Farm Service Agency Finalizes New Rule Covering Actively Engaged For Non-Family Farm Businesses
Updated: Jul 13
The 2014 Farm Bill required USDA to revise the regulations for the term “actively engaged” in agriculture. Back in March, Farm Service Agency (FSA) announced proposed regulations for actively engaged and contributing personal management; see New Actively Engaged Rule Proposed by USDA: What Does It Mean for You?. On December 16, 2015, FSA announced the final regulations for actively engaged for non-family farming operations, which will potentially impact some of your operations. Today, let’s look at who these final rules would and would not impact.
What Is “Actively Engaged?”
First, what do we specifically mean by “actively engaged in agriculture”? To be eligible for many Federal farm programs, the individual or the business entity must provide a significant contribution to the agricultural operation. A significant contribution can be capital, land, and/or equipment, as well as active personal labor, active personal management, or a combination. Being actively engaged is providing active personal management, active personal labor, or a combination of the two.
A significant contribution of active personal management typically means providing 25 percent of the total management hours required annually by the farming operation or providing at least 500 hours of management annually for the operation (§ 1400.601). When the contribution is a combination of active personal labor and active personal management, the contributor needs to meet certain requirements. Typically the combination will need to be critical to the profitability of the farming operation, performed on a regular, continuous, and substantial basis, and meet the number of hours listed in the regulations (Table 1) (§ 1400.601).
With business entities such as limited liability companies (LLCs), corporations, or partnerships, each member, shareholder, or partner would need to supply active personal management, labor, or a combination to be eligible for Federal farm programs. Passive members of a business entity would be ineligible. For more information on the term actively engaged in farming, please see Actively Engaged in Farming and Payment Limits (USDA, 2015).
Final Actively Engaged Regulations
The final rules only apply to non-family farm operations. In the 2014 Farm Bill, Congress directed USDA to make the change to non-family farming operations; any rule change would not impact individuals or entities comprised sole of family members (PL 113-79). According to the 2012 Census of Agriculture, Maryland has 476 non-family farming operations, or 3.9 percent of the state’s total number of farming operations. Nationally, 70,210 or 3.3 percent of all farming operations are non-family farming operations. As you can see, the potential reach of the final rule will be limited.
To fall under the final rule, at least one member of the farming operation would need to be a non-family member. Currently, USDA views family members to include “person to whom another member in the farming operation is related as a lineal ancestor, lineal descendant, sibling, spouse, or otherwise by marriage” (§ 1400.3). Lineal ancestor would include parents, grandparents, and so on, and lineal descendants would include children, grandchildren, great-grandchildren, and so on. If a member does not fall under this definition, then the operation would be considered a non-family farm.
For non-family farming operations, the final rule would only apply to those seeking more than one farm manager. Non-family farms can seek to include a second manager, but the operation would need to show that the operation is large, which means that the operation:
Produces and markets crops on 2,500 acres or more of cropland; or
Produces honey with more than 10,000 hives; or
Produces wool with more than 3,500 ewes (§ 1400.602(2)(i) – (iii)).
The FSA state committee has the authority to adjust this limitation plus/minus 15 percent to fit agriculture in their state.
To add a third manager, the non-family farming operation would need to show the operation is complex as well as large. To be complex, this would include looking at the number of commodities produced on the farm, types of crops produced, the geographic area in which the farm operates, alternative marketing channels, and whether the operation includes livestock production (including types of livestock produced and livestock products produced and marketed). The FSA state committee will determine if the operation meets the complexity requirements.
All non-family farming operations seeking to qualify more than one manager will be required to keep additional paperwork under the final rule. This recordkeeping will relate to the contribution of management by the managers (§1400.603), and needs to include at least the:
Location where the management activity is performed; and
Time expended and duration of the management activity performed (§ 1400.603(a)(1)-(2)).
If the manager does not keep records, then the manager’s contribution would be disregarded, and the manager’s eligibility would be re-determined (§1400.603(c)(1)-(2)).
The final rule became effective on December 16, 2015. As discussed earlier, the final rule is limited to non-family farm operations and will impact a limited number of producers nationally and in Maryland. If you are considering starting a non-family farming operation, consult an attorney to stay in compliance with the new regulation.
Agricultural Act of 2014, Pub. L. No. 113-79, http://www.fns.usda.gov/agricultural-act-2014-pl-113-79-feb-7-2014.
Goeringer, Paul. New Actively Engaged Rule Proposed by USDA: What Does It Mean For You? College Park, MD: University of Maryland, Maryland Risk Management Education Blog, 2015. Internet site: www.aglaw.umd.edu/blog/new-actively-engaged-rule-proposed-by-usda-what-does-it-mean-for-you.
Payment Limitation and Payment Eligibility: Actively Engaged in Farming, 80 Fed. Reg. 78119, 78128 – 78130 (Dec. 16, 2015) (amending7 C.F.R. pt. 1400) Internet site: https://www.fsa.usda.gov/Internet/FSA_Federal_Notices/activelyengaged.pdf.
USDA-Farm Service Agency. Actively Engaged in Farming and Payment Limits. Washington D.C.: Farm Service Agency Fact Sheet, March 2015. Internet site: http://www.fsa.usda.gov/Internet/FSA_File/activelyengaged2015.pdf.
USDA-National Agricultural Statistics Service. Publication No. AC-12-A-20, 2012 Census of Agriculture: Maryland State and County Data, 7 (2014).