USDA publishes final VAPG rule, opens comment period

By Erin Voegele | June 05, 2015

In May, USDA Rural Development’s Rural Business-Cooperative Service published a final rule for the Value-Added Producer Grant program and opened a 60-day comment period that closes on July 7. 

According to information published in the Federal Register, the final rule for the VAPG program modifies the interim rule for the program, which was published in February 2011. Modifications are based on comments received on the interim rule, the 2014 Farm Bill, and a listening session on VAPG provisions of the 2014 Farm Bill held in April 2014.

Under the final 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 also provides working capital for expenses, such as implementing an existing viable marketing strategy.

According to USDA Rural Development, the VAPG program helps producers enter into value-added activities related to the processing and/or marketing of biobased, value-added products. The goals of program include generating new products, creating and expanding marketing opportunities and increasing producer income. Priority may be given to beginning farmers and ranchers, socially disadvantaged farmers and ranchers, small or medium-sized farms and ranches structured as a family farm, farmer or rancher cooperatives, and applicants proposing a mid-tier value change.

The program defines value-added agricultural products as any agricultural commodity produced in the U.S. that meets certain requirements. To qualify, the agricultural commodity must meet one of five value-added methodologies, including:
- Has undergone a change in physical state;
- Was produced in a manner than enhances the value of the agricultural commodity;
- Is physically segregated in a manner that results in the enhancement of the value of the agricultural; commodity
- Is a source of farm- or ranch-based renewable energy, including E85 fuel; or
- Is aggregated and marketed as a locally produced agricultural food product.

In addition to E85, the farm- or-ranch based renewable energy component of the program can also apply to certain anaerobic digestion (AD) systems. Within the final rule, the USDA explains VAPG projects must demonstrate an increase in customer base and an increase in revenues returning to the producers as a result of the value-added project. A farmer that uses a value-added product to simply reduce the farm’s operating cost would not meet these two conditions and would not qualify for funding. To highlight its point, the USDA highlighted three examples related to AD projects. In the first, a farmer installs an AD system that produces electricity from cow manure, with the resulting electricity sold to the local utility. Since the local utility represents an increase in customer base and the farmer sees a direct increase in revenue from the sale of electricity, the project would qualify for the program. In the second scenario, the famer installs an AD system to produce electricity using manure. Rather than sell the electricity to the local utility, the farmer uses it to generate heat and power for a hydroponics facility on the farm from which a value-added product is produced. In this case, the renewable energy project also qualifies because it expands the farmer’s customers and increases revenue. In the third scenario, the famer installs an AD system to produce electricity from manure, but uses the electricity to replace power purchased from the local utility. While revenues are indirectly increased through a reduction of operating expenses, there is no increase in in customer base. Therefore the AD project would not be eligible for a VAPG grant.

In the notice, the USDA notes that while comments on the interim rule were considered, the agency has issued the final rule without opportunity for prior notice and comment on changes made to implement the 2014 Farm Bill. However, the USDA said it will consider comments received during the 60-day comment period on the final rule, and may conduct additional rulemaking based on those comments.

Additional information on the final rule and instructions on how to comment are available in the Federal Register notice.