VAPG Interim Rule Announced

The “Interim Rule” for the 2010 Value-Added Producer Grant (VAPG) was issued February 23, 2011. 

 This rule will apply as written to the next round of VAPG funding, which is considered the 2010 program as no VAPG application periods were held in 2010.  It is possible that the 2010 and 2011 funding will be combined, but that won’t be known until the Notice of Funding Availability (NOFA) is released. 

The 2010 Interim Rule incorporates USDA’s responses to public comments on the VAPG “Proposed Rules” that was released on May 28, 2010.  (Click here to see 2010 Interim Rule.)  As usual the changes are a mixed bag but it is our view that USDA has been reasonably responsive and incorporated a large number of the suggestions received.  Some of the changes were substantive, and many are very welcome.

More guidance on implementation of the  2010 Interim Rule will be provided with the NOFA, including the total amount of funding available and the maximum grant awards allowed for planning and working capital grants, though we expect these to remain at $100,000 and $300,000 respectively. 

Serious applicants should assess their proposed projects as soon as possible.  This program is typically very competitive, with about a 20 percent success rate in most years.  (Morrison & Company was successful with six of the seven VAPG proposals we wrote for the last VAPG funding cycle.)

This memo covers the following topics:

   - Regulations at a glance

   - Changes from 2009 and/or the Proposed Rules

   - Purpose of the VAPG program

   - What are value-added agricultural products?

   - Eligible applicants

   - Planning grants

   - Working capital grants

   - Eligible uses

   - Ineligible uses

   - Matching funds

   - Due date

   - I have more questions

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Regulations at a Glance

1.   Grant and matching funds must be used to promote value-added agricultural products, primarily for the benefit of agricultural producers and organizations of agricultural producers.

2.   “Value-added agricultural products” are described below. 

3.   Eligible applicants are described below.  

4.   Grant and matching funds may be used for domestic or international projects.

5.   Grant and matching funds may be used for planning projects or working capital projects, but not both in the same year's program.

6.   Projects must last no more than 36 months.

7.   Federal funds must be matched at least 1:1 with cash or in-kind contributions.

8.   There are two classes of reserved funds, for which 10 percent of total funding will be set aside (each):  Beginning and socially disadvantaged farmers and ranchers, and proposed projects that develop mid-tier value marketing chains.

 

Changes from 2009 and/or the Proposed Rules

Some of the more notable changes from the 2009 program and/or the 2010 Proposed Rules include:

   - The Proposed Rules would have given extra priority points to “projects located in a rural area,” i.e., areas with less than 50,000 in population.  This would have posed many applicants problems – including those in rural areas.  While farms are usually in rural areas, marketing projects (the VAPG is a marketing grant) often take place where the most people are, which is in urban areas.  Also, cooperatives and other grower-owned companies are often headquartered in cities with populations greater than 50,000.  Fortunately this proposal was omitted from the 2010 Interim Rule. 

   - One Proposed Rule severely limited the use of grant funds for product differentiation (e.g. branding and packaging).  We found this perplexing as product differentiation is essentially synonymous with value-adding.   These restrictions were deleted in the 2010 Interim Rule. 

   - For multi-year projects (up to 36 months), “separate and unique tasks” are no longer required in each year, e.g., a grantee can now do TV advertising all three years or offset processing costs for all three years. 

   - A controversial 2009 VAPG requirement was the listing of an applying entity’s owners, the owners of the owners, the owners of the owners of the owners, etc.  This was impractical or impossible for applicants such as cooperatives and agriculture producer groups (e.g., trade associations) with dozens or hundreds of owners or members, each of which in turn may have several owners (e.g., partnerships, family trusts, LLCs, etc.).  In addition, comments USDA received noted that making such disclosures was illegal in some states.  This has been revised to allow listing owners or members “by name or class.”  They do not define what they mean by “class,” but we assume it is fairly broad, e.g., sole proprietor, family farm, partnership, etc.

   - Most commenting on the Proposed Rule to set March 15 as the annual due date supported it as a way to lend some predictability to the program, and also suggested lengthening the application period from the proposed minimum 60 days to a minimum of 90 days to allow more time to complete a feasibility study and business plan.  USDA decided to delete the set March 15 date to allow for “flexibility” and committed only to a minimum 60 day application period. 

   - Applicants for working capital grants must now submit Form RD 1940–20, “Request for Environmental Information,” (Click here to see a copy).  This will be relatively simple for some applicants and a challenge for others. We suggest reviewing it soon if you plan to apply.

   - The definition of Small or Medium-Sized farms or ranches has been changed to include family farm operations with average revenues of up to $1 million. 

   - Ten priority points will be awarded to applicants applying as a Beginning Farmer or Rancher, Socially Disadvantaged Farmer or Rancher, Operator of a Small or Medium-sized farm or ranch that is structured as a Family Farm, a Farmer or Rancher Cooperative, or Mid Tier Value Chain proposals.

   - Feasibility studies must be prepared by a “qualified consultant” as in past years. This requirement seems to have been extended to business plans as well. 

   - Applicants applying as Independent Producers for working capital grants of $50,000 or more who can demonstrate that they are proposing market expansion for an existing value-added product(s) that they currently own and produce and have produced and marketed for at least two years may submit a business or marketing plan in lieu of a feasibility study. These applications must still document an increased customer base and increased revenues returning to the applicant as a result of the project. The waiver of an independent feasibility study does not change the proposal evaluation or scoring elements pertaining to issues that might be supported by an independent feasibility study.

   - The 2010 Interim Rule limits in-kind contributions of time from owners or family members to 25 percent of total project costs.  This is actually an easing of the 2009 rule for planning grants, which did not allow such contributions at all.

   - Applicants requesting less than $50,000 will be allowed to submit a simplified application, the requirements for which will be announced in the annual NOFA.  Applicants requesting working capital grants of less than $50,000 are not required to provide feasibility studies or business plans, but must provide information demonstrating increases in customer base and revenue returns to the producers supplying the majority of the agricultural commodity as a result of the project.

   - USDA is developing a “comprehensive application package” intended to simplify the application process, which will presumably be issued with the NOFA.  USDA has issued discretionary templates in the past. It sounds like this may be a mandatory form or format but we won’t know until the NOFA Is released. 

   - It appears that the same scoring criteria will be used for both planning and working capital grants (rather than separate criteria in as the past), as follows:

          - Nature of the Proposed Venture (Score 0 to 30 points).

          - Qualifications of Project Personnel (Score 0 to 20 points).

          - Commitments and Support (Score 0 to 10 points).

          - Work Plan and Budget (Score 0 to 20 points).

          - Priority Points (0 or 10 points).  Priority categories include: Beginning Farmer or Rancher, Socially Disadvantaged Farmer or Rancher, Operator of a Small or Medium-sized farm or ranch that is structured as a Family Farm, Mid Tier Value Chain proposals, and Farmer or Rancher Cooperative. 

          - Administrator Priority Categories (Score 0 to 10 points).  To achieve “Geographic diversity.”

 

Purpose of the VAPG program

The purpose of the program is to “enable viable agricultural producers to develop businesses that produce and market value-added agricultural products” so as to allow those producers to participate in the economic returns from value-added activities such as making and/or marketing a processed product.  There are two types of VAPG grants available:  “Planning grants” and “working capital grants” (described below). 

 

What are value-added agricultural products?

The agricultural commodity must meet one of the following five value-added criteria:

     1. Has undergone a change in physical state (e.g., juice, salsa, bread, bio-diesel).

     2. Was produced in a manner that enhances the value of the agricultural commodity (e.g., organics).

     3. Is physically segregated in a manner that results in the enhancement of the value of the agricultural commodity (e.g., non-GMO).

     4. Is a source of farm- or ranch-based renewable energy, including E–85 fuel.

     5. Is aggregated and marketed as a locally-produced agricultural food product (sold within 400 miles of the farm or ranch or within the state in which it was produced).

 Further:

     1. The customer base for the agricultural commodity or product is expanded, and

     2. A greater portion of the revenue derived from the marketing, processing, or physical segregation of the agricultural commodity or product is available to the producer of the commodity or product.

 Mid-tier value chain projects must involve "Local and Regional Supply Networks" that contain at least two alliances, linkages, or partnerships within the value chain. They must also directly impact the profitability and competitiveness of Small and Medium- Sized Farms and Ranches that are structured as Family Farms. Finally, the project must include an agreement from an Agricultural Producer Group, Farmer or Rancher Cooperative, or Majority- Controlled Producer-Based Business Venture that is engaged in the value chain on a marketing strategy.

 

Eligible applicants

Grants will be awarded to:

     1. Independent producers (includes agricultural producers, steering committees of producers who have not yet formed a formal business entity, and producer owned corporations and associations).

     2. Eligible agricultural producer groups (e.g., trade associations).

     3. Farmer or rancher cooperatives.

     4. Majority-controlled producer-based business ventures.

 

Planning grants

A grant to facilitate the development of a defined program of economic planning activities to determine the viability of a potential value-added venture, and specifically for the purpose of paying for a qualified consultant to conduct and develop a feasibility study, business plan, and/or marketing plan associated with the processing and/or marketing of a value-added agricultural product.  These uses include, but are not limited to:

     - Obtain legal advice and assistance related to the proposed venture.

     - Conduct a feasibility analysis of a proposed value-added venture to help determine the potential for marketing success.

     - Develop a business plan that provides comprehensive details on the management, planning, and other operational aspects of a proposed venture.

     - Develop a marketing plan for the proposed value-added product, including the identification of a market window, the identification of potential buyers, a description of the distribution system, and possible promotional campaigns.

     - Planning funds may not be used to evaluate the agricultural production of the commodity itself, other than to determine the project’s input costs related to the feasibility of processing and marketing the value-added product. 

 

Working capital grants

A grant to provide funds to operate a value-added project, specifically to pay eligible project expenses related to the processing and/or marketing of the value-added product that are eligible uses of grant funds. 

These uses include, but are not limited to:

     - Design or purchase an accounting system for the proposed venture.

     - Pay for processing costs (e.g., packaging, processing labor) excluding the cost of the commodity to which value is being added.

     - Pay for salaries, utilities, and rental of office space.

     - Purchase inventory, office equipment (e.g. computers, printers, copiers, scanners), and office supplies (e.g. paper, pens, file folders).

     - Conduct a marketing campaign for the proposed value-added product.

 Applicants for working capital grants must have a feasibility study prepared by an independent consultant and a business plan prior to submitting the application (as described herein, the 2010 Interim Rule makes some exceptions to the feasibility study requirement for requests under $50,000, and requests over $50,000 by Independent Producers for a product they have marketed for at least two years).  If you need an independently prepared feasibility study or a business plan, contact Morrison & Company.  With CPAs on staff, we can do this as part of our integrated services in a timely, cost effective manner.

 

Eligible uses

 In general, grant and cost-share matching funds have the same use restrictions and must be used to fund only the costs for eligible purposes as defined in the 2010 Interim Rule:

     1. An application may be for either a Planning Grant or a Working Capital Grant (see below), but not both.

     2. Grant funds may be used to pay up to 50 percent of the costs for carrying out relevant projects. Matching funds must provide for the balance of costs.

     3. Matching funds may generally only be used for the same purposes allowed for grant funds.

  

Ineligible uses

 Grant and matching funds may not be used to:

    - Support costs for services or goods going to or coming from a person or entity with a real or apparent conflict of interest, except as specifically noted for limited in-kind matching funds.

    - Pay costs for scenarios with noncompetitive trade practices.

    - Plan, repair, rehabilitate, acquire, or construct a building or facility.

    - Purchase, lease purchase, or install fixed equipment, including processing equipment.

    - Purchase or repair vehicles.

    - Pay for the preparation of the grant application.

    - Pay expenses not directly related to the funded project for the processing and marketing of the value-added product.

    - Fund research and development.

    - Fund political or lobbying activities.

    - Fund any activities prohibited by 7 CFR parts 3015 and 3019, 2 CFR part 230, and 48 CFR subpart 31.2.

    - Fund architectural or engineering design work.

    - Fund expenses related to the production of any agricultural commodity or product, including seed, rootstock, labor for harvesting the crop, and delivery of the commodity to a processing facility.

    - Conduct activities on behalf of anyone other than a specifically identified independent producer or group of independent producers, as identified by name or class.

    - Pay owner or immediate family member salaries or wages.

    - Pay for goods or services from a person or entity that employs the owner or an immediate family member.

    - Duplicate current services or replace or substitute support previously provided.

    - Pay any costs of the project incurred prior to the date of grant approval, including legal or other expenses needed to incorporate or organize a business.

    - Pay any judgment or debt owed to the United States.

    - Purchase land.

    - Pay for costs associated with illegal activities.

 

 Matching funds

Grant recipients must provide matching non-Federal funds at least equal to the amount of the grant received. These matching funds must be spent in the same ratio that they are provided (e.g., 1 to 1).  Matching funds can be cash, "in-kind" non-cash contributions, or a combination of both.  Matching funds may also be provided by third parties.  If you think meeting the matching fund requirement would be difficult for you, contact Morrison & Company for possible strategies.

 

Due date

The due date will be established in the NOFA.  According to the 2010 Interim Rule, the application period will be a minimum of 60 days. 

 

I have more questions  

For a no-cost preliminary assessment, to learn more about our services, or to request information on grant programs, call Brent Morrison at 530 893-4764, ext. 202 or email bmorrison@morrisonco.net.  

 

The grant process and the related governmental regulations can be complex.  The VAPG program offers great rewards but the process is highly competitive.  All proposed projects have their strengths and weaknesses, as do the applying entities.  Our expertise is in helping our clients achieve every scoring point possible, highlighting strengths, and overcoming negatives as best possible.