On September 24, 2019, the Risk Management Agency (RMA issued a FAQ regarding the 2019 Market Facilitation Program (MFP) and 2019 Whole-Farm Revenue Protection (WFRP) interaction. The question was whether the MFR payment counts as revenue-to-count for the WFRP claims. RMA determined that MFP payments would not count as revenue-to-count for non-specialty crops, including alfalfa hay, barley, canola, corn, crambe, dried beans, dry peas, extra-long staple cotton, flaxseed, lentils, long grain and medium grain rice, millet, mustard seed, oats, peanuts, rapeseed, rye, safflower, sesame seed, small and large chickpeas, sorghum, soybeans, sunflower seed, temperate japonica rice, triticale, upland cotton, and wheat; specialty crops, including almonds, cranberries, cultivated ginseng, fresh grapes, fresh sweet cherries, hazelnuts, macadamia nuts, pecans, pistachios, and walnuts; and dairy (milk) but MFP payments would count as production-to-count for hogs.
The rational for RMAs decision is that, unlike 2018 MFP payments, the 2019 MFP payments for non-specialty crops was not based on the eligible producer’s production of the qualifying crop. Since the 2019 MFP payment is not based on the current year’s production they are not considered as revenue-to-count. For specialty crops, the MFP payment is based on eligible fruit and bearing plant acreage, not the current year’s or historical production. MFP payments for milk are based on production history and not the current year’s production. In contrast, the MFP payment for hogs is based on the number of live hogs owned on a particular day selected between April 1 and May 15, 2019. Since the payment is based on the current year’s production, RMA determined they count as revenue-to-count.
ANALYSIS – RMA is sending mixed signals. In 2018, USDA repeatedly claimed that the 2018 MFP payments were not related to the price or production of the crop and were not intended to compensate for loss of production or a reduction in price, the components of revenue. USDA stated the payments were to reimburse the costs to producers to find new markets for their crops. Based on this rationale, USDA determined that these MFP payments would not be offset against revenue in revenue protection policies because the purpose of MFP was related to the reimbursement of additional costs that had to be incurrent, not a loss in revenue. The fact that USDA used harvested production as a means to calculate the MFP payment does not change its purpose and, according to USDA, it does not become revenue earned from the crop. It is unclear if RMA treated the WFRP policy any different in 2018 or the rational basis if it did.
While the payment methodology has changed, presumably the purpose of the program has not. There is nothing in the FAQs or other documents on RMA’s website to suggest the 2019 MFP payments are for a different purpose than the 2018 MFP payments. If the purpose remains the same then the same rationale applies to the 2019 MFP payment. The payment is intended to reimburse additional costs to find markets, not compensate for lost revenue. Whether it is based on the current year’s production, historical production, acreage planted, acreage harvested, etc. is not material. Whether the MFP payment itself is considered revenue for the crop is what is dispositive. USDA has maintained throughout the program that MFP payments are not revenue for the crop.
Section 25(e)(6) of the WFRP policy does require program payments, such as disaster payment, count as revenue-to-count. WFRP “provides protection against loss of revenue that you expect to earn or will obtain from commodities you produce or purchase for resale during the insurance period. Whole-farm revenue consists of revenue from all insured commodities on the farm operation, including revenue from animals and animal products.” Since the MFP payment is not intended to compensate for lost revenue, then it should not fall within section 25(e)(6) because WFRP only covers revenue earned from the crop, which includes disaster and other insurance payments.
RMA’s decision to based the determination of whether the 2019 MFP payments counts as revenue-to-count on whether the payments is based on current production calls into question the purpose of the MFP payment and suggests that it is related to revenue. Something USDA has denied in the past. At best it creates an ambiguity and at worst, it has far greater implications for all of its revenue protection policies for 2018 and 2019. At the very least RMA needs to be consistent.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.