Farming operations, through managers, are able to apply for federal benefits under federal programs to assist in their operations (sometimes termed “safety-net payments”). The managers, to qualify, must be actively engaged in the farming operation. Programs include Agriculture Risk Coverage, Price Loss Coverage, Loan Deficiency Payments, and Marketing Loan Gains realized via the Marketing Assistance Loan Program. Since 1987, the rules pertaining to eligibility have been capacious, allowing a wide net of individuals to be eligible for the benefits under the broad definition of “actively engaged”.

However, on December 15, 2015, the United States Department of Agriculture finalized a rule, consistent with the 2014 farm bill, significantly changing the system and those who qualify for benefits from certain federal programs by narrowing the definitions of “actively engaged” and “significant contribution of active personal management”. To satisfy the new requirements, managers must perform critical actions under one or more of the following categories: Capital, land, and safety-net programs (e.g., financial management); labor (hiring and managing employees); and agronomics and marketing (deciding what crops to plant, managing crops, marketing crops, etc.). Passive management activities like attending board meetings or watching crop prices do not by themselves satisfy the requirements of the new rule. The USDA’s action is intended to prevent the distribution of benefits on account of individuals who are not actively part of farm management. The rule applies to nonfamily farm operations seeking benefits in respect to more than one farm manager, and requires documentation of critical management activities on the part of the manager each year. The changes go into effect for the 2016 crop year, except for farming operations that have planted fall crops for 2016 (in that case, the 2017 crop year applies).

Tom Vilsack, U.S. Secretary of Agriculture, released the following statement: “The federal farm safety-net programs are designed to protect against unanticipated changes in the marketplace for those who actively share in the risk of that farming operation. To ensure that help goes to those who genuinely need it, such as America’s farm families, the Farm Bill authorized USDA to close a loophole and limit payments from those not involved on a daily basis in nonfamily farm management.”

These changes will require general partnerships and joint ventures to reconsider their structure if they are to maximize benefits and protections under the federal programs. Various actions can be considered, including farm management planning and restructuring, re-drafting or drafting bylaws for partnerships, LLCs, and corporations, modifying contract and lease arrangements, and multiple other options. Those affected by the amended rule should consider consulting an attorney to assist in maximizing their benefits and ensuring they are in compliance with the new rule. McDaniel, Richardson & Calhoun is well equipped to handle such matters and offer guidance. If these rule changes affect you, please do not hesitate to contact us for assistance.