f) states “If an applicant has an active value-added grant at the time of a subsequent application, the current grant must be closed out within 90 days of the annual NOFA.” 

Past VAPG rules have included similar provisions.  However 2009 was the first year that project periods could be as long as 36 months (as opposed to the previous 12 month limit).  This means more repeat applicants are likely to have open projects when the next proposal period comes around.  Also, we would like clarification as to whether “within 90 days” means before or after the NOFA date.

Projects Longer Than 12 Months:

Like last year, VAPG projects were permitted to run up to 36 months.  The 2009 rules contained a provision that projects running over 12 months had to have “unique tasks” each year, rather than a repeat of previous similar tasks (presumably such as advertising). 

The latter restriction is not included in the proposed 2010 rules, which, based on past experience, does not necessarily mean that it won’t be in the final rules.  We hope it is not.

Exception Authority:

Proposed rule 4284.904 states that the program Administrator “may make exceptions to any requirement or provision of this subpart, if such exception is necessary to implement the intent of the authorizing statute in a time of national emergency or in accordance with a Presidentially-declared disaster, or, on a case-by-case basis, when such an exception is in the best financial interests of the Federal Government and is otherwise not in conflict with applicable laws.”  Prior VAPG rules have not stated this authority, though it may have existed. 

See the full 2010 proposed rules.  Again, we invite you to provide comments to USDA on any proposed rule that may impact you. As always, please feel free to contact us with any questions or comments.