Ag Policy Blog

A Rush of Late Federal Rules: CFAP Aid, a Tax Hike for Farmers, and Hemp Production Rules

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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The sun is setting on Trump administration officials at departments such as USDA, but they are working at a break-neck pace right now to get out final rules before they leave office next week. (DTN file photo)

Federal agencies on Friday began cranking out end-of-time rules and tweaks to government programs as the Martin Luther King Jr. holiday on Monday limits the days left for the Trump administration to get any new rule out the door before Wednesday's change to the Biden administration.

A few key program and rule changes were released by USDA, the IRS and the Department of Labor. USDA expanded coronavirus aid to producers while releasing a final hemp rule. The IRS raised taxes on thousands of farmers who do business with cooperatives, and the Department of Labor made it easier for producers to sign up for the H-2A guest-worker program.

EXPANDING CORONAVIRUS AID

USDA on Friday announced some additional aid and expanded eligibility for some producers and commodities under the two variations of the Coronavirus Food Assistance Program (CFAP).

Among the changes, the Farm Service Agency will provide swine producers an automatic "top-up" payment of $17 per head for their inventory under the CFAP1 program, increasing the total payment to $34 per head.

Under the announcement, producers who raise swine, broilers, laying hens, chicken eggs and turkeys who lost revenue in 2020 compared to 2019 revenue because of the pandemic are now eligible. Those producers could receive up to 80% of their revenue losses -- subject to availability of funds.

Producers of pullets and turfgrass sod also now are eligible for CFAP payments, depending on eligible sales and a payment calculation involving insurance indemnities and aid payments from programs such as the Wildlife and Hurricane Indemnity Program (WHIP-PLUS) and the Noninsured Crop Disaster Assistance Program (NAP).

Some of the changes released Friday by USDA stem from the passage of new coronavirus relief in the Consolidated Appropriations Act of 2021. Eligible farmers and livestock producers and others who need to modify their applications will be able to do so from Jan. 19 through Feb. 26.

For farmers who grow specialty crops, tobacco, specialty livestock, nursery crops and floriculture, USDA also has adjusted the payment calculation to use a producer's 2019 calendar-year sales -- combined with crop insurance indemnities, WHIP-PLUS and NAP payments. This involves producers who signed up for CFAP2 before Dec. 11, 2020. They will also be able to modify their applications between Jan. 19 and Feb. 26.

Farmers who grow some major row crops but did not have a 2020 Actual Production History (APH) could also see their payments adjusted upward 15% under CFAP2. FSA is using 100% of the 2019 Agriculture Risk Coverage-County Option (ARC-CO) benchmark yield to calculate payments when an APH is not available rather than 85%, which was in the original CFAP2 calculations. This calculation change is only for producers with crop insurance coverage who grow barley, corn, sorghum, soybeans, sunflowers, upland cotton and wheat. This again applies to farmers who signed up for CFAP2 by Dec. 11. They can modify a CFAP2 application between Jan. 19 and Feb. 26.

On Twitter, Agriculture Secretary Sonny Perdue noted, "American agriculture is still suffering from the economic impacts of COVID-19. Today, we are offering more assistance on top of the $23.6 billion already provided through CFAP, ensuring our farmers and ranchers stay in business."

Farmers or livestock producers needing to complete an application or modify one should contact their local USDA Service Center, though local offices may restrict in-person visits or require appointments.

SECTION 199A RULES FOR COOPERATIVES

The IRS on Friday also released its final rule on the "grain glitch" that does not provide farmer cooperatives with a more beneficial tax deduction that cooperatives had sought.

As the National Council of Farmer Cooperatives pointed out, the IRS and U.S. Treasury Department effectively increased taxes on hundreds of thousands of farmers who do business with farmer cooperatives.

Going back to the early days of 2018, the initial grain glitch in tax cuts passed by Congress would have given a significant tax advantage to farmers who did business with farmer cooperatives. In what became a complicated mess, Congress reached a deal to reinstate a tax break farmer cooperatives had used before the 2017 tax cuts were passed.

The Section 199A(g) deduction for cooperatives and their patrons is based on the old Section 199 deduction that was tied to domestic production.

The fix restored a deduction equal to 9% of a cooperative's income, limited to 50% of wages. The tax deduction can be retained or passed through to patron farmers. The farmer-patron of the cooperative could claim a Section 199A deduction equal to 20% of all net farm income, as well as any deduction passed on from the cooperative with a formula used to avoid double counting.

Then, Treasury officials came up with the idea of only allowing the tax break on patronage income and not allowing the tax deduction on non-patronage income, which was never part of the earlier tax break.

Despite concerns raised by cooperatives, the IRS did not extend the Section 199A deduction to non-patronage income.

"We find it deeply troubling that, in the waning days of the administration, the IRS chose to ignore the will of Congress and issue final regulations to implement Section 199A(g) that will raises taxes on farmers across the country," said Chuck Conner, president and CEO of the National Council of Farmer Cooperatives. "Treasury is siding with large, multinational grain companies and their friends on Wall Street at the expense of the hardworking farmers and the rural communities where they live. Our hope is that officials will see the error of their ways and draw back the regulation from the Federal Register; failing that, we will pursue every avenue available to overturn this example of bureaucratic overreach."

The Section 199A rules in the Federal Register https://public-inspection.federalregister.gov/…

FINALIZING THE HEMP RULE

USDA on Friday finalized its rule for hemp production.

The rule oversees requirements about testing levels for delta-9 tetrahydrocannabinol (THC) disposal of non-compliant "hot" plants, as well as licensing and record-keeping requirements

The hemp rule, which is 301 pages long, will be used by USDA to approve plans by states and tribes to oversee hemp production, as well as oversee hemp production in states or tribal reservations that do not have their own plans. So far, 45 states and tribes have submitted plans to implement the program.

The big issue with hemp under the 2018 farm bill is that THC -- the chemical that produces the intoxication effects of marijuana -- must be below 0.3% on a dry weight basis. Anything above 0.3% is considered marijuana, which remains a controlled substance federally.

As of November, 29 states and nine tribes have sent USDA reports on their programs. Based on that information, 4,192 licensed farmers planted 6,166 acres under the 2018 farm bill plans, of which 231 crops involving 730 acres were forced to be disposed.

Department officials said some modifications in the final rule stem from public comments flowing the earlier interim rule, as well as "lessons learned during the 2020 growing season."

Among some changes in the final rule include an expanded harvest window for testing from 15 days to 30 days for testing the THC level. USDA also made some changes for disposal of a hot crop, including allowing composting the crop into "green manure" for the land.

The final rule also increases the standard of negligence in managing THC levels in the plant from 0.5% to 1% THC. USDA stated this would provide farmers more flexibility to grow help as the genetics improve.

The rule will publish in the Federal Register on Jan. 19 and go into effect March 22. https://www.federalregister.gov/…

LABOR FINALIZES H-2A RULE CHANGES

The Department of Labor released a rule update for the H-2A agricultural guest-worker program. The new rule focuses more heavily on the application process by mandating electronic filing of job orders and application. The rule also provides farmer employers more flexibility to stagger when workers come into the country over a 120-day period, as well as changing the application process to file a single application for different dates of need.

The final rule can be viewed at https://www.dol.gov/….

The Department of Labor filed a plan in November to freeze H-2A wages for two years, but a federal judge in late December granted an injunction against the Department of Labor from implementing the wage freeze.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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