On Friday, May 8th, the Rural Business Cooperative Service of the U.S. Department of Agriculture (USDA) released its final rule for the Value Added Producer Grant program (VAPG), effective immediately. This final rule was published in conjunction with the latest announcement of $30 million in funding available for VAPG projects in 2015.

The final rule consolidates changes to the interim final rule for VAPG, published on February 23, 2011 and effective March 25, 2011, based on comments received in 2011 and on changes from the Agricultural Act of 2014 (2014 Farm Bill), including comments received during a listening session held on April 25, 2014.

Despite it being a final rule, USDA has requested public comments. The public comment period closes on Tuesday, July 7, 2015. USDA has stated that it will consider comments received and may conduct additional rulemaking based on the comments.

NSAC plans to submit comments and will post them to our website upon submission. Previously, NSAC submitted comments on the interim final rule in April 2011 and submitted comments at the listening session on April 25, 2014.

In the meantime, we offer the following brief analysis of the rule. As explained below, we will be asking USDA to write a new final rule to fix some major problems with this latest version of the rule.

First the basics

The Value-Added Producer Grant (VAPG) program is a competitive grant program that provides funding to farmers and groups of farmers to create or develop value-added producer-owned businesses. These enterprises help increase farm income and marketing opportunities, create new jobs, contribute to community economic development, and enhance food choices for consumers. Value-added projects can support local food, organic, niche meat, mid-tier value chains, and biofuels, among other projects.

NSAC helped create the program as part of the 2000 Agricultural Risk Protection Act and helped to expand and strengthen the program to include organic products and sustainable livestock niche markets (2002 Farm Bill), consideration of local food enterprises and food supply networks linking farm to table plus giving clear priority to assisting small and mid-size family farms (2008 Farm Bill), and winning $63 million in mandatory (direct) farm bill funding (2014 Farm Bill) to supplement the annual appropriations the program receives, among other improvements.

Then the good news

The really good news is VAPG is open for business, with $30 million available this year for project grants. Proposals submitted electronically are due by July 2 or, if submitted in paper, are due July 7.

But there is also some good news in the final rule. A few highlights –

• Mid-tier value chain projects can now include direct sales to consumers as well as to food system businesses.
• The final rule deletes a provision from the interim rule that would have allowed owners and investors who are not farmers to become eligible for grants.
• The rule helpfully distinguishes crop-based renewable energy (eligible for VAPG) from wind and solar projects (eligible for the Rural Energy for America Program, but not VAPG).
• Greater clarity is provided as to the legitimacy of sweat equity in providing a portion of the matching requirement for all types of VAPG projects.

Now the bad news

In the federal farm bill, Congress wisely created VAPG program priorities for small and mid-sized family farms and beginning, socially disadvantaged, and veteran farmers. Congress also wisely created 10 percent funding set-asides for beginning and socially disadvantaged farmers and for mid-tier value chain projects.

In the final rule, USDA has created program priorities not authorized by Congress for mid-tier value chains and for any farm coop, regardless of whom it is serving. This action weakens the effect of the statutory mandate and directly contradicts the congressional directive.

In addition, USDA uses contorted legal reasoning in the final rule to severely weaken the priority and especially the set-aside for beginning farmers, decreasing the program’s utility in helping to create strong, viable new farming opportunities.

The final rule completely distorts the intent of Congress in making a change in the 2014 Farm Bill to improve the point system for the program priorities in the case of producer groups, businesses, and cooperatives. The final rule both severely limits the application of this 2014 Farm Bill change and at the same time subtracts priority points for applicants who are not groups, businesses, or cooperatives.

Incredibly, the final rule thus reduces the number of points a proposal receives for addressing the program priorities from the already low number in the earlier interim rule, while also making the rules for gaining those limited points more complex. Moreover, the final rules allow program priorities to be overridden by discretionary points the agency can use to provide geographic diversity or to promote the goals of the Administration.

In short, it’s a mess, and unnecessarily so. It overrides the intent of Congress for reasons that are not at all clear and certainly not compelling.

On top of those substantive problems, the final rule continues a truncated VAPG review process that includes one internal USDA reviewer and one external third party expert reviewer. This differs from the process used by nearly every other USDA competitive grants program that uses an external review panel, either convened in person or working separately but in dialogue. We continue to push for reasonable changes to the current VAPG review process that has caused real problems for applicants as well as for reviewers.

Ending on a happier note, notwithstanding the problematic aspects of the rules, program results have been on the whole very good in recent years, including in 2014. With improved rules, we can ensure that continues to be the case on into the future.

What’s Next?

NSAC will be submitting detailed comments to USDA urging that a new final rule that clears up the problems noted above in a revised final rule. We will share our analysis and recommendations with members, partners, and readers who are interested in taking action.

Comments on the final rule must be submitted by Tuesday, July 7, 2015 via one of the following methods:

• Electronically through: regulations.gov
• Mail addressed to: 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 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., 7^th Floor, Washington, DC 20024.