[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Rules and Regulations]
[Pages 10090-10134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3036]
[[Page 10089]]
Vol. 76
Wednesday,
No. 36
February 23, 2011
Part II
Department of Agriculture
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Rural Business--Cooperative Service
Rural Utilities Service
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7 CFR Part 4284
Value-Added Producer Grant Program Interim Rule
Federal Register / Vol. 76, No. 36 / Wednesday, February 23, 2011 /
Rules and Regulations
[[Page 10090]]
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DEPARTMENT OF AGRICULTURE
Rural Business--Cooperative Service
Rural Utilities Service
7 CFR Part 4284
RIN 0570-AA79
Value-Added Producer Grant Program
AGENCY: Rural Business--Cooperative Service and Rural Utilities
Service, USDA.
ACTION: Interim rule.
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SUMMARY: The Food, Conservation, and Energy Act of 2008 (the Act),
amends section 231 of the Agricultural Risk Protection Act of 2000,
which established the Value-Added Producer Grant Program. This program
will be administered by the Rural Business-Cooperative Service. Under
the interim rule, grants will be made to help eligible producers of
agricultural commodities enter into or expand value-added activities
including the development of feasibility studies, business plans, and
marketing strategies. The program will also provide working capital for
expenses such as implementing an existing viable marketing strategy.
The Agency will implement the program to meet the goals and
requirements of the Act.
The program provides a priority for funding for projects that
contribute to opportunities for beginning farmers or ranchers, socially
disadvantaged farmers or ranchers, and operators of small- and medium-
sized family farms and ranches. Further, it creates two reserved funds
each of which will include 10 percent of program funds each year to
support applications that support opportunities for beginning and
socially disadvantaged farmers and ranchers and for proposed projects
that develop mid-tier value marketing chains.
DATES: This interim rule is effective March 25, 2011. Written comments
on this interim rule must be received on or before April 25, 2011.
ADDRESSES: You may submit comments to this interim rule by any of the
following methods:
Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments
electronically.
Mail: Submit written comments via the U.S. Postal Service
to the 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: Submit written comments via Federal
Express mail, or other courier service requiring a street address, to
the Branch Chief, Regulations and Paperwork Management Branch, U.S.
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington,
DC 20024.
All written comments will be available for public inspection during
regular work hours at the 300 7th Street, SW., 7th Floor address listed
above.
FOR FURTHER INFORMATION CONTACT: Andrew Jermolowicz, USDA, Rural
Development, Rural Business-Cooperative Service, Room 4016, South
Agriculture Building, Stop 3250, 1400 Independence Avenue, SW.,
Washington, DC 20250-3250, Telephone: (202) 720-7558, E-mail
[email protected].
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This interim rule has been reviewed under Executive Order (EO)
12866 and has been determined not significant by the Office of
Management and Budget. The EO defines a ``significant regulatory
action'' as one that is likely to result in a rule that may: (1) Have
an annual effect on the economy of $100 million or more or adversely
affect, in a material way, the economy, a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local, or tribal governments or communities; (2)
create a serious inconsistency or otherwise interfere with an action
taken or planned by another agency; (3) materially alter the budgetary
impact of entitlements, grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raise novel legal
or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in this EO.
The Agency conducted a cost-benefit analysis to fulfill the
requirements of Executive Order 12866. The Agency has identified
potential benefits to prospective program participants and the Agency
that are associated with improving the availability of funds to help
producers (farmers and harvesters) expand their customer base for the
products or commodities that they produce. This results in a greater
portion of the revenues derived from the value-added activity being
made available to the producer of the product. These benefits are vital
to the success of individual producers, farmer or rancher cooperatives,
agriculture producer groups, and majority-controlled producer based
business ventures.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) of
Public Law 104-4 establishes requirements for Federal agencies to
assess the effects of their regulatory actions on State, local, and
tribal governments and the private sector. Under section 202 of the
UMRA, Rural Development must prepare, to the extent practicable, a
written statement, including a cost-benefit analysis, for proposed and
final rules with ``Federal mandates'' that may result in expenditures
to State, local, or tribal governments, in the aggregate, or to the
private sector, of $100 million or more in any one year. With certain
exceptions, section 205 of the UMRA requires Rural Development to
identify and consider a reasonable number of regulatory alternatives
and adopt the least costly, most cost-effective, or least burdensome
alternative that achieves the objectives of the rule.
This interim rule contains no Federal mandates (under the
regulatory provisions of Title II of the UMRA) for State, local, and
tribal governments or the private sector. Thus, this rule is not
subject to the requirements of sections 202 and 205 of the UMRA.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' Rural Development has determined
that this action does not constitute a major Federal action
significantly affecting the quality of the human environment and, in
accordance with the National Environmental Policy Act (NEPA) of 1969,
42 U.S.C. 4321 et seq., an Environmental Impact Statement is not
required.
Executive Order 12988, Civil Justice Reform
This interim rule has been reviewed under Executive Order 12988,
Civil Justice Reform. Except where specified, all State and local laws
and regulations that are in direct conflict with this rule will be
preempted. Federal funds carry Federal requirements. No person is
required to apply for funding under this program, but if they do apply
and are selected for funding, they must comply with the requirements
applicable to the Federal program funds. This rule is not retroactive.
It will not affect agreements entered into prior to the effective date
of the rule. Before any judicial action may be brought regarding the
provisions of this rule, the administrative appeal provisions of 7 CFR
parts 11 and 780 must be exhausted.
[[Page 10091]]
Executive Order 13132, Federalism
It has been determined, under Executive Order 13132, Federalism,
that this interim rule does not have sufficient Federalism implications
to warrant the preparation of a Federalism Assessment. The provisions
contained in the rule will not have a substantial direct effect on
States or their political subdivisions or on the distribution of power
and responsibilities among the various government levels.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-602) generally
requires an agency to prepare a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements under the
Administrative Procedure Act or any other statute unless the agency
certifies that the rule will not have an economically significant
impact on a substantial number of small entities. Small entities
include small businesses, small organizations, and small governmental
jurisdictions.
In compliance with the RFA, Rural Development has determined that
this action will not have an economically significant impact on a
substantial number of small entities for the reasons discussed below.
While, the majority of producers of agricultural commodities expected
to participate in this Program will be small businesses, the average
cost to participants is estimated to be approximately 20 percent of the
total mandatory funding available to the program in fiscal years 2009
through 2012. Further, this regulation only affects producers that
choose to participate in the program. Lastly, small entity applicants
will not be affected to a greater extent than large entity applicants.
Executive Order 12372, Intergovernmental Review of Federal Programs
This program is subject to Executive Order 12372, which requires
intergovernmental consultation with State and local officials.
Intergovernmental consultation will occur for the assistance to
producers of agricultural commodities in accordance with the process
and procedures outlined in 7 CFR part 3015, subpart V.
Rural Development will conduct intergovernmental consultation using
RD Instruction 1940-J, ``Intergovernmental Review of Rural Development
Programs and Activities,'' available in any Rural Development office,
on the Internet at http://www.rurdev.usda.gov/regs, and in 7 CFR part
3015, subpart V. Note that not all States have chosen to participate in
the intergovernmental review process. A list of participating States is
available at the following Web site: http://www.whitehouse.gov/omb/grants/spoc.html.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
USDA will undertake, within 6 months after this rule becomes
effective, a series of Tribal consultation sessions to gain input by
elected Tribal officials or their designees concerning the impact of
this rule on Tribal governments, communities and individuals. These
sessions will establish a baseline of consultation for future actions,
should any be necessary, regarding this rule. Reports from these
sessions for consultation will be made part of the USDA annual
reporting on Tribal Consultation and Collaboration. USDA will respond
in a timely and meaningful manner to all Tribal government requests for
consultation concerning this rule and will provide additional venues,
such as webinars and teleconferences, to periodically host
collaborative conversations with Tribal leaders and their
representatives concerning ways to improve this rule in Indian country.
The policies contained in this rule would not have Tribal
implications that preempt Tribal law.
Programs Affected
The Value-Added Producer Grant program is listed in the Catalog of
Federal Domestic Assistance under Number 10.352.
Paperwork Reduction Act
The collection of information requirements contained in this
interim rule have been submitted to the Office of Management and Budget
(OMB) for clearance. In accordance with the Paperwork Reduction Act of
1995, the Agency will seek standard OMB approval of the reporting
requirements contained in this interim rule. In the publication of the
proposed rule on May 28, 2010, the Agency solicited comments on the
estimated burden. The Agency received one public comment in response to
this solicitation. This information collection requirement will not
become effective until approved by OMB. Upon approval of this
information collection, the Agency will publish a rule in the Federal
Register.
Title: Value-Added Producer Grant Program.
OMB Number: 0570-XXXX.
Type of Request: New collection.
Expiration Date: Three years from the date of approval.
Abstract: The collection of information is vital to the Agency to
make decisions regarding the eligibility of grant recipients in order
to ensure compliance with the regulations and to ensure that the funds
obtained from the Government are being used for the purposes for which
they were awarded. Entities seeking funding under this program will
have to submit applications that include information on the entity's
eligibility, information on each of the evaluation criteria,
certification of matching funds, verification of cost-share matching
funds, a business plan, and a feasibility study. This information will
be used to determine applicant eligibility and to ensure that funds are
used for authorized purposes.
Once an entity has been approved and their application accepted for
funding, the entity would be required to sign a Letter of Conditions
and a Grant Agreement. The Grant Agreement outlines the approved use of
funds and actions, as well as the restrictions and applicable laws and
regulations that apply to the award. Grantees must maintain a financial
system and, in accordance with Departmental regulations, property and
procurement standards. Grantees must submit semi-annual financial
performance reports that include a comparison of accomplishments with
the objectives stated in the application and a final performance
report. Finally, grantees must provide copies of supporting
documentation and/or project deliverables for completed tasks (e.g.,
feasibility studies, business plans, marketing plans, success stories,
best practices).
The estimated information collection burden hours has increased
from the proposed rule by 1,239 hours from 67,943 to 69,235 for the
interim rule. The increase is attributable to reporting requirements
that were inadvertently omitted from the proposed rule.
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 11 hours per response.
Respondents: Producers of agricultural commodities.
Estimated Number of Respondents: 600.
Estimated Number of Responses per Respondent: 10.
Estimated Number of Responses: 6,239.
Estimated Total Annual Burden on Respondents: 69,235.
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E-Government Act Compliance
The Agency is committed to complying with the E-Government Act of
2002 (Pub. L. 107-347, December 17, 2002) to promote the use of the
Internet and other information technologies to provide increased
opportunities for citizen access to government information and
services, and for other purposes.
I. Background
This interim rule contains the provisions and procedures by which
the Agency will administer the Value-Added Producer Grant (VAPG)
Program. 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.
Eligible applicants are independent agricultural producers, farmer
and rancher cooperatives, agricultural producer groups, and majority-
controlled producer-based business ventures.
Rural Development is soliciting comments regarding the
participation of tribal entities including tribal governments in the
VAPG Program. Specifically, we are seeking comment on ways to improve
the ability of tribal entities participation in the VAPG Program and
ways to overcome existing barriers to tribal entities' participation in
the VAPG Program.
The program includes priorities for projects that contribute to
opportunities for beginning farmers or ranchers, socially disadvantaged
farmers or ranchers, and operators of small- and medium-sized family
farms and ranches that are structured as Family Farms. Applications
from these priority groups will receive additional points in the
scoring of applications. In the case of equally ranked proposals,
preference will be given to applications that more significantly
contribute to opportunities for beginning farmers and ranchers,
socially disadvantaged farmers and ranchers, and operators of small-
and medium-sized farms and ranches that are structured as Family Farms.
Grant funds cannot be used for planning, repairing, rehabilitating,
acquiring, or constructing a building or facility (including a
processing facility). They also cannot be used to purchase, rent, or
install fixed equipment.
This program requires matching funds equal to or greater than the
amount of grant funds requested. The Act provides for both mandatory
and discretionary funding for the program, as may be appropriated.
Further, the program includes two reserved funds each of which will
include ten percent of program funds each year to support applications
that support projects that benefit beginning and socially disadvantaged
farmers and ranchers and that develop mid-tier value marketing chains.
The number of grants awarded will vary from year to year, based on
availability of funds and the quality of applications. The maximum
grant amount that may be awarded is $500,000. However, the Agency may
reduce that amount depending on the total funds appropriated for the
program in a given fiscal year. This policy allows more grants to be
awarded under reduced funding.
The Agency notes, pursuant to general Federal directives providing
guidance on grant usage, that the matching funds requirement described
in the Agricultural Risk Protection Act of 2000 may include a limited
and specified in-kind contribution amount for the value of the time of
the applicant/producer or the applicant/producer's family members only
for their involvement in the development of the business and marketing
plans associated with a planning grant project. Please see Sec.
4284.902 definitions for Conflict of Interest, and Matching Funds; and
Sec. 4284.923(a) for applicant in-kind implementation protocol.
Interim Rule. The Agency is issuing this regulation as an interim
rule, with an effective date of March 25, 2011. All provisions of this
regulation are adopted on an interim final basis, are subject to a 60-
day comment period, and will remain in effect until the Agency adopts
final rules. The provisions of this subpart constitute the entire
provisions applicable to this Program; the provisions of subpart A of
this title do not apply to this subpart.
II. Summary of Changes to the Proposed Rule
This section presents changes from the May 28, 2010, proposed rule.
Most of the changes were the result of the Agency's consideration of
public comments on the proposed rule. Some changes, however, are being
made to clarify proposed provisions. Unless otherwise indicated, rule
citations refer to those in the interim rule.
A. Definitions
Numerous changes were made to the definitions, including revising,
adding, and deleting definitions.
1. Revised definitions. Definitions that were revised included:
Agricultural commodity. Incorporated the concept of
agricultural product.
Agricultural producer. Expanded the definition to
incorporate concept of having legal right to harvest an agricultural
commodity and how the term ``directly engage'' may be satisfied.
Agricultural producer group. Added that independent
producers, on whose behalf the value-added work will be done, must be
confirmed as eligible and identified by name or class.
Conflict of interest. Significant changes were made to
ensure clarity between conflict of interest, in-kind contributions, and
matching funds.
Emerging market. Added the concept of ``geographic
market'' and a two-year limitation.
Farmer or rancher cooperative. Revised ``independent
agricultural producers'' to read ``independent producers'' and added
that independent producers must be confirmed as eligible and identified
by name or class.
Independent producers. Revised steering committee
requirements and added harvesters as a new paragraph (3) to the
definition.
Local or regional supply network. Added ``aggregators'' to
list of example entities that may participate in a supply network and
added reference to ``provide facilitation of services.''
Majority-controlled producer-based business venture. Added
that Independent Producer members must be confirmed as eligible and
must be identified by name or class, along with their percentage of
ownership.
Matching funds. Significant changes were made to ensure
clarity between matching funds, in-kind contributions, and conflict of
interest.
Medium-sized farm. Increased the upper limit defining a
medium-sized farm to $1 million.
Product segregation. Removed reference to ``product''
because of the change in the definition for agricultural commodity.
Pro forma financial statement. Added a minimum three year
requirement for the projections included in the statement.
Project. Added ``eligible'' so that the definition now
refers to ``eligible activities.''
Qualified consultant. Added the concept of no conflict of
interest.
[[Page 10093]]
Value-added agricultural product. Removed reference to
``product'' because of the change in the definition for agricultural
commodity and reinstated text from the authorizing statute.
Venture. Added ``and its value-added undertakings'' to the
definition.
2. Added definitions. The following definitions were added:
Agricultural food product. This term was added to help
clarify what constitutes a ``Locally-produced agricultural food
product.''
Applicant. This term was added to emphasize applicant
eligibility requirements.
Branding. This term was added to clarify the
implementation of the program with regard to branding activities.
Change in physical state. This term is used in the Value-
Added Agricultural Product definition and is being defined to increase
understanding and Agency intention for this category and to mitigate
problems that have presented during the history of the program.
Produced in a manner that enhances the value of the
agricultural commodity. This term is used in the Value-Added
Agricultural Product definition and is being defined to increase
understanding and implementation for this important product eligibility
category in order to mitigate product eligibility problems and
interpretations that have presented during the history of the program.
3. Deleted definitions. The following definitions were deleted:
Agricultural product. The term is now incorporated into
the definition of agricultural product.
Anticipate award date. The term is not used in the rule.
Day. Unnecessary to define.
Rural or rural area. With the removal of the scoring
criterion for being located in a rural or rural area, the term is not
used in the rule.
B. Environmental Requirements
The Agency corrected this section by replacing the reference to
Form 1940-22, ``Environmental Checklist for Categorical Exclusions,''
with ``Form RD 1940-20, Request for Environmental Information.''
C. Applicant Eligibility
In addition to edits to clarify this section, changes included:
Replacing ``demonstrate'' with ``certify'' in Sec.
4280.920(c)(1) and (c)(2).
Replacing reference to ``immediate family members'' with
``entity owners'' in Sec. 4284.920(c)(2) to clarify the provision.
Adding a requirement to evidence good standing as part of
legal authority and responsibility (Sec. 4284.920(d)).
Clarifying that ``within 90 days'' for closing out the
currently active grant is based on the application submission deadline
(Sec. 4284.920(f)).
D. Project Eligibility
Numerous changes were made throughout this section, including:
Clarifying the conflict of interest provision in Sec.
4284.922(b)(2).
Adding exception to the requirement for submitting a
feasibility study for applicants who can demonstrate that they are
proposing market expansion for existing value-added products (see Sec.
4284.922(b)(5)(i)).
Adding an exception to the requirement for submitting a
feasibility study and a business plan for working capital applicants
requesting $50,000 or less and submitting simplified applications (see
Sec. 4284.922(b)(5)(ii)).
Added reference to an emerging market ``unserved by the
applicant in the two previous years'' to conform to change made in the
definition of emerging market (see Sec. 4284.922(b)(6)).
Removing proposed paragraph Sec. 4284.922(c), which
results in removing the proposed limitations on branding activities.
Revising reserved funds eligibility significantly to
identify the type of documentation being requested (see Sec.
4284.922(c)(1)(i) and (ii), Sec. 4284.922(c)(2)(i) and (ii), and Sec.
4284.922(c)(2)(iv)(A) and (B)).
Adding a new paragraph (d) addressing requirements for
applicants seeking priority points if they propose projects that
contribute to increasing opportunities for beginning farmers or
ranchers, socially disadvantaged farmer or ranchers, or operators of
small- and medium-sized farms and ranches that are structured as a
family farm.
E. Eligible Uses of Grant Funds
The Agency revised this section by including provisions to clearly
allow the use of in-kind contributions and limiting in-kind
contributions to 25 percent of total project costs.
F. Ineligible Uses of Grants and Matching Funds
In addition to adding new introductory text to this section to
address conflict of interest and to clarify that use of funds is
limited to only the eligible activities identified in Sec. 4284.923,
changes made include:
Adding a new paragraph prohibiting paying for 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 in Sec. 4284.923(a) and (b).
Adding a new paragraph prohibiting paying for costs for
scenarios with noncompetitive trade practices.
Adding ``for the processing and marketing of the value-
added product'' to the paragraph prohibiting paying expenses not
directly related to the funded project.
Adding ``as identified by name or class'' to the paragraph
prohibiting paying for conducting activities on behalf of anyone other
than a specifically identified independent producer or group of
independent producers.
Adding a new paragraph prohibiting paying owner or
immediate family member salaries or wages.
Adding a new paragraph prohibiting paying for goods or
services from a person or entity that employs the owner or an immediate
family member;
Deleting proposed Sec. 4284.924(p).
G. Preliminary Review
The Agency added text to reference applicant eligibility as part of
the preliminary review conducted by the Agency.
H. Application Package
Substantive changes to this section include:
Deleting the requirement to submit Form RD 400-1, Equal
Opportunity Agreement.
Adding the requirement to submit Form RD 1940-20.
Adding that the performance criteria in the applicant's
semi-annual and final reporting requirements can be requested by either
the applicant or the Agency and will be detailed in either the grant
agreement or the letter of conditions.
Adding that the applicant must demonstrate the eligibility
and availability of both cash and in-kind contributions (not just
provide authentic documentation from the source as was proposed).
Adding as acceptable matching funds a confirmed applicant
or family member in-kind contribution that meets the requirements and
limitations specified in Sec. 4284.923(a) and (b) and non-federal
grant sources (unless otherwise provided by law).
Providing additional examples of ineligible matching
funds.
Providing exceptions as to when a business plan and a
feasibility study are required.
Changing the language in the product eligibility category
``produced
[[Page 10094]]
in a manner that enhances the value of the agricultural commodity,'' to
allow for the inclusion of planning grant applications in this
category.
I. Filing Instructions
Changes to this section include:
Replacing the fixed application deadline of March 15 each
fiscal year with identification in an annual Federal Register notice of
the application deadline, which will allow at least 60 days for
applicants to submit their applications.
Adding text to indicate that applications must contain all
required components in their entirety.
Adding text to indicate that emailed or faxed applications
will not be accepted.
J. Processing Applications
The Agency revised Sec. 4284.940(b) by limiting the Agency
notifications under to applicants whose applications are found to be
ineligible.
K. Proposal Evaluation Criteria and Scoring
Several changes were made to this section including:
Adding text to indicate that applications whose scoring
information is not readily identifiable will not be considered.
Increasing the points to be awarded for the nature of the
proposed project from 25 to 30.
Decreasing the points to be awarded for the type of
applicant from 15 to 10.
Including points (10) to be awarded if the applicant is a
cooperative.
Deleting the rural or rural area location criterion.
L. Obligate and Award Funds (Grant Agreement at Proposal)
Two major revisions were made to this section as follows:
Adding a new paragraph (c) detailing additional
documentation that a grantee will need to execute in order for the
Agency to obligate the award of funds.
Adding details for the submittal of disbursement requests
by the grantee (Sec. 4284.951(d)).
M. Monitoring and Reporting Program Performance
The Agency made several changes to this section, as follows:
Adding text to Sec. 4284.960(a) to indicate that grantees
must complete the project per the terms and conditions specified in the
approved work plan and budget, and in the grant agreement and letter of
conditions.
Revising the time allowed for submitting semi-annual
performance reports from 30 to 45 days following March 31 and September
30 (see Sec. 4284.960(b)(1)).
Adding distribution network supply as an example of
supporting documentation under Sec. 4284.960(b)(3).
Adding examples of the types of project and performance
data that the Agency may request under Sec. 4284.960(b)(4).
Adding a new paragraph (Sec. 4284.960(b)(5)) identifying
conditions under which the Agency may terminate or suspend the grant.
N. Transfer of Obligations
The Agency made two revisions to this section as follows:
Adding to the introductory text that the transfer of
obligation of funds is at the discretion of the Agency and will be made
on a case-by-case basis.
Revising Sec. 4284.962(b) to condition the approval of a
transfer of obligation of funds on the project continuing to meet ``all
product, purpose, and reserved funds eligibility requirements.''
O. Grant Servicing
The Agency has revised this section to allow for an extension
process that would not require the approval of the Administrator.
Originally, the change was going to be made to 7 CFR part 1951 subpart
E, however, the Agency decided that the information was a better fit
under Sec. 4284.961.
P. Grant Close Out and Related Activities
The Agency has revised this section to identify these activities
more explicitly.
III. Summary of Comments and Responses
Purpose--(Sec. 4284.901)
Comment: One commenter recommends that ``viable agricultural
producers'' be added to this language to clarify that the limited grant
funds available in this discretionary funding program are intended to
assist viable agricultural businesses that are financially prepared to
progress to the next business level of planning for, or engaging in,
value-added production.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Definitions--(Sec. 4284.902)
Comment: One commenter states that, in addition to the need for
several new definitions related to program concepts, many of the
current definitions in the proposed rule need revision for
clarification and to ensure that the eligibility requirements dependent
upon these definitions are included in the rule. Eligibility
requirements depend upon and refer to the definitions, so the
definitions must be comprehensive.
Response: The Agency agrees with the commenter and has revised
definitions and provided additional definitions, as described in the
following paragraphs.
Agricultural Commodity
Comment: One commenter states that there is no need to distinguish
between ``Agricultural Product'' and ``Agricultural Commodity,'' and
recommends combining the definitions to read as follows:
Agricultural commodity. An unprocessed product of farms, ranches,
nurseries, forests, and natural and man-made bodies of water, that the
independent producer has cultivated, raised, or harvested with legal
access rights. Agricultural commodities include plant and animal
products and their by-products, such as crops, forestry products,
hydroponics, nursery stock, aquaculture, meat, on-farm generated
manure, and fish and seafood products. Agricultural commodities do not
include horses or other animals raised or sold as pets, such as cats,
dogs, and ferrets.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Agricultural Food Product
Comment: One commenter states that the definition for ``Locally-
produced agricultural food product'' does not describe what an
agricultural food product can and cannot be; it only describes the
distance and geographic requirements for local foods. Thus, a
definition consistent with the definition found in the Rural Business-
Cooperative Service Business and Industry program is needed. The
commenter recommends the following definition:
Agricultural food product. Agricul-tural food products can be a
raw, cooked, or processed edible substance, beverage, or ingredient
intended for human consumption. These products cannot be animal feed,
live animals, non-harvested plants, fiber, medicinal products,
cosmetics, tobacco products, or narcotics.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Agricultural Producer
Comment: One commenter recommends revising this definition to
address ``harvesters'' as eligible agricultural producers, and to
clarify past program conflicts of what it means to ``directly engage''
in production to strengthen the definition. The
[[Page 10095]]
commenter recommends the following definition:
Agricultural producer. An individual or entity directly engaged in
the production of an agricultural commodity, or that has the legal
right to harvest an agricultural commodity, that is the subject of the
value-added project. Agricultural producers may ``directly engage''
either through substantially participating in the labor, management,
and field operations themselves; or by maintaining ownership and
financial control of the agricultural operation.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Agricultural Producer Group
Comment: One commenter recommends softening, for Mid-Tier Value
Chain (MTVC) projects only, the definition of an Agricultural Producer
Group (APG). Expand the APG definition to include nonprofits that have
a mission to help promote farmer income through MTVC strategies, and
reduce any requirement that the nonprofit be controlled by farmers. It
is not necessary for a nonprofit with a MTVC to be controlled by
farmers for it to be genuinely representative and committed to farmers
and the MTVC. Such nonprofits are frequently the most likely to play a
pivotal role in convening and organizing a complex web of entities
along the value chain, and they should not be included as an eligible
MTVC-APG.
Response: The Agency does not agree that it is necessary to change
the definition of Agricultural Producer Group to allow for the
participation of other entities. The Agency recognizes that nonprofit
entities may provide valuable assistance within the supply chain and
has added ``nonprofit organizations'' to the Reserved Fund Eligibility
Requirements for MTVC.
Comment: One commenter suggests the following revised definition:
Agricultural producer group. A membership organization that
represents independent producers and whose mission includes working on
behalf of independent producers and the majority of whose membership
and board of directors is comprised of independent producers. The
independent producers, on whose behalf the value-added work will be
done, must be confirmed as eligible and identified by name or class.
The commenter states that the added language instructs on the
eligibility requirement that, for agricultural producer group, the
Independent Producers must be identified. The commenter prefers to
expand the definition by allowing identification by name or class.
Because the regulation refers to the definitions for instruction on
applicant eligibility, all eligibility requirements must be stated in
the definition.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Agricultural Product
Comment: One commenter states that this definition is not needed
and should be deleted. The commenter recommends combining this language
with the ``Agricultural Commodity'' definition.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Beginning Farmer or Rancher
Comment: One commenter states that the final rule should facilitate
applications from projects benefiting beginning farmers and ranchers.
Supporting these projects is a statutory priority for the VAPG program.
The statute also provides for a 10 percent reserved fund set-aside for
projects that benefit beginning farmers or ranchers or socially
disadvantaged farmers or ranchers. The specific wording of these two
statutory provisions is very important.
The Agency is to give priority to projects that contribute to
farming opportunities for beginning farmers and is to reserve funds for
projects that benefit beginning farmers. Nowhere does the statute say
that such priority projects must exclusively benefit beginning farmers
and no one else. By statute, it is sufficient that the priority
projects contribute to new farming opportunities and benefit beginning
farmers. In implementing the intent of Congress, the Agency needs to
provide guidance in regulations and/or in guidance to grant reviewers
as to what constitutes a significant enough contribution or benefit to
beginning farmers as to qualify a proposal as meeting the program
priority or access to the reserved fund.
Stipulating the criteria in the rule has the negative effect of
locking the criteria in place for all the years the rule remains in
place. The alternative--dealing with the issue in the annual NOFA and/
or grant review criteria--has the benefit of allowing for an iterative
process to refine and fine tune the criteria based on actual
experience.
The commenter prefers providing for iterative annual adjustments as
needed to ensure the intent of Congress in creating the beginning
farmer priority is actually achieved in the reality of program
implementation. If, however, it is going to be stipulated in the rule,
it is important that the rule is correct and clear as it is difficult
and time consuming to change a final rule. In the case of individual
farmer/rancher grants, there is no problem. The individual farmer or
rancher is either a beginner or not. However, group proposals are an
entirely different matter.
The proposed rule's beginning farmer definition dictates that all
members of the farmer group, co-op, business, or other entity must be
beginning farmers or ranchers, an extremely unlikely situation in the
real world. The commenter believes the proposed rule negates the
express will of Congress in creating the priority and reserved fund in
the first place by creating a stipulation that renders the directive
effectively null and void. Even if a 100 percent beginning farmer
member co-op or business or farm group existed somewhere in the real
world, requiring a new farm business made up of multiple farmers to be
100 percent beginners will preclude mentoring opportunities with more
experienced farmers and increase risk of failure.
Hence, it would tend to defeat the purpose of the program. There
are two operative provisions in the proposed rule related to beginning
farmers and ranchers. The first is in reference to the reserved funds
(proposed Sec. 4284.922(d)(1)) and states: ``If the applicant is
applying for beginning farmer or rancher, or socially-disadvantaged
farmer or rancher reserved funds, the applicant must provide
documentation demonstrating that the applicant meets one of these
definitions.''
The second is a very indirect reference in the evaluation criteria
and scoring of applications section, where up to 15 points are awarded
for ``Type of applicant.'' In the final analysis, therefore, everything
in the rule hinges on the definition of beginning farmer or rancher in
the definition section of the rule.
The commenter contends that this language indicates that proposals
from individual beginning farmers or ranchers as well as applications
from an agricultural producer group, co-op, and business must include
exclusively beginning farmers or ranchers to qualify for the beginning
farmer or rancher category. As it applies to group proposals, this
definition flies in the face of the statutory language that projects
simply contribute to beginning farmer opportunities and benefit
beginning farmers.
The commenter states there are two remedies. One would be to change
the
[[Page 10096]]
definition. The other would be to leave the definition as is, but add
an operative provision elsewhere in the rule to ensure the rule
complies with the law and common sense.
If the first alternative is chosen, the commenter recommends the
definition of beginning farmer and rancher be amended as follows:
``Beginning farmer or rancher. This term has the meaning given it in
section 343(a) of the Consolidated Farm and Rural Development Act (7
U.S.C. 1991(a)) and is an entity in which none of the individual owners
have operated a farm or a ranch for more than 10 years. In the event
that there are multiple farmer or rancher owners of the applicant
group, at least 25 percent of the ownership must be held by beginning
farmers or ranchers. For the purposes of this subpart, a beginning
farmer or rancher must currently own and produce the agricultural
commodity to which value will be added.''
Another commenter states the rule must not create barriers for
beginning farmers and ranchers that are part of a producer group or
entity seeking to establish a value added market. The proposed rule
suggests that BFR entities must have a 100 percent of the membership
meeting the beginning farmer definition to qualify for the set-aside
funds and priority status. This is difficult at best and most
operations they have worked with do not include 100 percent beginning
farmers. This requirement must be changed to be less restrictive or
they will lose the opportunity to enable beginning farmers to enter
existing operations and be provided mentoring and new market
opportunities. The commenter believes a 25 percent ownership/membership
test would be appropriate.
Response: The Agency disagrees with the commenters. The definition
of beginning farmer or rancher is stipulated by statute, which also
stipulates that projects must `benefit' beginning farmers or ranchers.
It is the position of the Agency that Reserved funds are to benefit
this priority category exclusively. The statute indicates that priority
points are to be awarded to projects that ``provide opportunities'' to
beginning farmers or ranchers. It is the position of the Agency that
priority points may be awarded to entities or groups in which Beginning
Farmers or Ranchers comprise at least 51 percent membership.
Comment: One commenter suggests revising this definition and adding
language clarifying that the beginning farmer or rancher must first be
an eligible independent producer that is currently producing the
majority of the agricultural product to which value will be added.
Nonproduction of product, even for a beginning farmer or rancher, would
not be an eligible application. The suggested revised definition is as
follows:
Beginning farmer or rancher. This term has the meaning given it in
section 343(a) of the Consolidated Farm and Rural Development Act (7
U.S.C. 1991(a)) and is an entity in which none of the individual owners
have operated a farm or a ranch for more than 10 years. For the
purposes of this subpart, a beginning farmer or rancher must be an
Independent Producer that, at time of application submission, currently
owns and produces more than 50 percent of the agricultural commodity to
which value will be added.
Response: The Agency disagrees with the suggested revision. A
change in definition is not required to accomplish this goal. All
program applicants must meet the criteria of one of the four applicant
eligibility categories. The beginning farmer or rancher definition is
statutory.
Change in Physical State
Comment: One commenter recommends adding a definition for ``change
in physical state.'' This terminology is used in the Value-Added
agricultural product definition and should be defined to increase
understanding and Agency intention for this category and to mitigate
problems that have presented during the history of the program
(pressure-ripened peaches, dehydrated corn: part of previous
applications that were deemed ineligible by the program due to
ineligible change in physical state).
Response: The Agency agrees with the recommendation and has added a
definition for this term.
Conflict of Interest
Comment: One commenter states that the conflict of interest
definition should be eliminated as it is confusing and inconsistent in
application. First, the very receipt of a grant directly benefits the
producer applicant(s) and could be considered a conflict. Secondly,
what is the rationale for allowance of some activities by the producer
applicant(s) while others are classified as having a conflict of
interest? Application of the rule appears to be somewhat arbitrary in
its current form.
The commenter also notes that this definition is confusing and
misleading because applicant in-kind for the development of business
plans and/or marketing plans is ruled to be an eligible match.
The commenter states that, if the term cannot be eliminated,
further clarification of the definition is required. All exceptions to
the rule must be clearly stated. As it stands now, applicant time
contributed to the completion of a business and/or marketing plan is
allowable (See Sec. 4284.923, 75 FR 29929), but there is much
confusion as to whether this would constitute a conflict of interest.
The suggestion is to state more emphatically the ability of applicants
to contribute time towards a business and/or marketing plan without
incurring a conflict of interest.
The commenter further states that, for Working Capital
applications, grant funds cannot pay the salaries of employees with an
ownership interest to process and/or market and deliver the value-added
product to consumers (as stated in proposed Sec. 4284.923(b)) and asks
why one payment is allowed and the other is not? Does this relate to
conflict of interest? Clarification would aid in reader interpretation.
Response: The Agency agrees that guidance and clarification
regarding Conflict of Interest is necessary.
The Agency considers the use of grant funds for direct personal
financial gain to be a conflict of interest and will continue to
prohibit use of grant funds to pay applicant/applicant family member
salaries. However, the Agency recognizes the value of producer
participation in planning activities, as well as the necessity of
participating in eligible marketing activities. Therefore, both
Planning and Working Capital applicants (and applicant family members,
as necessary) may contribute time spent on eligible activities as in-
kind match amounting to up to 25 percent of total project cost,
provided that a realistic and relevant valuation of their time can be
documented, as provided for at Sec. 4284.923.
Comment: Numerous commenters urge the Agency to reconsider the
definition for conflict of interest to include an exception to allow
applicants to contribute time (e.g. in-kind match) towards the
development of business and/or marketing plans. The commenters believe
it is in the applicant's best interest to be intimately involved in
this part of the process. Furthermore, for small, beginning farmers or
ranchers, and/or disadvantaged farmers or ranchers especially,
allowable in-kind match of this nature is of critical importance
because the project is still at the planning stage and revenues from
the project have yet to be realized. As such, the applicant's ability
to match the grant with 100 percent cash is often limited.
[[Page 10097]]
Numerous commenters recommend keeping business and enterprise
planning of VAPG projects farmer-centered. Farmers and ranchers should
directly participate in the development of VAPG projects and be allowed
to count their time as a contribution toward the program's matching
requirements.
Several commenters state that, as agricultural producers and past
recipients of VAPGs to conduct planning and feasibility studies, they
believe strongly in this program and have received first-hand benefits.
As a beginning farmer, the ability to contribute in-kind match towards
the completion of planning grant was crucial in making the project
affordable. Moreover, being personally involved in the completion of
the business and marketing plan was critically important as the owners
of the new value-added businesses and the persons who would bear
primary responsibility for implementing these plans.
One commenter states that concern over conflicts of interest began
to emerge in VAPG NOFAs several years ago and has now led to an overly
restrictive definition. Specifically, the example provided in the
definition of conflict of interest implies that farmers and ranchers
have an inherent bias in favor of their project ideas that trumps an
equally compelling interest in not investing their resources in an idea
that will not work. The commenter states that its members' experience,
in contrast, shows that successful businesses are those in which
participating farmers and ranchers are intimately engaged in all of the
planning stages.
Given the example included as part of the definition, the continued
references to conflict of interest in the proposed rule give the clear
impression that participation by the producer, their family members,
and/or staff creates huge problems and is prohibited. This undermines
the fundamental principle of the VAPG program: that farmers and
ranchers should be empowered through these grants to explore creative
new businesses that will increase farm income and create or expand
rural wealth. This broad definition of conflict of interest could
easily lead to an interpretation that would prohibit farmer or rancher
participation in any of the work necessary for planning grants and
result in VAPG evolving into a grant program that benefits consultants
rather than producers.
The commenter agrees that feasibility studies generally should be
written by third party professionals, but disagrees that a conflict of
interest exists that should preclude producers from being integral to
the research and information collection necessary for a successful
feasibility study. The economic realities of the farmer and rancher
communities the VAPG program was created to help ameliorate require
that the program allow producers' time and expenses be permitted as an
allowable match for grant funds.
The businesses most likely to succeed are those in which producers
are most actively engaged in the enterprise's planning. Their
involvement should be encouraged and counted as an equally important
contribution as cash to the project. The inclusion of the example in
the second sentence of the proposed rule's definition of conflict of
interest, when applied to sections of the rule that refer back to the
conflict of interest definition, contradicts the statute at 7 U.S.C.
1621(b)(1)(A) and (b)(3)(A) as well as the allowance made in proposed
Sec. 4284.923(a) and must be fixed to provide consistency and clarity.
The commenter, therefore, recommends that the example be eliminated
from the definition as follows:
``A situation in which a person or entity has competing
professional or personal interests that make it difficult for the
person or business to act impartially.''
Response: The Agency agrees that the definition and application of
``Conflict of Interest'' needs clarification. The Agency also
recognizes the value of producer participation in Planning activities,
while, at the same time acknowledging that an unbiased, third party is
necessary for the evaluative portions of these activities. Therefore,
the Agency will retain its requirement that feasibility studies be
performed by independent third-parties. However, applicants (and
applicant family members, as necessary) are encouraged to participate
in the non-evaluative portions of Planning grants and may contribute
time as in-kind match amounting to up to 25 percent of total project
cost, provided that a realistic and relevant valuation of their time
can be documented, as described at Sec. 4284.923.
Comment: One commenter recommends clearing up the confusion
surrounding ``conflict of interest.'' The proposed rule makes strides
in addressing producer participation, however, it is confusing at best
as to many areas regarding producer involvement. The most troublesome
involves ``conflict of interest'' as it appears in several places
throughout the rule and often times directly contradicts other areas of
the rule.
The commenter recommends eliminating the inclusion of the example
within the conflict of interest definition. The very nature of this
program serving farmers and ranchers should indicate that their
involvement would not be considered a ``conflict of interest''. The
grant is for their purposes and their involvement is critical to the
success of the project. Therefore, the rule must clear up this
confusion and can begin by eliminating the example provided within the
definition of conflict of interest.
The rule must also clear up all the inconsistencies where they
appear regarding conflict of interest, producer involvement and
direction indicating certain aspects must be through a third-party
consultant.
Response: The Agency agrees and the example has been removed from
the conflict of interest definition. In addition, the Agency has added
language at Sec. 4284.923(a) and (b) that clarifies that applicants
(and applicant family members, as necessary) may participate in the
non-evaluative portions of Planning grants and may contribute time as
in-kind match amounting to up to 25 percent of total project cost,
provided that a realistic and relevant valuation of their time can be
documented.
Comment: One commenter recommends revising this definition and
[deleting the line ``An example is a grant recipient or an employee of
a recipient that conducts or significantly participates in conducting a
feasibility study for the recipient.''
According to the commenter, conflict of interest has been a major
problem in the program for years, and is largely responsible for the
high volume of ineligible applications received annually. The conflict
of interest definition and its implementation parameters need to be
very clear in the regulation. The commenter suggested that the
definition of ``conflict of interest'' read as follows:
``A situation in which a person or entity has competing personal,
professional or financial interests that make it difficult for the
person or business to act impartially. Regarding use of both grant and
matching funds, Federal procurement standards prohibit transactions
that involve a real or apparent conflict of interest for owners,
employees, officers, agents, or their immediate family members having a
financial or other interest in the outcome of the project; or that
restrict open and free competition for unrestrained trade. Examples of
conflicts of interest include, but are not limited to, organizational
conflicts,
[[Page 10098]]
noncompetitive practices, and support of costs for goods or services
provided by a person or entity with a conflict of interest.
Specifically, 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, including, but not limited to,
owner(s) and their immediate family members. See Sec. 4284.923(a) for
one limited exception to this definition and practice for VAPG.''
According to the commenter, the suggested definition is consistent
with Federal procurement standards that apply to VAPG, including 7 CFR
part 3019 and 2 CFR part 230. An exception to the rule for limited
applicant in-kind on BP and MP tasks is detailed in proposed Sec.
4284.923(a), but the exception is not the rule, and conflict of
interest should be clearly defined in the regulation.
Response: The Agency agrees and the definition has been revised for
clarity, to remove the example, and to reference Sec. 4284.923(a) and
(b), which contain two limited exceptions to its implementation.
Day
Comment: One commenter asks why day needs to be defined.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Emerging Market
Comment: One commenter recommends the following revised definition:
Emerging market. A new or developing product, geographic, or
demographic market that is new to the applicant or the applicant's
product. To qualify as new, the applicant cannot have supplied this
product, geographic or demographic market for more than two years at
time of application submission.
The commenter states that the added clarification for ``new'' is
necessary so that its interpretation is universal and it is not left
open to subjectivity. The emerging market criterion only applies to
agricultural producer groups, cooperatives, and majority controlled
producer-based business venture type applicants as part of Project
Purpose eligibility requirements.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Farm- or Ranch-based Renewable Energy
Comment: One commenter states that the definition for Value-Added
Agricultural Product refers to ``farm or ranch based renewable
energy,'' but does not offer a definition. The following definition
clarifies what is eligible and ineligible renewable energy in this
program. Although, given the new definition for agricultural commodity,
(bodies of water), the commenter now questions whether hydro energy
would be an eligible renewable energy product.
Farm- or Ranch-based Renewable Energy. An agricultural commodity
that is used to generate renewable energy on a farm or ranch owned or
leased by the independent producer applicant that produces the
agricultural commodity. On-farm generation of energy from wind, solar,
geothermal, or hydro sources are not eligible.
Response: The Agency agrees with the commenter and has added a
definition to the rule.
Farmer or Ranch Cooperative
Comment: One commenter recommends the following revised definition:
Farmer or rancher cooperative. A business owned and controlled by
independent producers that is incorporated, or otherwise identified by
the state in which it operates as a cooperatively operated business.
The independent producers, on whose behalf the value-added work will be
done, must be confirmed as eligible and identified by name or class.
The commenter stated that the added language instructs on the
eligibility requirements that include: (1) The cooperative must be
comprised of Independent producers (and not simply agricultural
producers), a definition wherein lies primary applicant eligibility
requirements for all four applicant types; and (2) the independent
producers on whose behalf the work will be done must be identified.
Because the regulation refers to the definitions for instruction on
applicant eligibility requirements, all eligibility requirements must
be stated in the definitions.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Feasibility Study
Comment: One commenter states that the rule's definition of
``feasibility study'' contradicts the statute at 7 U.S.C. 1621(b)(3)(A)
and would also contradict the proposed rule in Sec. 4284.923(a), if
modified as the commenter suggests. The commenter recommends the
following conforming language be added to that definition to provide
consistency and clarity:
Feasibility study: An analysis of the economic, market, technical,
financial, and management capabilities of a proposed project or
business in terms of the project's expectation for success. Applicants
may use a qualified consultant to perform the feasibility study, in
which case applicants and family members of applicants may participate
in collecting data and providing input required by the qualified
consultant in the development of a feasibility study and may either
receive payment for their time or may count their time as an in-kind
contribution of matching funds to the extent that the value of such
work can be appropriately valued.
Response: The Agency disagrees with the commenter. The Agency's
definition of Feasibility Study does not contradict the statute at 7
U.S.C. 1621(b)(3)(A) or the eligible uses of grant and matching funds
in Sec. 4284.923(a).
Comment: One commenter states that, in the past, the qualified
consultant has been an independent, third party without a conflict of
interest. If that is still the intent, it would be helpful if that was
listed in the definition.
Response: The Agency agrees with the commenter and the definition
of Qualified Consultant has been revised to add reference to ``without
a conflict of interest.''
Independent Producers
Comment: One commenter states that requiring the producer retain
ownership through the entire value-added process is often legally
difficult to accomplish and may be undesirable for a number of reasons,
such as the creation of legal liability during transportation,
processing, etc. An agricultural producer should be free to part with
ownership of the commodity at any stage during the value-chain provided
the end result is an increase in profits and market share. The logic of
this is recognized in an allowance of this kind of flexibility with
handling MTVC proposals. It should also be offered for regular VAPG
projects as well. If an eligible VAPG applicant can show their profits
will be increased from a project, the stage at which ownership
transfers should be irrelevant.
Response: The Agency disagrees with extending the ownership
exception as suggested. The mid-tier value chain exception is relevant
because of the required alliances and agreements that provide for
mutually-beneficial distribution of revenue based on the agreed upon
end-product and market. Agricultural producers applying without the
benefit of this structure do not necessarily gain these benefits
[[Page 10099]]
where title changes hands before value is added and gains from that
added-value realized.
Comment: One commenter recommends the following revised definition:
Independent producers.
(1) Individual agricultural producers or entities that are solely
owned and controlled by agricultural producers. Independent producers
must produce and own the majority of the agricultural commodity to
which value will be added as the subject of the project proposal.
Independent producers must maintain ownership of the agricultural
commodity from its raw state through the production and marketing of
the value-added product. Producers who produce the agricultural
commodity under contract for another entity, but do not own the
agricultural commodity or value-added product produced, are not
considered independent producers. Entities that contract out the
production of an agricultural commodity are not considered independent
producers.
(2) A steering committee comprised only of specifically identified
agricultural producers in the process of organizing one of the four
program eligible entity types that will operate a value-added venture
and that will be owned and controlled by those same agricultural
producers identified in the steering committee at time of application,
and will supply the majority of the agricultural commodity for the
value-added project during the grant period.
(3) A harvester of an agricultural commodity that can document
their legal right to access and harvest the majority of the
agricultural commodity that will be used for the value-added product.
Harvesters do not meet the Agricultural Producer definition and may
only apply as an Independent Producer applicant type.
The commenter states that applicant ownership and control is the
consistent language used throughout the program definitions and should
be maintained in the independent producer definition. ``Marketing,''
``agricultural commodity,'' and ``value-added product'' are conforming
uses previously noted. Steering committees need to be included as
eligible independent producer applicants, and Cooperative Programs
determined to allow as eligible, formation of any one of the four
applicant entity types from steering committee. Harvesters must be
included as independent producers for eligibility, and can only apply
as independent producers because they do not meet the Agricultural
Producer definition requirements.
Response: The Agency agrees and has revised the rule as suggested
by the commenter with the following exceptions. The revision of the
Steering Committee portion should not restrict the Agency from granting
prior approvals to changes in ownership structure which conform to
eligibility requirements. Paragraph 2 has been revised as follows:
(2) A steering committee comprised of specifically identified
agricultural producers in the process of organizing one of the four
program eligible entity types that will operate a value-added venture
and will supply the majority of the agricultural commodity for the
value-added project during the grant period.
The Agency disagrees with the wording proposed regarding
Agricultural Harvesters. All applicants must meet the definition of
Agricultural Producer, which is inclusive of Agricultural Harvesters. A
paragraph addressing harvesters has been added to read as follows:
(3) A harvester of an agricultural commodity that can document
their legal right to access and harvest the majority of the
agricultural commodity that will be used for the value-added product.
Local or Regional Supply Network
Comment: One commenter proposes the following adjustments to the
local or regional supply network definition.
Local or regional supply network: An interconnected group of
entities through which agricultural based products move from production
through consumption in a local or regional area of the United States.
Examples of participants in a supply network may include agricultural
producers, aggregators, processors, distributors, wholesalers,
retailers, consumers, and entities that organize or provide
facilitation services and technical assistance for development of such
networks.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Locally-Produced Agricultural Food Product
Comment: One commenter recommends the following revised definition:
Locally-produced agricultural food product. An agricultural food
product, as defined in this subpart, that is raised, produced, and
distributed in:
(1) The locality or region in which the final product is marketed,
so that the total distance the product is transported is less than 400
miles from the origin of the product; or
(2) The State in which the product is produced.
The commenter states that this definition includes a reference to
Agricultural Food Product, which they believe needs a definition of its
own.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Majority-Controlled Producer-Based Business Venture
Comment: One commenter recommends revising this term by deleting
``venture'', because the applicant must be a legal business entity and
not a venture: Majority-controlled producer-based business.
Response: The Agency disagrees with the commenter and has retained
the term as proposed because the ability to refer to activities beyond
those specific to the grant allows for more precise communication.
Marketing Plan
Comment: One commenter states that the statute at 7 U.S.C.
1621(b)(1)(A) and (b)(3)(A) clearly states that VAPG grants are to
assist an eligible producer in developing a business plan for viable
marketing opportunities or in developing strategies that are intended
to create marketing opportunities for the producer. The definition
contradicts the statute by granting consultants exclusive rights to
awards for marketing plans. Moreover, this definition also directly
contradicts the allowance in Sec. 4284.923(a) for producers to count
their time in developing marketing plans as in-kind matching
contributions. Therefore, the commenter proposes that the definition be
fixed to read: ``Marketing plan: A plan for the project that identifies
a market window, potential buyers, a description of the distribution
system and possible promotional campaigns.''
Response: The Agency disagrees. The definition of Marketing Plan is
not inconsistent with the statute at 7 U.S.C. 1621(b)(1)(A) and
(b)(3)(A) or language on eligible uses of grant and matching funds in
the proposed rule in Sec. 4284.923(a).
Matching Funds
Comment: One commenter states that applicant in-kind as an eligible
match is not listed, though it is stated as being allowable for the
development of business plans and/or marketing plans and suggests
revising for greater clarity. The commenter requests guidance on
determining appropriate valuation for applicant in-kind match.
[[Page 10100]]
Response: The Agency will provide guidance on the valuation of
matching funds in the application package.
Comment: One commenter suggests the following revised definition:
Matching funds. A cost-sharing contribution to the project via
confirmed cash or funding commitments from eligible sources without a
real or apparent conflict of interest, that are used for eligible
project purposes during the grant funding period. Matching funds must
be at least equal to the grant amount, and combined grant and matching
funds must equal 100 percent of the total project costs. All matching
funds must be verified by authentic documentation from the source as
part of the application. Matching funds must be provided in the form of
confirmed applicant cash, loan, or line of credit, or provided in the
form of a confirmed applicant or family member in-kind contribution
that meets the requirements and limitations in Sec. 4284.923(a); or
confirmed third-party cash or eligible third-party in-kind
contribution; or confirmed non-federal grant sources (unless otherwise
provided by law). See examples of ineligible matching funds and
matching funds verification requirements in Sec. Sec. 4284.924 and
4284.931.
The commenter states that using the terms ``real or apparent''
conflict of interest is more consistent with Federal procurement
standards and replaces the term, ``potential'' conflict of interest.
Note, this definition has been significantly modified from the proposed
rule definition to be consistent with the Agency intention to allow
limited applicant in-kind contributions as match. Also, a significant
amount of the proposed rule definition (examples) has been moved to
Sec. 4284.931 for ``verifying match funds.''
Response: The Agency agrees and the definition has been revised to
include the allowance of limited applicant in-kind contributions.
Comment: One commenter states that this paragraph is not, on the
whole, a definition, but rather a set of substantive rule provisions
that probably belong in the body of the rule rather than in the
definition section. Mixing detailed operational provisions into a
definition is generally not considered good rule writing practice.
Second, and far more importantly, the omission of any mention of
producer in-kind matches while specifically referencing third-party in-
kind match clearly implies that applicant time is not an eligible match
and, combined with the proposed rule's broadly defined conflict of
interest definition, will have a chilling effect on potential farmer
and rancher applicants.
To be consistent with the allowance in Sec. 4284.923(a), the rule
must clearly state that producer time, travel expenses, purchased
materials, and other expenses incurred working on the project are
eligible in-kind matching contributions for grants and do not present a
conflict of interest. Therefore, the commenter recommends the following
modifications to the definition:
Matching funds: ``A cost-sharing contribution to the project via
confirmed cash or funding commitments or via anticipated in-kind
contributions from eligible sources without a conflict of interest that
are used for eligible project purposes during the grant period.
Eligible matching funds include confirmed applicant cash, loan or line
of credit, non-Federal grant sources (unless otherwise provided by
law), and eligible in-kind contributions, and third party cash or
eligible third-party in-kind contributions. Matching funds must be at
least equal to the grant amount, and combined grant and matching funds
must equal 100 percent of the total project costs. All eligible cash
and in-kind matching funds contributions must be spent on eligible
expenses during the grant period, and are subject to the same use
restrictions as grant funds.''
Response: The Agency has revised the definition of Matching Funds
to include allowance of limited applicant in-kind matching
contributions.
Comment: One commenter asks why matching funds can only be provided
by ``eligible sources without a conflict of interest.'' Doesn't
providing matching funds create an inherent conflict of interest? It
appears that by adding the ``without a conflict of interest''
restriction, it conflicts with many other parts of the definition. For
instance, the applicant would have a conflict of interest, yet the
definition states that applicant cash is permissible.
Response: The Agency disagrees with the commenter. The matching
funds requirement does not constitute an inherent conflict of interest.
Comment: One commenter states that text in the proposed rule
concerning conflict of interest, in-kind contributions, and matching
funds is confusing and contradictory to other text and needs to be
consistent. The commenter points to the following text:
Also, note that in-kind matching funds may not be provided
by a person or entity that has a conflict of interest or an appearance
of a conflict of interest. (proposed Sec. 4284.924)
Matching funds must be from eligible sources without a
conflict of interest and without the appearance of a conflict of
interest. (proposed Sec. 4284.931(b)(4)(ii))
Matching funds must be provided in the form of confirmed
applicant cash, loan, or line of credit; or confirmed third-party cash
or eligible third-party in-kind contribution. (proposed Sec.
4284.931(b)(4)(v))
Examples of ineligible matching funds include funds used
for an ineligible purpose, contributions donated outside the proposed
grant period, third-party in-kind contributions that are over-valued,
expected program income at time of application, or instances where the
potential for a conflict of interest exists, including applicant in-
kind contributions in Sec. 4284.923(a). (proposed Sec.
4284.931(b)(4)(vi))
The commenter specifically asks: Is applicant match ineligible as a
matter of being a conflict of interest (as inferred here) or is it
allowed as states in Sec. 4284.923(a)?
Response: The Agency agrees with the commenter that the proposed
text as given is confusing. The Agency has revised Sec. 4284.923(a)
and (b) to include limited applicant in-kind match. In addition, the
Agency has revised Sec. 4284.924 to make the rule clearer.
Medium-Sized Farm
Comment: One commenter states that the final rule should provide a
more reasonable definition of medium-sized farms and ranches. The
proposed rule defines the medium-sized farms and ranches as those with
average annual sales between $250,000 and $700,000. The commenter
recommends the following amendment to the medium-sized farm definition:
``Medium-sized farm: A farm or ranch that has averaged between $250,001
and $1,000,000 in annual gross sales of agricultural products in the
previous three years.''
According to USDA data, all sales classes above $5,000 and below
$1,000,000 are declining in numbers. The proposed rule defines small
farms as those with sales below $250,000. The sales classes between
$250,000 and $1,000,000 are the so-called ``disappearing middle'' of
agriculture that Secretary Vilsack has so eloquently addressed in his
public speeches. This is the segment of agriculture perfectly tailored
for the VAPG program and its value-added income opportunities. While
nearly 60 percent of the total value of agricultural production is
captured by farms of over $1 million in sales, the disappearing middle
still represents a substantial amount of
[[Page 10101]]
production--25 percent but declining--and a large number of total
producers.
They are well-situated, as the Secretary repeatedly points out, to
take advantage of value-added opportunities in local and regional food
systems and in bioenergy and bioproducts. While their ability to
compete in the raw, undifferentiated commodity market is unlikely to be
a path to survival and prosperity without further farm consolidation
and the lost economic opportunity that goes with it, competing in the
value-added market can be a good bet for these farms. It is reasonable
to expect that those farms with successful value-adding enterprises are
more likely than others to be in that higher profit margin category.
From a family farm and rural development perspective, policy, including
the VAPG program, should do everything it can to increase their
numbers.
The higher the reliance on on-farm income, the more important
value-adding strategies become. Targeting the program's small and
medium-sized family farm priority toward the larger small farm class
plus the disappearing middle makes a great deal of sense. These farms
rely on farm income for a majority of household income, but need to tap
into value-adding enterprises and markets to secure a long-term
financial future.
Creating a single farm size threshold for all of agriculture is a
difficult proposition given the great diversity of U.S. agriculture.
For instance, specialty crop and dairy farms have a much higher
percentage of farms over the $1 million sales threshold than the rest
of agriculture and for both the vast majority of production comes from
those largest farms. While the $700,000 threshold in the proposed rule
might be roughly adequate for grain farms, and far more than adequate
for poultry farms, it is significantly too low for dairy and produce
farms. While one could imagine a more complex rule with thresholds that
vary by type of farm, if the final rule sticks with a single threshold,
it is important that it works and makes sense for agriculture as a
whole. While not perfect, the $1 million threshold is more defensible
than the proposed rule's $700,000.
One commenter proposes that the average annual gross sales be
between $250,001 and $750,000, so that it matches the SBA's size
standard for crop and animal production.
One commenter states that $500,000 is more appropriate for the
upper limit. The commenter states that anything over $500,000 would be
considered large by the majority of farmers and the farm industry in
their region/area. The majority of farm or ranch producer's income will
be below $250,000. Keeping the upper limit at $700,000 could make it
more difficult for a medium size farm to compete for VAPG funding, if
that $700,000 farm income was really a feasible and viable operation.
One commenter suggests that the current definition of ``mid-size
farmer'' (i.e., gross farm income up to $750,000) is an appropriate
standard, and should be maintained. The segment of production
agriculture in the Midwest that has experienced greatest contraction is
the ``ag in the middle'', independent ``family farm scale'' farmers
that try to make a full time living, typically in commodity
agriculture. This group would most benefit from value-added strategies
because they typically already have production ability, and using
value-added strategies (individually or as members of a co-op or LLC)
would provide a useful hedge to their income. In the Midwest, a
$750,000 operation would only represent a dairy operation of a 200 cow
dairy (23,000 lb herd average, $17/cwt), or a 1250 acre commodity crop
operation (corn at $3/bushel, 200 bushel/acre yield). Neither of these
size operations are ``big'' by modern standards, yet they are the size
operation that is being lost the fastest. Providing support to this
scale of operation maintains working families on the land, independent
ownership in the supply chain, and supports rural economies.
Response: It is the position of the Agency that the ``$1 million
average annual gross sales of agricultural commodities in the previous
three years'' is more consistent with expert commentary on the subject
of ``agriculture in the middle,'' and is consistent with the Agency
prerogative to be more inclusive. The upper limit of gross sales for a
medium sized farm will be changed to $1,000,000.
Mid-Tier Value Chain
Comment: One commenter asks if the only type of eligible applicant
is an independent producer. The commenter suggests expanding this text
for clarification purposes to include all eligible applicant types
(e.g., APG, Cooperative, and MCPBBV).
The commenter adds that Federal Register Vol. 74, No. 168, 9/1/2009
(45168-9) explicitly states that all 4 producer types are eligible for
the Mid-Tier Value Chain and suggests revising the Definition section
for Mid-Tier Value Chain to reflect this. The commenter states that
independent producers have hesitated to be the applicant as that person
then must bear the entire tax burden related to the grant (though the
grant will most likely benefit multiple producers). If other members of
the supply network were able to be listed as co-applicants, the tax
burden could be shared.
Response: The mid-tier value chain applicant must be one of the
four eligible applicant types and the project eligibility requirements
at Sec. 4284.922 have been revised accordingly. Other members of the
supply network may not be listed as co-applicants, but should be
referenced in accordance with project eligibility requirements.
Comment: One commenter states that the final rule should make small
improvements to the mid-tier value chain provisions to ensure maximum
responsiveness and effectiveness. The rules should be written in a way
that is properly descriptive of what characterizes these marketing
relationships without inadvertently precluding non-traditional
marketing alliances that achieve the desired result of increasing
markets for producers and improving their ability to achieve fair
prices. For instance, mid-tier value chains may include non-profit
organizations that provide aggregation, processing, or transportation
services for producers to facilitate sales to local institutions and
markets. Community supported agriculture projects are sometimes
organized by an individual producer acting on behalf of and with the
support of allied farmers or ranchers to market of their aggregated
product to institutional and other emerging markets. As various kinds
of mid-tier value chains like those above are still emerging, the final
rule should be as inclusive and flexible as possible.
The commenter proposed the following small adjustments to the mid-
tier value chain definition.
Mid-tier value chain: Local and regional supply networks that link
independent producers with businesses and cooperatives that market
value-added agricultural products in a manner that:
(1) Targets and strengthens the profitability and competitiveness
of small and medium-sized farms and ranches that are structured as a
family farm; and
(2) Obtains agreement from eligible individual producers or an
eligible 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.
(3) For mid-tier value chain projects the Agency recognizes that,
in a supply chain network, a variety of raw agricultural commodity and
value-
[[Page 10102]]
added product ownership and transfer arrangements may be necessary.
Consequently, applicant ownership of the raw agricultural commodity and
value-added product from raw through value-added is not necessarily
required, as long as the mid-tier value chain proposal can demonstrate
an increase in customer base and an increase in revenue returns to the
applicant producers supplying the majority of the raw agricultural
commodity for the project.
Response: The Agency agrees and recognizes that mid-tier value
chains are intended to be relatively flexible and inclusive of many
types of entities that can facilitate and find mutual benefit in
partnership. The Agency has revised the eligibility requirements at
Sec. 4284.922 for Mid-Tier Value Chain to include nonprofit
organizations as possible participants.
Comment: One commenter recommends clarifying the definition to
indicate that a minimum of two small/medium-sized farms must benefit
from the MTVC project and that the eligibility requirement of ownership
of raw commodity through to the VA product is waived only for MTVC
projects.
Response: The Agency disagrees with the first item because it is
inconsistent with statutory language. The Agency agrees with the
commenter on the second item and has revised the rule accordingly.
Planning Grant
Comment: One commenter states that this definition makes clear that
planning grants are to be used to develop a feasibility study which may
include a business and/or marketing plan. The statute provides for two
types of grants, one to perform feasibility studies and one for working
capital. Clearly what the Agency and the proposed rule refer to as
planning grants are the first of the two statutory grant strategies.
The statute directs the Agency to make grants to producers to perform
feasibility studies and develop business plans. Thus, the statute
requires the Agency to make planning grants to producers who in turn
will perform feasibility studies and development business plans.
The ``planning grant'' definition must be changed to conform to the
statute at 7 U.S.C. 1621 1621(b)(1)(A) and (b)(3)(A) and to clarify
that these grants are designed to benefit producers who by statute may
perform the feasibility study. The commenter supports the notion that
use of a ``qualified (third-party) consultant'' may be strongly
encouraged. Applicant producers should have the option to hire
consultants, and should be encouraged to do so, but they cannot be
required to do so by rule.
Otherwise the rule is in direct conflict with the statute.
The commenter recommends the following definition: Planning grant:
``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 (third-party) consultant including 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.
A planning grant may be used in whole or in part for the purpose of
paying for a qualified third party consultant. Use of third party
consultants is strongly encouraged.''
Response: The Agency disagrees with the commenter. The statute
provides that grants are made to eligible applicants to ``assist'' in
the development of feasibility studies, marketing plans, business plans
and the definition of Planning Grant is consistent with statute.
Pro Forma Financial Statement
Comment: One commenter recommends revising this definition to
require a minimum of three years for the projections included in the
statement. The commenter states that standard business practice for
financial projections for a new venture is a minimum 3 years, and is
often between 5-10 years. A 3-year minimum standard for financials is
appropriate for VAPG ventures that may then move on to use working
capital funding for a 3-year project.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Produced in a Manner That Enhances the Value of the Agricultural
Commodity
Comment: One commenter states that the term ``produced in a manner
that enhances the value of the agricultural commodity, which is used in
the Value-Added Agricultural Product definition, needs to increase
understanding and implementation for this important product eligibility
category (1 of the 5) in order to mitigate product eligibility problems
or interpretations that have presented during the history of the
program (pot-in-pot produce, T-bar grape vine, plugs, container grown
trees: all previous products that were ultimately (and correctly)
deemed ineligible due to not meeting a differentiated agricultural
production eligibility standard that demonstrated added value to the
product). According to the commenter, without a definition for this
term, its interpretation will be left open to many various reviewers
across the United States and will be applied in a non-uniform manner.
The National Office will be called upon continuously to discern
eligibility on a case-by-case basis, which is very inefficient.
Eligibility for this category should rely upon differentiated or non-
standard agricultural production practices that are demonstrated in the
application using a quantifiable comparison with products produced in
the standard manner.
Response: The Agency agrees with the recommendation and has added a
definition for this term.
Project
Comment: One commenter recommends revising the definition of
``project'' to refer to ``eligible'' activities.
Response: The Agency agrees with the suggested edit and has revised
the definition as suggested.
Rural Development
Comment: One commenter states that the term needs to be moved in
the rule for proper alphabetizing.
Response: The Agency has placed this term in alphabetical order.
Socially Disadvantaged Farmer or Rancher
Comment: One commenter states that 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. According
to the commenter, this provision 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. The
commenter would like to see it clarified in the 2010 rules. The 2009
rules states that the 51 percent was decided by head count rather than
ownership share; the proposed 2010 rule seems more ambiguous.
Response: The statute provides a reservation of funding for
projects ``to benefit'' Socially Disadvantaged Farmers and Ranchers. It
is the position of the Agency that an applicant must meet the statutory
definition of Socially-Disadvantaged Farmer or Rancher to qualify for
reserved funding. Therefore, the applicant must be an individual
[[Page 10103]]
independent producer or an entity comprised of 100 percent Socially-
Disadvantaged Farmers or Ranchers.
The statute also gives priority to projects that ``contribute to
increasing opportunities'' to Socially Disadvantaged Farmers or
Ranchers. This priority is implemented through the award of additional
points in the scoring process. It is the position of the Agency that
entities comprised of at least 51 percent Socially-Disadvantaged
Farmers or Ranchers are eligible to receive priority points. The
Socially-Disadvantaged Farmer or Rancher members of such an entity do
not have to be members of the same Socially-Disadvantaged group.
Comment: One commenter notes that the definition of socially-
disadvantaged farmers and ranchers includes a 51 percent threshold for
group applications. While there are a number of producer cooperatives
that are made up exclusively or almost exclusively of socially
disadvantaged farmers and ranchers, the commenter does not know of any
cooperatives or businesses that consist exclusively of beginning
producers. The needs and realities of the two groups are distinct. A
majority of members of socially disadvantaged producer groups and co-
ops often have many years of agricultural experience and can work with
any beginning producers in the group.
So while a 51 percent standard makes sense for socially-
disadvantaged groups, it does not make sense for beginning farmers and
ranchers. Rules, to be effective, must reflect the facts on the ground
and not some nonexistent ideal world. Moreover, mentoring by more
experienced farmers is a need and an opportunity specific to
enterprises including beginning farmers and ranchers which also makes
the 25 percent threshold for beginners an appropriate measure to
qualify a project for this reserved fund.
The commenter prefers to leave the specific threshold to the
annual, iterative NOFA process, so the Agency and the public can learn
from experience about what works best to ensure the intent of Congress
is fulfilled. If that route is chosen, the language of the NOFA must be
crystal clear about the 25 percent standard and not preclude a
reasonable result by way of a super restricted definition.
Response: The statute provides a reservation of funding for
projects ``to benefit'' Beginning Farmers and Ranchers. It is the
position of the Agency that an applicant must meet the statutory
definition of Beginning Farmer or Rancher to qualify for reserved
funding. Therefore the applicant must be an individual independent
producer or an entity comprised of 100 percent Beginning Farmers or
Ranchers.
The statute also gives priority to projects that ``contribute to
increasing opportunities'' to Beginning Farmers or Ranchers. This
priority is implemented through the award of additional points in the
scoring process. It is the position of the Agency that entities
comprised of at least 51 percent Beginning Farmers or Ranchers are
eligible to receive priority points.
Value-Added Agricultural Product
Comment: One commenter recommends deleting ``or product'' from this
term, as the commenter recommends combining the terms ``agricultural
commodity'' and ``agricultural product'' and labeling them as
``agricultural commodity''.
Response: The Agency agrees with the suggested edit and has revised
the definition as suggested.
Venture
Comment: One commenter recommends adding ``and its value-added
undertakings'' to this definition. The commenter states that the
venture includes the value-added undertakings and is not limited to the
business alone. However, the venture may include initiatives that are
not grant or value-added project eligible, hence, the ``other related
activities.''
Response: The Agency agrees with the suggested edit and has revised
the definition as suggested.
Environmental Requirements (Sec. 4284.907)
Comment: Two commenters suggest, in reference to working capital
grants, replacing reference to Form RD 1940-22 with Form RD 1940-20.
The commenters note that, for other Agency applications, the applicant
provides Form RD 1940-20, and the Agency completes Form RD 1940-22.
Response: The Agency has revised this section to refer to Form RD
1940-20, rather than Form RD 1940-22.
Application Windows and Deadlines (Sec. 4284.915(d)(2))
Comment: One commenter states that the proposed rule indicates that
the annual application period must be open within 60 days of the due
date. However, due to the requirement to submit an independent
feasibility study and business plan that is specific to the proposed
project with working capital proposals, a 90-day application period
seems more appropriate. This would allow for better and less costly
studies, and be less likely to dissuade some applicants from applying.
Two commenters recommend providing a 90-day notice rather than a
60-day notice. One of the commenters states that, providing a 90-day
notice is more useful to producers than a 60 day notice. While the
existence of a fixed annual application deadline would allow farmers
and support systems to be planning for applications throughout the
year, the commenter's experience is that most new applicants only hear
about the program once it is announced. Having the longer time frame
helps increase the pool of eligible and qualified applicants, plus
providing adequate time to adjust to any new changes in the annual
NOSA.
The other commenter states that, due to the requirement to submit
an independent feasibility study and business plan that is specific to
the proposed project with working capital proposals, a 90-day
application period seems more appropriate. This would allow for better
and less costly studies, and be less likely to dissuade some applicants
from applying.
One commenter notes that the Federal Register (Vol. 74, No. 168, 9/
1/2009) states: ``This notice announces the availability of
approximately $18 million in competitive grants for FY 2009 to help
independent agricultural producers enter into or expand value-added
activities, with the following clarifications and alterations: (8)
provides a 90-day application period.'' The commenter asks, going
forward, will the 90-day period become standardized?
One commenter requests that the application period be open for 90-
days to allow us the maximum amount of time to properly prepare and
submit our grant request.
One commenter states that much more critical for the improvement of
the VAPG program is not the date applications are due, but that the
application window for applications will always be sufficiently long to
allow applicants to develop good proposals. Thus, the rule should
require that not less than 90 days be allowed from the time Rural
Development invites applications to the time Rural Development closes
its application window. The commenter further states that the proposed
rule's provision that applications be submitted each year on or before
March 15 is unwise. There is no way to assure this date will always be
honored based on the experiences of any given fiscal year. The
commenter states that the rule should state that application dates will
be set by Rural Development annually via Federal
[[Page 10104]]
Register notice or in RD Instruction 1940-L.
Response: The Agency agrees that there should be at least a 60-day
application window, but will provide notification via the annual NOFA
rather than revising the rule text.
Applicant Eligibility (Sec. 4284.920)
Comment: One commenter believes that the definition of ``beginning
farmer or rancher,'' as it applies to group proposals, should be
changed to fix a very serious problem with the proposed rule and
suggests language for this. If the Agency does not change the
definition, then the commenter recommends the following language be
added under Sec. 4284.920, as a new paragraph(c) as follows and re-
designate the remaining sections accordingly:
(c) Beginning farmers or ranchers. To qualify for the priority for
projects that contribute to opportunities for beginning farmers or
ranchers or for the reserved fund for projects that benefit beginning
farmers or ranchers, an applicant that is an agricultural producer
group, a farmer or rancher cooperative, or a majority-controlled
producer-based business venture must be comprised of at least 25
percent beginning farmers or ranchers.
Response: The statute provides a reservation of funding for
projects ``to benefit'' Beginning Farmers and Ranchers. It is the
position of the Agency that an applicant must meet the statutory
definition of Beginning Farmer or Rancher to qualify for reserved
funding. Therefore, the applicant must be an individual independent
producer or an entity comprised of 100 percent Beginning Farmers or
Ranchers.
The statute also gives priority to projects that ``contribute to
increasing opportunities'' to Beginning Farmers or Ranchers. This
priority is implemented through the award of additional points in the
scoring process. It is the position of the Agency that entities
comprised of at least 51 percent Beginning Farmers or Ranchers are
eligible to receive priority points.
Comment: One commenter requests that the VAPG program not have a
requirement to list owners and owners of owners. The commenter states
that, when this requirement was in place in the past, it precluded them
from applying for a grant at all. As a marketing association with
nearly 400 members, the commenter states it is impossible for them to
provide this information and hope this requirement will not be part of
the upcoming grant program.
Response: The Agency has revised the definition of Farmer or
Rancher Cooperative, Agricultural Producer Group and Independent
Producer to allow members of applicant entities to be identified by
individual name or by class.
Comment: One commenter applauds the Agency for eliminating previous
language requiring cooperatives to identify all members of the
cooperative. The rule as currently proposed provides reasonable
eligibility requirements for cooperatives to apply for VAPG funding.
Previous language should not be introduced in the final rule that would
add the burdensome requirement of providing the names, addresses, etc.
of all co-op members.
Response: As noted in the response to the previous comment, the
Agency has revised the definitions of Farmer or Rancher Cooperatives to
allow members of applicant cooperatives to be identified by individual
name or by class.
Type of Applicant--Independent Producer (Sec. 4284.920(a)(1))
Comment: One commenter states that they have no written record of
why they did not qualify for the VAPG, the awards for which were
recently announced in late May 2010. The commenter states that, as a
commercial fishing operation, they could not qualify for any of the 15
points associated with criteria, ``Type of Applicant.'' This
disqualification makes it extremely difficult, if not impossible, for
commercial fishing families to earn sufficient points to win an award,
though they were invited to apply. The criterion represents the largest
block of points of any of the criteria. The fact that fishing families
cannot receive these points is never mentioned in the application. The
commenter states they spent months writing their grant; time they would
not have spent had this crucial fact been made at all apparent. Without
the benefit of actually reading the critique, it is their understanding
that commercial fishing people are considered `harvesters' not
`producers,' or some such hair-splitting that struggles to make meager
sense. Therefore, they cannot be considered, as a ``medium-sized farm
or ranch that is structured as a family farm.'' Though water-based,
commercial fishing families take as much care, attention and nurturance
to their surroundings as any land-based agricultural operation. The
Alaska salmon industry was first in the nation to receive the Marine
Stewardship Council award for sustainable management of this precious
national resource. That coveted award is proof positive that the
fishing families foster and protect this resource with all the passion
of a land based farm operation.
In addition, the commenter feels they fully qualify as a `family
farm' as defined in the context of the VAPG. The VAPG definition of a
family farm is as follows; ``A Family Farm produces agricultural
commodities for sale in sufficient quantity to be recognized as a farm
and not a rural residence, owners are primarily responsible for daily
physical labor and management, hired help only supplements family
labor, and owners are related by blood or marriage or are immediate
family.''
The commenter states their fishing boat is most assuredly not a
recreational vessel, but a ``machine shop on the water.'' The commenter
and her husband are the primary owners and operators, working year
around to keep the business afloat. They do hire seasonal helpers, but
their labor is temporary and highly seasonal. The commenter states that
she and her husband are related by 33 years of marriage and cannot
understand why they would be considered anything other than a ``family
farm.''
Response: It is Agency practice to provide feedback to applicants
determined ineligible or which were unsuccessful in competition.
Failure to do so was an oversight. The ``Type of Applicant'' category
provided priority points for applicants that could document that they
were Beginning Farmers or Ranchers, Socially-Disadvantaged Farmers or
Ranchers, or proposing a Mid-Tier Value Chain. The Agency's position
has been that Agricultural Harvesters, though considered Independent
Producers, do not meet the definition of Farmer or Rancher.
Comment: One commenter notes that, in the past, eligible grantees
have included such producers as fishers and forest gatherers. The
commenter recommends that this be clearly reaffirmed in the new rule--
it is implied, perhaps, but not clearly stated.
The commenter states that the proposed rule continues the
requirement that every owner of the agricultural producer entity
themselves be involved in farming. According to the commenter, this is
a very unrealistic requirement. Recent USDA studies have noted that
successful farms frequently rely on nonfarm income. Furthermore, family
farms invariably become divided in their ownership among members who
farm and members who retain a link to the farm but have moved off the
farm. Therefore, the commenter recommends that the rule be revised to a
simple requirement that the farm be operated by at least one owner of
the farm entity.
[[Page 10105]]
Response: The Agency has revised Independent Producer definition to
explicitly include ``agricultural harvesters'' such as foresters and
fishermen and revised the definition of Agricultural Producer to
indicate what constitutes direct involvement in farming.
Type of Applicant--Agricultural Producer Group (Sec. 4284.920(a)(2))
Comment: Numerous commenters recommend allowing producer groups or
entities made up of more than 25 percent beginning farmers and ranchers
to apply for the funds reserved by the Farm Bill specifically for
projects benefitting beginning farmers and ranchers. The proposed rule
dictates that all members of the farmer group or co-op must be
beginning farmers or ranchers, a very unlikely situation in the real
world. The requirement will preclude mentoring opportunities with more
experienced farmers.
Three commenters point out that, while there are many new farmers
and many of them will cooperate on these projects, it is the mentoring
and collaboration with more experienced farmers that can ensure
success. The more experienced farmers as well need to be supported and
allowed to develop their businesses for the mutual benefit of the new
farmers. Also, it is unlikely that all members of the farmer group or
co-op would be beginning farmers or ranchers. Therefore, the Agency
should ensure the final rule includes a reasonable standard to measure
significant benefit to beginning farmers.
Response: The statute provides a reservation of funding for
projects ``to benefit'' Beginning Farmers and Ranchers. It is the
position of the Agency that an applicant must meet the statutory
definition of Beginning Farmer or Rancher to qualify for reserved
funding. Therefore the applicant must be an individual independent
producer or an entity comprised of 100 percent Beginning Farmers or
Ranchers.
The statute also gives priority to projects that ``contribute to
increasing opportunities'' to Beginning Farmers or Ranchers. This
priority is implemented through the award of additional points in the
scoring process. It is the position of the Agency that entities
comprised of at least 51 percent Beginning Farmers or Ranchers are
eligible to receive priority points.
Emerging Market (Sec. 4284.920(b))
Comment: One commenter does not object to the expectation that all
applicants, except Independent Producers, be subject to an emerging
market test.
The commenter recommends that specific guidance about the
characteristics or attributes of an ``emerging market'' be clearly
stated in the rule. The commenter notes that the rule does not quantify
or appear to give specific guidance to what constitutes an emerging
market, particularly as it pertains to the amount of time that the
applicant has been working in developing that emerging market.
According to the commenter, previous interpretations of the emerging
market rule were that applicants had to be active in that market less
than 2 years at the time of application. The commenter states, however,
it may entirely appropriate for such guidance to not be incorporated
into this proposed rule, for two reasons:
First, during this current rule writing process, the VAPG program
has experienced an extended period of time when no applications were
received: i.e. July 2008, November 2009, and now presumably March 2011.
The impact is that organizations that were not ``ready'' in 2008 or
even parts of 2009 might not meet a 2-year emerging markets test if
such were applied in a March 2011 application. This would unfairly
disadvantage those particular applicants.
Second, there is merit in requiring an applicant to justify how the
specific application meets the definition of an ``emerging market.''
Response: The Agency has revised the definition of Emerging Market
to clarify its meaning and to indicate that in order to meet the
definition, an applicant must not have supplied the product,
geographic, or demographic market for more than two years at time of
application submission.
Citizenship (Sec. 4284.920(c)(2))
Comment: One commenter states that the ``51 percent citizenship''
requirement is prohibitive for associations with large membership
bases. Gathering ownership and citizenship information from hundreds of
entities is impossible, not only because of the sheer number, but also
because many simply will not share it for confidentiality reasons.
Response: The Agency agrees with the concern raised by the
commenter. The grant agreement requires the grantee to certify that it
meets the citizenship requirement. Information collection is not
required.
Comment: One commenter recommends revising Sec. 4284.920(c)(2) by
replacing ``immediate family member'' with ``entity owners,'' to
clarify that at least one entity ``owner'' must be a citizen or
national. Otherwise, as originally drafted, none of the owners would
have to be citizens or nationals as long as they had one immediate
family member meet citizenship requirements; thereby allowing a 100
percent non-US-owned entity to be eligible for public federal grant
dollars.
Response: The Agency agrees that the suggested revision clarifies
the intent of this paragraph and has revised the paragraph as suggested
by the commenter.
Multiple Grant Eligibility (Sec. 4284.920(e))
Comment: One commenter believes allowing producers to submit
separate VAPG applications under multiple entities provided the
producer owns no more than 75 percent of any one of the entities is too
generous and could lead to abuse and work against the wide distribution
of VAPG assistance to many unaffiliated producers. The commenter
recommends that the 75 percent level be either reduced to 5 percent or
simply prohibited. According to the commenter, one VAPG per year is
plenty for anyone given the scarcity of funds and the plethora of good
ideas.
Response: The Agency disagrees with the commenter. Seventy-five
percent is suitable to discourage multiple applications.
Comment: One commenter recommends revising Sec. 4284.920(e) by
replacing ``this notice'' with ``a solicitation.'' According to the
commenter, there is a need for applicants to explicitly designate the
category in which they wish to compete so it is not a judgment call by
reviewers.
Response: The Agency agrees that the suggested revision clarifies
the intent of this paragraph and has revised the paragraph as suggested
by the commenter.
Active VAPG Grant (Sec. 4284.920(f))
Comment: One commenter states that past VAPG rules have included
similar provisions regarding active VAPG grants. 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, the commenter would like clarification as to
whether ``within 90 days'' means before or after the NOFA date.
The commenter adds that, 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
[[Page 10106]]
proposed 2010 rule, which, based on past experience, does not
necessarily mean that it would not be in the final rules and the
commenter hopes it is not.
Response: The Agency does not agree with the commenter's assertion
that active grant eligibility standard is a deterrent to repeat
applicants. In order to continue to fund a diverse array of projects
from as many applicants as possible, the Agency will retain the active
grant eligibility standard that requires active grants to be closed
within 90 days of the application submission deadline, as published in
the annual NOFA.
In response to the comment on the requirement for ``separate and
unique tasks'' for multi-year working capital grants, it is not
included in the rule and will not be a program requirement.
Comment: Three commenters note that the requirement for an
applicant with an active value-added grant at the time of a subsequent
application to close out the current grant within 90 days of the annual
NOFA could be a concern with project periods as long as 36 months. With
the longer projects, more repeat applicants are likely to have open
projects during subsequent proposal periods. One commenter expresses
concern that meritorious projects benefiting significant numbers of
producers would be excluded from consideration simply because a
separate project was approved in a previous funding cycle. Perhaps
there could be exceptions to this provision.
Two commenters note that, by adding arbitrary time constraints,
such a prohibition would appear to undermine one of the goals of the
program, in providing funding for projects that are likely to become
self-sustaining in the future.
Response: The VAPG program is a popular and over-subscribed
program. In order to continue to fund a diverse array of projects from
as many applicants as possible, the Agency will retain the active grant
eligibility standard.
Comment: One commenter recommends deleting ``anticipated award
date'' in this section and substituting ``application submission
deadline'' as a more stable date and requiring closeout of the prior
grant more effectively to efficiently commence the undertaking of the
new project, thereby promoting responsible use of public funds.
Response: The Agency agrees that ``application submission
deadline'' is a more appropriate for closing date and has revised the
rule text accordingly.
Project Eligibility (Sec. 4284.922)
Purpose Eligibility (Sec. 4284.922(b))
Comment: One commenter states that the Agency should clarify that
majority, farmer-owned community wind projects are eligible this year,
like they have been every year except for last round. The commenter
further states the Agency should expand grant funding purposes such
that funding can be used for farmer-owned community wind projects that
are merchant plants (providing kilowatt-Hours to the grid) (as well as
for on-site electrical needs). In Maine, like many deregulated
electricity generation States, it is prohibited for a generation
project larger than 660 kilowatt (kw) nameplate capacity to both
provide electricity for on-site needs, and to sell excess generation to
the grid. Maine law does allow net-metering to be used for generators
with up to 660 kw nameplate capacity, but not for larger generators.
Response: The project eligibility category related to renewable
energy was set by the 2008 Farm Bill and states that a Value-Added
Agricultural Product is ``a source of farm- or ranch-based renewable
energy, including E-85 fuel.'' The Agency's position is that wind is
not an agricultural commodity or a Value-Added agricultural product.
Comment: One commenter recommends revising Sec. 4284.922(b)(1) by
replacing ``annually'' with ``in the annual'' and adding reference to
Sec. 4294.915. The rule cites up to $500,000 grant amount, and the
annual notice or solicitation will reduce that amount for both planning
and working capital grants. The commenter suggests the following text:
The grant funds requested must not exceed the amount specified in
the annual solicitation for planning and working capital grant
requests, per Sec. 4284.915.
Response: The Agency agrees with the suggested revision and has
revised the paragraph as suggested by the commenter.
Comment: One commenter recommends adding a reference to conflict of
interest in proposed Sec. 4284.922(b)(2) for conformity with standard
conflict of interest federal language. The commenter suggests that this
paragraph be revised as follows:
(2) The matching funds required for the project budget must be
eligible and without a real or apparent conflict of interest, available
during the project period, and source verified in the application.
Response: The Agency agrees with the suggested revision and has
revised the paragraph as suggested by the commenter.
Comment: One commenter recommends revising Sec. 4284.922(b)(4)
because it is the primary budget and work plan description of
requirements, and should be augmented to include all necessary
elements. The commenter suggests the following revised text:
(4) The project work plan and budget must:
(i) Present a detailed description of the eligible planning or
working capital activities and specific tasks related to the processing
and/or marketing of the value-added product, along with a detailed
breakdown of all estimated costs associated with and allocated to those
activities and tasks;
(ii) Identify the key personnel that will be responsible for
overseeing and/or actually conducting the activities and tasks, and
provide reasonable and specific timeframes for completion of the
activities and tasks;
(iii) Identify the sources and uses of grant and matching funds for
all activities and tasks specified in the budget, and indicate that
matching funds will be spent at a rate equal to or in advance of grant
funds; and
(iv) Present a project budget period that commences within the
specified start date range indicated in the annual solicitation,
concludes not later than 3 years after the proposed start date, and is
scaled to the complexity of the project.
Response: The Agency agrees. The suggested additions are necessary
for determination of eligibility.
Comment: Four commenters recommend that feasibility studies under
Sec. 4284.922(b)(5) not be required for simplified applications for
working capital grants. The nature of projects applying via a
simplified application is such that feasibility studies add little or
no value in assessing the success of the venture. This eligibility
requirement contributes little value to simplified projects, but
significantly increases costs and burden for simplified applications.
Response: The Agency agrees with the commenters and has revised the
rule to indicate that simplified applications for working capital
grants of $50,000 or less are not required to submit feasibility
studies or business plans, but must provide information demonstrating
increased customer base and revenue expected to result from the project
(see Sec. 4284.922(b)(5)(ii)).
Comment: One commenter states that Sec. 4284.922(b)(5) is the
first of the operational provisions of the proposed rule that is in
conflict with 7 U.S.C. 1621 (b)(1)(A) and (b)(3)(A) and with
[[Page 10107]]
Sec. 4284.923(a) of the proposed rule. To be in accord with the
statute, the use of consultants may be encouraged but cannot be
required and, therefore, recommended deleting ``by a qualified
consultant'' from proposed Sec. 4284.922(b)(5).
The commenter also stated that, to be consistent with the producer
in-kind contribution of the proposed rule, producer in-kind matching
contributions must be recognized in proposed 4284.922(b)(5) in order to
avoid it seeming to override Sec. 4284.923(a).
Response: The Agency disagrees that Sec. 4284.922(b)(5) conflicts
with 7 U.S.C. 1621 (b)(1)(A) and (b)(3)(A). The statute provides that
grants are made to eligible applicants to ``assist'' in the development
of feasibility studies, marketing plans, business plans. The manner in
which the Agency directs that the funds be used beyond this statutory
requirement is determined by Federal grant regulation and Agency
policy.
Comment: One commenter does not believe that a good business plan
must always or only be written by a third party. Rather, the commenter
believes that the producer or producer group members planning the
enterprise often have the ``knowledge, expertise, and experience to
perform the specific task required in an efficient, effective, and
authoritative manner''--the proposed rule's definition for qualified
consultant.
Furthermore, the rule gives the Agency the right and responsibility
to assess the merits of the feasibility study and business plan, which
removes any possible justification for having them done solely by non-
producers. Grant applications are reviewed at the local, state and
national level and proposal feasibility is a criterion for funding.
Potential inadequacies with proposals can be determined in this review
process without resorting to sweeping disqualifications that will make
VAPG grants less accessible to the producers who need them most.
The commenter believes that dropping the reference to mandatory,
exclusive use of qualified consultants is critical to conform to the
statute and create an internally consistent rule, and recommends
deleting reference to ``by a qualified consultant'' from Sec.
4284.922(b)(5).
Response: The Agency disagrees with the suggested edit that would
remove reference to a ``qualified consultant.'' The Agency recognizes
the value of producer participation in planning activities, while, at
the same time acknowledging that an unbiased, third party is necessary
for the evaluative portions of these activities. Therefore, the Agency
will retain its requirement that feasibility studies be performed by
independent third-parties. However, applicants (and applicant family
members, as necessary) are encouraged to participate in the non-
evaluative portions of planning grants and may contribute time as in-
kind match amounting to up to 25 percent of total project cost,
provided that a realistic and relevant valuation of their time can be
documented, as described at Sec. 4284.923.
Comment: One commenter supports the requirement that applicants for
working capital be required to submit copies of their feasibility
studies and business plans at the time of application. The commenter
states that it is aware of applicants who have submitted working
capital applications with the intent of ``doing the paperwork'' or
``writing up the business plan'' in the period of time after the
announcement of the award of grant funds, but before the date when
grant obligations must be honored.
The commenter recommends that the statute's requirement that there
be a business plan should not prevent the use of VAPG to further plan
branding activities and the rule should include this permission. The
commenter points out that the VAPG statute includes among the five
categories of ``value-added agricultural product'', ``any agricultural
commodity or product that * * * (ii) was produced in a manner that
enhances the value of the agricultural commodity or product, as
demonstrated through a business plan that shows the enhanced value * *
*'' According to the commenter, the Agency has consistently misapplied
the language of the statute to assert that no planning activity
involving branding or nonstandard production method could be supported
by VAPG. The logic used was to say, the statute calls for a business
plan, and therefore it must be that any and all planning has been
completed and therefore no further planning is needed; leaving VAPG
only to support working capital projects when branding/nonstandard
production is proposed. According to the commenter, this interpretation
overreaches the statute's mandate--yes, there must be ``a business plan
that shows enhanced value'', but the nature of business planning is
that such a plan is often an entrepreneur's first effort to outline a
business strategy. This first step is prudently followed by further
testing (through a feasibility study, for instance) and elaboration
(through a marketing plan, for instance).
Response: The statutory language has been interpreted to mean that
the Secretary may determine whether a business plan requirement for
this category is in the best interest of the program. The Secretary has
determined that the business plan is not in the best interest of the
program at this time. As a result, a business plan is no longer
required for this product eligibility category and the category is open
to both planning and working capital applicants.
Comment: One commenter recommends clarifying Sec. 4284.922(b)(6)
because, according to the commenter, not all applicants will know there
is a definition for, or remember to check, the definition for,
``emerging market,'' and may jump to their own conclusions about what
that means. The suggested revised text would read as follows:
(6) If the applicant is an agricultural producer group, a farmer or
rancher cooperative, or a majority-controlled producer-based business,
the applicant must demonstrate that it is entering an emerging market
unserved by the applicant in the previous two years.
Response: The Agency disagrees with the suggested revision because
the definition is sufficient and is more explicit than the text
suggested by the commenter. Therefore, the Agency has not revised this
paragraph as suggested.
Comment: One commenter states that agricultural producer groups are
at an immediate disadvantage because of not being eligible for the
Reserved Funds pool. If the program still intends to benefit producer
groups, a portion of the funds could be reserved for these applicants.
Response: If by ``producer groups,'' the commenter means farmer or
rancher cooperatives, the Agency has determined to assign priority
scoring points to cooperatives in the ``Priority Points'' scoring
criterion. The Agency is unable to assign a portion of reserved funds
to cooperatives, because reserved fund priorities are set by statute.
Branding Activities (Proposed Sec. 4284.922(c))
Comment: Numerous commenters express concern over the 25 percent
limitation on branding activities, recommending either removing it in
its entirety or lowering the 25 percent. The specific comments received
are presented below.
Three commenters recommend not capping branding/marketing
activities. One of the commenters understands that the original intent
of the VAPG program was a pronounced focus on enhancing marketing and
related activities. From the commenter's perspective, branding
[[Page 10108]]
is an essential component of a marketing strategy/plan. As an eligible
grant category (e.g. marketing activities), it should not be capped. If
the regulatory interpretation is different, the terms branding and
product differentiation should be defined in the Sec. 4284.902, with
examples provided for both eligible and ineligible activities.
One commenter states that limiting these very valuable tools to 25
percent (or any significant limitation) would impact a large number of
applicants, raise interpretation issues, and seems to directly conflict
with the purpose of the VAPG program. The commenter is uncertain of the
purpose of limiting some of the most important tools to accomplish the
goals of the VAPG program.
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.
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.
One of the commenters states that as an agricultural producer
group, branding activities are primarily what they do and hopes that
there will not be restrictions placed on this very important part of
their activities under which they might apply for grant consideration.
One commenter states that the branding, packaging, or product
differentiation activities percent should not be more than 10 percent
of the total project cost (for those projects that otherwise
eligibility under one of the five value-added methodologies specified
in paragraphs (1)(i) through (v) of the definition of a value-added
agriculture product). If the proposed activities exceed 10 percent,
this could put the feasibility of the project at a higher risk. There
is an indication in the VAPG program that branding activity type
proposals have not provided strong, detailed evidence that the income
estimated is actually realistic. Packaging can be somewhat of a risky,
feasible expense, in terms of can it make enough difference in a new
value-added venture. These activities proposed at 25 percent of the
total project cost could put the project in a high risk situation. A
quarter of the project is too much to allow to be at risk, for a value-
added project to be assisted with federal government dollars.
One commenter states that some cooperatives have built recognized
name brands, which has helped build consumer loyalty and confidence and
help to differentiate products in a competitive marketplace. The VAPG
has been instrumental in leveraging farmers' investment in their own
products to create and expand markets. The earnings from those sales
flow through the cooperative to the farmer-members ultimately
increasing their income.
However, the proposed rule states: ``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.''
Limiting those activities to 25 percent (or any significant
percentage) would constrain the ability of organizations to use some of
the best marketing tools available to expand marking opportunities.
This seems to be in direct conflict with the purpose of the VAPG
program.
One commenter points out that its members have built recognized
name brands, which has in turn built consumer loyalty and confidence,
differentiating their products in a competitive marketplace. The VAPG
program has been instrumental in leveraging farmers' investment in
their own products to create and expand markets. The earnings from
those sales flow through the cooperative to the farmer-members
ultimately increasing their income. The commenter states that limiting
those activities to 25 percent (or any significant percentage) would
constrain the ability of organizations to use some of the best
marketing tools available to expand marking opportunities. This is in
direct conflict with the purpose of the VAPG program. Thus, the
commenter recommends removing this limitation from the rule.
One commenter states that it is unclear as to what issue or program
outcome is being addressed by the proposed limitation on the amount of
expenditures that can be used for ``branding, packaging, and product
differentiation.'' For a value-added consumer product, product
differentiation is a critical element of developing an alternative
market proposition. Use of packaging and branding are sometimes
absolutely essential to that process. Funding for these types of
activities, especially for small ventures, is perhaps the most useful
part of the Working Capital program, as these dollars are incredibly
hard to come by for most producer-owned ventures that we are familiar
with. Thus, limiting expenditures to 25 percent of total project costs
seem to arbitrarily limit the usefulness of the program to producers.
The limitation is also vague: What expenses would be included in the
limitation? Ad copy development? PR consultants? Sales samples? Demos?
All activities that can be construed as ``branding and
differentiation''? The commenter suggests that, if there is to be a
limitation on branding, packaging and product differentiation, a more
reasonable limit might be 50 percent of total project expenses. The
commenter's work with over 25 applications in 8 years suggests that
their clients have requested a maximum of marketing related expenses
between 25 and 50 percent of total project costs.
One commenter states that the VAPG statute includes among the five
categories of ``value-added agricultural product,'' ``any agricultural
commodity or PRODUCT that * * * (ii) was produced in a manner that
enhances the value of the agricultural commodity or product.''
According to the commenter, RD recently changed its rules to limit this
category to commodities grown in a ``nonstandard'' manner, such as
organic. Note that the statute is not restricted to just the way a
commodity is raised; it also recognizes that PRODUCTS also have value-
added to them through the way they are produced. Quite simply, this
means that branding is an allowable, bona fide value-added activity
supported by VAPG statute. The ability to use VAPG to promote branding
should be permitted. The proposed rule would restrict branding to just
25 percent of a VAPG grant's purpose. This percentage is arbitrary to
begin with, and it also begs the question, if branding is 25 percent
eligible, must not it be 100 percent eligible? The answer is, by
statute, it is entirely eligible and should be entirely permitted.
One commenter states that the verbiage in proposed Sec.
4284.922(c) is problematic for many of its members. Building a brand
name is one goal of creating value-added products. Brand names help
create consumer confidence and loyalty in a competitive marketplace.
The VAPG has been instrumental in leveraging farmers' investments in
their own brands to
[[Page 10109]]
create and expand markets. The earnings from those sales flow through
the cooperative to the farmer-members ultimately increasing their
income. Limiting those activities would constrain the ability of
organizations to use some of the best marketing tools available to
expand marketing opportunities. This seems to be in direct conflict
with the purpose of the VAPG program.
One commenter believes the 25 percent cap is not needed as long as
the eligible product for the project meets one of the five value-added
methodologies and the other project eligibility criteria. However, if
capped, the program will need to define or illustrate what budget
activities constitute ``branding'' in order to calculate and confirm
that application expenses do not exceed the limitation in the budget.
This commenter states that, for clarity of branding eligibility
message, the language should be revised to read, ``no more than 25
percent of the total project costs of a value-added project with
products otherwise eligible, having resulted from one of the five
value-added methodologies.''
Response: The Agency recognizes that branding and packaging are
important components of value-added marketing strategies. In
consideration of all of these comments, the Agency has removed in its
entirety proposed Sec. 4284.922(c), which would have imposed a 25
percent limitation on the uses of grant and matching funds for these
activities. Thus, the rule does not contain any funding limitation on
eligible branding and packaging activities proposed as part of an
otherwise eligible project.
Reserved Funds Eligibility (Proposed Sec. 4284.922(d))
Comment: One commenter recommends revising proposed Sec.
4284.922(d) by adding ``if applicants choose to compete for reserved
funds'' for clarification and to record documentation standards to read
as follows:
In addition to the requirements specified in paragraphs (a) through
(c) of this section, the requirements specified in paragraphs (d)(1)
and (2) of this section must be met, as applicable, if applicants
choose to compete for reserved funds. All eligible, but unfunded
reserved funds applications will be eligible to compete for general
funds in that same fiscal year, as funding levels permit.
Response: The Agency agrees with the suggested revision and has
revised the rule accordingly (see Sec. 4284.922(c)).
Reserved Funds Eligibility (Proposed Sec. 4284.922(d)(1))
Comment: One commenter recommends revising proposed Sec.
4284.922(d)(1), stating that documentation standards need to be
specified in the rule to establish uniform expectations, and to be
enforceable for eligibility determinations. The commenter suggested the
following text:
(1) If the applicant is applying for beginning farmer or rancher,
or socially-disadvantaged farmer or rancher reserved funds, the
applicant must provide the following documentation to demonstrate that
the applicant meets all requirements for one of these definitions.
For beginning farmer or rancher, documentation must include a
description from each of the individual owner(s) of the applicant farm
or ranch organization, addressing the qualifying elements in the BFR
definition, including the length and nature of their individual owner/
operator experience at any farm in the previous 10 years, along with
one IRS income tax form from the previous 10 years showing that each of
the individual owner(s) did not file farm income; or a detailed letter
from a CPA or attorney certifying that each owner meets the reserved
funds BFR eligibility requirements.
For socially disadvantaged farmer or rancher, documentation must
include a description of the applicant's farm or ranch ownership
structure and demographic profile that indicates the owner(s)'
membership in a socially disadvantaged group that has been subjected to
racial, ethnic or gender prejudice; including identifying the total
number of owners of the applicant organization, as well as the number
of owners that identify themselves as a SDFR; along with a self-
certification statement from the individual owner(s) evidencing their
membership in said socially disadvantaged group. At least 51 percent of
the farmer or rancher owners must be members of the socially
disadvantaged group.
Response: The Agency agrees with the suggested revisions and has
revised the rule as suggested by the commenter except for the suggested
text that 51 percent of the owners must be members of socially-
disadvantaged groups. Instead, the Agency is requiring that, for
reserved funding, 100 percent of owners must be members of socially-
disadvantaged groups. This requirement is set by statute.
Reserved Funds Eligibility (Proposed Sec. 4284.922(d)(2))
Comment: One commenter recommends clarifying proposed Sec.
4284.922(d)(2) to read as follows:
(2) If the applicant is applying for mid-tier value chain reserved
funds, the application must provide documentation demonstrating that
the project meets the Mid-Tier Value Chain definition, and must:
Response: The Agency agrees with the suggested revision and has
revised the paragraph as suggested by the commenter.
Comment: One commenter recommends revising proposed Sec.
4284.922(d)(2)(i) by adding reference to commodities and value-added,
because both terms are possible in this MTVC context, to read in part:
``Through which agricultural commodities and value-added products move
from production through consumption.''
Response: The Agency agrees with the suggested revision and has
revised the paragraph as suggested by the commenter.
Comment: One commenter recommends revising proposed Sec.
4284.922(d)(2)(ii) by adding reference to commodities for consistency
with the combined agricultural product/agricultural commodities
definition.
Response: The Agency agrees with the suggested revision and has
revised the paragraph as suggested by the commenter. The Agency also
revised this paragraph to make reference to value-added products as
part of the revision to the definition referenced by the commenter.
Comment: One commenter states that proposed Sec.
4284.922(d)(2)(ii) requires applicants to ``describe at least two
alliances, linkages or partnerships'', whereas proposed Sec.
4284.922(d)(2)(iv) requires the applicant to document that they have
``obtained at least one agreement with another member of the supply
network.'' The commenter asks: Are alliances materially different from
agreements? Thus, is it one or two alliances? Do two alliances only
apply to applicants that are Independent Producers?
Response: For the purposes of Sec. 4284.922(d)(2)(ii), alliances
are different from agreements. An alliance is a relationship or
strategic partnership in the chain that may or may not include a formal
written commitment. An ``agreement'' is a written commitment in the
form of a contract or letter of intent.
In addition to the other requirements described in Sec.
4284.922(d)(2), the application must describe ``at least two
[[Page 10110]]
alliances, linkages, or partnerships, plus one agreement.'' This is a
requirement of all applicant types, not just Independent Producers.
Comment: One commenter states that the reserved funds eligibility
section (proposed Sec. 4284.922(d)(2)(ii)) would be improved by
allowing linkages with ``other independent producers'' such that this
paragraph would read as follows:
(d)(2)(ii) Describe at least two alliances, linkages or
partnerships within the value chain that link independent producers
with other independent producers or with businesses and cooperatives
that market value-added agricultural products in a manner that benefits
small or medium-sized farms and ranches that are structured as a family
farm, including the names of the parties and the nature of their
collaboration;
Response: The Agency disagrees as this portion of the eligibility
requirement is based on the statutory definition of Mid-Tier Value
Chain.
Comment: One commenter recommends expanding ``mid-tier value
chain'' projects to include those that market farm-sited renewable
energy products. There is a recognizable, but undervalued niche to
farmer-owned wind generation.
Response: The Agency disagrees with the commenter's recommendation.
The project eligibility category related to renewable energy was set by
the 2008 Farm Bill and states that a Value-Added Agricultural Product
is ``a source of farm- or ranch-based renewable energy, including E-85
fuel''. The Agency's position is that wind is not an agricultural
commodity or a Value-Added agricultural product. Thus, the Agency has
not revised the rule as suggested by the commenter.
Comment: One commenter recommends adding a new category of funding
for ``locally-produced agricultural-sited energy projects''; similar to
the new category ``locally-produced agricultural food products''.
Response: The Agency disagrees with the commenter's recommendation.
The project eligibility category related to renewable energy is
prescribed by statute.
Comment: One commenter recommends spelling out documentation
requirements and expectations for applicant awareness and uniformity in
implementation in proposed Sec. 4284.922(d)(2)(iii). The commenter
recommends that this paragraph read as follows:
(iii) Demonstrate how the project, due to the manner in which the
value-added product is marketed, will increase the profitability and
competitiveness of at least two, eligible, small or medium-sized farms
or ranches that are structured as a family farm, including
documentation to confirm that the participating small or medium-sized
farms are structured as a family farm and meet these program
definitions. A description of the two farms or ranches confirming they
meet the Family Farm requirements, and IRS income tax forms evidencing
eligible farm income is sufficient;
Response: The Agency agrees with the suggested revision and has
revised the paragraph as suggested by the commenter.
Comment: One commenter recommends spelling out documentation
requirements and expectations for applicant awareness and uniformity in
implementation in proposed Sec. 4284.922(d)(2)(iv). The commenter
recommends that this paragraph read as follows:
(iv) Document that the eligible agricultural producer group/
cooperative/majority-controlled producer-based business applicant
organization has obtained at least one agreement with another member of
the supply network that is engaged in the value-chain on a marketing
strategy; or that the eligible independent producer applicant has
obtained at least one agreement from an eligible agricultural producer
group/cooperative/majority-controlled producer-based business engaged
in the value-chain on a marketing strategy.
For Planning grants, agreements may include letters of commitment
or intent to partner on marketing, distribution or processing; and
should include the names of the parties with a description of the
nature of their collaboration. For Working Capital grants,
demonstration of the actual existence of the executed agreements is
required.
Note that Independent Producer applicants must provide
documentation to confirm that the non-applicant APG/Coop/MAJ partnering
entity meets program eligibility definitions, except that, in this
context, the partnering entity does not need to supply any of the raw
agricultural commodity for the project.
Response: The Agency agrees with the suggested revisions and has
revised the rule as suggested by the commenter.
Comment: In referring to proposed Sec. 4284.922(d)(2)(v), one
commenter states that the proposed rule continues the requirement that
the applicant be the producer of the majority of the commodity to which
value is added. According to the commenter, this is a very unrealistic
requirement, particularly to small producers who, if they have a
promising value-added product, must quickly outstrip their own
agricultural production levels. In Oregon, for example, the commenter
stated that we have again and again seen bona fide farmers with
exciting value-added products disqualified by this rule. In order for a
farmer to justify capital costs to produce a value-added product, they
need commodity in volume, and thus they turn to neighboring farmers to
supplement their own crops. To limit VAPG to producers growing 50
percent or more of the commodity as we currently do, too often mean
limiting VAPG's assistance for unviable, undercapitalized enterprises.
Instead, the rule could retain its purpose--to assure that VAPG
assistance goes to producers and not processors--by reducing the
requirement and only insisting that the producer raise 10 percent or
more of the commodity to which value is added.
Response: The Agency disagrees. Applicants have a number of options
to form entities with other producers prior to application, which would
allow them to aggregate necessary product volume for a project.
Eligible Uses of Grant and Matching Funds (Sec. 4284.923)
Comment: One commenter states that there needs to be some
investigation of these grants beyond believing what is written. The
commenter states that recent grants to this area are ``sinful'' and
contends that giving money for unneeded research to millionaires makes
no sense. Example one was given a few years ago to research feasibility
of making/selling hard cider. The commenter states that a State
university had already done a study and that there were existing cider
makers in that State. A new grant for $150K was just given to an
applicant and the commenter expressed views about the use of funds in
previously conducted studies.
Response: The Agency disagrees. Grants are made to eligible
producers of all sizes, including small farmers. Funds for planning
purposes are intended to evaluate feasibility at the individual
enterprise level, which precludes the use of studies performed for
other businesses.
Comment: One commenter recommends clarifying the language as to
whether stand-alone marketing programs (completely independent from the
processing) are eligible. The commenter also recommended more clearly
defining the term ``branding.''
Response: As noted in a response to previous comments, the Agency
recognizes that branding and packaging
[[Page 10111]]
are important components of value-added marketing strategies and,
subject to the satisfaction of all other eligibility criteria, the rule
no longer has any funding limitation on the uses of grant and matching
funds for these activities.
Planning Funds (Sec. 4284.923(a))
Comment: Numerous commenters recommend keeping the business and
enterprise planning of VAPG projects farmer-centered. The proposed rule
includes conflicting provisions on this matter.
Helpfully, it says farmers may count their time spent on
development of business and marketing plans as an in-kind contribution
for purposes of matching funds. Yet the rule also includes conflict of
interest rules and several program definitions that seem to prohibit
active participation by the producer in project development and
planning. This undermines the fundamental principle of the VAPG
program: That farmers and ranchers should be empowered through these
grants to explore creative new businesses that will increase farm
income and create rural wealth. USDA should ensure that the final rule
is totally consistent on this point--farmers and ranchers should
directly participate in the development of VAPG projects and be allowed
to count their time as a contribution toward the program's matching
requirements.
Response: The Agency recognizes the necessity and benefit of direct
participation of farmers and ranchers in project development and
planning. The Agency also recognizes the necessity of independent,
third party analysis of project feasibility. Therefore, the Agency will
allow applicants to participate in the direction and data collection of
the analysis and allow contribution of time valued at up to 25 percent
of total project costs as in-kind match. The applicant must be able to
document the valuation of time contributed.
Comment: One commenter states that elements of the proposed rule
that contradict the statute and the statement in Sec. 4284.923(a)
providing for in-kind matching for participation in development of
business and marketing plans should be corrected so the rule as a whole
is consistent and clear and does not lead to arbitrary implementation
decisions. The commenter is concerned that a variety of sections in the
proposed rule contradict, or at the very least confuse, the otherwise
clear directive in the proposed rule that farmers and ranchers are
encouraged to write or help write business and marketing plans for
their proposed projects and have the time they invest in the work
accepted as an eligible in-kind match for a grant.
The statute clearly states that grants will be awarded to: An
eligible independent producer (as determined by the Secretary) of a
value-added agricultural product to assist the producer ``(i) in
developing a business plan for viable marketing opportunities for the
value-added agricultural product ; or (ii) in developing strategies
that are intended to create marketing opportunities for the producer''.
(7 U.S.C. 1621 (b)(1)(A))
Preserving this producer-centered approach to grants is fundamental
to VAPG's success. Our member organizations that have been engaged in
education and technical assistance on VAPG grants believe that
successful value-added projects are the result of a profound
understanding of the complexities of farming businesses that can only
be provided by the farmers and ranchers who will be participating in
the enterprise. Conversely, projects that fail most often do so because
they did not incorporate the insights and experience of the producers
the business will rely on for its success.
Response: The Agency recognizes the value of producer participation
in Planning activities, at the same time acknowledging that an
unbiased, third party is necessary for the evaluative portions of these
activities. Therefore, the Agency will retain its requirement that
feasibility studies be performed by independent third-parties with the
only limitation on applicant involvement being the provision a Sec.
4284.923 that allows applicants to claim time on Planning grants as in-
kind match amounting to up to 25 percent of total project costs,
provided that a realistic and relevant valuation of their time can be
documented.
Comment: One commenter recommends emphasizing the importance of the
marketing element of the VAPG Marketing Grant. Having the funds to come
out of the gate with a great marketing plan is imperative particularly
when you are involved in a competitive industry such as wine
production. The commenter attached one of their labels where marketing
has been key to its success which has contributed to the early success
and profitability of this particular wine.
Response: The Agency agrees with the commenter's suggestion to
emphasize the marketing element of the program and has revised the rule
to remove limitations on funding of branding and packaging activities.
Comment: One commenter states that, as in the proposed rule, the
final rule should allow for grant payment and in-kind matching credit
for producer participation in the development of business and marketing
plans, but also extend the same treatment to feasibility studies.
The 2009 VAPG NOFA for the first time explicitly excluded farmer
and rancher time as an allowable in-kind contribution for planning
grants, substantially reducing the number of applicants that had the
means to apply and reversing almost a decade of understanding in the
field of how the VAPG grant works. This was a serious mistake that
would do severe damage to the program if left uncorrected.
VAPG grants are at their core producer grants for entrepreneurial
producer-based projects. It is vital that producers be able to
contribute their sweat equity to building and launching their project.
Participation by consultants and outside experts can also be very
important. But the program should not ever be viewed primarily as a
grant program that passes funding through farmers and ranchers to paid
outside consultants. Such a view is contrary to law and contrary to the
intent of Congress in designing the program.
In addition to providing grant funds to pay for the time of the
applicant or the applicant's family members in the project, it is also
critical that producers be able to choose to contribute in-kind
services as part of their matching requirements. If they were not
allowed to do so, it would tilt the program to only the well-off, those
with access to sufficient capital to fully fund their match
requirements. Such a result would contradict the very reason for the
program's existence.
The commenter strongly supports the provision at Sec. 4284.923(a)
and urges that it be retained, but also strengthened, in the final
rule. The final rule on this point should be strengthened in two ways.
First, the proposed rule's preamble refers appropriately to both the
applicant and the applicant's family. The sentence in Sec.
4284.923(a), however, refers only to the applicant and does not mention
the applicant's family. This oversight should be fixed by adding a
specific reference to the applicant's family, to match the clear intent
as rendered in the preamble.
Second, the major element that is still missing from this provision
in Sec. 4284.923(a) is an allowance for producer participation in
planning grants and for in-kind producer matching contributions in the
development of a value-added business feasibility study. The statute is
reasonably clear on this matter: A grantee under paragraph (1) shall
use
[[Page 10112]]
the grant--(A) to develop a business plan or perform a feasibility
study to establish a viable marketing opportunity for a value-added
agricultural product; (7 U.S.C. 1621(b)(3)(A)).
The statute provides that producers may perform feasibility studies
as part of planning grants. If a producer receiving an award can use
the grant to themselves perform a feasibility study then certainly they
should also be able to count portions of their time working on a
feasibility study as an in-kind match.
Feasibility studies can be conducted by a qualified consultant, and
in many cases should be, but with input and contributions from the
producer(s). The commenter notes that marketing and business plans are
critical components for the feasibility study and the proposed rule in
Sec. 4284.923(a) already allows producers and their families to count
their marketing and business plan development time as part of their in-
kind match. It would be logically inconsistent to say they can count
time toward the two critical components of the feasibility study, but
not the feasibility study per se. Moreover, consultants will be relying
on the producer(s) to supply much of the additional information that
will provide the basic background and parameters of the feasibility
study without which they cannot proceed. For these reasons, the
commenter recommends adding an explicit reference to feasibility
studies to Sec. 4284.923(a).
To address both of these issues--family members and feasibility
studies--the commenter recommends modifying Sec. 4284.923(a) as
follows:
(a) Planning funds may be used by applicants for the costs
associated with conducting and developing a feasibility study, business
plan, and/or marketing plan associated with the processing and/or
marketing of a value-added product, including costs required to pay 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 product. In-kind contribution of
matching funds to cover applicant or family members of the applicant
participation in development of feasibility studies, business plans
and/or marketing plans is allowed to the extent that the value of such
work can be appropriately valued. 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.
Response: The Agency recognizes the value of producer participation
in Planning activities, at the same time acknowledging that an
unbiased, third party is necessary for the evaluative portions of these
activities. Therefore, the Agency will retain its requirement that
feasibility studies be performed by independent third-parties.
Applicants (and applicant family members, as necessary) are encouraged
to participate in the non-evaluative portions of the study and may
contribute time as in-kind match amounting to up to 25 percent of total
project cost, provided that a realistic and relevant valuation of their
time can be documented. The Agency considers the use of grant funds for
direct personal financial gain to be a conflict of interest and will
continue to prohibit use of grant funds to pay applicant/applicant
family member salaries.
Comment: One commenter believes planning grants should allow for
producer involvement in feasibility studies, and for them to count
their time as in-kind match. The proposed rule makes progress in this
area by recognizing the importance of their involvement in business and
marketing planning, but is still lacking regarding feasibility studies.
Working with many farmers and ranchers over the years, their
involvement in all aspects ``feasibility studies, business planning and
marketing planning'' was absolutely key to successful projects. Through
the feasibility studies they have helped with in the past, the farmers
or ranchers have assisted with surveys, product testing, data
collection, and many other activities. This work was critical for
compiling the feasibility study.
Also, all of the farmers and ranchers they were seeking to assist
during the 2009 VAPG round dropped out because they were not able to
count their time as in-kind match for these activities. To ensure this
program serves the folks it is designed to make a priority (small and
mid-size family farmers and ranchers) the in-kind contribution in this
regard must be fixed and their involvement in feasibility studies must
be allowed to be counted as in-kind contributions. In the absence of
such they will only stand to serve the well-healed who do not need the
assistance in order to launch a value-added business.
Response: The Agency recognizes the value of producer participation
in Planning activities, at the same time acknowledging that an
unbiased, third party is necessary for the evaluative portions of these
activities. Therefore, the Agency will retain its requirement that
feasibility studies be performed by independent third-parties.
Applicants (and applicant family members, as necessary) are encouraged
to participate in the non-evaluative portions of the study and may
contribute time as in-kind match amounting to up to 25 percent of total
project cost, provided that a realistic and relevant valuation of their
time can be documented.
Comment: One commenter recommends revising Sec. 4284.923(a) to
reflect more recent RBS determinations to allow limited applicant and
family member in-kind contributions for planning grant match purposes,
and to establish implementation parameters to balance applicant in-kind
contributions with federal conflict of interest law. The Agency may
consider limiting this conflict of interest exception for planning
grants only to applicants that are ``Small-Farms structured as a Family
Farm''; ``to 10 percent of total project costs for planning grants'';
or ``for all planning grant applicants that seek grant amounts of
$50,000 or less as part of a simplified grant request.'' conflict of
interest and applicant in-kind contribution issues have been highly
problematic in the past, and account for a large percentage of
applications submitted but deemed ineligible due to conflict of
interest. Federal procurement standards prohibit transactions with a
real or apparent conflict of interest, including owner and family
member in-kind contributions. If an exception is allowed as above, the
regulation must be clear as to what is and is not acceptable in order
to mitigate this issue going forward.
Response: The Agency recognizes the value of producer participation
in Planning activities, at the same time acknowledging that an
unbiased, third party is necessary for the evaluative portions of these
activities. Therefore, the Agency will retain its requirement that
feasibility studies be performed by independent third-parties.
Applicants (and applicant family members, as necessary) are encouraged
to participate in the non-evaluative portions of the study and may
contribute time as in-kind match amounting to up to 25 percent of total
project cost, provided that a realistic and relevant valuation of their
time can be documented. In addition, applicants for Working Capital
grants may also contribute their time on eligible working capital tasks
as in-kind match amounting to up to 25 percent of total project cost,
provided that a realistic and relevant valuation of their time can be
documented.
Working Capital Funds (Sec. 4284.923(b))
Comment: One commenter asks if this is a new clause (exclusion of
grant funds
[[Page 10113]]
for an owner's salary for eligible activities) or has this always been
the case? Are owners able to use time spent processing and/or marketing
and delivering the value-added product as an in-kind match? The
commenter believes eligible grant activities should qualify to receive
federal funds or to be used for match (cash and in-kind) to the
greatest extent possible--the only possible exception would be
applicant time spent on the feasibility study.
Response: The Agency considers the use of grant funds for direct
personal financial gain to be a conflict of interest and will continue
to prohibit use of grant funds to pay applicant/applicant family member
salaries. However, the Agency recognizes the value of producer
participation in Planning activities, as well as the necessity of
participating in eligible marketing activities. Therefore, both
Planning and Working Capital applicants (and applicant family members,
as necessary) may contribute time spent on eligible activities as in-
kind match amounting to up to 25 percent of total project cost,
provided that a realistic and relevant valuation of their time can be
documented, as provided for at Sec. 4284.923.
Comment: One commenter recommends expanding Sec. 4284.923(b) to
allow the payment of salaries to owners/family members of the value-
added venture. The VAPG primary objective, as defined in this proposed
rule, is to help the independent producer of agricultural commodities
increase the producer's income as the end goal. The commenter believes
that it is counterintuitive to say that paying an owner or family
members to run their business is a conflict of interest. The commenter
understands that and agrees that the amount paid has to be reasonable
and has to be commensurate with the duties preformed.
To say that it is an eligible cost to pay someone else to run their
business but that it is not an eligible cost to pay themselves a
reasonable wage to run their business does not make sense. The
commenter asks the Agency to consider making this change to 7 CFR parts
4284 and 1951. If not, then the rule needs to be stated such that this
is not an allowable expense and needs to be specifically listed in
Sec. 4284.924.
Response: The purpose of the program, as given in Sec. 4284.901,
is to ``enable viable agricultural producers to develop businesses that
produce and market value-added agricultural products.'' The Agency
considers the use of grant funds for direct personal financial gain to
be a conflict of interest and will continue to prohibit use of grant
funds to pay applicant/applicant family member salaries. However, the
Agency recognizes the value of producer participation in Planning
activities, as well as the necessity of participating in eligible
marketing activities. Therefore, both Planning and Working Capital
applicants (and applicant family members, as necessary) may contribute
time spent on eligible activities as in-kind match amounting to up to
25 percent of total project cost, provided that a realistic and
relevant valuation of their time can be documented, as provided for at
Sec. 4284.923.
Comment: One commenter states that, for stand-alone marketing
programs, which do not lend themselves to creating feasibility or
business plans, a marketing plan with clear results should be
sufficient.
Response: If the commenter use of ``stand-alone marketing
programs'' refers to applicants already producing a value-added
product, but desiring to expand their market, the Agency agrees that a
feasibility study is unnecessary. However, the Agency disagrees that a
business plan is unnecessary. The Agency has revised the rule to allow
Independent Producer applicants requesting $50,000 or more who can
demonstrate that they are proposing market expansion for existing
value-added products to submit a business or marketing plan in lieu of
a feasibility study (see Sec. 4284.922(b)(5)(i)).
Comment: One commenter states that the working capital paragraph at
Sec. 4284.923(b) needs to clarify that grant payment of salaries, etc.
to not only ownership, but also ``immediate family interests''
constitutes a conflict of interest and is prohibited.
Response: The Agency agrees with the commenter and has revised the
rule accordingly.
Ineligible Uses of Grant and Matching Funds (Sec. 4284.924)
Comment: Four commenters state that this section should clearly
state which uses of funds are ineligible. For example, the rule should
clearly state applicants are not allowed to use grant funds for owner
salaries. It is unnecessarily confusing to imply such expenses are
ineligible because they are a conflict of interest.
Response: The Agency agrees with the commenter and has revised this
section accordingly. In addition, the Agency notes that the rule now
clearly states that applicants are not allowed to use grant funds for
either owner salaries or for immediate family member salaries (see
Sec. 4284.924(n)).
Comment: Several commenters state that this section should clearly
state if some uses of funds are eligible as matching funds, but are not
an eligible use of grant funds. Section 4284.931(b)(4)(i) of the rule
states: ``Matching funds are subject to the same use restrictions as
grant funds,'' but this has not been the practice. For example, the
rule should clearly state if applicants are allowed to contribute
inventory they have produced as a match, but cannot use grant funds to
purchase the same inventory from themselves.
Response: The Agency agrees and has provided clarification and
additional examples at Sec. Sec. 4284.923 and 4284.924. However, it is
unrealistic to anticipate and list every possible example and,
therefore, the Agency must have the ability to exercise discretion.
Comment: One commenter states that, as a small producer, he
believes that eliminating the ability of a producer to use in kind
options to help match grant funds would disadvantage many lower income
participants. Driving the grant/research sector into the hands of
corporate, state, and entities other than small farmers is obviously
not in the spirit of the program, and the commenter states that this
direction would be a move towards much more severe conflicts of
interest between the reciprocation of officials between government
agencies and corporations. The commenter believes these grant funds are
best spent with our local producers, not on what the commenter
perceives of as wasteful university research, and contends that local
producers are more efficient at disposing of funds than almost any
other type of researchers.
Response: The Agency recognizes the value of producer participation
in planning activities, at the same time acknowledging that an
unbiased, third party is necessary for the evaluative portions of these
activities to assist the Agency determining the merits of a particular
applicant's planned activities. Therefore, the Agency will retain its
requirement that feasibility studies be performed by independent third-
parties. Applicants (and applicant family members, as necessary) are
encouraged to participate in the non-evaluative portions of the study
and may contribute time as in-kind match amounting to up to 25 percent
of total project cost, provided that a realistic and relevant valuation
of their time can be documented.
Comment: One commenter recommends allowing applicants to be paid
for professional services, as eligible project costs.
Response: The Agency considers the use of grant funds for direct
personal financial gain to be a conflict of interest
[[Page 10114]]
and will continue to prohibit use of grant funds to pay applicant/
applicant family member salaries. However, the Agency recognizes the
value of producer participation in Planning activities, as well as the
necessity of participating in eligible marketing activities. Therefore,
both Planning and Working Capital applicants (and applicant family
members, as necessary) may contribute time spent on eligible activities
as in-kind match amounting to up to 25 percent of total project cost,
provided that a realistic and relevant valuation of their time can be
documented, as provided for at Sec. 4284.923.
Comment: One commenter states that, with regard to ineligible
matching funds--donated services that are also paid for with VAPG
funds--if a consultant or other party will receive cash payments from
the VAPG project, a conflict of interest exists as to the donation of
their services. For instance, a consultant should not be able to set a
high price for their services and then ``donate'' some of that price as
match. This should be expressly prohibited.
Response: The Agency does not agree that a change to the rule is
necessary because it would limit the ability of smaller applicants to
utilize the services of consultants.
Comment: One commenter states that, with regard to ineligible
matching funds--commodity, the existence of a crop is a necessary
precondition of any value-adding activity. Thus, growers should not be
able to assert the value of the commodities they raise as part of their
match.
Response: The Agency disagrees with the comment and will continue
to allow applicants to contribute commodity inventory as in-kind, as
appropriate because the practice is not prohibited under uniform
administrative requirements regarding cost-sharing.
Comment: One commenter states that the conflict of interest
requirement in the proposed rule is suggestive, but bears some
elaboration to prevent abuse. No owner should be able to pledge their
assistance as valid ``in kind'' match; their compensation for their
efforts on a project is the potential increased profit they expect to
realize. If they are not convinced of such a return, they should not be
undertaking the project.
Response: The Agency agrees that the use of grant funds for direct
personal financial gain is a conflict of interest and will continue to
prohibit use of grant funds to pay applicant/applicant family member
salaries. However, the Agency recognizes the value of producer
participation in Planning activities, as well as the necessity of
participating in eligible marketing activities. Therefore, both
Planning and Working Capital applicants (and applicant family members,
as necessary) may contribute time spent on eligible activities as in-
kind match amounting to up to 25 percent of total project cost,
provided that a realistic and relevant valuation of their time can be
documented, as provided for at 4284.923.
Comment: One commenter states that this section needs to be revised
to connect conflict of interest issues with procurement transactions,
to illustrate conflict of interest for owners and family members, and
to clarify what is not an eligible use of funds.
Response: The Agency agrees and has revised rule text at Sec. Sec.
4284.923 and 4284.924, and in the definition of Conflict of Interest.
Comment: One commenter states that this section should make clear
that the identity of independent producers may be by name or class, but
still prohibit industry-wide templates.
Response: The Agency agrees with the suggestion and has revised
proposed Sec. 4284.924(k) (now Sec. 4284.924(m) in the interim rule)
as suggested by the commenter in order to balance the interests of
applicants ease of application with the Agency's need to identify
applicant owners.
Pay Any Costs of the Project Incurred Prior to the Date of Grant
Approval (Proposed Sec. 4284.924(m))
Comment: One commenter states that the proposed rule restricts the
use of grant and matching funds for any costs incurred prior to the
date of grant approval. It would be beneficial for the applicants if
they could start their project after the application is submitted. This
should be changed to any cost incurred prior to the application
submission. Other Agency programs such as the REAP and B&I programs,
allow the start of the project prior to the award approval. This has
been successful as long as the applicant is aware that they may not
receive the grant. Many of the value-added products are created in a
sensitive timeframe dependant on the commodity's growing season. Often
the growing season is in conflict with the grant's timeframes.
Response: Prohibitions on incurring reimbursable costs prior to
grant approval is standard procedure under Federal grant administrative
guidelines. This protects applicants--especially small applicants of
limited means--from incurring costs for a project that might not be
completed if they did not receive a grant. In addition, timeframes of
up to 36 months are allowed and could be tailored to accommodate
growing seasons.
Comment: One commenter believes that matching funds should be
allowed from the date of the NOFA because many expenses are incurred to
start the project during the application period and time prior to the
funding of the grants. Many of the projects are incurring legal and
accounting expenses to get prepared if the VAPG is funded. If they do
not incur these expenses then they are not prepared to start the
projects as soon as they are awarded. If these expenses are not
allowed, then the project has to stop and wait for the announcement
date which can be delayed for months.
Response: Prohibitions on incurring reimbursable costs prior to
grant approval is standard procedure under Federal grant administrative
guidelines. This protects applicants--especially small applicants of
limited means--from incurring costs for a project that might not be
completed if they did not receive a grant.
Pay for Any Goods or Services Provided by a Person or Entity That Has a
Conflict of Interest or an Appearance of a Conflict of Interest
(Proposed Sec. 4284.924(p))
Comment: Two commenters state that proposed Sec. 4284.924(p) is in
conflict with the provision at Sec. 4284.923(a). The emphasis on
conflict of interest or an appearance of conflict of interest is
misplaced in reference to in-kind matching funds. All matching
contributions must be verifiable and the time, or ``sweat equity'',
that farmers, ranchers and/or their families invest to design and
develop these value-added enterprises are necessary to their success,
as the rule otherwise provides in Sec. 4284.923(a).
One of the commenters states it would be worthwhile to delete the
definition for conflict of interest entirely or redefine it with
specific examples and/or exclusions. The other commenter recommends
deleting the second sentence, to read as follows: (p) Pay for any goods
or services provided by a person or entity that has a conflict of
interest or an appearance of conflict of interest.
One commenter states he was recently notified that he received a
working capital VAPG and this would have never been possible if he were
not allowed to contribute in-kind match for his time to develop the
business plan and feasibility study. The commenter asks USDA to please
consider removing the conflict of interest clause, because, the
commenter believes, it hinders small producers and businesses from
applying because they cannot meet the match
[[Page 10115]]
requirements without being able to provide in-kind match.
Response: The Agency has revised the text at Sec. 4284.924(a) to
note the exceptions to the conflict of interest language allowing
limited contributions of applicant time to in-kind match.
Funding Limitations (Sec. 4284.925)
Comment: One commenter suggests that the maximum grant amount
remain at $300,000, not be increased to $500,000.
Response: The Agency agrees with the commenter. The statute allows
a maximum of $500,000 at Agency discretion. It is the Agency's
intention to retain the $300,000 maximum for working capital grants.
Comment: Four commenters recommend that the final rule include a
reasonable standard to measure significant benefit to beginning
farmers.
Response: The statute has a 10 percent reserve to fund projects
that benefit beginning farmers or ranchers or socially disadvantaged
farmers and ranchers as well as giving priority to projects that
contribute to increasing opportunities for beginning farmers or
ranchers. The Agency will fully implement the designations stipulated
in the statute.
Comment: One commenter recommends creating a 10 percent set-aside
for farmer-owned community wind projects, similar to the same for mid-
tier value chain projects, or beginning farmers and ranchers.
Response: The Agency disagrees with the commenter's recommendation.
Reserved funds designations are stipulated by statute.
Comment: One commenter recommends allocating the 10 percent set
aside for beginning and socially disadvantaged farmers to the states
along with the regular VAPG state allocations with the understanding
that those funds are exclusively designated for such applicant
categories. In the event a state is unable to award at least 10 percent
of their state allocation to such categories, these funds should be
pooled in a timely manner and made available to states with an excess
of such applicants. This will ensure that 10 percent or more of the
funds awarded go to these statutorily designated categories. Because
these applicant types receive priority points as well, it is very
unlikely RD will have trouble awarding funds at the required level.
Response: The Agency disagrees with the commenter's recommendation.
Allocation of funds to States is counter to statutory direction that
the VAPG program be a nationally competitive program.
Comment: One commenter states that the mid-tier value chain (MTVC)
aspect of VAPG is highly specialized and the 10 percent set aside
required for such projects does not lend itself well to state
allocations. Thus, unlike with regular VAPG project, it makes sense to
conduct a single, nationwide competition for MTVC projects.
Response: The Agency agrees that allocation of funds to States is
counter to statutory direction that the VAPG program be a nationally
competitive program.
Preliminary Review (Sec. 4284.930)
Comment: One commenter states that primary eligibility
determinations are based on both applicant and project eligibility
requirements. Therefore, the commenter recommends that the language in
this section be revised to maintain consistency throughout the
regulation.
Response: The Agency agrees with the suggested revision and has
added reference to applicant eligibility in this section.
Application Package (Sec. 4284.931)
Comment: One commenter states that, with regard to ideal
application content, a much more preferable application requirement
would consist of: (1) A proposed Form RD 4284-1, VAPG Application, with
all of the requisite certifications pre-printed on the form; (2) a
business plan; and perhaps (3) current balance sheet (to reflect
capacity to perform). A feasibility study could be included working
capital applications when applicable (although it should not be
required when non-emerging markets projects are proposed, as already
discussed above).
Response: The Agency understands the concern for ease of the
application process and will consider these points when developing
application material.
Forms
Comment: One commenter notes that currently there are no forms
available for the customer to complete in identifying the required
criteria, and recommends using Form RD 4279-1, Application for Loan
Guarantee.
One commenter states that, regarding the application form, the SF-
424, Application for Federal Assistance, SF-424A, Budget Information--
Non-Construction Programs, and SF-424B, Assurances--Non-Construction
Programs, are generic forms poorly suited and confusing to farmers. The
commenter recommends that Rural Development develop a VAPG application
form specifically designed for the VAPG program.
Two commenters state that the proposed rule does not reference a
single, comprehensive form for the applicant to complete in addressing
the required criteria. The proposed rule should reference a standard
form. The majority of items applicants must address should be basic,
check-the-box certifications. Only a few, subjective items should call
for a narrative statement and the form should provide adequate space
for most applicants to provide the information. Many Rural Development
programs can be accessed by completing a comprehensive form and the
form is often referenced in the rule. The application process for the
VAPG program should be driven by a standard form, similar to Form RD
4279-1.
Response: The Agency understands the concern for ease of the
application process and will consider these points when developing
application material.
Comment: One commenter recommends adding Form RD 1940-20.
Response: The Agency agrees with the recommendation and has added
reference to Form RD 1940-20.
Comment: One commenter recommends removing Form RD 400-1 because it
covers construction projects, which are ineligible for VAPG projects.
Response: The Agency agrees with the commenter and has removed Form
RD 400-1 as a requirement from the rule.
Comment: One commenter states that Sec. 4284.931(a)(6) needs to be
changed to remove the need for a DUNS number for an individual and sole
proprietor to be consistent with other Rural Development programs (i.e.
REAP). The DUNS number is a number that is designed for businesses.
Individuals and sole proprietors are eligible entities for the VAPG
program and a DUNS number should not be required in these
circumstances.
Response: The DUNS requirement for all applicants for Federal
assistance is by OMB directive.
Application Content (Sec. 4284.931(b))
Comment: One commenter states that the 2009 VAPG rules required
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. According to the commenter, this poses 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
[[Page 10116]]
it. Legal issues were also raised regarding the release of such
information in certain states, even if it were available. The commenter
states several potential applicants declined to apply in 2009 due to
this requirement. The proposed rule is silent on the matter, which
presumably means that the requirement has been dropped, and the
commenter hopes this is the case.
Response: The Agency agrees and has revised the definitions of
Farmer or Rancher Cooperative, Agricultural Producer Group, Independent
Producers, and Majority Controlled Producer-Based Business Ventures to
indicate that entities may list owner/members by name or by class.
Eligibility Discussion (Sec. 4284.931(b)(2))
Comment: One commenter recommends deleting ``using the format
prescribed by the application package,'' in Sec. 4284.931(b)(2)
through (4), and rewording so the regulation is not dependent upon an
Agency package, but so the regulation with notifications cited comprise
the format for the application.
Response: The Agency disagrees with the proposed change as its
intention is to provide a comprehensive application package to convey
format details. All sustentative requirements which are reflected in
the application are contained in the regulation.
Comment: One commenter recommends breaking out applicant and
project eligibility as Sec. 4284.931(b)(1)(i) and (ii) respectively--
they are two distinct eligibility components.
Response: The Agency agrees with the commenter and has revised the
rule as suggested.
Evaluation Criteria (Sec. 4284.931(b)(2))
Comment: One commenter recommends that the performance evaluation
criteria indicate that applicant or Agency requested performance
criteria will be incorporated into applicant reporting requirements and
give examples, as these elements will be detailed in the grant
agreement or letter of condition.
Response: The Agency agrees with the commenter and has revised the
rule as suggested. Additional instruction will be provided in the
annual notice of funding availability.
Comment: One commenter recommends that the Agency indicate that the
proposal evaluation criteria are applicable to both planning and
working capital applicants.
Response: The Agency agrees with the commenter and has revised the
rule as suggested.
Comment: One commenter recommends that the Agency clarify how
applicants verify eligible matching funds, especially with regard to
applicant or family member in-kind contributions that meet to be
documented requirements and limitations in Sec. 4284.923(a), or non-
federal grant sources.
Response: The Agency agrees with the commenter and will provide
guidance in the application package on verification of matching funds.
Comment: One commenter believes that the narrative requirement of
VAPG applications is excessive and burdensome to the farmer. The
commenter recommends that it be replaced by succinct sections of the
recommended Form RD 4284-1, asking for what is specifically needed and
no more. Farmers should not be expected to enter into a writing contest
to receive VAPG assistance. Doing so turns this program into a benefit
for grant-writers and not farmers.
Response: The Agency agrees with the commenter and is developing a
comprehensive application package, which will provide forms and
templates that encourage succinct responses.
Certification of Matching Funds (Sec. 4284.931(b)(3))
Comment: One commenter recommends replacing the requirement for
multiple certifications on matching funds, etc., by a simple preprinted
certification on a Form RD 4284-1.
Response: The Agency agrees that multiple certifications can be
addressed at one place in the application.
Verification of Cost-share Matching Funds (Sec. 4284.931(b)(4))
Comment: One commenter states that Sec. 4284.931(b)(4)(v) and (vi)
represent a third operational provision of the proposed rule in
conflict with the allowance provided in Sec. 4284.923(a). Although the
proposed rule in Sec. 4284.923(a) states that applicant producer's
time is an acceptable in-kind contribution, these two provisions each
contradict that statement. Omitting mention of applicant time or other
in-kind match in paragraphs (b)(4)(v) and (vi), while including a
specific reference to eligible third-party contributions implies that
the only kind of match that applicants can provide are in the form of
cash. The commenter also states that Sec. 4284.931(4)(vi)
unnecessarily raises the specter of rejecting the in-kind contributions
of producers permitted by Sec. 4284.923(a) by cross-reference to the
conflict of interest definition. The commenter recommends these
paragraphs be rewritten as follows: Verification of cost-share
matching. Using the format prescribed by the application package, the
applicant must provide authentic documentation from the source to
confirm the eligibility and availability of both cash and in-kind
contributions that meet the following requirements:
(v) Matching funds must be provided in the form of confirmed
applicant cash, loan, or line of credit, and may include payment for
the time of the applicant/producer or the applicant producer's family
members to the extent that the value of such work can be appropriately
valued; or confirmed third-party cash or eligible third-party in-kind
contribution.
(vi) Examples of ineligible matching funds include funds used for
an ineligible purpose, contributions donated outside the proposed grant
period, third-party or applicant in-kind contributions that are over-
valued, expected program income at time of application or instances
where the potential for a conflict of interest exists.
Response: The Agency has considered the commenter's suggested
revisions and agrees that revision to these two paragraphs is needed.
Therefore, the Agency has revised the elements in Sec.
4284.931(b)(4)(v) and (vi) to be consistent with the Agency's intention
to allow specified and limited applicant in-kind contributions for a
portion of the project's matching funds for planning and working
capital grants, and to be consistent with Sec. Sec. 4284.902,
4284.923(a) and (b), and 4284.924.
Comment: One commenter states that the requirement for verification
of matching funds at the time of application is burdensome and
unnecessary. The farmer should not be expected to have funds on hand or
committed and then tied up for months while RD reviews the
applications. There is no harm done if the farmer proves ultimately
unable to raise matching funds because if the farmer fails to do so,
then no VAPG funds are going to be disbursed. So why require funds to
be tied up so far in advance of the project's uncertain selection and
start date?
Response: The Agency acknowledges the commenter's concern and will
provide guidance in the instructions to the rule to balance flexibility
regarding verification requirements with the need for ascertaining and
documenting applicant commitment.
Comment: One commenter wants to know how conflict of interest
applies to allowable applicant in-kind match for the development of
business plans and/or marketing plans.
Response: The allowance of limited contributions of applicant time
to both Planning and Working Capital grants is an exception to the
Agency's conflict of
[[Page 10117]]
interest policy and is noted in revised text in Sec. Sec. 4284.923 and
4284.924.
Comment: Three commenters state that the proposed rule is
conflicting on the eligibility of applicant, in-kind matching funds.
Nothing in this section allows for applicant in-kind matching funds.
Specifically, Sec. 4284.931(b)(4)(v) lists the eligible forms of
matching funds and does not include applicant, in-kind matching funds.
This is contrary to Sec. 4284.923(a), which allows for applicant, in-
kind matching funds for planning grants under qualified circumstances.
The proposed rule should be clearer on the eligibility of applicant,
in-kind matching funds.
One commenter states that applicant in-kind as an eligible match
(for the development of business plans and/or marketing plans) is not
included.
Response: The Agency agrees with the commenters concerning the
conflicting nature of the proposed rule. Therefore, the Agency has
revised the elements in Sec. 4284.931(b)(4)(v) and (vi) to be
consistent with the Agency's intention to allow specified and limited
applicant in-kind contributions for a portion of the project's matching
funds for planning and working capital grants and to be consistent with
Sec. Sec. 4284.902, 4284.923(a) and (b), and 4284.924.
Business Plan (Sec. 4284.931(b)(5))
Comment: Three commenters state that the proposed rule requires all
working capital applications to include a copy of the business plan and
a third-party feasibility study completed for the proposed project. The
Agency is required to concur in the acceptability or adequacy of these
documents. The National Office should provide guidance to allow for a
standardized review process around the country. The review process must
consider two competing issues. First, the process must be simple enough
to allow the Agency to complete the review in a timely manner. Second,
the review process must be flexible enough to accommodate business
plans and feasibility studies written for ventures in a variety of
different industries.
Response: The Agency agrees with the commenter and will develop
guidance for State Office review of feasibility studies and business
plans.
Feasibility Study (Sec. 4284.931(b)(6))
Comment: Two commenters state that the proposed rule requires all
working capital applications to include a copy of the business plan and
a third-party feasibility study completed for the proposed project. The
Agency is required to concur in the acceptability or adequacy of these
documents. The National Office should provide guidance to allow for a
standardized review process around the country. The review process must
consider two competing issues. First, the process must be simple enough
to allow the Agency to complete the review in a timely manner. Second,
the review process must be flexible enough to accommodate business
plans and feasibility studies written for ventures in a variety of
different industries.
Response: The Agency agrees with the commenter and will develop
guidance for State Office review of feasibility studies and business
plans.
Comment: One commenter states that a standardized review process is
needed for every state. It must be simple and timely and flexible to
accommodate business plans and feasibility studies written for ventures
in a variety of different industries. Not everyone is making wine out
of grapes.
Response: The Agency agrees with the commenter and will develop
guidance for State Office review of feasibility studies and business
plans.
Comment: One commenter suggests the requirement for a feasibility
study be waived in the case of an individual producer who has been
successfully operating for six years and beyond.
Response: The Agency has revised the rule for Independent Producer
applicants proposing market expansion for existing value-added products
to require only a business or marketing plan, rather than a feasibility
study, provided the applicant has produced and marketed the value-added
product for at least two years.
Comment: One commenter states that the issuance of a new VAPG
regulation could greatly encourage the strategy of promoting local and
regional foods as an important rural development by recognizing local
foods as a valid value-adding strategy and thus exempting this strategy
from any feasibility study requirement regardless of whether the
producer has a history of participating in local foods (i.e.,
regardless of whether the local food strategy would be an ``emerging
market'' opportunity for a given producer). The commenter states that
such a rule would greatly simplify the ability of farmers to apply for
and receive VAPG assistance to begin or continue participate in farmers
markets, etc.
The commenter further states that RD has consistently and
unrealistically required that all applications for working capital
grants be supported by a feasibility study. The value of such studies
may be important in many cases, such as when a project involves an
``emerging market''. Their value is less clear and serves only as a
barrier in instances where the VAPG project is not for an emerging
market. An independent producer who has a track record of producing a
value-added product should not be required to undertake the time and
expense of a feasibility study when their proven history supports their
business plan. The commenter states that, in such cases, feasibility
studies should be optional and if completed and their content is
persuasive, it could result in greater priority being assigned to such
projects.
Response: The Agency generally agrees and will require only a
business or marketing plan rather than a feasibility study for
Independent Producer applicants requesting $50,000 or more in working
capital funds and proposing market expansion for existing value-added
products.
Simplified Application (Sec. 4284.932)
Comment: Four commenters recommend including a description of the
simplified application process in the rule for two reasons. First, the
simplified application process should be included in the rule, as
opposed to the annual NOSA. Applicants want to prepare applications
packages as early as possible to elevate the burden of a narrow
timeline between program announcement and application deadline. Second,
the simplified application process should be an abbreviated version of
a standard form to compete for program funds. The form should be
similar to Form RD 4279-1A, ``Application for Loan Guarantee--Business
and Industry Short Form.''
Response: The Agency understands the concern for ease of the
application process and will consider these points when developing
application material.
Comment: Two commenters believe the Agency should create a
simplified application for grants of less than $50,000. One of the
commenters states that the 2008 Farm Bill explicitly calls on Rural
Development to offer a simplified application for small grants of less
than $50,000 as recognition that the proposal process is so cumbersome
that many excellent, inexpensive projects do not get the support they
deserve. The FY 2009 NOFA, however, did not offer a substantive
improvement in this regard, and the proposed rule contains only a one
sentence reference that says ``Applicants requesting less than $50,000
will be allowed to submit a simplified application, the contents of
which will be announced in an annual notice issued pursuant to Sec.
4284.915.'' This issue deserves serious attention and should be dealt
with in the 2010 NOFA. Given the missed opportunity
[[Page 10118]]
last year and the lack of any substantive proposal in the proposed
rule, the commenter suggests, if necessary, that Rural Development
staff work with other agencies, including AMS, FSA, and NIFA, that
currently use simplified application forms in a variety of grant and
loan programs, to adopt lessons learned about grants and loan documents
that are user-friendly for under-resourced groups but still provide
necessary assurances of merit or credit worthiness.
The other commenter adds that the simplified application process
should be an abbreviated version of the full application similar to the
B&I's use of Form RD 4279-1A for loans less than $600,000. For FY 09,
the same application materials were required for both the simplified
applicants and full applicants; however the simplified applicants did
not need to submit certain information unless they were funded. So
essentially the same application had to be submitted, the timeframes
were just different.
Response: The Agency agrees that the Simplified Application process
needs improvement and will consider the commenters' points when
developing application material.
Comment: One commenter states that the proposed rule is far too
vague on what is proposed for less than $50,000 grants. The commenter
recommends such grant applications be limited to a Form RD 4284-1, plus
a business plan of 5 or less pages, with no requirement for financial
statements or feasibility study regardless of whether the project
involves an emerging market.
Response: The Agency agrees the Simplified Application process
requires improvement and will consider the commenter's points when
developing.
Filing Instructions (Sec. 4284.933)
Comment: One commenter asks if, going forward, USDA will be
applying a set release/due date annually. Collectively, their
organizations are in favor of this. Also, could there be more than one
award date annually to better facilitate the applicant's timeframe for
applying for working capital and launching the business? As it now
stands, the time lag between grant application, award, and
implementation dissuades many potential applicants.
Response: The Agency will not set a permanent application deadline.
Because the program is oversubscribed, it is not feasible to have
multiple application dates.
Comment: One commenter supports the concept of a fixed annual date
of application and states that March 15 is a reasonable date.
Another commenter states that RBS will need to determine whether
the March 15 annual application deadline is feasible or whether the
submission deadline should be specified annually with instructions
added to Sec. 4284.915.
Response: The Agency disagrees that a fixed annual application date
is necessary and has revised the rule text to remove the March 15 date
to provide flexibility to meet unforeseen circumstances.
Processing Applications (Sec. 4284.940)
Comment: One commenter states that the requirement in Sec.
4284.940(b) requiring writing feedback to all applicants is probably
either unworkable because of its burden on employees faced with
processing many applications or it will be not particularly meaningful
because many bland written responses will be given. The commenter
recommends that USDA simply say that Rural Development employees will
endeavor to provide meaningful feedback to all prospective applicants.
Response: The Agency disagrees and has retained the text at Sec.
4284.940 requiring written notification to include reasons for
ineligible or incomplete findings in order to provide useful feedback
should the applicant re-apply in the future.
Proposal Evaluation Criteria and Scoring Applications (Sec. 4284.942)
Comment: One commenter states that the specific elements of scoring
criteria are not contained in the proposed rule. Presumably this allows
the Agency to allow the program to evolve to meet changing needs. The
commenter also encourages the Agency to continue to incorporate strong
evidence of business viability as critical components of the scoring
systems.
Response: The Agency has determined that it needs to provide more
specific elements in the rule text. Although this diminishes
flexibility, it facilitates consistency and applicant awareness. The
Agency agrees that evidence of business viability in the form of strong
financial, technical and logistical support to successfully complete
the project should continue to be a critical component of scoring.
Comment: One commenter recommends that the Agency revise this
section to clarify that all scoring references must be readily
identified information cited within the proposal itself and not to
external sources of information, or it will not be considered.
Response: The Agency agrees with the recommendation and has revised
the paragraph accordingly.
Comment: One commenter states that the operative provisions in the
rule itself for the priority categories need to be significantly
strengthened to make them actual priorities rather than minor
preferences. The commenter recommends that Sec. 4284.942 be
strengthened as follows:
(b) Scoring applications. The maximum number of points that will be
awarded to an applicant is 100, plus an additional 10 points if the
project is located in a rural area. The criteria specified in
paragraphs (b)(1) through (7) of this section will be used to score
each application. The Agency will specify how points are awarded for
each criterion in a Notice published each fiscal year.
(1) Nature of the proposed project (maximum 20 points).
(2) Personnel qualifications (maximum 20 points).
(3) Commitments and support (maximum 10 points).
(4) Work plan/budget (maximum 20 points).
(5) Contribution to priority beneficiaries (maximum 25 points).
(6) Administrator priority categories and points (maximum 5
points).
(7) Rural or rural area location (10 points may be awarded).
(c) Priority groups. In the event of applications equally ranked
but in which one application substantially serves one or more of the
priority groups and the other does not, or one serves a priority group
or groups to a significantly greater degree than the other, the one
that better serves the priority group shall be the higher ranked
proposal.
The commenter states it is difficult to see how the intent of
Congress has been met in a proposed rule that proposes to provide just
15 points out of 110 points to proposals which fulfill the statutory
priority. They feel there needs to be a more substantial weighting of
the ranking criteria to create a real priority.
Assuming the Agency prefers to keep the point total constant, they
adjusted the numbers to give more weight to the statutory priority
while not doing damage to the overall construct of the scoring system.
Also, the ``type of applicant'' phrase in the proposed rule's
scoring system is vague and potentially very misleading. The commenter
recommends that clear and unambiguous language be substituted to tie
these points directly to the statutory priorities.
Language should also be added to the final rule to make clear that
``priority''
[[Page 10119]]
means, among other things, that if applications are otherwise equally
ranked but one application substantially serves one or more of the
priority groups and the other does not, or one does so to a
significantly greater degree than the other, the one that better serves
the priority group is the higher ranked proposal.
Another commenter states that the approach proposed in Sec.
4284.942(b) continues the past practices. The commenter proposed the
following 100 point system as more likely to result in wider
distribution of VAPG awards to projects that meet VAPG goals and that
better rewards merit and project types that fit into the VAPG mission:
50 points. Merits of the project (awarded by independent review
panels). Essentially a business plan competition, looking at each
project's prospect for success and impact on revenue and market share.
If the request is for working capital, 40 points maximum if no
feasibility study is included (thus encouraging but not requiring a
feasibility study).
10 points. If the project involves an emerging market (leaving it
up to the independent review panel to determine the project is in fact
legitimately new and not just an established enterprise under a
different name). (thus encouraging innovative new ideas over
continuation of past practices).
15 points. Smaller grant size requests. 10 points if seeking a
grant of 50 percent of less than the maximum permitted by the NOSA; 15
points if seeking a grant of 25 percent or less than the maximum
permitted by the NOSA. (thus encouraging many small grants, increasing
the number of applicants that may be assisted)
5 points. If 50 percent or more of the commodity to which value is
to be added is grown by the producer (thus encouraging this, without
requiring it).
5 points. If all of the owners of the applicant entity are involved
in farming (thus encouraging this, without requiring it).
5 points. If all cash match (thus encouraging a higher level of
commitment, versus the softer use of ``in kind'' match, while
discouraging projects that lack financial strength).
10 points. If Beginning/Socially Disadvantaged/or Small/Medium
Family Farm (thus, honoring the statute's requirement for such
priority, without overly prioritizing a category that already lays
statutory claim to 10 percent of the VAPG funds). The current proposal
of 15 points is excessive.
10 point penalty. If Planning Grant Applicant that received a
Planning Grant within the past 3 years; If working capital Grant
Applicant that received a working capital Grant within the past 3
years. (Thus discouraging repeat grantees somewhat and encouraging the
distribution of VAPG awards to more, different farmers.)
Response: The Agency reviewed the various comments and has not been
persuaded to make changes other than reducing the number of points for
type of applicant from 15 to 10. The 5 points removed here have been
inserted into nature of the proposed project. This reduction is based
on the Agency's experience in the FY 2009 funding in which 65 percent
of awards were made to applicants that received 15 points in one of the
priority categories. It is the position of the Agency that reducing
priority points from 15 to 10 will result in a better balance between
applicants in priority categories and other applicants who do not
qualify for priority points who also submit worthy applications.
Comment: One commenter states their grant represented a cost of
$167,300 per independent producer, and they did not get any points
under Section V.A.2. vii. The NOSA issued in September of 2009 states:
``2 points will be awarded to applications with a project cost per
owner-producer of $100,001-$200,000.'' A man and wife are considered
two independent producers. Shouldn't we get these two points?
It is easy, in reading the grant application, to confuse the
``Planning Grant Criteria'' and the ``Working Capital Criteria.'' The
commenter wonders whether the reviewer confused the two in grading
their grant. There is a sea of black and white in the grant application
and the commenter wonders whether clever use of print types and sizes
couldn't help in that department.
Response: This is an administrative item about a specific
application and is not appropriately addressed in regulations comments.
Comment: One commenter recommends that additional weight be
provided to applications that spread the benefits among a number of
producers in the aggregate. The commenter states that, in doing so,
this would ensure that the funds invested by USDA and the benefits of a
future project generated through a VAPG award would be distributed to a
wider number of producers, while lowering overall costs to the
government.
Response: The Agency agrees with the commenter as to the benefits
that may be obtained by providing additional weight to applications
that spread the benefits among a number of producers in the aggregate.
To do this, the Agency has revised the rule by including 10 points for
cooperatives as a priority category under the Type of Applicant scoring
criterion.
Comment: One commenter states that they support small farmers and
would like the VAPG to allow small farmers to explore their new
business ideas, to create a sustainable environment for the community.
Sustainability saves the planet!
Response: The Agency agrees with the commenter and notes that small
farmers are a program priority as mandated by statute.
Type of Applicant
Comment: Numerous commenters state that the Agency should ensure
that the legislative priority for projects that targeted to small and
mid-sized family farms and ranches and socially disadvantaged farmers
and ranchers set by the 2008 Farm Bill are clearly expressed in the
final rule and in the scoring/evaluation process. Congress has spoken--
these are mandated VAPG priorities. Yet, the proposed rule would award
only 15 ranking points out of a potential 110 ranking points for
projects targeted to this group. USDA should ensure the final rule
awards 25 total points for the priority group, and target small, mid-
sized and socially disadvantaged farmers and ranchers should take
priority over projects that are not targeted in that fashion if
proposals are otherwise equally ranked.
Response: The Agency disagrees with the suggestion to increase the
points for this criterion to 25. It is the position of the Agency that
reducing priority points from 15 to 10 will result in a better balance
among applicants in priority categories and other applicants who do not
qualify for priority points who also submit worthy applications.
Comment: One commenter states that the program should target small,
mid-sized and socially disadvantaged farmers as defined by the 2008
Farm Bill and award extra points to these targeted groups.
Response: The Agency notes that the program does target these
farmers with the reserved funding and priority points.
Comment: One commenter recommends awarding all the points for the
priority group defined in the 2008 Farm Bill and adding clear language
that states proposals targeting small, mid-sized and socially
disadvantaged farmers and ranchers should take priority over projects
that are not targeted in that fashion if proposals are otherwise
equally ranked.
Response: The statute targets the specific categories mentioned by
the commenter, as well and Beginning
[[Page 10120]]
Farmers and Ranchers and requires that they receive priority in the
form of reserved funding and additional points.
Comment: One commenter states that the evaluation and scoring
should be changed to better reflect Congressional intent in
establishing priority beneficiaries for the program. The commenter
believes the 15 points for beginning farmers and ranchers, socially
disadvantaged farmers and ranchers and small and mid-size family
farmers and ranchers should be increased to at least 25 points for
projects that propose to provide contributions and opportunities for
farmers and ranchers meeting these definitions.
One commenter encourages USDA not to increase the number of points
for New and Beginning Farmers beyond the current 15. The commenter
states that the VAPG program should continue to benefit a wide range of
producers. While recent actions to set aside program funds for New and
Beginning Farmers and Ranchers is appropriate, the substantial majority
of funds should be awarded based on projected viability of the
business, and be accessible to a wide number of active farmers. The
commenter states that, for those individuals/families that are just
getting into agriculture, it is a terribly challenging task to
capitalize and ``get good'' at agricultural production AND to
participate in the creation/launch of a value-added enterprise. To this
extent, New and Beginning Farmers should be given modest special
support through the VAPG program, but USDA should not transform this
program into a special form of subsidy for this group of producers at
the expense of other eligible categories of farmers. Awarding 15 points
for New and Beginning Farmers is an appropriate way of supporting these
ventures.
Response: It is the position of the Agency that reducing priority
points from 15 to 10 will result in a better balance between applicants
in priority categories and other applicants who do not qualify for
priority points who also submit worthy applications.
Rural or Rural Area
Comment: Numerous commenters raised concern on this proposed
scoring criterion. These concerns are presented below.
One commenter states that the proposed rule adds a new priority
that awards 10 points to projects that are ``rural''. This is confusing
because almost by definition all commodities start out as rural and are
then tailored to an urban consumer. How a project's ``rural'' character
is assessed is highly unclear and confusing. The commenter states that
this new priority is not necessary and it is not part of the statutory
logic behind the program, which is to support agricultural producers,
with no regard to the geographic or urban/rural location.
Two commenters state that the standards are vague as to how the
``projects located in a rural area'' language would be applied and the
reasoning given for the additional weight. The additional
classification of ``rural'' provides cooperatives with packinghouses or
other facilities in an urban area at a competitive disadvantage for
grant funds. Although the beneficiary of a project is the farmer and
most likely located in a rural area, many activities such as
processing, packaging and marketing of products do not take place in
rural areas. Many cooperatives have infrastructure located closer to
urban markets. The commenters believe this language conflicts with the
goal of providing additional benefits to rural producers, especially in
the state of California.
One of the commenters states that, depending on the definition of
``rural area,'' proposals from states such as California could be
precluded from the points entirely and put at a disadvantage
nationally. The commenter states that using the proposed scoring
criteria would cause additional confusion while being irrelevant to the
goal of increasing producer income, which ultimately supports those
rural areas. The commenter encourages USDA to adjust the proposed
scoring criteria, keeping these concerns in mind.
Another commenter states that the definition of projects that
``will take place in rural places'' is vague. The commenter supports
the idea that entities that are headquartered and based in rural
communities should get increased points compared to those that are
headquartered in urban centers. However, the commenter does not support
the idea that all tasks (i.e. advertising, promotions, contract
manufacturing, etc) must also be located in rural places in order to
qualify for the additional 10 points.
One commenter states that the proposed rule Sec. 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 that is where the
people are. This rule would apparently penalize projects that involve
market launches, promotions, and advertizing campaigns conducted 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, 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 though the benefits would flow to
rural areas. This scoring bias seems contrary to the VAPG's stated
purpose of increasing income to growers.
One commenter states that the proposed rule 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. The meaning of this is clearly not defined and
ultimately may run counter to the program's intent. Although the
beneficiary of a project is ultimately the rural producer, many
activities such as processing, packaging, marketing of products does
not take place in ``rural'' areas; nor are cooperatives necessarily
headquartered in ``rural'' areas while their profits are channeled back
to those areas. Using this as scoring criteria does not seem relevant
to the goal of increasing producer income, which ultimately supports
those rural areas.
One commenter hopes there will not be restrictions placed on their
ability to receive grant support if their marketing activities take
place in metropolitan areas. The commenter states that, while they
often do market in rural communities, including the one in which they
live and work, the majority of the customers of their producers are in
major markets, like New York, Southern California, Texas, Chicago, and
Florida.
Response: The Agency agrees with the concerns raised by the
commenters. Further, the statute does not include a rural area
requirement for this program. Therefore, the Agency has removed this
provision from the rule.
Grant Agreement (Sec. 4284.951)
Comment: One commenter states that the title of this section should
be changed to, ``Obligate and Award Funds.'' The commenter suggested
reworking the sections as follows:
[[Page 10121]]
(a) Letter of conditions (must include 90 day provision for grantee
to meet LOC conditions (remove from (b) GA section)).
(b) Grant agreement and conditions.
(c) Other documentation, (should document the various other forms
the grantee will execute in connection with the grant).
(d) Grant disbursements (must clarify the process for disbursing
funds, including SF 270, Request for Advancement or Reimbursement, and
supporting documentation expectations).
The commenter states that these changes provide the applicant/
grantee with a more comprehensive understanding of the process and
requirements associated with the award.
Response: The Agency agrees with the commenter's suggestion and has
revised the rule accordingly.
Monitoring and Reporting Program Performance (Sec. 4284.960)
Comment: One commenter states that the Agency should clarify that
the project must be completed per terms and conditions specified in the
approved work plan and budget, grant agreement and Letter of
Conditions. The commenter states that this brings the work plan and
budget concept back to project performance as the performance benchmark
for all eligible activities.
Response: The Agency agrees with the suggested revision and has
revised the paragraph accordingly.
Comment: In referring to Sec. 4284.960(b)(4), one commenter states
that the Agency should provide examples of what additional project and/
or performance data might be requested by the Agency to meet 2008 Farm
Bill categories and expectations, such as jobs created, increased
revenues, renewable energy capacity or emissions reductions, results of
supply chain arrangements, BFR or SDFR. The commenter states that this
is a heads up on the grant agreement requirements.
Response: The Agency agrees with the suggested revision and has
revised the paragraph as suggested by the commenter.
Comment: One commenter suggests adding a new paragraph to Sec.
4284.960(b) that states that, as part of the monitoring process, RBS
may terminate or suspend the grant for lack of adequate or timely
progress, reporting, or documentation, or for failure to comply with
Agency requirements.
Response: The Agency agrees with the suggested revision and has
added a new paragraph (see Sec. 4284.960(b)(5)) as suggested by the
commenter.
Transfer of Obligations (Sec. 4284.962)
Comment: One commenter recommends revising this section to indicate
that any transfer of obligation is at the discretion of the Agency and
determined on a case-by-case basis. The commenter also recommends
augmenting the language relating to requirements for the substituted
applicant so that all eligibility requirements are spelled out,
including maintaining the applicant type of the original applicant, and
maintaining the identity and number of independent producers originally
committed to the project for both general and reserved funds. The
commenter also suggests that the Agency emphasize that the project must
continue to meet all Product, Purpose, Branding, and Reserved Funds
eligibility requirements. The commenter states that, for anything less
than this, it would be better to return the funds to the program for
use by another competitive grantee that has endured the process and
eligibility analysis.
Response: The Agency agrees with the suggested revisions and has
revised the rule as suggested by the commenter except for the suggested
text regarding maintaining applicant type, maintaining the identity and
number of independent producers originally committed to the project,
because this would unnecessarily limit the Agency's flexibility.
Grant Close Out and Related Activities (Sec. 4284.963)
Comment: One commenter recommends revising this section to indicate
actual closeout practices. Grant closeout is not usually about
suspension or termination of a grant prematurely, and that message will
be provided to the grantee in Sec. 4284.960(b)(5). Closeout is usually
about administrative wrap-up post the completion of the grant project
or funding period. The commenter states that typical closeout
activities include a Letter to Grantee with final closeout instructions
and reminders for amounts de-obligated for any unexpended grant funds,
final project performance reports due, submission of necessary
deliverables, audit requirements, any outstanding items of closure.
Response: The Agency agrees with the commenter and has revised the
rule Sec. 4284.963 and added additional text describing grant closeout
activities.
Preamble
Comment: One commenter states that the final rule should give
proper acknowledgement of the statutory VAPG priorities by
strengthening the grant evaluation criteria and scoring section. The
2008 Farm Bill amended the VAPG program in several important ways,
including identifying priority groups for funding and establishing two
program reserved funds. The commenter believes that these program
modifications are significant and should be addressed in the preamble
to the rule in the Summary section and in the Supplemental Information
section. Most importantly, the proposal evaluation criteria and scoring
applications section (Sec. 4284.942) needs to be strengthened to make
the statutory priorities actual programmatic priorities.
The statutory priorities and set-asides are clearly intended to
ensure that these producer groups and this type of rural development
marketing model are more likely to be supported with VAPG grant funds.
Because the language changes in the 2008 Farm Bill fundamentally
address the character of the VAPG grant program Congress intended to
create, the commenter believes that they should be clearly referenced
in the discussion of the rule. They find the omission of such a
discussion in the preamble to the proposed rule to be quite glaring.
Response: The Agency agrees that discussion of 2008 Farm Bill
priorities should be included in the preamble. However, the Agency's
experience in implementing the reserved funding and priority scoring in
2009 highlighted the need to balance statutory priorities with fairness
to other applicants who also submitted worthy applications.
Preamble--Summary
Comment: One commenter suggests adding the following language to
the Summary section when issuing the final rule:
The program provides a priority for funding for projects that
contribute to opportunities for beginning farmers or ranchers, socially
disadvantaged farmers or ranchers, and operators of small- and medium-
sized family farms and ranches. Further, it creates two reserved funds
each of which will include 10 percent of program funds each year to
support applications that support opportunities for beginning and
socially disadvantaged farmers and ranchers and for proposed projects
that develop mid-tier value marketing chains.
Response: The Agency agrees and has added the suggested text to the
Preamble Summary.
Preamble--Supplementary Information
Comment: One commenter suggests the addition of the following
language to the SUPPLEMENTARY INFORMATION section:
SUPPLEMENTARY INFORMATION:
[[Page 10122]]
I. Background
B. Nature of the Program
This subpart contains the provisions and procedures by which the
Agency will administer the Value-Added Producer Grant (VAPG) Program.
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.
Eligible applicants are independent agricultural producers, farm
and rancher cooperatives, agricultural producers groups, and majority-
controlled producer-based business ventures.
Added text: ``The program includes priorities for projects that
contribute to opportunities for beginning farmers or ranchers, socially
disadvantaged farmers or ranchers, and operators of small- and medium-
sized family farms and ranches. Applications from these priority groups
will receive additional points in the scoring of applications. In the
case of equally ranked proposals, preference will be given to
applications that more significantly contribute to opportunities for
beginning farmers and ranchers, socially disadvantaged farmers and
ranchers, and operators of small- and medium-sized family farms and
ranches.
Further, the program includes two reserved funds each of which will
include ten percent of program funds each year to support applications
that support projects that benefit beginning and socially disadvantaged
farmers and ranchers and that develop mid-tier value marketing
chains.''
Response: The Agency agrees and has added the suggested text to the
description of the program.
General
Comment: One commenter states that the widespread opinion of the
VAPG program is that it is a ``grant program with barriers.'' The
commenter states that, during Rural Development-sponsored jobs forums
in Oregon in January 2010 and in many other settings, this analysis has
been repeated by a number of producers who cited VAPG's complex rules
poorly suited to modern agricultural realities, its difficult narrative
application content, and its lengthy application process. The commenter
states that the proposed rule does little more than institutionalize
the design and delivery of the VAPG program that Rural Development has
used in past NOSA's. The commenter recommends that it would be better
to leave the existing RD Instructions 4284-A and 4284-J in place with
the few changes required by the 2008 Farm Bill than to go forward with
this proposed rule.
The commenter also encourages Rural Development's leadership to
take a step back from this proposed rule and instead engage the
agricultural community in a series of listening sessions with VAPG
constitutes to find a more sensitive program design. While this will
delay the implementation of a new rule and may temporarily delay VAPG
program delivery, it will ultimately result in a program that is far
more effective and efficient in meeting the needs for which it was
designed.
Response: The Agency acknowledges the commenter's concerns and
welcomes feedback and suggestions from the agricultural community. The
Agency is attempting to address these concerns within the context of
the proposed rule.
General--Program Design
Comment: One commenter recommends full utilization of Rural
Development's core strength--the field office structure. The commenter
states that delivery of VAPG should be accomplished by allocating all
or nearly all VAPG funds to the state level for delivery via local
competitions conducted by local experts most familiar with local
conditions and local opportunities. This will assure a nationwide
geographic distribution of VAPG funds, and it will defuse the current
high hurdle presented to local producers who are asked to submit
projects for review and selection/non-selection by remote national
players. The commenter states that despite noble efforts by national
Rural Development staff, the VAPG program has been repeatedly delayed
and interrupted in its delivery, with extremely short NOSA application
windows followed by long months of waiting for award selections and
announcements. This is inevitable when the staffing strengths of state
offices are bypassed and work must pass through the inevitable
bottleneck of a small national office staff no matter how motivated.
The commenter also states VAPG selection process should be
redesigned as a straightforward business plan competition on a state by
state basis. Every state would receive an allocation, similar to the
approach currently used with the Rural Business Enterprise Grant
program. Every state would conduct a competition overseen by its own
independent review panel constituted as currently outlined in RD
Instruction 4284-J, Sec. 4284.912(a). In creating these panels, states
could even be encouraged to allow applicants to present their business
plans and answer questions, so that the heavy burden of grant writing
could be further reduced and program accessibility increased.
The commenter states that, in making awards, RD state offices
should be given the authority to reduce award sizes to assure an
efficient use of their state allocation. The current process of making
awards on an all or nothing basis is an inefficient use of scarce
federal grant dollars.
Response: The Agency acknowledges the commenter's concerns and is
continuing to work to streamline the program and support field staff
that implement the program. However, the Agency does not have the
authority to institute state allocations.
List of Subjects in 7 CFR Part 4284
Agricultural commodities, Grant programs, Housing and community
development, Rural areas, Rural development, Value-added activities.
For the reasons set forth in the preamble, Chapter XLII of title 7
of the Code of Federal Regulations is amended as follows:
PART 4284--GRANTS
0
1. The authority citation for part 4284 continues to read as follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
0
2. Part 4284 is amended by revising subpart J to read as follows:
Subpart J--Value-Added Producer Grant Program
Sec. General
4284.901 Purpose.
4284.902 Definitions.
4284.903 Review or appeal rights.
4284.904 Exception authority.
4284.905 Nondiscrimination and compliance with other Federal laws.
4284.906 State laws, local laws, regulatory commission regulations.
4284.907 Environmental requirements.
4284.908 Compliance with other regulations.
4284.909 Forms, regulations, and instructions.
4284.910-4284.914 [Reserved]
Funding and Programmatic Change Notifications
4284.915 Notifications.
4284.916-4284.919 [Reserved]
[[Page 10123]]
Eligibility
4284.920 Applicant eligibility.
4284.921 Ineligible applicants.
4284.922 Project eligibility.
4284.923 Eligible uses of grant and matching funds.
4284.924 Ineligible uses of grant and matching funds.
4284.925 Funding limitations.
4284.926-4284.929 [Reserved]
Applying for a Grant
4284.930 Preliminary review.
4284.931 Application package.
4284.932 Simplified application.
4284.933 Filing instructions.
4284.934-4284.939 [Reserved]
Processing and Scoring Applications
4284.940 Processing applications.
4284.941 Application withdrawal.
4284.942 Proposal evaluation criteria and scoring applications.
4284.943-4284.949 [Reserved]
Grant Awards and Agreement
4284.950 Award process.
4284.951 Obligate and award funds.
4284.952-4284.959 [Reserved]
Post Award Activities and Requirements
4284.960 Monitoring and reporting program performance.
4284.961 Grant servicing.
4284.962 Transfer of obligations.
4284.963 Grant close out and related activities.
4284.964-4284.999 [Reserved]
General
Sec. 4284.901 Purpose.
This subpart implements the value-added agricultural product market
development grant program (Value-Added Producer Grants (VAPG))
administered by the Rural Business-Cooperative Service whereby grants
are made to enable viable agricultural producers (those who are
prepared to progress to the next business level of planning for, or
engaging in, value-added production) to develop businesses that produce
and market value-added agricultural products. The provisions of this
subpart constitute the entire provisions applicable to this Program;
the provisions of subpart A of this part do not apply to this subpart.
Sec. 4284.902 Definitions.
The following definitions apply to this subpart:
Administrator. The Administrator of the Rural Business-Cooperative
Service or designees or successors.
Agency. The Rural Business-Cooperative Service or successor for the
programs it administers.
Agricultural commodity. An unprocessed product of farms, ranches,
nurseries, and forests and natural and man-made bodies of water, that
the independent producer has cultivated, raised, or harvested with
legal access rights. Agricultural commodities include plant and animal
products and their by-products, such as crops, forestry products,
hydroponics, nursery stock, aquaculture, meat, on-farm generated
manure, and fish and seafood products. Agricultural commodities do not
include horses or other animals raised or sold as pets, such as cats,
dogs, and ferrets.
Agricultural food product. Agricultural food products can be a raw,
cooked, or processed edible substance, beverage, or ingredient intended
for human consumption. These products cannot be animal feed, live
animals, non-harvested plants, fiber, medicinal products, cosmetics,
tobacco products, or narcotics.
Agricultural producer. An individual or entity directly engaged in
the production of an agricultural commodity, or that has the legal
right to harvest an agricultural commodity, that is the subject of the
value-added project. Agricultural producers may ``directly engage''
either through substantially participating in the labor, management,
and field operations themselves or by maintaining ownership and
financial control of the agricultural operation.
Agricultural producer group. A membership organization that
represents independent producers and whose mission includes working on
behalf of independent producers and the majority of whose membership
and board of directors is comprised of independent producers. The
independent producers, on whose behalf the value-added work will be
done, must be confirmed as eligible and identified by name or class.
Applicant. The legal entity submitting an application to
participate in the competition for program funding. The applicant must
be legally structured to meet one of the four eligible applicant types:
Independent Producer, Agricultural Producer Group, Farmer or Rancher
Cooperative, or Majority-Controlled Producer Based Business.
Beginning farmer or rancher. This term has the meaning given it in
section 343(a) of the Consolidated Farm and Rural Development Act (7
U.S.C. 1991(a)) and is an entity in which none of the individual owners
have operated a farm or a ranch for more than 10 years. For the
purposes of this subpart, a beginning farmer or rancher must be an
Independent Producer that, at the time of application submission,
currently owns and produces more than 50 percent of the agricultural
commodity to which value will be added and has an applicant ownership
or membership of 51 percent or more beginning farmers or ranchers.
Except as provided, for the purposes of Sec. 4284.922(c)(1)(i), to
compete for reserved funds, for applicant entities with multiple
owners, all owners must be eligible beginning farmers or ranchers.
Branding. The activities involved in the practice of creating a
name, symbol or design that identifies and differentiates a product
from other products that attracts and retains customers or encourages
confidence in the quality and performance of that individual or firm's
products or services.
Business plan. A formal statement of a set of business goals, the
reasons why they are believed attainable, and the plan for reaching
those goals, including pro forma financial statements appropriate to
the term and scope of the project and sufficient to evidence the
viability of the venture. It may also contain background information
about the organization or team attempting to reach those goals.
Change in physical state. An irreversible processing activity that
alters the raw agricultural commodity into a marketable value-added
product. This processing activity must be something other than a post-
harvest process that primarily acts to preserve the commodity for later
sale. Examples of eligible value-added products in this category
include, but are not limited to, fish fillets, diced tomatoes, bio-
diesel fuel, cheese, jam, and wool rugs. Examples of ineligible
products include, but are not limited to, pressure-ripened produce, raw
bottled milk, container grown trees, plugs, and cut flowers.
Conflict of interest. A situation in which a person or entity has
competing personal, professional, or financial interests that make it
difficult for the person or business to act impartially. Regarding use
of both grant and matching funds, Federal procurement standards
prohibit transactions that involve a real or apparent conflict of
interest for owners, employees, officers, agents, or their immediate
family members having a financial or other interest in the outcome of
the project; or that restrict open and free competition for
unrestrained trade. Specifically, 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,
including, but not limited to, owner(s) and their immediate family
members. See Sec. 4284.923(a) and (b) for limited exceptions to this
definition and practice for VAPG.
Departmental regulations. The regulations of the Department of
[[Page 10124]]
Agriculture's Office of Chief Financial Officer (or successor office)
as codified in 7 CFR parts 3000 through 3099, including, but not
necessarily limited to, 7 CFR parts 3015 through 3019, 7 CFR part 3021,
and 7 CFR part 3052, and successor regulations to these parts.
Emerging market. A new or developing, geographic or demographic
market that is new to the applicant or the applicant's product. To
qualify as new, the applicant cannot have supplied this product,
geographic, or demographic market for more than two years at time of
application submission.
Family farm. The term has the meaning given it in Sec. 761.2 of
title 7, Code of Federal Regulations as in effect on November 8, 2007
(see 7 CFR parts 700-799, revised as of January 1, 2007), in effect
that, a Family Farm produces agricultural commodities for sale in
sufficient quantity to be recognized as a farm and not a rural
residence, owners are primarily responsible for daily physical labor
and management, hired help only supplements family labor, and owners
are related by blood or marriage or are immediate family.
Farm or ranch. Any place from which $1,000 or more of agricultural
products were raised and sold or would have been raised and sold during
the previous year, but for an event beyond the control of the farmer or
rancher.
Farm- or Ranch-based renewable energy. An agricultural commodity
that is used to generate renewable energy on a farm or ranch owned or
leased by the independent producer applicant that produces the
agricultural commodity. On-farm generation of energy from wind, solar,
geothermal or hydro sources are not eligible.
Farmer or rancher cooperative. A business owned and controlled by
independent producers that is incorporated, or otherwise identified by
the state in which it operates, as a cooperatively operated business.
The independent producers, on whose behalf the value-added work will be
done, must be confirmed as eligible and identified by name or class.
Feasibility study. An analysis by a qualified consultant of the
economic, market, technical, financial, and management capabilities of
a proposed project or business in terms of the project's expectation
for success.
Financial feasibility. The ability of a project or business to
achieve the income, credit, and cash flows to financially sustain a
venture over the long term.
Fiscal year. The Federal government's fiscal year.
Immediate family. Individuals who are closely related by blood,
marriage, or adoption, or live within the same household, such as a
spouse, domestic partner, parent, child, brother, sister, aunt, uncle,
grandparent, grandchild, niece, or nephew.
Independent producers.
(1) Individual agricultural producers or entities that are solely
owned and controlled by agricultural producers. Independent producers
must produce and own the majority of the agricultural commodity to
which value will be added as the subject of the project proposal.
Independent producers must maintain ownership of the agricultural
commodity or product from its raw state through the production and
marketing of the value-added product. Producers who produce the
agricultural commodity under contract for another entity, but do not
own the agricultural commodity or value-added product produced are not
considered independent producers. Entities that contract out the
production of an agricultural commodity are not considered independent
producers. Independent producer entities must confirm their owner
members as eligible and must identify them by name or class.
(2) A steering committee comprised of specifically identified
agricultural producers in the process of organizing one of the four
program eligible entity types that will operate a value-added venture
and will supply the majority of the agricultural commodity for the
value-added project during the grant period. Such entity must be
legally authorized before the grant agreement will be approved by the
Agency.
(3) A harvester of an agricultural commodity that can document
their legal right to access and harvest the majority of the
agricultural commodity that will be used for the value-added product.
Local or regional supply network. An interconnected group of
entities through which agricultural based products move from production
through consumption in a local or regional area of the United States.
Examples of participants in a supply network may include agricultural
producers, aggregators, processors, distributors, wholesalers,
retailers, consumers, and entities that organize or provide
facilitation services and technical assistance for development of such
networks.
Locally-produced agricultural food product. Any agricultural food
product, as defined in this subpart, that is raised, produced, and
distributed in:
(1) The locality or region in which the final product is marketed,
so that the total distance that the product is transported is less than
400 miles from the origin of the product; or
(2) The State in which the product is produced.
Majority-controlled producer-based business venture. An entity
(except farmer or rancher cooperatives) in which more than 50 percent
of the financial ownership and voting control is held by independent
producers. Independent Producer members must be confirmed as eligible
and must be identified by name or class, along with their percentage of
ownership.
Marketing plan. A plan for the project conducted by a qualified
consultant that identifies a market window, potential buyers, a
description of the distribution system and possible promotional
campaigns.
Matching funds. A cost-sharing contribution to the project via
confirmed cash or funding commitments from eligible sources without a
real or apparent conflict of interest, that are used for eligible
project purposes during the grant funding period. Matching funds must
be at least equal to the grant amount, and combined grant and matching
funds must equal 100 percent of the total project costs. All matching
funds must be verified by authentic documentation from the source as
part of the application. Matching funds must be provided in the form of
confirmed applicant cash, loan, or line of credit, or provided in the
form of a confirmed applicant or family member in-kind contribution
that meets the requirements and limitations in Sec. 4284.923(a) and
(b); or confirmed third-party cash or eligible third-party in-kind
contribution; or confirmed non-federal grant sources (unless otherwise
provided by law). See examples of ineligible matching funds and
matching funds verification requirements in Sec. Sec. 4284.924 and
4284.931.
Medium-sized farm. A farm or ranch that is structured as a family
farm that has averaged $250,001 to $1,000,000 in annual gross sales of
agricultural commodities in the previous three years.
Mid-tier value chain. Local and regional supply networks that link
independent producers with businesses and cooperatives that market
value-added agricultural products in a manner that:
(1) Targets and strengthens the profitability and competitiveness
of small and medium-sized farms and ranches that are structured as a
family farm; and
(2) Obtains agreement from an eligible agricultural producer group,
farmer or rancher cooperative, or majority-
[[Page 10125]]
controlled producer-based business venture that is engaged in the value
chain on a marketing strategy.
(3) For mid-tier value chain projects, the Agency recognizes that,
in a supply chain network, a variety of raw agricultural commodity and
value-added product ownership and transfer arrangements may be
necessary. Consequently, applicant ownership of the raw agricultural
commodity and value-added product from raw through value-added is not
necessarily required, as long as the mid-tier value chain proposal can
demonstrate an increase in customer base and an increase in revenue
returns to the applicant producers supplying the majority of the raw
agricultural commodity for the project.
Planning grant. 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.
Produced in a manner that enhances the value of the agricultural
commodity. The use of a recognizably coherent set of agricultural
production practices in the growing or raising of the raw commodity,
such that a differentiated market identity is created for the resulting
product. Examples of eligible products in this category include, but
are not limited to, sustainably grown apples, eggs produced from free-
range chickens, or organically grown carrots.
Product segregation. Separating an agricultural commodity or
product on the same farm from other varieties of the same commodity or
product on the same farm during production and harvesting, with
assurance of continued separation from similar commodities during
processing and marketing in a manner that results in the enhancement of
the value of the separated commodity or product.
Pro forma financial statement. A financial statement that projects
the future financial position of a company. The statement is part of
the business plan and includes an explanation of all assumptions, such
as input prices, finished product prices, and other economic factors
used to generate the financial statements. The statement must include
projections for a minimum of three years in the form of cash flow
statements, income statements, and balance sheets.
Project. All of the eligible activities to be funded by grant and
matching funds.
Qualified consultant. An independent, third-party, without a
conflict of interest, possessing the knowledge, expertise, and
experience to perform the specific task required in an efficient,
effective, and authoritative manner.
Rural Development. A mission area of the Under Secretary for Rural
Development within the U.S. Department of Agriculture (USDA), which
includes Rural Housing Service, Rural Utilities Service, and Rural
Business-Cooperative Service and their successors.
Small farm. A farm or ranch that is structured as a Family Farm
that has averaged $250,000 or less in annual gross sales of
agricultural products in the previous three years.
Socially disadvantaged farmer or rancher. This term has the meaning
given it in section 355(e) of the Consolidated Farm and Rural
Development Act (7 U.S.C. 2003(e)): A farmer or rancher who is a member
of a ``socially disadvantaged group.'' In this definition, the term
farmer or rancher means a person that is engaged in farming or ranching
or an entity solely owned by individuals who are engaged in farming or
ranching. A socially disadvantaged group means a group whose members
have been subjected to racial, ethnic, or gender prejudice because of
their identity as members of a group without regard to their individual
qualities. 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. Except as provided, for the purposes of Sec.
4284.922(c)(1)(ii), to compete for reserved funds, all farmer and
rancher owners must be members of a socially disadvantaged group.
State. Any of the 50 States of the United States, the Commonwealth
of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the
Commonwealth of the Northern Mariana Islands, the Republic of Palau,
the Federated States of Micronesia, and the Republic of the Marshall
Islands.
State director. The term ``State Director'' means, with respect to
a State, the Director of the Rural Development State Office.
State office. USDA Rural Development offices located in each state.
Total project cost. The sum of all grant and matching funds in the
project budget that reflects the eligible project tasks associated with
the work plan.
Value-added agricultural product. Any agricultural commodity that
meets the requirements specified in paragraphs (1) and (2) of this
definition.
(1) The agricultural commodity must meet one of the following five
value-added methodologies:
(i) Has undergone a change in physical state;
(ii) Was produced in a manner that enhances the value of the
agricultural commodity;
(iii) Is physically segregated in a manner that results in the
enhancement of the value of the agricultural commodity;
(iv) Is a source of farm- or ranch-based renewable energy,
including E-85 fuel; or
(v) Is aggregated and marketed as a locally-produced agricultural
food product.
(2) As a result of the change in physical state or the manner in
which the agricultural commodity was produced, marketed, or segregated:
(i) The customer base for the agricultural commodity is expanded
and
(ii) A greater portion of the revenue derived from the marketing,
processing, or physical segregation of the agricultural commodity is
available to the producer of the commodity.
Venture. The business and its value-added undertakings, including
the project and other related activities.
Working capital grant. A grant to provide funds to operate a value-
added project, specifically to pay the eligible project expenses
related to the processing and/or marketing of the value-added product
that are eligible uses of grant funds.
Sec. 4284.903 Review or appeal rights.
A person may seek a review of an Agency decision under this subpart
from the appropriate Agency official that oversees the program in
question or appeal to the National Appeals Division in accordance with
7 CFR Part 11.
Sec. 4284.904 Exception authority.
Except as specified in paragraphs (a) and (b) of this section, the
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.
(a) Applicant eligibility. No exception to applicant eligibility
can be made.
(b) Project eligibility. No exception to project eligibility can be
made.
[[Page 10126]]
Sec. 4284.905 Nondiscrimination and compliance with other Federal
laws.
(a) Other Federal laws. Applicants must comply with other
applicable Federal laws, including the Equal Employment Opportunities
Act of 1972, the Americans with Disabilities Act, the Equal Credit
Opportunity Act, Title VI of the Civil Rights Act of 1964, Section 504
of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975,
and 7 CFR part 1901, subpart E.
(b) Nondiscrimination. The U.S. Department of Agriculture (USDA)
prohibits discrimination in all its programs and activities on the
basis of race, color, national origin, age, disability, and where
applicable, sex, marital status, familial status, parental status,
religion, sexual orientation, genetic information, political beliefs,
reprisal, or because all or part of an individual's income is derived
from any public assistance program. (Not all prohibited bases apply to
all programs.) Persons with disabilities who require alternative means
for communication of program information (Braille, large print,
audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600
(voice and TDD). Any applicant that believes it has been discriminated
against as a result of applying for funds under this program should
contact: USDA, Director, Office of Adjudication and Compliance, 1400
Independence Avenue, SW., Washington, DC 20250-9410, or call (800) 795-
3272 (voice) or (202) 720-6382 (TDD) for information and instructions
regarding the filing of a Civil Rights complaint. USDA is an equal
opportunity provider, employer, and lender.
(c) Civil rights compliance. Recipients of grants must comply with
Title VI of the Civil Rights Act of 1964, Section 504 of the
Rehabilitation Act of 1973. This includes collection and maintenance of
data on the basis of race, sex and national origin of the recipient's
membership/ownership and employees. These data must be available to
conduct compliance reviews in accordance with 7 CFR Part 1901, subpart
E. For grants, initial compliance review will be conducted after Form
RD 400-4, ``Assurance Agreement,'' is signed and one subsequent
compliance review after the last disbursement of grant funds have been
made, and the facility or programs has been in full operations for 90
days.
(d) Executive Order 12898. When a project is proposed and financial
assistance is requested, the Agency will conduct a Civil Rights Impact
Analysis (CRIA) with regards to environmental justice. The CRIA must be
conducted and the analysis documented utilizing Form RD 2006-38,
``Environmental Justice (EJ) and Civil Rights Impact Analysis (CRIA)
Certification.'' This certification must be done prior to grant
approval, obligation of funds, or other commitments of Agency
resources, including issuance of a Letter of Conditions, whichever
occurs first.
Sec. 4284.906 State laws, local laws, regulatory commission
regulations.
If there are conflicts between this subpart and State or local laws
or regulatory commission regulations, the provisions of this subpart
will control.
Sec. 4284.907 Environmental requirements.
All grants awarded under this subpart are subject to the
environmental requirements in subpart G of 7 CFR part 1940 or successor
regulations. Applications for planning grants are generally excluded
from the environmental review process by Sec. 1940.333 of this title.
Applicants for working capital grants must submit Form RD 1940-20,
``Request for Environmental Information.''
Sec. 4284.908 Compliance with other regulations.
(a) Departmental regulations. Applicants must comply with the
regulations of the Department of Agriculture's Office of Chief
Financial Officer (or successor office) as codified in 7 CFR parts 3000
through 3099, including, but not necessarily limited to, 7 CFR parts
3015 through 3019, 7 CFR part 3021, and 7 CFR part 3052, and successor
regulations to these parts.
(b) Cost principles. Applicants must comply with the cost
principles found in 2 CFR part 230 and in 48 CFR part 31.2.
(c) Definitions. If a term is defined differently in the
Departmental Regulations, 2 CFR part 230, or 48 CFR 31.2 and in this
subpart, such term shall have the meaning as found in this subpart.
Sec. 4284.909 Forms, regulations, and instructions.
Copies of all forms, regulations, instructions, and other materials
related to the program referenced in this subpart may be obtained
through the Agency.
Sec. Sec. 4284.910-4284.914 [Reserved]
Funding and Programmatic Change Notifications
Sec. 4284.915 Notifications.
In implementing this subpart, the Agency will issue notifications
addressing funding and programmatic changes, as specified in paragraphs
(a) and (b) of this section, respectively. The methods that the Agency
will use in making these notifications is specified in paragraph (c) of
this section, and the timing of these notifications is specified in
paragraph (d) of this section.
(a) Funding and simplified applications. The Agency will issue
notifications concerning:
(1) The funding level and the minimum and maximum grant amount and
any additional funding information as determined by the Agency; and
(2) The contents of simplified applications, as provided for in
Sec. 4284.932.
(b) Programmatic changes. The Agency will issue notifications of
the programmatic changes specified in paragraphs (b)(1) through (4) of
this section.
(1) The following is the set of Administrator priority categories
that may be considered if the provisions specified in Sec.
4284.942(b)(6) are not to be used for awarding Administrator points:
(i) Unserved or underserved areas.
(ii) Geographic diversity.
(iii) Emergency conditions.
(iv) Priority mission area plans, goals, and objectives.
(2) Additional reports that are generally applicable across
projects within a program associated with the monitoring of and
reporting on project performance.
(3) Any requirement specified in Sec. 4284.933.
(4) Preliminary review information.
(c) Notification methods. The Agency will issue the information
specified in paragraphs (a) and (b) of this section in one or more
Federal Register notices. In addition, all information will be
available at any Rural Development office.
(d) Timing. The Agency will make the information specified in
paragraphs (a) and (b) of this section available as specified in
paragraphs (d)(1) through (3) of this section.
(1) The Agency will make the information specified in paragraph (a)
of this section available each fiscal year.
(2) The Agency will make the information specified in paragraph
(b)(1) of this section available at least 60 days prior to the
application deadline, as applicable.
(3) The Agency will make the information specified in paragraphs
(b)(2) through (4) of this section available on an as needed basis.
Sec. Sec. 4284.916-4284.919 [Reserved]
Eligibility
Sec. 4284.920 Applicant eligibility.
To be eligible for a grant under this subpart, an applicant must
demonstrate
[[Page 10127]]
that they meet the requirements specified in paragraphs (a) through (d)
of this section, as applicable, and are subject to the limitations
specified in paragraphs (e) and (f) of this section.
(a) Type of applicant. The applicant must demonstrate that they
meet all definition requirements for one of the following applicant
types:
(1) An independent producer;
(2) An agricultural producer group;
(3) A farmer or rancher cooperative; or
(4) A majority-controlled producer-based business venture.
(b) Emerging market. An applicant that is an agricultural producer
group, a farmer or rancher cooperative, or a majority-controlled
producer-based business venture must demonstrate that they are entering
into an emerging market as a result of the proposed project.
(c) Citizenship.
(1) Individual applicants must certify that they:
(i) Are citizens or nationals of the United States (U.S.), the
Republic of Palau, the Federated States of Micronesia, the Republic of
the Marshall Islands, or American Samoa, or
(ii) Reside in the U.S. after legal admittance for permanent
residence.
(2) Entities other than individuals must certify that they are at
least 51 percent owned by individuals who are either citizens as
identified under paragraph (c)(1)(i) of this section or legally
admitted permanent residents residing in the U.S. This paragraph is not
applicable if the entity is owned solely by members of one immediate
family. In such instance, if at least one of the entity owners is a
citizen or national, as defined in paragraph (c)(1) of this section,
then the entity is eligible.
(d) Legal authority and responsibility. Each applicant must
demonstrate that they have, or can obtain, the legal authority
necessary to carry out the purpose of the grant, and they must evidence
good standing from the appropriate state agency or equivalent.
(e) Multiple grant eligibility. An applicant may submit only one
application in response to a solicitation, and must explicitly direct
that it compete in either the general funds competition or in one of
the named reserved funds competitions. Separate entities with identical
or greater than 75 percent common ownership may only submit one
application for one entity per year. Applicants who have already
received a planning grant for the proposed project cannot receive
another planning grant for the same project. Applicants who have
already received a working capital grant for the proposed project
cannot receive any additional grants for that project.
(f) Active VAPG grant. If an applicant has an active value-added
grant at the time of a subsequent application, the currently active
grant must be closed out within 90 days of the application submission
deadline for the subsequent competition, as published in the annual
NOFA.
Sec. 4284.921 Ineligible applicants.
(a) Consistent with the Departmental regulations, an applicant is
ineligible if the applicant is debarred or suspended or is otherwise
excluded from or ineligible for participation in Federal assistance
programs under Executive Order 12549, ``Debarment and Suspension.''
(b) An applicant will be considered ineligible for a grant due to
an outstanding judgment obtained by the U.S. in a Federal Court (other
than U.S. Tax Court), is delinquent on the payment of Federal income
taxes, or is delinquent on Federal debt.
Sec. 4284.922 Project eligibility.
To be eligible for a VAPG grant, the application must demonstrate
that the project meets the requirements specified in paragraphs (a)
through (c) of this section, as applicable.
(a) Product eligibility. Each product that is the subject of the
proposed project must meet the definition of a value-added agricultural
product, including a demonstration that:
(1) The value-added product results from one of the value-added
methodologies identified in paragraphs (1)(i) through (v) of the
definition of value-added agricultural product;
(2) As a result of the project, the customer base for the
agricultural commodity or value-added product is expanded; and
(3) As a result of the project, a greater portion of the revenue
derived from the marketing or processing of the value-added product is
available to the applicant producer of the agricultural commodity.
(b) Purpose eligibility.
(1) The grant funds requested must not exceed the amount specified
in the annual solicitation for planning and working capital grant
requests, per Sec. 4284.915.
(2) The matching funds required for the project budget must be
eligible and without a real or apparent conflict of interest, available
during the project period, and source verified in the application.
(3) The proposed project must be limited to eligible planning or
working capital activities as defined at Sec. 4284.923, as applicable,
with eligible tasks directly related to the processing and/or marketing
of the subject value-added product, to be demonstrated in the required
work plan and budget as described at Sec. 4284.922(b)(5).
(4) Applications that propose ineligible expenses in excess of 10
percent of total project costs will be deemed ineligible to compete for
funds. Eligible applications selected for award must eliminate any
ineligible expenses from the project budget.
(5) The project work plan and budget must demonstrate eligible
sources and uses of funds and must:
(i) Present a detailed narrative description of the eligible
activities and tasks related to the processing and/or marketing of the
value-added product along with a detailed breakdown of all estimated
costs allocated to those activities and tasks;
(ii) Identify the key personnel that will be responsible for
overseeing and/or conducting the activities or tasks and provide
reasonable and specific timeframes for completion of the activities and
tasks;
(iii) Identify the sources and uses of grant and matching funds for
all activities and tasks specified in the budget; and indicate that
matching funds will be spent at a rate equal to or in advance of grant
funds; and
(iv) Present a project budget period that commences within the
start date range specified in the annual solicitation, concludes not
later than 36 months after the proposed start date, and is scaled to
the complexity of the project.
(6) Except as noted in paragraphs (b)(6)(i) and (ii) of this
section, working capital applications must include a feasibility study
and business plan completed specifically for the proposed value-added
project by a qualified consultant. The Agency must concur in the
acceptability or adequacy of the feasibility study and business plan
for eligibility purposes.
(i) An Independent Producer applicant seeking a working capital
grant 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 from at least 50 percent of their own
agricultural commodity and that they have produced and marketed for at
least 2 years at time of application submission, may submit a business
or marketing plan for the value-added project in lieu of a feasibility
study. These applications must still document for increased customer
base and increased revenues
[[Page 10128]]
returning to the applicant producers as a result of the project, and
meet all other eligibility requirements. Further, the waiver of the
independent feasibility study does not change the proposal evaluation
or scoring elements that pertain to issues that might be supported by
an independent feasibility study, so applicants are encouraged to well-
document their project plans and expectations for success in their
proposals.
(ii) All four applicant types that submit a Simplified Application
for working capital grant funds of less than $50,000 are not required
to provide an independent feasibility study or business plan for the
project/venture but must provide adequate documentation to demonstrate
the expected increases in customer base and revenues resulting from the
project that will benefit the producer applicants supplying the
majority of the agricultural commodity for the project. All other
eligibility requirements remain the same. The waiver of the requirement
to submit a feasibility study and business plan does not change the
proposal evaluation or scoring elements that pertain to issues that
might be supported by a feasibility study or business plan, so
applicants are encouraged to well-document their project plans and
expectations for success in their proposals.
(7) If the applicant is an agricultural producer group, a farmer or
rancher cooperative, or a majority-controlled producer-based business
venture, the applicant must demonstrate that it is entering an emerging
market unserved by the applicant in the previous two years.
(8) All applicants requesting working capital funds must either be
currently marketing each value-added agricultural product that is the
subject of the grant application, or be ready to implement the working
capital activities in accord with the budget and work plan timeline
proposed.
(c) Reserved funds eligibility. In addition to the requirements
specified in paragraphs (a) and (b) of this section, the requirements
specified in paragraphs (c)(1) and (2) of this section must be met, as
applicable, if applicants choose to compete for reserved funds. All
eligible, but unfunded reserved funds applications will be eligible to
compete for general funds in that same fiscal year, as funding levels
permit.
(1) If the applicant is applying for beginning farmer or rancher,
or socially-disadvantaged farmer or rancher reserved funds, the
applicant must provide the following documentation to demonstrate that
the applicant meets all the requirements for one of these definitions.
(i) For beginning farmers and ranchers, documentation must include
a description from each of the individual owner(s) of the applicant
farm or ranch organization, addressing the qualifying elements in the
beginning farmer or rancher definition, including the length and nature
of their individual owner/operator experience at any farm in the
previous 10 years, along with one IRS income tax form from the previous
10 years showing that each of the individual owner(s) did not file farm
income; or a detailed letter from a certified public accountant or
attorney certifying that each owner meets the reserved funds beginning
farmer or rancher eligibility requirements. For applicant entities with
multiple owners, all owners must be eligible beginning farmers or
ranchers.
(ii) For socially disadvantaged farmers and ranchers, documentation
must include a description of the applicant's farm or ranch ownership
structure and demographic profile that indicates the owner(s)'
membership in a socially disadvantaged group that has been subjected to
racial, ethnic or gender prejudice; including identifying the total
number of owners of the applicant organization; along with a self-
certification statement from the individual owner(s) evidencing their
membership in a socially disadvantaged group. All farmer and rancher
owners must be members of a socially disadvantaged group.
(2) If the applicant is applying for Mid-Tier Value Chain reserved
funds, the applicant must be one of the four VAPG applicant types and
the application must provide documentation demonstrating that the
project meets the Mid-Tier Value Chain definition, and must:
(i) Demonstrate that the project proposes development of a local or
regional supply network of an interconnected group of entities
(including nonprofit organizations, as appropriate) through which
agricultural commodities and value-added products move from production
through consumption in a local or regional area of the United States,
including a description of the network, its component members, either
by name or by class, and its purpose;
(ii) Describe at least two alliances, linkages, or partnerships
within the value chain that link independent producers with businesses
and cooperatives that market value-added agricultural commodities or
value-added products in a manner that benefits small or medium-sized
farms and ranches that are structured as a family farm, including the
names of the parties and the nature of their collaboration;
(iii) Demonstrate how the project, due to the manner in which the
value-added product is marketed, will increase the profitability and
competitiveness of at least two, eligible, small or medium-sized farms
or ranches that are structured as a family farm, including
documentation to confirm that the participating small or medium-sized
farms are structured as a family farm and meet these program
definitions. A description of the two farms or ranches confirming they
meet the Family Farm requirements, and IRS income tax forms evidencing
eligible farm income is sufficient;
(iv) Document that the eligible agricultural producer group/
cooperative/majority-controlled producer-based business venture
applicant organization has obtained at least one agreement with another
member of the supply network that is engaged in the value chain on a
marketing strategy; or that the eligible independent producer applicant
has obtained at least one agreement from an eligible agricultural
producer group/cooperative/majority-controlled producer-based business
venture engaged in the value-chain on a marketing strategy;
(A) For Planning grants, agreements may include letters of
commitment or intent to partner on marketing, distribution or
processing; and should include the names of the parties with a
description of the nature of their collaboration. For Working Capital
grants, demonstration of the actual existence of the executed
agreements is required.
(B) Independent Producer applicants must provide documentation to
confirm that the non-applicant agricultural producer group/cooperative/
majority-controlled partnering entity meets program eligibility
definitions, except that, in this context, the partnering entity does
not need to supply any of the raw agricultural commodity for the
project;
(v) Demonstrate that the applicant organization currently owns and
produces more than 50 percent of the raw agricultural commodity that
will be used for the value-added product that is the subject of the
proposal; and
(vi) Demonstrate that the project will result in an increase in
customer base and an increase in revenue returns to the applicant
producers supplying the majority of the raw agricultural commodity for
the project.
[[Page 10129]]
(d) Priority. In addition, applicants that demonstrate eligibility
may apply for priority points if they propose projects that contribute
to increasing opportunities for beginning farmers or ranchers, socially
disadvantaged farmers or ranchers, or if they are Operators of small-
or medium-sized farms or ranches that are structured as a family farm,
propose Mid-Tier Value Chain projects, or are a farmer or rancher
Cooperative.
(1) Applicants seeking priority points as beginning farmers or
ranchers or as socially disadvantaged farmers or ranchers must provide
the documentation specified in paragraphs (c)(1)(i) or (ii), as
applicable, of this section. For entities with multiple owners or
members, 51 percent of owners or members must be eligible beginning
farmers or ranchers or socially disadvantaged farmers or ranchers, as
applicable.
(2) Applicants seeking priority points as Operators of small- or
medium-sized farms and ranches that are structured as a family farm
must:
(i) Be structured as family farm;
(ii) Meet all requirements in the associated definitions; and
(iii) Provide the following documentation:
(A) A description from the individual owner(s) of the applicant
organization addressing each qualifying element in the definitions,
including identification of the average annual gross sales of
agricultural commodities from the farm in the previous three years, not
to exceed $250,000 for small operators or $1,000,000 for medium
operators;
(B) The names and identification of the blood or marriage
relationships of all applicant/owners of the farm; and
(C) A statement that the applicant/owners are primarily responsible
for the daily physical labor and management of the farm with hired help
merely supplementing the family labor.
(3) Applicants seeking priority points for Mid-Tier Value Chain
proposals must be one of the four eligible applicant types and provide
the documentation specified in paragraphs (c)(2)(i) through (c)(2)(vi)
of this section, demonstrating that the project meets the Mid-Tier
Value Chain definition.
(4) Applicants seeking priority points for a Farmer or Rancher
Cooperative must:
(i) Demonstrate that it is a business owned and controlled by
Independent Producers that is legally incorporated as a Cooperative; or
that it is a business owned and controlled by Independent Producers
that is not legally incorporated as a Cooperative, but is identified by
the state in which it operates as a cooperatively operated business;
(ii) Identify, by name or class, and confirm that the Independent
Producers on whose behalf the value-added work will be done meet the
definition requirements for an Independent Producer, including that
each member is an individual agricultural producer, or an entity that
is solely owned and controlled by agricultural producers, that is
directly engaged in the production of the majority of the agricultural
commodity to which value will be added; and
(iii) Provide evidence of ``good standing'' as a cooperatively
operated business in the state of incorporation or operations, as
applicable.
Sec. 4284.923 Eligible uses of grant and matching funds.
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 paragraphs (a) and (b) of this section.
(a) Planning funds may be used to pay 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. Planning funds may not be used to
compensate applicants or family members for participation in
feasibility studies. However, in-kind contribution of matching funds to
cover applicant or family member participation in planning activities
is allowed so long as the value of such contribution does not exceed a
maximum of 25 percent of the total project costs and an adequate
explanation of the basis for the valuation, referencing comparable
market values, salary and wage data, expertise or experience of the
contributor, per unit costs, industry norms, etc., is provided. Final
valuation for applicant or family member in-kind contributions is at
the discretion of the Agency. 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.
(b) Working capital funds may be used to pay the project's
operational costs directly related to the processing and/or marketing
of the value-added product. Examples of eligible working capital
expenses include designing or purchasing a financial accounting system
for the project, paying salaries of employees without ownership or
immediate family interest to process and/or market and deliver the
value-added product to consumers, paying for inventory supply costs
from a third party necessary to produce the value-added product from
the agricultural commodity, and paying for a marketing campaign for the
value-added product. In-kind contributions may include appropriately
valued inventory of raw commodity to be used in the project. In-kind
contributions of matching funds may also include contributions of time
spent on eligible tasks by applicants or applicant family members so
long as the value of such contribution does not exceed a maximum of 25
percent of the total project costs and an adequate explanation of the
basis for the valuation, referencing comparable market values, salary
and wage data, expertise or experience of the contributor, per unit
costs, industry norms, etc. is provided. Final valuation for applicant
or family member in-kind contributions is at the discretion of the
Agency.
Sec. 4284.924 Ineligible uses of grant and matching funds.
Federal procurement standards prohibit transactions that involve a
real or apparent conflict of interest for owners, employees, officers,
agents, or their immediate family members having a personal,
professional, financial or other interest in the outcome of the
project; including organizational conflicts, and conflicts that
restrict open and free competition for unrestrained trade. In addition,
the use of funds is limited to only the eligible activities identified
in Sec. 4284.923 and prohibits other uses of funds. Ineligible uses of
grant and matching funds awarded under this subpart include, but are
not limited to:
(a) 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 in Sec.
4284.923(a) and (b);
(b) Pay costs for scenarios with noncompetitive trade practices;
(c) Plan, repair, rehabilitate, acquire, or construct a building or
facility (including a processing facility);
(d) Purchase, lease purchase, or install fixed equipment, including
processing equipment;
(e) Purchase or repair vehicles, including boats;
(f) Pay for the preparation of the grant application;
(g) Pay expenses not directly related to the funded project for the
processing and marketing of the value-added product;
(h) Fund research and development;
[[Page 10130]]
(i) Fund political or lobbying activities;
(j) Fund any activities prohibited by 7 CFR parts 3015 and 3019, 2
CFR part 230, and 48 CFR subpart 31.2.
(k) Fund architectural or engineering design work;
(l) 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;
(m) Conduct activities on behalf of anyone other than a
specifically identified independent producer or group of independent
producers, as identified by name or class. The Agency considers
conducting industry-level feasibility studies or business plans, that
are also known as feasibility study templates or guides or business
plan templates or guides, to be ineligible because the assistance is
not provided to a specific group of Independent Producers;
(n) Pay owner or immediate family member salaries or wages;
(o) Pay for goods or services from a person or entity that employs
the owner or an immediate family member;
(p) Duplicate current services or replace or substitute support
previously provided;
(q) 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;
(r) Pay any judgment or debt owed to the United States;
(s) Purchase land; or
(t) Pay for costs associated with illegal activities.
Sec. 4284.925 Funding limitations.
(a) Grant funds may be used to pay up to 50 percent of the total
eligible project costs, subject to the limitations established for
maximum total grant amount.
(b) The maximum total grant amount provided to a grantee in any one
year shall not exceed the amount announced in an annual notice issued
pursuant to Sec. 4284.915, but in no event may the total amount of
grant funds provided to a grant recipient exceed $500,000.
(c) A grant under this subsection shall have a term that does not
exceed 3 years, and a project start date within 90 days of the date of
award, unless otherwise specified in a notice pursuant to Sec.
4284.915. Grant project periods should be scaled to the complexity of
the objectives for the project. The Agency may extend the term of the
grant period, not to exceed the 3-year maximum.
(d) The aggregate amount of awards to majority controlled producer-
based businesses may not exceed 10 percent of the total funds obligated
under this subpart during any fiscal year.
(e) Not more than 5 percent of funds appropriated each year may be
used to fund the Agricultural Marketing Resource Center, to support
electronic capabilities to provide information regarding research,
business, legal, financial, or logistical assistance to independent
producers and processors.
(f) Each fiscal year, the following amounts of reserved funds will
be made available:
(1) 10 percent to fund projects that benefit beginning farmers or
ranchers, or socially-disadvantaged farmers or ranchers; and
(2) 10 percent to fund projects that propose development of mid-
tier value chains.
(3) Funds not obligated by June 30 of each fiscal year shall be
available to the Secretary to make grants under this subsection to
eligible entities as determined by the Secretary.
Sec. Sec. 4284.926-4284.929 [Reserved]
Applying for a Grant
Sec. 4284.930 Preliminary review.
The Agency encourages applicants to contact their State Office well
in advance of the application submission deadline, to ask questions and
to discuss applicant and project eligibility potential. At its option,
the Agency may establish a preliminary review deadline so that it may
informally assess the eligibility of the application and its
completeness. The result of the preliminary review is not binding on
the Agency. To implement this section, the Agency will issue a
notification addressing this issue in accordance with Sec. 4284.915.
Sec. 4284.931 Application package.
All applicants are required to submit an application package that
is comprised of the elements in this section.
(a) Application forms. The following application forms (or their
successor forms) must be completed when applying for a grant under this
subpart.
(1) Form SF-424, ``Application for Federal Assistance.''
(2) Form SF-424A, ``Budget Information-Non-Construction Programs.''
(3) Form SF-424B, ``Assurances--Non-Construction Programs.''
(4) Form RD 400-4, ``Assurance Agreement.''
(5) Form RD 1940-20, ``Request for Environmental Information.''
Applications for planning grants are generally excluded from the
environmental review process by Sec. 1940.333 of this title.
(6) All applicants are required to have a DUNS number (including
individuals and sole proprietorships).
(b) Application content. The following content items must be
completed when applying for a grant under this subpart:
(1) Eligibility discussion. The applicant must demonstrate in
detail how the:
(i) Applicant eligibility requirements in Sec. Sec. 4284.920 and
4284.921 are met;
(ii) Project eligibility requirements in Sec. 4284.922 are met;
(iii) Eligible use of grant and matching funds requirements in
Sec. Sec. 4284.923 and 4284.924 are met; and
(iv) Funding limitation requirements in Sec. 4284.925 are met.
(2) Evaluation criteria. Using the format prescribed by the
application package, the applicant must address each evaluation
criterion identified below.
(i) Performance Evaluation Criteria. As part of the application,
applicants for both planning and working capital grants must suggest
one or more relevant criterion that will be used to evaluate the
performance of the grant project during its operational phase post-
award, as benchmarks to ascertain whether or not the primary goals and
objectives proposed in the work plan are accomplished during the
project period. These benchmarks should relate to the overall project
goal of creating and serving new markets, with a resulting increase in
customer base and increase in revenues returning to the producer
applicants; as well as to the practical and/or logistical activities
and tasks to be accomplished during the project period. The Agency
application package will provide additional instruction to assist
applicants when responding to this criterion. Applicant suggested
performance criteria will be incorporated into the applicant's semi-
annual and final reporting requirements if selected for award, and will
be specified in the grant agreement associated with the award. In
addition, applicants for both planning and working capital grants must
identify the number of jobs anticipated to be created or saved as a
direct result of the project. Planning grant applicants should identify
the number of jobs expected to be created or saved as a result of
continuing the project into its operational phase. Working capital
grant applicants should identify the actual number of jobs created or
saved as a result of the project.
[[Page 10131]]
(ii) Proposal evaluation criteria. Applicants for both planning and
working capital grants must address each proposal evaluation criterion
identified in Sec. 4284.942 in narrative form, in the application
package.
(3) Certification of matching funds. Using the format prescribed by
the application package, applicants must certify that:
(i) Cost-share matching funds will be spent in advance of grant
funding, such that for every dollar of grant funds disbursed, not less
than an equal amount of matching funds will have been expended prior to
submitting the request for reimbursement; and
(ii) If matching funds are proposed in an amount exceeding the
grant amount, those matching funds must be spent at a proportional rate
equal to the match-to-grant ratio identified in the proposed budget.
(4) Verification of cost-share matching funds. Using the format
prescribed by the application package, the applicant must demonstrate
and provide authentic documentation from the source to confirm the
eligibility and availability of both cash and in-kind contributions
that meet the definition requirements for Matching Funds and Conflict
of Interest in Sec. 4284.902, as well as the following criteria:
(i) Matching funds are subject to the same use restrictions as
grant funds, and must be spent on eligible project expenses during the
grant funding period.
(ii) Matching funds must be from eligible sources without a real or
apparent conflict of interest.
(iii) Matching funds must be at least equal to the amount of grant
funds requested, and combined grant and matching funds must equal 100
percent of the total eligible project costs.
(iv) Unless provided by other authorizing legislation, other
Federal grant funds cannot be used as matching funds.
(v) Matching funds must be provided in the form of confirmed
applicant cash, loan, or line of credit; or provided in the form of a
confirmed applicant or family member in-kind contribution that meets
the requirements and limitations specified in Sec. 4284.923(a) and
(b); or provided in the form of confirmed third-party cash or eligible
third-party in-kind contribution; or non-federal grant sources (unless
otherwise provided by law).
(vi) Examples of ineligible matching funds include funds used for
an ineligible purpose, contributions donated outside the proposed grant
funding period, third-party in-kind contributions that are over-valued,
or are without substantive documentation for an independent reviewer to
confirm a valuation, conducting activities on behalf of anyone other
than a specific Independent Producer or group of Independent Producers,
expected program income at time of application, or instances where a
real or apparent conflict of interest exists, except as detailed in
Sec. 4284.923(a) and (b).
(5) Business plan. For working capital grant applications,
applicants must provide a copy of the business plan that was completed
for the proposed value-added venture, except as provided for in
Sec. Sec. 4284.922(b)(6) and 4284.932. The Agency must concur in the
acceptability or adequacy of the business plan. For all planning grant
applications including those proposing product eligibility under
``produced in a manner that enhances the value of the agricultural
commodity,'' a business plan is not required as part of the grant
application.
(6) Feasibility study. As part of the application package,
applicants for working capital grants must provide a copy of the third-
party feasibility study that was completed for the proposed value-added
project, except as provided for at Sec. Sec. 4284.922(b)(6) and
4284.932. The Agency must concur in the acceptability or adequacy of
the feasibility study.
Sec. 4284.932 Simplified application.
Applicants requesting less than $50,000 will be allowed to submit a
simplified application, the contents of which will be announced in an
annual notice issued pursuant to Sec. 4284.915. 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. See Sec. 4284.922(b)(6)(ii).
Sec. 4284.933 Filing instructions.
Unless otherwise specified in a notification issued under Sec.
4284.915, the requirements specified in paragraphs (a) through (e) of
this section apply to all applications.
(a) When to submit. Complete applications must be received by the
Agency on or before the application deadline established for a fiscal
year to be considered for funding for that fiscal year. Applications
received by the Agency after the application deadline established for a
fiscal year will not be considered.
(b) Incomplete applications. Incomplete applications will be
rejected. Applicants will be informed of the elements that made the
application incomplete. If a resubmitted application is received by the
applicable application deadline, the Agency will reconsider the
application.
(c) Where to submit. All applications must be submitted to the
State Office of Rural Development in the State where the project
primarily takes place, or on-line through grants.gov.
(d) Format. Applications may be submitted as paper copy, or
electronically via grants.gov. If submitted as paper copy, only one
original copy should be submitted. An application submission must
contain all required components in their entirety. Emailed or faxed
submissions will not be acknowledged, accepted or processed by the
Agency.
(e) Other forms and instructions. Upon request, the Agency will
make available to the public the necessary forms and instructions for
filing applications. These forms and instructions may be obtained from
any State Office of Rural Development, or the Agency's Value-Added
Producer Grant program Web site in http://www.rurdev.usda.gov/rbs/coops/vadg.htm.
Sec. Sec. 4284.934-4284.939 [Reserved]
Processing and Scoring Applications
Sec. 4284.940 Processing applications.
(a) Initial review. Upon receipt of an application on or before the
application submission deadline for each fiscal year, the Agency will
conduct a review to determine if the applicant and project are
eligible, and if the application is complete and sufficiently
responsive to program requirements.
(b) Notifications. After the review in paragraph (a) of this
section has been conducted, if the Agency has determined that either
the applicant or project is ineligible or that the application is not
complete to allow evaluation of the application or sufficiently
responsive to program requirements, the Agency will notify the
applicant in writing and will include in the notification the reason(s)
for its determination(s).
(c) Resubmittal by applicants. Applicants may submit revised
applications to the Agency in response to the notification received
under paragraph (b) of this section. If a revised grant application is
received on or before the application deadline, it will be processed by
the Agency. If a revised application is not received by the specified
application deadline, the Agency will not process the application and
will inform the applicant that their
[[Page 10132]]
application was not reviewed due to tardiness.
(d) Subsequent ineligibility determinations. If at any time an
application is determined to be ineligible, the Agency will notify the
applicant in writing of its determination.
Sec. 4284.941 Application withdrawal.
During the period between the submission of an application and the
execution of award documents, the applicant must notify the Agency in
writing if the project is no longer viable or the applicant no longer
is requesting financial assistance for the project. When the applicant
notifies the Agency, the selection will be rescinded or the application
withdrawn.
Sec. 4284.942 Proposal evaluation criteria and scoring applications.
(a) General. The Agency will only score applications for which it
has determined that the applicant and project are eligible, the
application is complete and sufficiently responsive to program
requirements, and the project is likely feasible. Any applicant whose
application will not be reviewed because the Agency has determined it
fails to meet the preceding criteria will be notified of appeal rights
pursuant to Sec. 4284.903. Each such viable application the Agency
receives on or before the application deadline in a fiscal year will be
scored in the fiscal year in which it was received. Each application
will be scored based on the information provided and/or adequately
referenced in the scoring section of the application at the time the
applicant submits the application to the Agency. Scoring information
must be readily identifiable in the application or it will not be
considered.
(b) Scoring Applications. The criteria specified in paragraphs
(b)(1) through (b)(6) of this section will be used to score all
applications. For each criterion, applicants must demonstrate how the
project has merit, and provide rationale for the likelihood of project
success. Responses that do not address all aspects of the criterion, or
that do not comprehensively convey pertinent project information will
receive lower scores. The maximum number of points that will be awarded
to an application is 100. Points may be awarded lump sum or on a
graduated basis. The Agency application package will provide additional
instruction to assist applicants when responding to the criteria below.
(1) Nature of the Proposed Venture (graduated score 0-30 points).
Describe the technological feasiblity of the project, of the project,
as well as the operational efficiency, profitability, and overall
economic sustainability resulting from the project. In addition,
demonstrate the potential for expanding the customer base for the
value-added product, and the expected increase in revenue returns to
the producer-owners providing the majority of the raw agricultural
commodity to the project. Applications that demonstrate high likelihood
of success in these areas will receive more points than those that
demonstrate less potential in these areas.
(2) Qualifications of Project Personnel (graduated score 0-20
points). Identify the individuals who will be responsible for
completing the proposed tasks in the work plan, including the roles and
activities that owners, staff, contractors, consultants or new hires
may perform; and demonstrate that these individuals have the necessary
qualifications and expertise, including those hired to do market or
feasibility analyses, or to develop a business operations plan for the
value-added venture. Include the qualifications of those individuals
responsible to lead or manage the total project (applicant owners or
project managers), as well as those individuals responsible for
actually conducting the various individual tasks in the work plan (such
as consultants, contractors, staff or new hires). Demonstrate the
commitment and the availability of any consultants or other
professionals to be hired for the project. If staff or consultants have
not been selected at the time of application, provide specific
descriptions of the qualifications required for the positions to be
filled. Applications that demonstrate the strong credentials,
education, capabilities, experience and availability of project
personnel that will contribute to a high likelihood of project success
will receive more points than those that demonstrate less potential for
success in these areas.
(3) Commitments and Support (graduated score 0-10 points). Producer
commitments to the project will be evaluated based on the number of
independent producers currently involved in the project; and the
nature, level and quality of their contributions. End-user commitments
will be evaluated on the basis of potential or identified markets and
the potential amount of output to be purchased, as evidenced by letters
of intent or contracts from potential buyers referenced within the
application. Other Third-Party commitments to the project will be
evaluated based on the critical and tangible nature of the contribution
to the project, such as technical assistance, storage, processing,
marketing, or distribution arrangements that are necessary for the
project to proceed; and the level and quality of these contributions.
Applications that demonstrate the project has strong direct financial,
technical and logistical support to successfully complete the project
will receive more points than those that demonstrate less potential for
success in these areas.
(4) Work Plan and Budget (graduated score 0-20 points). In accord
with Sec. 4284.922(b)(5), applicants must submit a comprehensive work
plan and budget. The work plan must provide specific and detailed
narrative descriptions of the tasks and the key project personnel that
will accomplish the project's goals. The budget must present a detailed
breakdown of all estimated costs associated with the activities and
allocate those costs among the listed tasks. The source and use of both
grant and matching funds must be specified for all tasks. An eligible
start and end date for the project itself and for individual project
tasks must be clearly indicated and may not exceed Agency specified
timeframes for the grant period. Points may not be awarded unless
sufficient detail is provided to determine that both grant and matching
funds are being used for qualified purposes and are from eligible
sources without a conflict of interest. It is recommended that
applicants utilize the budget format templates provided in the Agency's
application package.
(5) Priority Points (lump sum score 0 or 10 points). Priority
points may be awarded in both the General Funds competition, as well as
the Reserved Funds competitions. Qualifying applicants may request
priority points if they meet the requirements for one of the following
categories and provide the documentation specified in Sec.
4284.922(d), as applicable. 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. It is recommended that applicants utilize the Agency
application package when documenting for priority points and refer to
the documentation requirements specified in Sec. 4284.922(d). All
qualifying applicants in this category will receive 10 points.
(6) Administrator Priority Categories (graduated score 0-10
points). Unless otherwise specified in a notification issued under
Sec. 4284.915(b)(1), the Administrator of USDA Rural Development
Business and Cooperative
[[Page 10133]]
Programs has discretion to award up to 10 points to an application to
improve the geographic diversity of awardees in a fiscal year.
Sec. Sec. 4284.943-4284.949 [Reserved]
Grant Awards and Agreement
Sec. 4284.950 Award process.
(a) Selection of applications for funding and for potential
funding. The Agency will select and rank applications for funding based
on the score an application has received in response to the proposal
evaluation criteria, compared to the scores of other value-added
applications received in the same fiscal year. Higher scoring
applications will receive first consideration for funding. The Agency
will notify applicants, in writing, whether or not they have been
selected for funding. For those applicants not selected for funding,
the Agency will provide a brief explanation for why they were not
selected.
(b) Ranked applications not funded. A ranked application that is
not funded in the fiscal year in which it was submitted will not be
carried forward into the next fiscal year. The Agency will notify the
applicant in writing.
(c) Intergovernmental review. If State or local governments raise
objections to a proposed project under the intergovernmental review
process that are not resolved within 90 days of the Agency's award
announcement date, the Agency will rescind the award and will provide
the applicant with a written notice to that effect. The Agency, in its
sole discretion, may extend the 90-day period if it appears resolution
is imminent.
Sec. 4284.951 Obligate and award funds.
(a) Letter of conditions. When an application is selected subject
to conditions established by the Agency, the Agency will notify the
applicant using a Letter of Conditions, which defines the conditions
under which the grant will be made. Each grantee will be required to
meet all terms and conditions of the award within 90 days of receiving
a Letter of Conditions unless otherwise specified by the Agency at the
time of the award. If the applicant agrees with the conditions, the
applicant must complete, sign, and return the Agency's Form RD 1942-46,
``Letter of Intent to Meet Conditions.'' If the applicant believes that
certain conditions cannot be met, the applicant may propose alternate
conditions to the Agency. The Agency must concur with any proposed
changes to the Letter of Conditions by the applicant before the
application will be further processed. If the Agency agrees to any
proposed changes, the Agency will issue a revised or amended Letter of
Conditions that defines the final conditions under which the grant will
be made.
(b) Grant agreement and conditions. Each grantee will be required
to sign a grant agreement that outlines the approved use of funds and
actions under the award, as well as the restrictions and applicable
laws and regulations that pertain to the award.
(c) Other documentation. The grantee will execute additional
documentation in order to obligate the award of funds including, but
not limited to,
(1) Form RD 1940-1, ``Request for Obligation of Funds;''
(2) Form AD-1047, ``Certification Regarding Debarment, Suspension,
and Other Responsibility Matters-Primary Covered Transaction;''
(3) Form AD-1048, ``Certification Regarding Debarment, Suspension,
Ineligibility and Voluntary Exclusion-Lower Tier Covered
Transactions;''
(4) Form AD-1049, ``Certification Regarding Drug-Free Workplace
Requirements;''
(5) Form RD 400-4, ``Assurance Agreement (under Title VI, Civil
Rights Act of 1964);''
(6) Form SF-3881, ``ACH Vendor/Miscellaneous Payment Enrollment
Form;''
(7) RD Instruction 1940-Q, Exhibit A-1, ``Certification for
Contracts, Grants and Loans;'' and
(8) Form SF-LLL, ``Disclosure of Lobbying Activities.''
(d) Grant disbursements. Grant disbursements will be made in
accordance with the Letter of Conditions, and/or the grant agreement,
as applicable. A disbursement request may be submitted by the grantee
not more frequently than once every 30 days by using Form SF 270,
``Request for Advance or Reimbursement.'' The disbursement request is
typically in the form of a reimbursement request for eligible expenses
incurred by the grantee during the grant funding period. Adequate
supporting documentation must accompany each request, and may include,
but is not limited to, receipts, hourly wage rates, personnel payroll
records, contract progression certification, or other similar
documentation.
Sec. Sec. 4284.952-4284.959 [Reserved]
Post Award Activities and Requirements
Sec. 4284.960 Monitoring and reporting program performance.
The requirements specified in this section shall apply to grants
made under this subpart.
(a) Grantees must complete the project per the terms and conditions
specified in the approved work plan and budget, and in the grant
agreement and letter of conditions. Grantees are responsible to expend
funds only for eligible purposes and will be monitored by Agency staff
for compliance. Grantees must maintain a financial management system,
and property and procurement standards in accordance with Departmental
Regulations.
(b) Grantees must submit prescribed narrative and financial
performance reports that include a comparison of accomplishments with
the objectives stated in the application. The Agency will prescribe
both the narrative and financial report formats in the grant agreement.
(1) Semi-annual performance reports shall be submitted within 45
days following March 31 and September 30 each fiscal year. A final
performance report shall be submitted to the Agency within 90 days of
project completion. Failure to submit a performance report within the
specified timeframes may result in the Agency withholding grant funds.
(2) Additional reports shall be submitted as specified in the grant
agreement or Letter of Conditions, or as otherwise provided in a
notification issued under Sec. 4284.915.
(3) Copies of supporting documentation and/or project deliverables
for completed tasks must be provided to the Agency in a timely manner
in accord with the development or completion of materials and in
conjunction with the budget and project timeline. Examples include, but
are not limited to, a feasibility study, marketing plan, business plan,
success story, distribution network study, or best practice.
(4) The Agency may request any additional project and/or
performance data for the project for which grant funds have been
received, including but not limited to,
(i) Information about jobs created and/or saved as a result of the
project;
(ii) Increases in producer customer base and revenues as a result
of the project;
(iii) Data regarding renewable energy capacity or emissions
reductions resulting from the project;
[[Page 10134]]
(iv) The nature of and advantages or disadvantages of supply chain
arrangements or equitable distribution of rewards and responsibilities
for mid-tier value chain projects; and
(v) Recommendations from Beginning Farmers or Socially
Disadvantaged Farmers.
(5) The Agency may terminate or suspend the grant for lack of
adequate or timely progress, reporting, or documentation, or for
failure to comply with Agency requirements.
Sec. 4284.961 Grant servicing.
All grants awarded under this subpart shall be serviced in
accordance with 7 CFR part 1951, subparts E and O, and the Departmental
Regulations with the exception that delegation of the post-award
servicing of the program does not require the prior approval of the
Administrator.
Sec. 4284.962 Transfer of obligations.
At the discretion of the Agency and on a case-by-case basis, an
obligation of funds established for an applicant may be transferred to
a different (substituted) applicant provided:
(a) The substituted applicant:
(1) Is eligible;
(2) Has a close and genuine relationship with the original
applicant; and
(3) Has the authority to receive the assistance approved for the
original applicant; and
(b) The project continues to meet all product, purpose, and
reserved funds eligibility requirements so that the need, purpose(s),
and scope of the project for which the Agency funds will be used remain
substantially unchanged.
Sec. 4284.963 Grant close out and related activities.
Grant closeout is the administrative wrap-up of a grant that has
concluded or has been terminated. Typical closeout activities include a
letter to the grantee with final instructions and reminders for amounts
to be de-obligated for any unexpended grant funds, final project
performance reports due, submission of outstanding deliverables, audit
requirements, or other outstanding items of closure.
Sec. Sec. 4284.964-4284.999 [Reserved]
Dated: February 4, 2011.
Dallas Tonsager,
Under Secretary, Rural Development.
[FR Doc. 2011-3036 Filed 2-22-11; 8:45 am]
BILLING CODE 3410-XY-P