[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Rules and Regulations]
[Pages 10089-10134]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3036]



[[Page 10089]]

Vol. 76

Wednesday,

No. 36

February 23, 2011

Part II





Department of Agriculture





-----------------------------------------------------------------------



Rural Business--Cooperative Service



Rural Utilities Service



-----------------------------------------------------------------------



7 CFR Part 4284



Value-Added Producer Grant Program Interim Rule

Federal Register / Vol. 76, No. 36 / Wednesday, February 23, 2011 / 
Rules and Regulations

[[Page 10090]]


-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Rural Business--Cooperative Service

Rural Utilities Service

7 CFR Part 4284

RIN 0570-AA79


Value-Added Producer Grant Program

AGENCY: Rural Business--Cooperative Service and Rural Utilities 
Service, USDA.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: The Food, Conservation, and Energy Act of 2008 (the Act), 
amends section 231 of the Agricultural Risk Protection Act of 2000, 
which established the Value-Added Producer Grant Program. This program 
will be administered by the Rural Business-Cooperative Service. Under 
the interim 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 will also provide working capital for 
expenses such as implementing an existing viable marketing strategy. 
The Agency will implement the program to meet the goals and 
requirements of the Act.
    The program provides a priority for funding for projects that 
contribute to opportunities for beginning farmers or ranchers, socially 
disadvantaged farmers or ranchers, and operators of small- and medium-
sized family farms and ranches. Further, it creates two reserved funds 
each of which will include 10 percent of program funds each year to 
support applications that support opportunities for beginning and 
socially disadvantaged farmers and ranchers and for proposed projects 
that develop mid-tier value marketing chains.

DATES: This interim rule is effective March 25, 2011. Written comments 
on this interim rule must be received on or before April 25, 2011.

ADDRESSES: You may submit comments to this interim rule by any of the 
following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments 
electronically.
     Mail: Submit written comments via the U.S. Postal Service 
to the 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: Submit written comments 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., 7th Floor, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Andrew Jermolowicz, USDA, Rural 
Development, Rural Business-Cooperative Service, Room 4016, South 
Agriculture Building, Stop 3250, 1400 Independence Avenue, SW., 
Washington, DC 20250-3250, Telephone: (202) 720-7558, E-mail 
CPGrants@wdc.usda.gov.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This interim rule has been reviewed under Executive Order (EO) 
12866 and has been determined not significant by the Office of 
Management and Budget. The EO defines a ``significant regulatory 
action'' as one that is likely to result in a rule that may: (1) Have 
an annual effect on the economy of $100 million or more or adversely 
affect, in a material way, the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal governments or communities; (2) 
create a serious inconsistency or otherwise interfere with an action 
taken or planned by another agency; (3) materially alter the budgetary 
impact of entitlements, grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raise novel legal 
or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in this EO.
    The Agency conducted a cost-benefit analysis to fulfill the 
requirements of Executive Order 12866. The Agency has identified 
potential benefits to prospective program participants and the Agency 
that are associated with improving the availability of funds to help 
producers (farmers and harvesters) expand their customer base for the 
products or commodities that they produce. This results in a greater 
portion of the revenues derived from the value-added activity being 
made available to the producer of the product. These benefits are vital 
to the success of individual producers, farmer or rancher cooperatives, 
agriculture producer groups, and majority-controlled producer based 
business ventures.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) of 
Public Law 104-4 establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on State, local, and 
tribal governments and the private sector. Under section 202 of the 
UMRA, Rural Development must prepare, to the extent practicable, a 
written statement, including a cost-benefit analysis, for proposed and 
final rules with ``Federal mandates'' that may result in expenditures 
to State, local, or tribal governments, in the aggregate, or to the 
private sector, of $100 million or more in any one year. With certain 
exceptions, section 205 of the UMRA requires Rural Development to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective, or least burdensome 
alternative that achieves the objectives of the rule.
    This interim rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, and 
tribal governments or the private sector. Thus, this rule is not 
subject to the requirements of sections 202 and 205 of the UMRA.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' Rural Development has determined 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment and, in 
accordance with the National Environmental Policy Act (NEPA) of 1969, 
42 U.S.C. 4321 et seq., an Environmental Impact Statement is not 
required.

Executive Order 12988, Civil Justice Reform

    This interim rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. Except where specified, all State and local laws 
and regulations that are in direct conflict with this rule will be 
preempted. Federal funds carry Federal requirements. No person is 
required to apply for funding under this program, but if they do apply 
and are selected for funding, they must comply with the requirements 
applicable to the Federal program funds. This rule is not retroactive. 
It will not affect agreements entered into prior to the effective date 
of the rule. Before any judicial action may be brought regarding the 
provisions of this rule, the administrative appeal provisions of 7 CFR 
parts 11 and 780 must be exhausted.

[[Page 10091]]

Executive Order 13132, Federalism

    It has been determined, under Executive Order 13132, Federalism, 
that this interim rule does not have sufficient Federalism implications 
to warrant the preparation of a Federalism Assessment. The provisions 
contained in the rule will not have a substantial direct effect on 
States or their political subdivisions or on the distribution of power 
and responsibilities among the various government levels.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-602) generally 
requires an agency to prepare a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements under the 
Administrative Procedure Act or any other statute unless the agency 
certifies that the rule will not have an economically significant 
impact on a substantial number of small entities. Small entities 
include small businesses, small organizations, and small governmental 
jurisdictions.
    In compliance with the RFA, Rural Development has determined that 
this action will not have an economically significant impact on a 
substantial number of small entities for the reasons discussed below. 
While, the majority of producers of agricultural commodities expected 
to participate in this Program will be small businesses, the average 
cost to participants is estimated to be approximately 20 percent of the 
total mandatory funding available to the program in fiscal years 2009 
through 2012. Further, this regulation only affects producers that 
choose to participate in the program. Lastly, small entity applicants 
will not be affected to a greater extent than large entity applicants.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This program is subject to Executive Order 12372, which requires 
intergovernmental consultation with State and local officials. 
Intergovernmental consultation will occur for the assistance to 
producers of agricultural commodities in accordance with the process 
and procedures outlined in 7 CFR part 3015, subpart V.
    Rural Development will conduct intergovernmental consultation using 
RD Instruction 1940-J, ``Intergovernmental Review of Rural Development 
Programs and Activities,'' available in any Rural Development office, 
on the Internet at http://www.rurdev.usda.gov/regs, and in 7 CFR part 
3015, subpart V. Note that not all States have chosen to participate in 
the intergovernmental review process. A list of participating States is 
available at the following Web site: http://www.whitehouse.gov/omb/grants/spoc.html.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    USDA will undertake, within 6 months after this rule becomes 
effective, a series of Tribal consultation sessions to gain input by 
elected Tribal officials or their designees concerning the impact of 
this rule on Tribal governments, communities and individuals. These 
sessions will establish a baseline of consultation for future actions, 
should any be necessary, regarding this rule. Reports from these 
sessions for consultation will be made part of the USDA annual 
reporting on Tribal Consultation and Collaboration. USDA will respond 
in a timely and meaningful manner to all Tribal government requests for 
consultation concerning this rule and will provide additional venues, 
such as webinars and teleconferences, to periodically host 
collaborative conversations with Tribal leaders and their 
representatives concerning ways to improve this rule in Indian country.
    The policies contained in this rule would not have Tribal 
implications that preempt Tribal law.

Programs Affected

    The Value-Added Producer Grant program is listed in the Catalog of 
Federal Domestic Assistance under Number 10.352.

Paperwork Reduction Act

    The collection of information requirements contained in this 
interim rule have been submitted to the Office of Management and Budget 
(OMB) for clearance. In accordance with the Paperwork Reduction Act of 
1995, the Agency will seek standard OMB approval of the reporting 
requirements contained in this interim rule. In the publication of the 
proposed rule on May 28, 2010, the Agency solicited comments on the 
estimated burden. The Agency received one public comment in response to 
this solicitation. This information collection requirement will not 
become effective until approved by OMB. Upon approval of this 
information collection, the Agency will publish a rule in the Federal 
Register.
    Title: Value-Added Producer Grant Program.
    OMB Number: 0570-XXXX.
    Type of Request: New collection.
    Expiration Date: Three years from the date of approval.
    Abstract: The collection of information is vital to the Agency to 
make decisions regarding the eligibility of grant recipients in order 
to ensure compliance with the regulations and to ensure that the funds 
obtained from the Government are being used for the purposes for which 
they were awarded. Entities seeking funding under this program will 
have to submit applications that include information on the entity's 
eligibility, information on each of the evaluation criteria, 
certification of matching funds, verification of cost-share matching 
funds, a business plan, and a feasibility study. This information will 
be used to determine applicant eligibility and to ensure that funds are 
used for authorized purposes.
    Once an entity has been approved and their application accepted for 
funding, the entity would be required to sign a Letter of Conditions 
and a Grant Agreement. The Grant Agreement outlines the approved use of 
funds and actions, as well as the restrictions and applicable laws and 
regulations that apply to the award. Grantees must maintain a financial 
system and, in accordance with Departmental regulations, property and 
procurement standards. Grantees must submit semi-annual financial 
performance reports that include a comparison of accomplishments with 
the objectives stated in the application and a final performance 
report. Finally, grantees must provide copies of supporting 
documentation and/or project deliverables for completed tasks (e.g., 
feasibility studies, business plans, marketing plans, success stories, 
best practices).
    The estimated information collection burden hours has increased 
from the proposed rule by 1,239 hours from 67,943 to 69,235 for the 
interim rule. The increase is attributable to reporting requirements 
that were inadvertently omitted from the proposed rule.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 11 hours per response.
    Respondents: Producers of agricultural commodities.
    Estimated Number of Respondents: 600.
    Estimated Number of Responses per Respondent: 10.
    Estimated Number of Responses: 6,239.
    Estimated Total Annual Burden on Respondents: 69,235.

[[Page 10092]]

E-Government Act Compliance

    The Agency is committed to complying with the E-Government Act of 
2002 (Pub. L. 107-347, December 17, 2002) to promote the use of the 
Internet and other information technologies to provide increased 
opportunities for citizen access to government information and 
services, and for other purposes.

I. Background

    This interim rule contains the provisions and procedures by which 
the Agency will administer the Value-Added Producer Grant (VAPG) 
Program. The primary objective of this grant program is to help 
Independent Producers of Agricultural Commodities, Agriculture Producer 
Groups, Farmer and Rancher Cooperatives, and Majority-Controlled 
Producer-Based Business Ventures develop strategies to create marketing 
opportunities and to help develop Business Plans for viable marketing 
opportunities regarding production of bio-based products from 
agricultural commodities. As with all value-added efforts, generating 
new products, creating expanded marketing opportunities, and increasing 
producer income are the end goal.
    Eligible applicants are independent agricultural producers, farmer 
and rancher cooperatives, agricultural producer groups, and majority-
controlled producer-based business ventures.
    Rural Development is soliciting comments regarding the 
participation of tribal entities including tribal governments in the 
VAPG Program. Specifically, we are seeking comment on ways to improve 
the ability of tribal entities participation in the VAPG Program and 
ways to overcome existing barriers to tribal entities' participation in 
the VAPG Program.
    The program includes priorities for projects that contribute to 
opportunities for beginning farmers or ranchers, socially disadvantaged 
farmers or ranchers, and operators of small- and medium-sized family 
farms and ranches that are structured as Family Farms. Applications 
from these priority groups will receive additional points in the 
scoring of applications. In the case of equally ranked proposals, 
preference will be given to applications that more significantly 
contribute to opportunities for beginning farmers and ranchers, 
socially disadvantaged farmers and ranchers, and operators of small- 
and medium-sized farms and ranches that are structured as Family Farms.
    Grant funds cannot be used for planning, repairing, rehabilitating, 
acquiring, or constructing a building or facility (including a 
processing facility). They also cannot be used to purchase, rent, or 
install fixed equipment.
    This program requires matching funds equal to or greater than the 
amount of grant funds requested. The Act provides for both mandatory 
and discretionary funding for the program, as may be appropriated. 
Further, the program includes two reserved funds each of which will 
include ten percent of program funds each year to support applications 
that support projects that benefit beginning and socially disadvantaged 
farmers and ranchers and that develop mid-tier value marketing chains.
    The number of grants awarded will vary from year to year, based on 
availability of funds and the quality of applications. The maximum 
grant amount that may be awarded is $500,000. However, the Agency may 
reduce that amount depending on the total funds appropriated for the 
program in a given fiscal year. This policy allows more grants to be 
awarded under reduced funding.
    The Agency notes, pursuant to general Federal directives providing 
guidance on grant usage, that the matching funds requirement described 
in the Agricultural Risk Protection Act of 2000 may include a limited 
and specified in-kind contribution amount for the value of the time of 
the applicant/producer or the applicant/producer's family members only 
for their involvement in the development of the business and marketing 
plans associated with a planning grant project. Please see Sec.  
4284.902 definitions for Conflict of Interest, and Matching Funds; and 
Sec.  4284.923(a) for applicant in-kind implementation protocol.
    Interim Rule. The Agency is issuing this regulation as an interim 
rule, with an effective date of March 25, 2011. All provisions of this 
regulation are adopted on an interim final basis, are subject to a 60-
day comment period, and will remain in effect until the Agency adopts 
final rules. The provisions of this subpart constitute the entire 
provisions applicable to this Program; the provisions of subpart A of 
this title do not apply to this subpart.

II. Summary of Changes to the Proposed Rule

    This section presents changes from the May 28, 2010, proposed rule. 
Most of the changes were the result of the Agency's consideration of 
public comments on the proposed rule. Some changes, however, are being 
made to clarify proposed provisions. Unless otherwise indicated, rule 
citations refer to those in the interim rule.

A. Definitions

    Numerous changes were made to the definitions, including revising, 
adding, and deleting definitions.
    1. Revised definitions. Definitions that were revised included:
     Agricultural commodity. Incorporated the concept of 
agricultural product.
     Agricultural producer. Expanded the definition to 
incorporate concept of having legal right to harvest an agricultural 
commodity and how the term ``directly engage'' may be satisfied.
     Agricultural producer group. Added that independent 
producers, on whose behalf the value-added work will be done, must be 
confirmed as eligible and identified by name or class.
     Conflict of interest. Significant changes were made to 
ensure clarity between conflict of interest, in-kind contributions, and 
matching funds.
     Emerging market. Added the concept of ``geographic 
market'' and a two-year limitation.
     Farmer or rancher cooperative. Revised ``independent 
agricultural producers'' to read ``independent producers'' and added 
that independent producers must be confirmed as eligible and identified 
by name or class.
     Independent producers. Revised steering committee 
requirements and added harvesters as a new paragraph (3) to the 
definition.
     Local or regional supply network. Added ``aggregators'' to 
list of example entities that may participate in a supply network and 
added reference to ``provide facilitation of services.''
     Majority-controlled producer-based business venture. Added 
that Independent Producer members must be confirmed as eligible and 
must be identified by name or class, along with their percentage of 
ownership.
     Matching funds. Significant changes were made to ensure 
clarity between matching funds, in-kind contributions, and conflict of 
interest.
     Medium-sized farm. Increased the upper limit defining a 
medium-sized farm to $1 million.
     Product segregation. Removed reference to ``product'' 
because of the change in the definition for agricultural commodity.
     Pro forma financial statement. Added a minimum three year 
requirement for the projections included in the statement.
     Project. Added ``eligible'' so that the definition now 
refers to ``eligible activities.''
     Qualified consultant. Added the concept of no conflict of 
interest.

[[Page 10093]]

     Value-added agricultural product. Removed reference to 
``product'' because of the change in the definition for agricultural 
commodity and reinstated text from the authorizing statute.
     Venture. Added ``and its value-added undertakings'' to the 
definition.
    2. Added definitions. The following definitions were added:
     Agricultural food product. This term was added to help 
clarify what constitutes a ``Locally-produced agricultural food 
product.''
     Applicant. This term was added to emphasize applicant 
eligibility requirements.
     Branding. This term was added to clarify the 
implementation of the program with regard to branding activities.
     Change in physical state. This term is used in the Value-
Added Agricultural Product definition and is being defined to increase 
understanding and Agency intention for this category and to mitigate 
problems that have presented during the history of the program.
     Produced in a manner that enhances the value of the 
agricultural commodity. This term is used in the Value-Added 
Agricultural Product definition and is being defined to increase 
understanding and implementation for this important product eligibility 
category in order to mitigate product eligibility problems and 
interpretations that have presented during the history of the program.
    3. Deleted definitions. The following definitions were deleted:
     Agricultural product. The term is now incorporated into 
the definition of agricultural product.
     Anticipate award date. The term is not used in the rule.
     Day. Unnecessary to define.
     Rural or rural area. With the removal of the scoring 
criterion for being located in a rural or rural area, the term is not 
used in the rule.

B. Environmental Requirements

    The Agency corrected this section by replacing the reference to 
Form 1940-22, ``Environmental Checklist for Categorical Exclusions,'' 
with ``Form RD 1940-20, Request for Environmental Information.''

C. Applicant Eligibility

    In addition to edits to clarify this section, changes included:
     Replacing ``demonstrate'' with ``certify'' in Sec.  
4280.920(c)(1) and (c)(2).
     Replacing reference to ``immediate family members'' with 
``entity owners'' in Sec.  4284.920(c)(2) to clarify the provision.
     Adding a requirement to evidence good standing as part of 
legal authority and responsibility (Sec.  4284.920(d)).
     Clarifying that ``within 90 days'' for closing out the 
currently active grant is based on the application submission deadline 
(Sec.  4284.920(f)).

D. Project Eligibility

    Numerous changes were made throughout this section, including:
     Clarifying the conflict of interest provision in Sec.  
4284.922(b)(2).
     Adding exception to the requirement for submitting a 
feasibility study for applicants who can demonstrate that they are 
proposing market expansion for existing value-added products (see Sec.  
4284.922(b)(5)(i)).
     Adding an exception to the requirement for submitting a 
feasibility study and a business plan for working capital applicants 
requesting $50,000 or less and submitting simplified applications (see 
Sec.  4284.922(b)(5)(ii)).
     Added reference to an emerging market ``unserved by the 
applicant in the two previous years'' to conform to change made in the 
definition of emerging market (see Sec.  4284.922(b)(6)).
     Removing proposed paragraph Sec.  4284.922(c), which 
results in removing the proposed limitations on branding activities.
     Revising reserved funds eligibility significantly to 
identify the type of documentation being requested (see Sec.  
4284.922(c)(1)(i) and (ii), Sec.  4284.922(c)(2)(i) and (ii), and Sec.  
4284.922(c)(2)(iv)(A) and (B)).
     Adding a new paragraph (d) addressing requirements for 
applicants seeking priority points if they propose projects that 
contribute to increasing opportunities for beginning farmers or 
ranchers, socially disadvantaged farmer or ranchers, or operators of 
small- and medium-sized farms and ranches that are structured as a 
family farm.

E. Eligible Uses of Grant Funds

    The Agency revised this section by including provisions to clearly 
allow the use of in-kind contributions and limiting in-kind 
contributions to 25 percent of total project costs.

F. Ineligible Uses of Grants and Matching Funds

    In addition to adding new introductory text to this section to 
address conflict of interest and to clarify that use of funds is 
limited to only the eligible activities identified in Sec.  4284.923, 
changes made include:
     Adding a new paragraph prohibiting paying for support 
costs for services or goods going to or coming from a person or entity 
with a real or apparent conflict of interest, except as specifically 
noted for limited in-kind matching funds in Sec.  4284.923(a) and (b).
     Adding a new paragraph prohibiting paying for costs for 
scenarios with noncompetitive trade practices.
     Adding ``for the processing and marketing of the value-
added product'' to the paragraph prohibiting paying expenses not 
directly related to the funded project.
     Adding ``as identified by name or class'' to the paragraph 
prohibiting paying for conducting activities on behalf of anyone other 
than a specifically identified independent producer or group of 
independent producers.
     Adding a new paragraph prohibiting paying owner or 
immediate family member salaries or wages.
     Adding a new paragraph prohibiting paying for goods or 
services from a person or entity that employs the owner or an immediate 
family member;
     Deleting proposed Sec.  4284.924(p).

G. Preliminary Review

    The Agency added text to reference applicant eligibility as part of 
the preliminary review conducted by the Agency.

H. Application Package

    Substantive changes to this section include:
     Deleting the requirement to submit Form RD 400-1, Equal 
Opportunity Agreement.
     Adding the requirement to submit Form RD 1940-20.
     Adding that the performance criteria in the applicant's 
semi-annual and final reporting requirements can be requested by either 
the applicant or the Agency and will be detailed in either the grant 
agreement or the letter of conditions.
     Adding that the applicant must demonstrate the eligibility 
and availability of both cash and in-kind contributions (not just 
provide authentic documentation from the source as was proposed).
     Adding as acceptable matching funds a confirmed applicant 
or family member in-kind contribution that meets the requirements and 
limitations specified in Sec.  4284.923(a) and (b) and non-federal 
grant sources (unless otherwise provided by law).
     Providing additional examples of ineligible matching 
funds.
     Providing exceptions as to when a business plan and a 
feasibility study are required.
     Changing the language in the product eligibility category 
``produced

[[Page 10094]]

in a manner that enhances the value of the agricultural commodity,'' to 
allow for the inclusion of planning grant applications in this 
category.

I. Filing Instructions

    Changes to this section include:
     Replacing the fixed application deadline of March 15 each 
fiscal year with identification in an annual Federal Register notice of 
the application deadline, which will allow at least 60 days for 
applicants to submit their applications.
     Adding text to indicate that applications must contain all 
required components in their entirety.
     Adding text to indicate that emailed or faxed applications 
will not be accepted.

J. Processing Applications

    The Agency revised Sec.  4284.940(b) by limiting the Agency 
notifications under to applicants whose applications are found to be 
ineligible.

K. Proposal Evaluation Criteria and Scoring

    Several changes were made to this section including:
     Adding text to indicate that applications whose scoring 
information is not readily identifiable will not be considered.
     Increasing the points to be awarded for the nature of the 
proposed project from 25 to 30.
     Decreasing the points to be awarded for the type of 
applicant from 15 to 10.
     Including points (10) to be awarded if the applicant is a 
cooperative.
     Deleting the rural or rural area location criterion.

L. Obligate and Award Funds (Grant Agreement at Proposal)

    Two major revisions were made to this section as follows:
     Adding a new paragraph (c) detailing additional 
documentation that a grantee will need to execute in order for the 
Agency to obligate the award of funds.
     Adding details for the submittal of disbursement requests 
by the grantee (Sec.  4284.951(d)).

M. Monitoring and Reporting Program Performance

    The Agency made several changes to this section, as follows:
     Adding text to Sec.  4284.960(a) to indicate that grantees 
must complete the project per the terms and conditions specified in the 
approved work plan and budget, and in the grant agreement and letter of 
conditions.
     Revising the time allowed for submitting semi-annual 
performance reports from 30 to 45 days following March 31 and September 
30 (see Sec.  4284.960(b)(1)).
     Adding distribution network supply as an example of 
supporting documentation under Sec.  4284.960(b)(3).
     Adding examples of the types of project and performance 
data that the Agency may request under Sec.  4284.960(b)(4).
     Adding a new paragraph (Sec.  4284.960(b)(5)) identifying 
conditions under which the Agency may terminate or suspend the grant.

N. Transfer of Obligations

    The Agency made two revisions to this section as follows:
     Adding to the introductory text that the transfer of 
obligation of funds is at the discretion of the Agency and will be made 
on a case-by-case basis.
     Revising Sec.  4284.962(b) to condition the approval of a 
transfer of obligation of funds on the project continuing to meet ``all 
product, purpose, and reserved funds eligibility requirements.''

O. Grant Servicing

    The Agency has revised this section to allow for an extension 
process that would not require the approval of the Administrator. 
Originally, the change was going to be made to 7 CFR part 1951 subpart 
E, however, the Agency decided that the information was a better fit 
under Sec.  4284.961.

P. Grant Close Out and Related Activities

    The Agency has revised this section to identify these activities 
more explicitly.

III. Summary of Comments and Responses

Purpose--(Sec.  4284.901)

    Comment: One commenter recommends that ``viable agricultural 
producers'' be added to this language to clarify that the limited grant 
funds available in this discretionary funding program are intended to 
assist viable agricultural businesses that are financially prepared to 
progress to the next business level of planning for, or engaging in, 
value-added production.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Definitions--(Sec.  4284.902)

    Comment: One commenter states that, in addition to the need for 
several new definitions related to program concepts, many of the 
current definitions in the proposed rule need revision for 
clarification and to ensure that the eligibility requirements dependent 
upon these definitions are included in the rule. Eligibility 
requirements depend upon and refer to the definitions, so the 
definitions must be comprehensive.
    Response: The Agency agrees with the commenter and has revised 
definitions and provided additional definitions, as described in the 
following paragraphs.

Agricultural Commodity

    Comment: One commenter states that there is no need to distinguish 
between ``Agricultural Product'' and ``Agricultural Commodity,'' and 
recommends combining the definitions to read as follows:
    Agricultural commodity. An unprocessed product of farms, ranches, 
nurseries, forests, and natural and man-made bodies of water, that the 
independent producer has cultivated, raised, or harvested with legal 
access rights. Agricultural commodities include plant and animal 
products and their by-products, such as crops, forestry products, 
hydroponics, nursery stock, aquaculture, meat, on-farm generated 
manure, and fish and seafood products. Agricultural commodities do not 
include horses or other animals raised or sold as pets, such as cats, 
dogs, and ferrets.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Agricultural Food Product

    Comment: One commenter states that the definition for ``Locally-
produced agricultural food product'' does not describe what an 
agricultural food product can and cannot be; it only describes the 
distance and geographic requirements for local foods. Thus, a 
definition consistent with the definition found in the Rural Business-
Cooperative Service Business and Industry program is needed. The 
commenter recommends the following definition:
    Agricultural food product. Agricul-tural food products can be a 
raw, cooked, or processed edible substance, beverage, or ingredient 
intended for human consumption. These products cannot be animal feed, 
live animals, non-harvested plants, fiber, medicinal products, 
cosmetics, tobacco products, or narcotics.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Agricultural Producer

    Comment: One commenter recommends revising this definition to 
address ``harvesters'' as eligible agricultural producers, and to 
clarify past program conflicts of what it means to ``directly engage'' 
in production to strengthen the definition. The

[[Page 10095]]

commenter recommends the following definition:
    Agricultural producer. An individual or entity directly engaged in 
the production of an agricultural commodity, or that has the legal 
right to harvest an agricultural commodity, that is the subject of the 
value-added project. Agricultural producers may ``directly engage'' 
either through substantially participating in the labor, management, 
and field operations themselves; or by maintaining ownership and 
financial control of the agricultural operation.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Agricultural Producer Group

    Comment: One commenter recommends softening, for Mid-Tier Value 
Chain (MTVC) projects only, the definition of an Agricultural Producer 
Group (APG). Expand the APG definition to include nonprofits that have 
a mission to help promote farmer income through MTVC strategies, and 
reduce any requirement that the nonprofit be controlled by farmers. It 
is not necessary for a nonprofit with a MTVC to be controlled by 
farmers for it to be genuinely representative and committed to farmers 
and the MTVC. Such nonprofits are frequently the most likely to play a 
pivotal role in convening and organizing a complex web of entities 
along the value chain, and they should not be included as an eligible 
MTVC-APG.
    Response: The Agency does not agree that it is necessary to change 
the definition of Agricultural Producer Group to allow for the 
participation of other entities. The Agency recognizes that nonprofit 
entities may provide valuable assistance within the supply chain and 
has added ``nonprofit organizations'' to the Reserved Fund Eligibility 
Requirements for MTVC.
    Comment: One commenter suggests the following revised definition:
    Agricultural producer group. A membership organization that 
represents independent producers and whose mission includes working on 
behalf of independent producers and the majority of whose membership 
and board of directors is comprised of independent producers. The 
independent producers, on whose behalf the value-added work will be 
done, must be confirmed as eligible and identified by name or class.
    The commenter states that the added language instructs on the 
eligibility requirement that, for agricultural producer group, the 
Independent Producers must be identified. The commenter prefers to 
expand the definition by allowing identification by name or class. 
Because the regulation refers to the definitions for instruction on 
applicant eligibility, all eligibility requirements must be stated in 
the definition.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Agricultural Product

    Comment: One commenter states that this definition is not needed 
and should be deleted. The commenter recommends combining this language 
with the ``Agricultural Commodity'' definition.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Beginning Farmer or Rancher

    Comment: One commenter states that the final rule should facilitate 
applications from projects benefiting beginning farmers and ranchers. 
Supporting these projects is a statutory priority for the VAPG program. 
The statute also provides for a 10 percent reserved fund set-aside for 
projects that benefit beginning farmers or ranchers or socially 
disadvantaged farmers or ranchers. The specific wording of these two 
statutory provisions is very important.
    The Agency is to give priority to projects that contribute to 
farming opportunities for beginning farmers and is to reserve funds for 
projects that benefit beginning farmers. Nowhere does the statute say 
that such priority projects must exclusively benefit beginning farmers 
and no one else. By statute, it is sufficient that the priority 
projects contribute to new farming opportunities and benefit beginning 
farmers. In implementing the intent of Congress, the Agency needs to 
provide guidance in regulations and/or in guidance to grant reviewers 
as to what constitutes a significant enough contribution or benefit to 
beginning farmers as to qualify a proposal as meeting the program 
priority or access to the reserved fund.
    Stipulating the criteria in the rule has the negative effect of 
locking the criteria in place for all the years the rule remains in 
place. The alternative--dealing with the issue in the annual NOFA and/
or grant review criteria--has the benefit of allowing for an iterative 
process to refine and fine tune the criteria based on actual 
experience.
    The commenter prefers providing for iterative annual adjustments as 
needed to ensure the intent of Congress in creating the beginning 
farmer priority is actually achieved in the reality of program 
implementation. If, however, it is going to be stipulated in the rule, 
it is important that the rule is correct and clear as it is difficult 
and time consuming to change a final rule. In the case of individual 
farmer/rancher grants, there is no problem. The individual farmer or 
rancher is either a beginner or not. However, group proposals are an 
entirely different matter.
    The proposed rule's beginning farmer definition dictates that all 
members of the farmer group, co-op, business, or other entity must be 
beginning farmers or ranchers, an extremely unlikely situation in the 
real world. The commenter believes the proposed rule negates the 
express will of Congress in creating the priority and reserved fund in 
the first place by creating a stipulation that renders the directive 
effectively null and void. Even if a 100 percent beginning farmer 
member co-op or business or farm group existed somewhere in the real 
world, requiring a new farm business made up of multiple farmers to be 
100 percent beginners will preclude mentoring opportunities with more 
experienced farmers and increase risk of failure.
    Hence, it would tend to defeat the purpose of the program. There 
are two operative provisions in the proposed rule related to beginning 
farmers and ranchers. The first is in reference to the reserved funds 
(proposed Sec.  4284.922(d)(1)) and states: ``If the applicant is 
applying for beginning farmer or rancher, or socially-disadvantaged 
farmer or rancher reserved funds, the applicant must provide 
documentation demonstrating that the applicant meets one of these 
definitions.''
    The second is a very indirect reference in the evaluation criteria 
and scoring of applications section, where up to 15 points are awarded 
for ``Type of applicant.'' In the final analysis, therefore, everything 
in the rule hinges on the definition of beginning farmer or rancher in 
the definition section of the rule.
    The commenter contends that this language indicates that proposals 
from individual beginning farmers or ranchers as well as applications 
from an agricultural producer group, co-op, and business must include 
exclusively beginning farmers or ranchers to qualify for the beginning 
farmer or rancher category. As it applies to group proposals, this 
definition flies in the face of the statutory language that projects 
simply contribute to beginning farmer opportunities and benefit 
beginning farmers.
    The commenter states there are two remedies. One would be to change 
the

[[Page 10096]]

definition. The other would be to leave the definition as is, but add 
an operative provision elsewhere in the rule to ensure the rule 
complies with the law and common sense.
    If the first alternative is chosen, the commenter recommends the 
definition of beginning farmer and rancher be amended as follows: 
``Beginning farmer or rancher. This term has the meaning given it in 
section 343(a) of the Consolidated Farm and Rural Development Act (7 
U.S.C. 1991(a)) and is an entity in which none of the individual owners 
have operated a farm or a ranch for more than 10 years. In the event 
that there are multiple farmer or rancher owners of the applicant 
group, at least 25 percent of the ownership must be held by beginning 
farmers or ranchers. For the purposes of this subpart, a beginning 
farmer or rancher must currently own and produce the agricultural 
commodity to which value will be added.''
    Another commenter states the rule must not create barriers for 
beginning farmers and ranchers that are part of a producer group or 
entity seeking to establish a value added market. The proposed rule 
suggests that BFR entities must have a 100 percent of the membership 
meeting the beginning farmer definition to qualify for the set-aside 
funds and priority status. This is difficult at best and most 
operations they have worked with do not include 100 percent beginning 
farmers. This requirement must be changed to be less restrictive or 
they will lose the opportunity to enable beginning farmers to enter 
existing operations and be provided mentoring and new market 
opportunities. The commenter believes a 25 percent ownership/membership 
test would be appropriate.
    Response: The Agency disagrees with the commenters. The definition 
of beginning farmer or rancher is stipulated by statute, which also 
stipulates that projects must `benefit' beginning farmers or ranchers. 
It is the position of the Agency that Reserved funds are to benefit 
this priority category exclusively. The statute indicates that priority 
points are to be awarded to projects that ``provide opportunities'' to 
beginning farmers or ranchers. It is the position of the Agency that 
priority points may be awarded to entities or groups in which Beginning 
Farmers or Ranchers comprise at least 51 percent membership.
    Comment: One commenter suggests revising this definition and adding 
language clarifying that the beginning farmer or rancher must first be 
an eligible independent producer that is currently producing the 
majority of the agricultural product to which value will be added. 
Nonproduction of product, even for a beginning farmer or rancher, would 
not be an eligible application. The suggested revised definition is as 
follows:
    Beginning farmer or rancher. This term has the meaning given it in 
section 343(a) of the Consolidated Farm and Rural Development Act (7 
U.S.C. 1991(a)) and is an entity in which none of the individual owners 
have operated a farm or a ranch for more than 10 years. For the 
purposes of this subpart, a beginning farmer or rancher must be an 
Independent Producer that, at time of application submission, currently 
owns and produces more than 50 percent of the agricultural commodity to 
which value will be added.
    Response: The Agency disagrees with the suggested revision. A 
change in definition is not required to accomplish this goal. All 
program applicants must meet the criteria of one of the four applicant 
eligibility categories. The beginning farmer or rancher definition is 
statutory.

Change in Physical State

    Comment: One commenter recommends adding a definition for ``change 
in physical state.'' This terminology is used in the Value-Added 
agricultural product definition and should be defined to increase 
understanding and Agency intention for this category and to mitigate 
problems that have presented during the history of the program 
(pressure-ripened peaches, dehydrated corn: part of previous 
applications that were deemed ineligible by the program due to 
ineligible change in physical state).
    Response: The Agency agrees with the recommendation and has added a 
definition for this term.

Conflict of Interest

    Comment: One commenter states that the conflict of interest 
definition should be eliminated as it is confusing and inconsistent in 
application. First, the very receipt of a grant directly benefits the 
producer applicant(s) and could be considered a conflict. Secondly, 
what is the rationale for allowance of some activities by the producer 
applicant(s) while others are classified as having a conflict of 
interest? Application of the rule appears to be somewhat arbitrary in 
its current form.
    The commenter also notes that this definition is confusing and 
misleading because applicant in-kind for the development of business 
plans and/or marketing plans is ruled to be an eligible match.
    The commenter states that, if the term cannot be eliminated, 
further clarification of the definition is required. All exceptions to 
the rule must be clearly stated. As it stands now, applicant time 
contributed to the completion of a business and/or marketing plan is 
allowable (See Sec.  4284.923, 75 FR 29929), but there is much 
confusion as to whether this would constitute a conflict of interest. 
The suggestion is to state more emphatically the ability of applicants 
to contribute time towards a business and/or marketing plan without 
incurring a conflict of interest.
    The commenter further states that, for Working Capital 
applications, grant funds cannot pay the salaries of employees with an 
ownership interest to process and/or market and deliver the value-added 
product to consumers (as stated in proposed Sec.  4284.923(b)) and asks 
why one payment is allowed and the other is not? Does this relate to 
conflict of interest? Clarification would aid in reader interpretation.
    Response: The Agency agrees that guidance and clarification 
regarding Conflict of Interest is necessary.
    The Agency considers the use of grant funds for direct personal 
financial gain to be a conflict of interest and will continue to 
prohibit use of grant funds to pay applicant/applicant family member 
salaries. However, the Agency recognizes the value of producer 
participation in planning activities, as well as the necessity of 
participating in eligible marketing activities. Therefore, both 
Planning and Working Capital applicants (and applicant family members, 
as necessary) may contribute time spent on eligible activities as in-
kind match amounting to up to 25 percent of total project cost, 
provided that a realistic and relevant valuation of their time can be 
documented, as provided for at Sec.  4284.923.
    Comment: Numerous commenters urge the Agency to reconsider the 
definition for conflict of interest to include an exception to allow 
applicants to contribute time (e.g. in-kind match) towards the 
development of business and/or marketing plans. The commenters believe 
it is in the applicant's best interest to be intimately involved in 
this part of the process. Furthermore, for small, beginning farmers or 
ranchers, and/or disadvantaged farmers or ranchers especially, 
allowable in-kind match of this nature is of critical importance 
because the project is still at the planning stage and revenues from 
the project have yet to be realized. As such, the applicant's ability 
to match the grant with 100 percent cash is often limited.

[[Page 10097]]

    Numerous commenters recommend keeping business and enterprise 
planning of VAPG projects farmer-centered. Farmers and ranchers should 
directly participate in the development of VAPG projects and be allowed 
to count their time as a contribution toward the program's matching 
requirements.
    Several commenters state that, as agricultural producers and past 
recipients of VAPGs to conduct planning and feasibility studies, they 
believe strongly in this program and have received first-hand benefits. 
As a beginning farmer, the ability to contribute in-kind match towards 
the completion of planning grant was crucial in making the project 
affordable. Moreover, being personally involved in the completion of 
the business and marketing plan was critically important as the owners 
of the new value-added businesses and the persons who would bear 
primary responsibility for implementing these plans.
    One commenter states that concern over conflicts of interest began 
to emerge in VAPG NOFAs several years ago and has now led to an overly 
restrictive definition. Specifically, the example provided in the 
definition of conflict of interest implies that farmers and ranchers 
have an inherent bias in favor of their project ideas that trumps an 
equally compelling interest in not investing their resources in an idea 
that will not work. The commenter states that its members' experience, 
in contrast, shows that successful businesses are those in which 
participating farmers and ranchers are intimately engaged in all of the 
planning stages.
    Given the example included as part of the definition, the continued 
references to conflict of interest in the proposed rule give the clear 
impression that participation by the producer, their family members, 
and/or staff creates huge problems and is prohibited. This undermines 
the fundamental principle of the VAPG program: that farmers and 
ranchers should be empowered through these grants to explore creative 
new businesses that will increase farm income and create or expand 
rural wealth. This broad definition of conflict of interest could 
easily lead to an interpretation that would prohibit farmer or rancher 
participation in any of the work necessary for planning grants and 
result in VAPG evolving into a grant program that benefits consultants 
rather than producers.
    The commenter agrees that feasibility studies generally should be 
written by third party professionals, but disagrees that a conflict of 
interest exists that should preclude producers from being integral to 
the research and information collection necessary for a successful 
feasibility study. The economic realities of the farmer and rancher 
communities the VAPG program was created to help ameliorate require 
that the program allow producers' time and expenses be permitted as an 
allowable match for grant funds.
    The businesses most likely to succeed are those in which producers 
are most actively engaged in the enterprise's planning. Their 
involvement should be encouraged and counted as an equally important 
contribution as cash to the project. The inclusion of the example in 
the second sentence of the proposed rule's definition of conflict of 
interest, when applied to sections of the rule that refer back to the 
conflict of interest definition, contradicts the statute at 7 U.S.C. 
1621(b)(1)(A) and (b)(3)(A) as well as the allowance made in proposed 
Sec.  4284.923(a) and must be fixed to provide consistency and clarity. 
The commenter, therefore, recommends that the example be eliminated 
from the definition as follows:
    ``A situation in which a person or entity has competing 
professional or personal interests that make it difficult for the 
person or business to act impartially.''
    Response: The Agency agrees that the definition and application of 
``Conflict of Interest'' needs clarification. The Agency also 
recognizes the value of producer participation in Planning activities, 
while, at the same time acknowledging that an unbiased, third party is 
necessary for the evaluative portions of these activities. Therefore, 
the Agency will retain its requirement that feasibility studies be 
performed by independent third-parties. However, applicants (and 
applicant family members, as necessary) are encouraged to participate 
in the non-evaluative portions of Planning grants and may contribute 
time as in-kind match amounting to up to 25 percent of total project 
cost, provided that a realistic and relevant valuation of their time 
can be documented, as described at Sec.  4284.923.
    Comment: One commenter recommends clearing up the confusion 
surrounding ``conflict of interest.'' The proposed rule makes strides 
in addressing producer participation, however, it is confusing at best 
as to many areas regarding producer involvement. The most troublesome 
involves ``conflict of interest'' as it appears in several places 
throughout the rule and often times directly contradicts other areas of 
the rule.
    The commenter recommends eliminating the inclusion of the example 
within the conflict of interest definition. The very nature of this 
program serving farmers and ranchers should indicate that their 
involvement would not be considered a ``conflict of interest''. The 
grant is for their purposes and their involvement is critical to the 
success of the project. Therefore, the rule must clear up this 
confusion and can begin by eliminating the example provided within the 
definition of conflict of interest.
    The rule must also clear up all the inconsistencies where they 
appear regarding conflict of interest, producer involvement and 
direction indicating certain aspects must be through a third-party 
consultant.
    Response: The Agency agrees and the example has been removed from 
the conflict of interest definition. In addition, the Agency has added 
language at Sec.  4284.923(a) and (b) that clarifies that applicants 
(and applicant family members, as necessary) may participate in the 
non-evaluative portions of Planning grants and may contribute time as 
in-kind match amounting to up to 25 percent of total project cost, 
provided that a realistic and relevant valuation of their time can be 
documented.
    Comment: One commenter recommends revising this definition and 
[deleting the line ``An example is a grant recipient or an employee of 
a recipient that conducts or significantly participates in conducting a 
feasibility study for the recipient.''
    According to the commenter, conflict of interest has been a major 
problem in the program for years, and is largely responsible for the 
high volume of ineligible applications received annually. The conflict 
of interest definition and its implementation parameters need to be 
very clear in the regulation. The commenter suggested that the 
definition of ``conflict of interest'' read as follows:
    ``A situation in which a person or entity has competing personal, 
professional or financial interests that make it difficult for the 
person or business to act impartially. Regarding use of both grant and 
matching funds, Federal procurement standards prohibit transactions 
that involve a real or apparent conflict of interest for owners, 
employees, officers, agents, or their immediate family members having a 
financial or other interest in the outcome of the project; or that 
restrict open and free competition for unrestrained trade. Examples of 
conflicts of interest include, but are not limited to, organizational 
conflicts,

[[Page 10098]]

noncompetitive practices, and support of costs for goods or services 
provided by a person or entity with a conflict of interest. 
Specifically, grant and matching funds may not be used to support costs 
for services or goods going to, or coming from, a person or entity with 
a real or apparent conflict of interest, including, but not limited to, 
owner(s) and their immediate family members. See Sec.  4284.923(a) for 
one limited exception to this definition and practice for VAPG.''
    According to the commenter, the suggested definition is consistent 
with Federal procurement standards that apply to VAPG, including 7 CFR 
part 3019 and 2 CFR part 230. An exception to the rule for limited 
applicant in-kind on BP and MP tasks is detailed in proposed Sec.  
4284.923(a), but the exception is not the rule, and conflict of 
interest should be clearly defined in the regulation.
    Response: The Agency agrees and the definition has been revised for 
clarity, to remove the example, and to reference Sec.  4284.923(a) and 
(b), which contain two limited exceptions to its implementation.

Day

    Comment: One commenter asks why day needs to be defined.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Emerging Market

    Comment: One commenter recommends the following revised definition:
    Emerging market. A new or developing product, geographic, or 
demographic market that is new to the applicant or the applicant's 
product. To qualify as new, the applicant cannot have supplied this 
product, geographic or demographic market for more than two years at 
time of application submission.
    The commenter states that the added clarification for ``new'' is 
necessary so that its interpretation is universal and it is not left 
open to subjectivity. The emerging market criterion only applies to 
agricultural producer groups, cooperatives, and majority controlled 
producer-based business venture type applicants as part of Project 
Purpose eligibility requirements.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Farm- or Ranch-based Renewable Energy

    Comment: One commenter states that the definition for Value-Added 
Agricultural Product refers to ``farm or ranch based renewable 
energy,'' but does not offer a definition. The following definition 
clarifies what is eligible and ineligible renewable energy in this 
program. Although, given the new definition for agricultural commodity, 
(bodies of water), the commenter now questions whether hydro energy 
would be an eligible renewable energy product.
    Farm- or Ranch-based Renewable Energy. An agricultural commodity 
that is used to generate renewable energy on a farm or ranch owned or 
leased by the independent producer applicant that produces the 
agricultural commodity. On-farm generation of energy from wind, solar, 
geothermal, or hydro sources are not eligible.
    Response: The Agency agrees with the commenter and has added a 
definition to the rule.

Farmer or Ranch Cooperative

    Comment: One commenter recommends the following revised definition:
    Farmer or rancher cooperative. A business owned and controlled by 
independent producers that is incorporated, or otherwise identified by 
the state in which it operates as a cooperatively operated business. 
The independent producers, on whose behalf the value-added work will be 
done, must be confirmed as eligible and identified by name or class.
    The commenter stated that the added language instructs on the 
eligibility requirements that include: (1) The cooperative must be 
comprised of Independent producers (and not simply agricultural 
producers), a definition wherein lies primary applicant eligibility 
requirements for all four applicant types; and (2) the independent 
producers on whose behalf the work will be done must be identified. 
Because the regulation refers to the definitions for instruction on 
applicant eligibility requirements, all eligibility requirements must 
be stated in the definitions.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Feasibility Study

    Comment: One commenter states that the rule's definition of 
``feasibility study'' contradicts the statute at 7 U.S.C. 1621(b)(3)(A) 
and would also contradict the proposed rule in Sec.  4284.923(a), if 
modified as the commenter suggests. The commenter recommends the 
following conforming language be added to that definition to provide 
consistency and clarity:
    Feasibility study: An analysis of the economic, market, technical, 
financial, and management capabilities of a proposed project or 
business in terms of the project's expectation for success. Applicants 
may use a qualified consultant to perform the feasibility study, in 
which case applicants and family members of applicants may participate 
in collecting data and providing input required by the qualified 
consultant in the development of a feasibility study and may either 
receive payment for their time or may count their time as an in-kind 
contribution of matching funds to the extent that the value of such 
work can be appropriately valued.
    Response: The Agency disagrees with the commenter. The Agency's 
definition of Feasibility Study does not contradict the statute at 7 
U.S.C. 1621(b)(3)(A) or the eligible uses of grant and matching funds 
in Sec.  4284.923(a).
    Comment: One commenter states that, in the past, the qualified 
consultant has been an independent, third party without a conflict of 
interest. If that is still the intent, it would be helpful if that was 
listed in the definition.
    Response: The Agency agrees with the commenter and the definition 
of Qualified Consultant has been revised to add reference to ``without 
a conflict of interest.''

Independent Producers

    Comment: One commenter states that requiring the producer retain 
ownership through the entire value-added process is often legally 
difficult to accomplish and may be undesirable for a number of reasons, 
such as the creation of legal liability during transportation, 
processing, etc. An agricultural producer should be free to part with 
ownership of the commodity at any stage during the value-chain provided 
the end result is an increase in profits and market share. The logic of 
this is recognized in an allowance of this kind of flexibility with 
handling MTVC proposals. It should also be offered for regular VAPG 
projects as well. If an eligible VAPG applicant can show their profits 
will be increased from a project, the stage at which ownership 
transfers should be irrelevant.
    Response: The Agency disagrees with extending the ownership 
exception as suggested. The mid-tier value chain exception is relevant 
because of the required alliances and agreements that provide for 
mutually-beneficial distribution of revenue based on the agreed upon 
end-product and market. Agricultural producers applying without the 
benefit of this structure do not necessarily gain these benefits

[[Page 10099]]

where title changes hands before value is added and gains from that 
added-value realized.
    Comment: One commenter recommends the following revised definition:
    Independent producers.
    (1) Individual agricultural producers or entities that are solely 
owned and controlled by agricultural producers. Independent producers 
must produce and own the majority of the agricultural commodity to 
which value will be added as the subject of the project proposal. 
Independent producers must maintain ownership of the agricultural 
commodity from its raw state through the production and marketing of 
the value-added product. Producers who produce the agricultural 
commodity under contract for another entity, but do not own the 
agricultural commodity or value-added product produced, are not 
considered independent producers. Entities that contract out the 
production of an agricultural commodity are not considered independent 
producers.
    (2) A steering committee comprised only of specifically identified 
agricultural producers in the process of organizing one of the four 
program eligible entity types that will operate a value-added venture 
and that will be owned and controlled by those same agricultural 
producers identified in the steering committee at time of application, 
and will supply the majority of the agricultural commodity for the 
value-added project during the grant period.
    (3) A harvester of an agricultural commodity that can document 
their legal right to access and harvest the majority of the 
agricultural commodity that will be used for the value-added product. 
Harvesters do not meet the Agricultural Producer definition and may 
only apply as an Independent Producer applicant type.
    The commenter states that applicant ownership and control is the 
consistent language used throughout the program definitions and should 
be maintained in the independent producer definition. ``Marketing,'' 
``agricultural commodity,'' and ``value-added product'' are conforming 
uses previously noted. Steering committees need to be included as 
eligible independent producer applicants, and Cooperative Programs 
determined to allow as eligible, formation of any one of the four 
applicant entity types from steering committee. Harvesters must be 
included as independent producers for eligibility, and can only apply 
as independent producers because they do not meet the Agricultural 
Producer definition requirements.
    Response: The Agency agrees and has revised the rule as suggested 
by the commenter with the following exceptions. The revision of the 
Steering Committee portion should not restrict the Agency from granting 
prior approvals to changes in ownership structure which conform to 
eligibility requirements. Paragraph 2 has been revised as follows:
    (2) A steering committee comprised of specifically identified 
agricultural producers in the process of organizing one of the four 
program eligible entity types that will operate a value-added venture 
and will supply the majority of the agricultural commodity for the 
value-added project during the grant period.
    The Agency disagrees with the wording proposed regarding 
Agricultural Harvesters. All applicants must meet the definition of 
Agricultural Producer, which is inclusive of Agricultural Harvesters. A 
paragraph addressing harvesters has been added to read as follows:
    (3) A harvester of an agricultural commodity that can document 
their legal right to access and harvest the majority of the 
agricultural commodity that will be used for the value-added product.

Local or Regional Supply Network

    Comment: One commenter proposes the following adjustments to the 
local or regional supply network definition.
    Local or regional supply network: An interconnected group of 
entities through which agricultural based products move from production 
through consumption in a local or regional area of the United States. 
Examples of participants in a supply network may include agricultural 
producers, aggregators, processors, distributors, wholesalers, 
retailers, consumers, and entities that organize or provide 
facilitation services and technical assistance for development of such 
networks.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Locally-Produced Agricultural Food Product

    Comment: One commenter recommends the following revised definition:
    Locally-produced agricultural food product. An agricultural food 
product, as defined in this subpart, that is raised, produced, and 
distributed in:
    (1) The locality or region in which the final product is marketed, 
so that the total distance the product is transported is less than 400 
miles from the origin of the product; or
    (2) The State in which the product is produced.
    The commenter states that this definition includes a reference to 
Agricultural Food Product, which they believe needs a definition of its 
own.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Majority-Controlled Producer-Based Business Venture

    Comment: One commenter recommends revising this term by deleting 
``venture'', because the applicant must be a legal business entity and 
not a venture: Majority-controlled producer-based business.
    Response: The Agency disagrees with the commenter and has retained 
the term as proposed because the ability to refer to activities beyond 
those specific to the grant allows for more precise communication.

Marketing Plan

    Comment: One commenter states that the statute at 7 U.S.C. 
1621(b)(1)(A) and (b)(3)(A) clearly states that VAPG grants are to 
assist an eligible producer in developing a business plan for viable 
marketing opportunities or in developing strategies that are intended 
to create marketing opportunities for the producer. The definition 
contradicts the statute by granting consultants exclusive rights to 
awards for marketing plans. Moreover, this definition also directly 
contradicts the allowance in Sec.  4284.923(a) for producers to count 
their time in developing marketing plans as in-kind matching 
contributions. Therefore, the commenter proposes that the definition be 
fixed to read: ``Marketing plan: A plan for the project that identifies 
a market window, potential buyers, a description of the distribution 
system and possible promotional campaigns.''
    Response: The Agency disagrees. The definition of Marketing Plan is 
not inconsistent with the statute at 7 U.S.C. 1621(b)(1)(A) and 
(b)(3)(A) or language on eligible uses of grant and matching funds in 
the proposed rule in Sec.  4284.923(a).

Matching Funds

    Comment: One commenter states that applicant in-kind as an eligible 
match is not listed, though it is stated as being allowable for the 
development of business plans and/or marketing plans and suggests 
revising for greater clarity. The commenter requests guidance on 
determining appropriate valuation for applicant in-kind match.

[[Page 10100]]

    Response: The Agency will provide guidance on the valuation of 
matching funds in the application package.
    Comment: One commenter suggests the following revised definition:
    Matching funds. A cost-sharing contribution to the project via 
confirmed cash or funding commitments from eligible sources without a 
real or apparent conflict of interest, that are used for eligible 
project purposes during the grant funding period. Matching funds must 
be at least equal to the grant amount, and combined grant and matching 
funds must equal 100 percent of the total project costs. All matching 
funds must be verified by authentic documentation from the source as 
part of the application. Matching funds must be provided in the form of 
confirmed applicant cash, loan, or line of credit, or provided in the 
form of a confirmed applicant or family member in-kind contribution 
that meets the requirements and limitations in Sec.  4284.923(a); or 
confirmed third-party cash or eligible third-party in-kind 
contribution; or confirmed non-federal grant sources (unless otherwise 
provided by law). See examples of ineligible matching funds and 
matching funds verification requirements in Sec. Sec.  4284.924 and 
4284.931.
    The commenter states that using the terms ``real or apparent'' 
conflict of interest is more consistent with Federal procurement 
standards and replaces the term, ``potential'' conflict of interest. 
Note, this definition has been significantly modified from the proposed 
rule definition to be consistent with the Agency intention to allow 
limited applicant in-kind contributions as match. Also, a significant 
amount of the proposed rule definition (examples) has been moved to 
Sec.  4284.931 for ``verifying match funds.''
    Response: The Agency agrees and the definition has been revised to 
include the allowance of limited applicant in-kind contributions.
    Comment: One commenter states that this paragraph is not, on the 
whole, a definition, but rather a set of substantive rule provisions 
that probably belong in the body of the rule rather than in the 
definition section. Mixing detailed operational provisions into a 
definition is generally not considered good rule writing practice. 
Second, and far more importantly, the omission of any mention of 
producer in-kind matches while specifically referencing third-party in-
kind match clearly implies that applicant time is not an eligible match 
and, combined with the proposed rule's broadly defined conflict of 
interest definition, will have a chilling effect on potential farmer 
and rancher applicants.
    To be consistent with the allowance in Sec.  4284.923(a), the rule 
must clearly state that producer time, travel expenses, purchased 
materials, and other expenses incurred working on the project are 
eligible in-kind matching contributions for grants and do not present a 
conflict of interest. Therefore, the commenter recommends the following 
modifications to the definition:
    Matching funds: ``A cost-sharing contribution to the project via 
confirmed cash or funding commitments or via anticipated in-kind 
contributions from eligible sources without a conflict of interest that 
are used for eligible project purposes during the grant period. 
Eligible matching funds include confirmed applicant cash, loan or line 
of credit, non-Federal grant sources (unless otherwise provided by 
law), and eligible in-kind contributions, and third party cash or 
eligible third-party in-kind contributions. Matching funds must be at 
least equal to the grant amount, and combined grant and matching funds 
must equal 100 percent of the total project costs. All eligible cash 
and in-kind matching funds contributions must be spent on eligible 
expenses during the grant period, and are subject to the same use 
restrictions as grant funds.''
    Response: The Agency has revised the definition of Matching Funds 
to include allowance of limited applicant in-kind matching 
contributions.
    Comment: One commenter asks why matching funds can only be provided 
by ``eligible sources without a conflict of interest.'' Doesn't 
providing matching funds create an inherent conflict of interest? It 
appears that by adding the ``without a conflict of interest'' 
restriction, it conflicts with many other parts of the definition. For 
instance, the applicant would have a conflict of interest, yet the 
definition states that applicant cash is permissible.
    Response: The Agency disagrees with the commenter. The matching 
funds requirement does not constitute an inherent conflict of interest.
    Comment: One commenter states that text in the proposed rule 
concerning conflict of interest, in-kind contributions, and matching 
funds is confusing and contradictory to other text and needs to be 
consistent. The commenter points to the following text:
     Also, note that in-kind matching funds may not be provided 
by a person or entity that has a conflict of interest or an appearance 
of a conflict of interest. (proposed Sec.  4284.924)
     Matching funds must be from eligible sources without a 
conflict of interest and without the appearance of a conflict of 
interest. (proposed Sec.  4284.931(b)(4)(ii))
     Matching funds must be provided in the form of confirmed 
applicant cash, loan, or line of credit; or confirmed third-party cash 
or eligible third-party in-kind contribution. (proposed Sec.  
4284.931(b)(4)(v))
     Examples of ineligible matching funds include funds used 
for an ineligible purpose, contributions donated outside the proposed 
grant period, third-party in-kind contributions that are over-valued, 
expected program income at time of application, or instances where the 
potential for a conflict of interest exists, including applicant in-
kind contributions in Sec.  4284.923(a). (proposed Sec.  
4284.931(b)(4)(vi))
    The commenter specifically asks: Is applicant match ineligible as a 
matter of being a conflict of interest (as inferred here) or is it 
allowed as states in Sec.  4284.923(a)?
    Response: The Agency agrees with the commenter that the proposed 
text as given is confusing. The Agency has revised Sec.  4284.923(a) 
and (b) to include limited applicant in-kind match. In addition, the 
Agency has revised Sec.  4284.924 to make the rule clearer.

Medium-Sized Farm

    Comment: One commenter states that the final rule should provide a 
more reasonable definition of medium-sized farms and ranches. The 
proposed rule defines the medium-sized farms and ranches as those with 
average annual sales between $250,000 and $700,000. The commenter 
recommends the following amendment to the medium-sized farm definition: 
``Medium-sized farm: A farm or ranch that has averaged between $250,001 
and $1,000,000 in annual gross sales of agricultural products in the 
previous three years.''
    According to USDA data, all sales classes above $5,000 and below 
$1,000,000 are declining in numbers. The proposed rule defines small 
farms as those with sales below $250,000. The sales classes between 
$250,000 and $1,000,000 are the so-called ``disappearing middle'' of 
agriculture that Secretary Vilsack has so eloquently addressed in his 
public speeches. This is the segment of agriculture perfectly tailored 
for the VAPG program and its value-added income opportunities. While 
nearly 60 percent of the total value of agricultural production is 
captured by farms of over $1 million in sales, the disappearing middle 
still represents a substantial amount of

[[Page 10101]]

production--25 percent but declining--and a large number of total 
producers.
    They are well-situated, as the Secretary repeatedly points out, to 
take advantage of value-added opportunities in local and regional food 
systems and in bioenergy and bioproducts. While their ability to 
compete in the raw, undifferentiated commodity market is unlikely to be 
a path to survival and prosperity without further farm consolidation 
and the lost economic opportunity that goes with it, competing in the 
value-added market can be a good bet for these farms. It is reasonable 
to expect that those farms with successful value-adding enterprises are 
more likely than others to be in that higher profit margin category. 
From a family farm and rural development perspective, policy, including 
the VAPG program, should do everything it can to increase their 
numbers.
    The higher the reliance on on-farm income, the more important 
value-adding strategies become. Targeting the program's small and 
medium-sized family farm priority toward the larger small farm class 
plus the disappearing middle makes a great deal of sense. These farms 
rely on farm income for a majority of household income, but need to tap 
into value-adding enterprises and markets to secure a long-term 
financial future.
    Creating a single farm size threshold for all of agriculture is a 
difficult proposition given the great diversity of U.S. agriculture. 
For instance, specialty crop and dairy farms have a much higher 
percentage of farms over the $1 million sales threshold than the rest 
of agriculture and for both the vast majority of production comes from 
those largest farms. While the $700,000 threshold in the proposed rule 
might be roughly adequate for grain farms, and far more than adequate 
for poultry farms, it is significantly too low for dairy and produce 
farms. While one could imagine a more complex rule with thresholds that 
vary by type of farm, if the final rule sticks with a single threshold, 
it is important that it works and makes sense for agriculture as a 
whole. While not perfect, the $1 million threshold is more defensible 
than the proposed rule's $700,000.
    One commenter proposes that the average annual gross sales be 
between $250,001 and $750,000, so that it matches the SBA's size 
standard for crop and animal production.
    One commenter states that $500,000 is more appropriate for the 
upper limit. The commenter states that anything over $500,000 would be 
considered large by the majority of farmers and the farm industry in 
their region/area. The majority of farm or ranch producer's income will 
be below $250,000. Keeping the upper limit at $700,000 could make it 
more difficult for a medium size farm to compete for VAPG funding, if 
that $700,000 farm income was really a feasible and viable operation.
    One commenter suggests that the current definition of ``mid-size 
farmer'' (i.e., gross farm income up to $750,000) is an appropriate 
standard, and should be maintained. The segment of production 
agriculture in the Midwest that has experienced greatest contraction is 
the ``ag in the middle'', independent ``family farm scale'' farmers 
that try to make a full time living, typically in commodity 
agriculture. This group would most benefit from value-added strategies 
because they typically already have production ability, and using 
value-added strategies (individually or as members of a co-op or LLC) 
would provide a useful hedge to their income. In the Midwest, a 
$750,000 operation would only represent a dairy operation of a 200 cow 
dairy (23,000 lb herd average, $17/cwt), or a 1250 acre commodity crop 
operation (corn at $3/bushel, 200 bushel/acre yield). Neither of these 
size operations are ``big'' by modern standards, yet they are the size 
operation that is being lost the fastest. Providing support to this 
scale of operation maintains working families on the land, independent 
ownership in the supply chain, and supports rural economies.
    Response: It is the position of the Agency that the ``$1 million 
average annual gross sales of agricultural commodities in the previous 
three years'' is more consistent with expert commentary on the subject 
of ``agriculture in the middle,'' and is consistent with the Agency 
prerogative to be more inclusive. The upper limit of gross sales for a 
medium sized farm will be changed to $1,000,000.

Mid-Tier Value Chain

    Comment: One commenter asks if the only type of eligible applicant 
is an independent producer. The commenter suggests expanding this text 
for clarification purposes to include all eligible applicant types 
(e.g., APG, Cooperative, and MCPBBV).
    The commenter adds that Federal Register Vol. 74, No. 168, 9/1/2009 
(45168-9) explicitly states that all 4 producer types are eligible for 
the Mid-Tier Value Chain and suggests revising the Definition section 
for Mid-Tier Value Chain to reflect this. The commenter states that 
independent producers have hesitated to be the applicant as that person 
then must bear the entire tax burden related to the grant (though the 
grant will most likely benefit multiple producers). If other members of 
the supply network were able to be listed as co-applicants, the tax 
burden could be shared.
    Response: The mid-tier value chain applicant must be one of the 
four eligible applicant types and the project eligibility requirements 
at Sec.  4284.922 have been revised accordingly. Other members of the 
supply network may not be listed as co-applicants, but should be 
referenced in accordance with project eligibility requirements.
    Comment: One commenter states that the final rule should make small 
improvements to the mid-tier value chain provisions to ensure maximum 
responsiveness and effectiveness. The rules should be written in a way 
that is properly descriptive of what characterizes these marketing 
relationships without inadvertently precluding non-traditional 
marketing alliances that achieve the desired result of increasing 
markets for producers and improving their ability to achieve fair 
prices. For instance, mid-tier value chains may include non-profit 
organizations that provide aggregation, processing, or transportation 
services for producers to facilitate sales to local institutions and 
markets. Community supported agriculture projects are sometimes 
organized by an individual producer acting on behalf of and with the 
support of allied farmers or ranchers to market of their aggregated 
product to institutional and other emerging markets. As various kinds 
of mid-tier value chains like those above are still emerging, the final 
rule should be as inclusive and flexible as possible.
    The commenter proposed the following small adjustments to the mid-
tier value chain definition.
    Mid-tier value chain: Local and regional supply networks that link 
independent producers with businesses and cooperatives that market 
value-added agricultural products in a manner that:
    (1) Targets and strengthens the profitability and competitiveness 
of small and medium-sized farms and ranches that are structured as a 
family farm; and
    (2) Obtains agreement from eligible individual producers or an 
eligible agricultural producer group, farmer or rancher cooperative, or 
majority controlled producer-based business venture that is engaged in 
the value chain on a marketing strategy.
    (3) For mid-tier value chain projects the Agency recognizes that, 
in a supply chain network, a variety of raw agricultural commodity and 
value-

[[Page 10102]]

added product ownership and transfer arrangements may be necessary. 
Consequently, applicant ownership of the raw agricultural commodity and 
value-added product from raw through value-added is not necessarily 
required, as long as the mid-tier value chain proposal can demonstrate 
an increase in customer base and an increase in revenue returns to the 
applicant producers supplying the majority of the raw agricultural 
commodity for the project.
    Response: The Agency agrees and recognizes that mid-tier value 
chains are intended to be relatively flexible and inclusive of many 
types of entities that can facilitate and find mutual benefit in 
partnership. The Agency has revised the eligibility requirements at 
Sec.  4284.922 for Mid-Tier Value Chain to include nonprofit 
organizations as possible participants.
    Comment: One commenter recommends clarifying the definition to 
indicate that a minimum of two small/medium-sized farms must benefit 
from the MTVC project and that the eligibility requirement of ownership 
of raw commodity through to the VA product is waived only for MTVC 
projects.
    Response: The Agency disagrees with the first item because it is 
inconsistent with statutory language. The Agency agrees with the 
commenter on the second item and has revised the rule accordingly.

Planning Grant

    Comment: One commenter states that this definition makes clear that 
planning grants are to be used to develop a feasibility study which may 
include a business and/or marketing plan. The statute provides for two 
types of grants, one to perform feasibility studies and one for working 
capital. Clearly what the Agency and the proposed rule refer to as 
planning grants are the first of the two statutory grant strategies. 
The statute directs the Agency to make grants to producers to perform 
feasibility studies and develop business plans. Thus, the statute 
requires the Agency to make planning grants to producers who in turn 
will perform feasibility studies and development business plans.
    The ``planning grant'' definition must be changed to conform to the 
statute at 7 U.S.C. 1621 1621(b)(1)(A) and (b)(3)(A) and to clarify 
that these grants are designed to benefit producers who by statute may 
perform the feasibility study. The commenter supports the notion that 
use of a ``qualified (third-party) consultant'' may be strongly 
encouraged. Applicant producers should have the option to hire 
consultants, and should be encouraged to do so, but they cannot be 
required to do so by rule.
    Otherwise the rule is in direct conflict with the statute.
    The commenter recommends the following definition: Planning grant: 
``A grant to facilitate the development of a defined program of 
economic planning activities to determine the viability of a potential 
value-added venture, and specifically for the purpose of paying for a 
qualified (third-party) consultant including to conduct and develop a 
feasibility study, business plan, and/or marketing plan associated with 
the processing and/or marketing of a value-added agricultural product. 
A planning grant may be used in whole or in part for the purpose of 
paying for a qualified third party consultant. Use of third party 
consultants is strongly encouraged.''
    Response: The Agency disagrees with the commenter. The statute 
provides that grants are made to eligible applicants to ``assist'' in 
the development of feasibility studies, marketing plans, business plans 
and the definition of Planning Grant is consistent with statute.

Pro Forma Financial Statement

    Comment: One commenter recommends revising this definition to 
require a minimum of three years for the projections included in the 
statement. The commenter states that standard business practice for 
financial projections for a new venture is a minimum 3 years, and is 
often between 5-10 years. A 3-year minimum standard for financials is 
appropriate for VAPG ventures that may then move on to use working 
capital funding for a 3-year project.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Produced in a Manner That Enhances the Value of the Agricultural 
Commodity

    Comment: One commenter states that the term ``produced in a manner 
that enhances the value of the agricultural commodity, which is used in 
the Value-Added Agricultural Product definition, needs to increase 
understanding and implementation for this important product eligibility 
category (1 of the 5) in order to mitigate product eligibility problems 
or interpretations that have presented during the history of the 
program (pot-in-pot produce, T-bar grape vine, plugs, container grown 
trees: all previous products that were ultimately (and correctly) 
deemed ineligible due to not meeting a differentiated agricultural 
production eligibility standard that demonstrated added value to the 
product). According to the commenter, without a definition for this 
term, its interpretation will be left open to many various reviewers 
across the United States and will be applied in a non-uniform manner. 
The National Office will be called upon continuously to discern 
eligibility on a case-by-case basis, which is very inefficient. 
Eligibility for this category should rely upon differentiated or non-
standard agricultural production practices that are demonstrated in the 
application using a quantifiable comparison with products produced in 
the standard manner.
    Response: The Agency agrees with the recommendation and has added a 
definition for this term.

Project

    Comment: One commenter recommends revising the definition of 
``project'' to refer to ``eligible'' activities.
    Response: The Agency agrees with the suggested edit and has revised 
the definition as suggested.

Rural Development

    Comment: One commenter states that the term needs to be moved in 
the rule for proper alphabetizing.
    Response: The Agency has placed this term in alphabetical order.

Socially Disadvantaged Farmer or Rancher

    Comment: One commenter states that a provision reserving a portion 
of VAPG funding for members of socially disadvantaged groups that was 
introduced in 2009 is continued in the 2010 proposed rules. According 
to the commenter, this provision raised a question last year as to 
whether the qualifying 51 percent all had to belong to the same 
socially disadvantaged group or could belong to different groups (e.g., 
qualified ethic groups, Caucasian females). USDA staff had no firm 
guidance on this last year, which is understandable for a new rule. The 
commenter would like to see it clarified in the 2010 rules. The 2009 
rules states that the 51 percent was decided by head count rather than 
ownership share; the proposed 2010 rule seems more ambiguous.
    Response: The statute provides a reservation of funding for 
projects ``to benefit'' Socially Disadvantaged Farmers and Ranchers. It 
is the position of the Agency that an applicant must meet the statutory 
definition of Socially-Disadvantaged Farmer or Rancher to qualify for 
reserved funding. Therefore, the applicant must be an individual

[[Page 10103]]

independent producer or an entity comprised of 100 percent Socially-
Disadvantaged Farmers or Ranchers.
    The statute also gives priority to projects that ``contribute to 
increasing opportunities'' to Socially Disadvantaged Farmers or 
Ranchers. This priority is implemented through the award of additional 
points in the scoring process. It is the position of the Agency that 
entities comprised of at least 51 percent Socially-Disadvantaged 
Farmers or Ranchers are eligible to receive priority points. The 
Socially-Disadvantaged Farmer or Rancher members of such an entity do 
not have to be members of the same Socially-Disadvantaged group.
    Comment: One commenter notes that the definition of socially-
disadvantaged farmers and ranchers includes a 51 percent threshold for 
group applications. While there are a number of producer cooperatives 
that are made up exclusively or almost exclusively of socially 
disadvantaged farmers and ranchers, the commenter does not know of any 
cooperatives or businesses that consist exclusively of beginning 
producers. The needs and realities of the two groups are distinct. A 
majority of members of socially disadvantaged producer groups and co-
ops often have many years of agricultural experience and can work with 
any beginning producers in the group.
    So while a 51 percent standard makes sense for socially-
disadvantaged groups, it does not make sense for beginning farmers and 
ranchers. Rules, to be effective, must reflect the facts on the ground 
and not some nonexistent ideal world. Moreover, mentoring by more 
experienced farmers is a need and an opportunity specific to 
enterprises including beginning farmers and ranchers which also makes 
the 25 percent threshold for beginners an appropriate measure to 
qualify a project for this reserved fund.
    The commenter prefers to leave the specific threshold to the 
annual, iterative NOFA process, so the Agency and the public can learn 
from experience about what works best to ensure the intent of Congress 
is fulfilled. If that route is chosen, the language of the NOFA must be 
crystal clear about the 25 percent standard and not preclude a 
reasonable result by way of a super restricted definition.
    Response: The statute provides a reservation of funding for 
projects ``to benefit'' Beginning Farmers and Ranchers. It is the 
position of the Agency that an applicant must meet the statutory 
definition of Beginning Farmer or Rancher to qualify for reserved 
funding. Therefore the applicant must be an individual independent 
producer or an entity comprised of 100 percent Beginning Farmers or 
Ranchers.
    The statute also gives priority to projects that ``contribute to 
increasing opportunities'' to Beginning Farmers or Ranchers. This 
priority is implemented through the award of additional points in the 
scoring process. It is the position of the Agency that entities 
comprised of at least 51 percent Beginning Farmers or Ranchers are 
eligible to receive priority points.

Value-Added Agricultural Product

    Comment: One commenter recommends deleting ``or product'' from this 
term, as the commenter recommends combining the terms ``agricultural 
commodity'' and ``agricultural product'' and labeling them as 
``agricultural commodity''.
    Response: The Agency agrees with the suggested edit and has revised 
the definition as suggested.

Venture

    Comment: One commenter recommends adding ``and its value-added 
undertakings'' to this definition. The commenter states that the 
venture includes the value-added undertakings and is not limited to the 
business alone. However, the venture may include initiatives that are 
not grant or value-added project eligible, hence, the ``other related 
activities.''
    Response: The Agency agrees with the suggested edit and has revised 
the definition as suggested.

Environmental Requirements (Sec.  4284.907)

    Comment: Two commenters suggest, in reference to working capital 
grants, replacing reference to Form RD 1940-22 with Form RD 1940-20. 
The commenters note that, for other Agency applications, the applicant 
provides Form RD 1940-20, and the Agency completes Form RD 1940-22.
    Response: The Agency has revised this section to refer to Form RD 
1940-20, rather than Form RD 1940-22.

Application Windows and Deadlines (Sec.  4284.915(d)(2))

    Comment: One commenter states that the proposed rule indicates that 
the annual application period must be open within 60 days of the due 
date. However, due to the requirement to submit an independent 
feasibility study and business plan that is specific to the proposed 
project with working capital proposals, a 90-day application period 
seems more appropriate. This would allow for better and less costly 
studies, and be less likely to dissuade some applicants from applying.
    Two commenters recommend providing a 90-day notice rather than a 
60-day notice. One of the commenters states that, providing a 90-day 
notice is more useful to producers than a 60 day notice. While the 
existence of a fixed annual application deadline would allow farmers 
and support systems to be planning for applications throughout the 
year, the commenter's experience is that most new applicants only hear 
about the program once it is announced. Having the longer time frame 
helps increase the pool of eligible and qualified applicants, plus 
providing adequate time to adjust to any new changes in the annual 
NOSA.
    The other commenter states that, due to the requirement to submit 
an independent feasibility study and business plan that is specific to 
the proposed project with working capital proposals, a 90-day 
application period seems more appropriate. This would allow for better 
and less costly studies, and be less likely to dissuade some applicants 
from applying.
    One commenter notes that the Federal Register (Vol. 74, No. 168, 9/
1/2009) states: ``This notice announces the availability of 
approximately $18 million in competitive grants for FY 2009 to help 
independent agricultural producers enter into or expand value-added 
activities, with the following clarifications and alterations: (8) 
provides a 90-day application period.'' The commenter asks, going 
forward, will the 90-day period become standardized?
    One commenter requests that the application period be open for 90-
days to allow us the maximum amount of time to properly prepare and 
submit our grant request.
    One commenter states that much more critical for the improvement of 
the VAPG program is not the date applications are due, but that the 
application window for applications will always be sufficiently long to 
allow applicants to develop good proposals. Thus, the rule should 
require that not less than 90 days be allowed from the time Rural 
Development invites applications to the time Rural Development closes 
its application window. The commenter further states that the proposed 
rule's provision that applications be submitted each year on or before 
March 15 is unwise. There is no way to assure this date will always be 
honored based on the experiences of any given fiscal year. The 
commenter states that the rule should state that application dates will 
be set by Rural Development annually via Federal

[[Page 10104]]

Register notice or in RD Instruction 1940-L.
    Response: The Agency agrees that there should be at least a 60-day 
application window, but will provide notification via the annual NOFA 
rather than revising the rule text.

Applicant Eligibility (Sec.  4284.920)

    Comment: One commenter believes that the definition of ``beginning 
farmer or rancher,'' as it applies to group proposals, should be 
changed to fix a very serious problem with the proposed rule and 
suggests language for this. If the Agency does not change the 
definition, then the commenter recommends the following language be 
added under Sec.  4284.920, as a new paragraph(c) as follows and re-
designate the remaining sections accordingly:
    (c) Beginning farmers or ranchers. To qualify for the priority for 
projects that contribute to opportunities for beginning farmers or 
ranchers or for the reserved fund for projects that benefit beginning 
farmers or ranchers, an applicant that is an agricultural producer 
group, a farmer or rancher cooperative, or a majority-controlled 
producer-based business venture must be comprised of at least 25 
percent beginning farmers or ranchers.
    Response: The statute provides a reservation of funding for 
projects ``to benefit'' Beginning Farmers and Ranchers. It is the 
position of the Agency that an applicant must meet the statutory 
definition of Beginning Farmer or Rancher to qualify for reserved 
funding. Therefore, the applicant must be an individual independent 
producer or an entity comprised of 100 percent Beginning Farmers or 
Ranchers.
    The statute also gives priority to projects that ``contribute to 
increasing opportunities'' to Beginning Farmers or Ranchers. This 
priority is implemented through the award of additional points in the 
scoring process. It is the position of the Agency that entities 
comprised of at least 51 percent Beginning Farmers or Ranchers are 
eligible to receive priority points.
    Comment: One commenter requests that the VAPG program not have a 
requirement to list owners and owners of owners. The commenter states 
that, when this requirement was in place in the past, it precluded them 
from applying for a grant at all. As a marketing association with 
nearly 400 members, the commenter states it is impossible for them to 
provide this information and hope this requirement will not be part of 
the upcoming grant program.
    Response: The Agency has revised the definition of Farmer or 
Rancher Cooperative, Agricultural Producer Group and Independent 
Producer to allow members of applicant entities to be identified by 
individual name or by class.
    Comment: One commenter applauds the Agency for eliminating previous 
language requiring cooperatives to identify all members of the 
cooperative. The rule as currently proposed provides reasonable 
eligibility requirements for cooperatives to apply for VAPG funding. 
Previous language should not be introduced in the final rule that would 
add the burdensome requirement of providing the names, addresses, etc. 
of all co-op members.
    Response: As noted in the response to the previous comment, the 
Agency has revised the definitions of Farmer or Rancher Cooperatives to 
allow members of applicant cooperatives to be identified by individual 
name or by class.

Type of Applicant--Independent Producer (Sec.  4284.920(a)(1))

    Comment: One commenter states that they have no written record of 
why they did not qualify for the VAPG, the awards for which were 
recently announced in late May 2010. The commenter states that, as a 
commercial fishing operation, they could not qualify for any of the 15 
points associated with criteria, ``Type of Applicant.'' This 
disqualification makes it extremely difficult, if not impossible, for 
commercial fishing families to earn sufficient points to win an award, 
though they were invited to apply. The criterion represents the largest 
block of points of any of the criteria. The fact that fishing families 
cannot receive these points is never mentioned in the application. The 
commenter states they spent months writing their grant; time they would 
not have spent had this crucial fact been made at all apparent. Without 
the benefit of actually reading the critique, it is their understanding 
that commercial fishing people are considered `harvesters' not 
`producers,' or some such hair-splitting that struggles to make meager 
sense. Therefore, they cannot be considered, as a ``medium-sized farm 
or ranch that is structured as a family farm.'' Though water-based, 
commercial fishing families take as much care, attention and nurturance 
to their surroundings as any land-based agricultural operation. The 
Alaska salmon industry was first in the nation to receive the Marine 
Stewardship Council award for sustainable management of this precious 
national resource. That coveted award is proof positive that the 
fishing families foster and protect this resource with all the passion 
of a land based farm operation.
    In addition, the commenter feels they fully qualify as a `family 
farm' as defined in the context of the VAPG. The VAPG definition of a 
family farm is as follows; ``A Family Farm produces agricultural 
commodities for sale in sufficient quantity to be recognized as a farm 
and not a rural residence, owners are primarily responsible for daily 
physical labor and management, hired help only supplements family 
labor, and owners are related by blood or marriage or are immediate 
family.''
    The commenter states their fishing boat is most assuredly not a 
recreational vessel, but a ``machine shop on the water.'' The commenter 
and her husband are the primary owners and operators, working year 
around to keep the business afloat. They do hire seasonal helpers, but 
their labor is temporary and highly seasonal. The commenter states that 
she and her husband are related by 33 years of marriage and cannot 
understand why they would be considered anything other than a ``family 
farm.''
    Response: It is Agency practice to provide feedback to applicants 
determined ineligible or which were unsuccessful in competition. 
Failure to do so was an oversight. The ``Type of Applicant'' category 
provided priority points for applicants that could document that they 
were Beginning Farmers or Ranchers, Socially-Disadvantaged Farmers or 
Ranchers, or proposing a Mid-Tier Value Chain. The Agency's position 
has been that Agricultural Harvesters, though considered Independent 
Producers, do not meet the definition of Farmer or Rancher.
    Comment: One commenter notes that, in the past, eligible grantees 
have included such producers as fishers and forest gatherers. The 
commenter recommends that this be clearly reaffirmed in the new rule--
it is implied, perhaps, but not clearly stated.
    The commenter states that the proposed rule continues the 
requirement that every owner of the agricultural producer entity 
themselves be involved in farming. According to the commenter, this is 
a very unrealistic requirement. Recent USDA studies have noted that 
successful farms frequently rely on nonfarm income. Furthermore, family 
farms invariably become divided in their ownership among members who 
farm and members who retain a link to the farm but have moved off the 
farm. Therefore, the commenter recommends that the rule be revised to a 
simple requirement that the farm be operated by at least one owner of 
the farm entity.

[[Page 10105]]

    Response: The Agency has revised Independent Producer definition to 
explicitly include ``agricultural harvesters'' such as foresters and 
fishermen and revised the definition of Agricultural Producer to 
indicate what constitutes direct involvement in farming.

Type of Applicant--Agricultural Producer Group (Sec.  4284.920(a)(2))

    Comment: Numerous commenters recommend allowing producer groups or 
entities made up of more than 25 percent beginning farmers and ranchers 
to apply for the funds reserved by the Farm Bill specifically for 
projects benefitting beginning farmers and ranchers. The proposed rule 
dictates that all members of the farmer group or co-op must be 
beginning farmers or ranchers, a very unlikely situation in the real 
world. The requirement will preclude mentoring opportunities with more 
experienced farmers.
    Three commenters point out that, while there are many new farmers 
and many of them will cooperate on these projects, it is the mentoring 
and collaboration with more experienced farmers that can ensure 
success. The more experienced farmers as well need to be supported and 
allowed to develop their businesses for the mutual benefit of the new 
farmers. Also, it is unlikely that all members of the farmer group or 
co-op would be beginning farmers or ranchers. Therefore, the Agency 
should ensure the final rule includes a reasonable standard to measure 
significant benefit to beginning farmers.
    Response: The statute provides a reservation of funding for 
projects ``to benefit'' Beginning Farmers and Ranchers. It is the 
position of the Agency that an applicant must meet the statutory 
definition of Beginning Farmer or Rancher to qualify for reserved 
funding. Therefore the applicant must be an individual independent 
producer or an entity comprised of 100 percent Beginning Farmers or 
Ranchers.
    The statute also gives priority to projects that ``contribute to 
increasing opportunities'' to Beginning Farmers or Ranchers. This 
priority is implemented through the award of additional points in the 
scoring process. It is the position of the Agency that entities 
comprised of at least 51 percent Beginning Farmers or Ranchers are 
eligible to receive priority points.

Emerging Market (Sec.  4284.920(b))

    Comment: One commenter does not object to the expectation that all 
applicants, except Independent Producers, be subject to an emerging 
market test.
    The commenter recommends that specific guidance about the 
characteristics or attributes of an ``emerging market'' be clearly 
stated in the rule. The commenter notes that the rule does not quantify 
or appear to give specific guidance to what constitutes an emerging 
market, particularly as it pertains to the amount of time that the 
applicant has been working in developing that emerging market. 
According to the commenter, previous interpretations of the emerging 
market rule were that applicants had to be active in that market less 
than 2 years at the time of application. The commenter states, however, 
it may entirely appropriate for such guidance to not be incorporated 
into this proposed rule, for two reasons:
    First, during this current rule writing process, the VAPG program 
has experienced an extended period of time when no applications were 
received: i.e. July 2008, November 2009, and now presumably March 2011. 
The impact is that organizations that were not ``ready'' in 2008 or 
even parts of 2009 might not meet a 2-year emerging markets test if 
such were applied in a March 2011 application. This would unfairly 
disadvantage those particular applicants.
    Second, there is merit in requiring an applicant to justify how the 
specific application meets the definition of an ``emerging market.''
    Response: The Agency has revised the definition of Emerging Market 
to clarify its meaning and to indicate that in order to meet the 
definition, an applicant must not have supplied the product, 
geographic, or demographic market for more than two years at time of 
application submission.

Citizenship (Sec.  4284.920(c)(2))

    Comment: One commenter states that the ``51 percent citizenship'' 
requirement is prohibitive for associations with large membership 
bases. Gathering ownership and citizenship information from hundreds of 
entities is impossible, not only because of the sheer number, but also 
because many simply will not share it for confidentiality reasons.
    Response: The Agency agrees with the concern raised by the 
commenter. The grant agreement requires the grantee to certify that it 
meets the citizenship requirement. Information collection is not 
required.
    Comment: One commenter recommends revising Sec.  4284.920(c)(2) by 
replacing ``immediate family member'' with ``entity owners,'' to 
clarify that at least one entity ``owner'' must be a citizen or 
national. Otherwise, as originally drafted, none of the owners would 
have to be citizens or nationals as long as they had one immediate 
family member meet citizenship requirements; thereby allowing a 100 
percent non-US-owned entity to be eligible for public federal grant 
dollars.
    Response: The Agency agrees that the suggested revision clarifies 
the intent of this paragraph and has revised the paragraph as suggested 
by the commenter.

Multiple Grant Eligibility (Sec.  4284.920(e))

    Comment: One commenter believes allowing producers to submit 
separate VAPG applications under multiple entities provided the 
producer owns no more than 75 percent of any one of the entities is too 
generous and could lead to abuse and work against the wide distribution 
of VAPG assistance to many unaffiliated producers. The commenter 
recommends that the 75 percent level be either reduced to 5 percent or 
simply prohibited. According to the commenter, one VAPG per year is 
plenty for anyone given the scarcity of funds and the plethora of good 
ideas.
    Response: The Agency disagrees with the commenter. Seventy-five 
percent is suitable to discourage multiple applications.
    Comment: One commenter recommends revising Sec.  4284.920(e) by 
replacing ``this notice'' with ``a solicitation.'' According to the 
commenter, there is a need for applicants to explicitly designate the 
category in which they wish to compete so it is not a judgment call by 
reviewers.
    Response: The Agency agrees that the suggested revision clarifies 
the intent of this paragraph and has revised the paragraph as suggested 
by the commenter.

Active VAPG Grant (Sec.  4284.920(f))

    Comment: One commenter states that past VAPG rules have included 
similar provisions regarding active VAPG grants. However, 2009 was the 
first year that project periods could be as long as 36 months (as 
opposed to the previous 12 month limit). This means more repeat 
applicants are likely to have open projects when the next proposal 
period comes around. Also, the commenter would like clarification as to 
whether ``within 90 days'' means before or after the NOFA date.
    The commenter adds that, like last year, VAPG projects were 
permitted to run up to 36 months. The 2009 rules contained a provision 
that projects running over 12 months had to have ``unique tasks'' each 
year, rather than a repeat of previous similar tasks (presumably such 
as advertising). The latter restriction is not included in the

[[Page 10106]]

proposed 2010 rule, which, based on past experience, does not 
necessarily mean that it would not be in the final rules and the 
commenter hopes it is not.
    Response: The Agency does not agree with the commenter's assertion 
that active grant eligibility standard is a deterrent to repeat 
applicants. In order to continue to fund a diverse array of projects 
from as many applicants as possible, the Agency will retain the active 
grant eligibility standard that requires active grants to be closed 
within 90 days of the application submission deadline, as published in 
the annual NOFA.
    In response to the comment on the requirement for ``separate and 
unique tasks'' for multi-year working capital grants, it is not 
included in the rule and will not be a program requirement.
    Comment: Three commenters note that the requirement for an 
applicant with an active value-added grant at the time of a subsequent 
application to close out the current grant within 90 days of the annual 
NOFA could be a concern with project periods as long as 36 months. With 
the longer projects, more repeat applicants are likely to have open 
projects during subsequent proposal periods. One commenter expresses 
concern that meritorious projects benefiting significant numbers of 
producers would be excluded from consideration simply because a 
separate project was approved in a previous funding cycle. Perhaps 
there could be exceptions to this provision.
    Two commenters note that, by adding arbitrary time constraints, 
such a prohibition would appear to undermine one of the goals of the 
program, in providing funding for projects that are likely to become 
self-sustaining in the future.
    Response: The VAPG program is a popular and over-subscribed 
program. In order to continue to fund a diverse array of projects from 
as many applicants as possible, the Agency will retain the active grant 
eligibility standard.
    Comment: One commenter recommends deleting ``anticipated award 
date'' in this section and substituting ``application submission 
deadline'' as a more stable date and requiring closeout of the prior 
grant more effectively to efficiently commence the undertaking of the 
new project, thereby promoting responsible use of public funds.
    Response: The Agency agrees that ``application submission 
deadline'' is a more appropriate for closing date and has revised the 
rule text accordingly.

Project Eligibility (Sec.  4284.922)

Purpose Eligibility (Sec.  4284.922(b))

    Comment: One commenter states that the Agency should clarify that 
majority, farmer-owned community wind projects are eligible this year, 
like they have been every year except for last round. The commenter 
further states the Agency should expand grant funding purposes such 
that funding can be used for farmer-owned community wind projects that 
are merchant plants (providing kilowatt-Hours to the grid) (as well as 
for on-site electrical needs). In Maine, like many deregulated 
electricity generation States, it is prohibited for a generation 
project larger than 660 kilowatt (kw) nameplate capacity to both 
provide electricity for on-site needs, and to sell excess generation to 
the grid. Maine law does allow net-metering to be used for generators 
with up to 660 kw nameplate capacity, but not for larger generators.
    Response: The project eligibility category related to renewable 
energy was set by the 2008 Farm Bill and states that a Value-Added 
Agricultural Product is ``a source of farm- or ranch-based renewable 
energy, including E-85 fuel.'' The Agency's position is that wind is 
not an agricultural commodity or a Value-Added agricultural product.
    Comment: One commenter recommends revising Sec.  4284.922(b)(1) by 
replacing ``annually'' with ``in the annual'' and adding reference to 
Sec.  4294.915. The rule cites up to $500,000 grant amount, and the 
annual notice or solicitation will reduce that amount for both planning 
and working capital grants. The commenter suggests the following text:
    The grant funds requested must not exceed the amount specified in 
the annual solicitation for planning and working capital grant 
requests, per Sec.  4284.915.
    Response: The Agency agrees with the suggested revision and has 
revised the paragraph as suggested by the commenter.
    Comment: One commenter recommends adding a reference to conflict of 
interest in proposed Sec.  4284.922(b)(2) for conformity with standard 
conflict of interest federal language. The commenter suggests that this 
paragraph be revised as follows:
    (2) The matching funds required for the project budget must be 
eligible and without a real or apparent conflict of interest, available 
during the project period, and source verified in the application.
    Response: The Agency agrees with the suggested revision and has 
revised the paragraph as suggested by the commenter.
    Comment: One commenter recommends revising Sec.  4284.922(b)(4) 
because it is the primary budget and work plan description of 
requirements, and should be augmented to include all necessary 
elements. The commenter suggests the following revised text:
    (4) The project work plan and budget must:
    (i) Present a detailed description of the eligible planning or 
working capital activities and specific tasks related to the processing 
and/or marketing of the value-added product, along with a detailed 
breakdown of all estimated costs associated with and allocated to those 
activities and tasks;
    (ii) Identify the key personnel that will be responsible for 
overseeing and/or actually conducting the activities and tasks, and 
provide reasonable and specific timeframes for completion of the 
activities and tasks;
    (iii) Identify the sources and uses of grant and matching funds for 
all activities and tasks specified in the budget, and indicate that 
matching funds will be spent at a rate equal to or in advance of grant 
funds; and
    (iv) Present a project budget period that commences within the 
specified start date range indicated in the annual solicitation, 
concludes not later than 3 years after the proposed start date, and is 
scaled to the complexity of the project.
    Response: The Agency agrees. The suggested additions are necessary 
for determination of eligibility.
    Comment: Four commenters recommend that feasibility studies under 
Sec.  4284.922(b)(5) not be required for simplified applications for 
working capital grants. The nature of projects applying via a 
simplified application is such that feasibility studies add little or 
no value in assessing the success of the venture. This eligibility 
requirement contributes little value to simplified projects, but 
significantly increases costs and burden for simplified applications.
    Response: The Agency agrees with the commenters and has revised the 
rule to indicate that simplified applications for working capital 
grants of $50,000 or less are not required to submit feasibility 
studies or business plans, but must provide information demonstrating 
increased customer base and revenue expected to result from the project 
(see Sec.  4284.922(b)(5)(ii)).
    Comment: One commenter states that Sec.  4284.922(b)(5) is the 
first of the operational provisions of the proposed rule that is in 
conflict with 7 U.S.C. 1621 (b)(1)(A) and (b)(3)(A) and with

[[Page 10107]]

Sec.  4284.923(a) of the proposed rule. To be in accord with the 
statute, the use of consultants may be encouraged but cannot be 
required and, therefore, recommended deleting ``by a qualified 
consultant'' from proposed Sec.  4284.922(b)(5).
    The commenter also stated that, to be consistent with the producer 
in-kind contribution of the proposed rule, producer in-kind matching 
contributions must be recognized in proposed 4284.922(b)(5) in order to 
avoid it seeming to override Sec.  4284.923(a).
    Response: The Agency disagrees that Sec.  4284.922(b)(5) conflicts 
with 7 U.S.C. 1621 (b)(1)(A) and (b)(3)(A). The statute provides that 
grants are made to eligible applicants to ``assist'' in the development 
of feasibility studies, marketing plans, business plans. The manner in 
which the Agency directs that the funds be used beyond this statutory 
requirement is determined by Federal grant regulation and Agency 
policy.
    Comment: One commenter does not believe that a good business plan 
must always or only be written by a third party. Rather, the commenter 
believes that the producer or producer group members planning the 
enterprise often have the ``knowledge, expertise, and experience to 
perform the specific task required in an efficient, effective, and 
authoritative manner''--the proposed rule's definition for qualified 
consultant.
    Furthermore, the rule gives the Agency the right and responsibility 
to assess the merits of the feasibility study and business plan, which 
removes any possible justification for having them done solely by non-
producers. Grant applications are reviewed at the local, state and 
national level and proposal feasibility is a criterion for funding. 
Potential inadequacies with proposals can be determined in this review 
process without resorting to sweeping disqualifications that will make 
VAPG grants less accessible to the producers who need them most.
    The commenter believes that dropping the reference to mandatory, 
exclusive use of qualified consultants is critical to conform to the 
statute and create an internally consistent rule, and recommends 
deleting reference to ``by a qualified consultant'' from Sec.  
4284.922(b)(5).
    Response: The Agency disagrees with the suggested edit that would 
remove reference to a ``qualified consultant.'' The Agency recognizes 
the value of producer participation in planning activities, while, at 
the same time acknowledging that an unbiased, third party is necessary 
for the evaluative portions of these activities. Therefore, the Agency 
will retain its requirement that feasibility studies be performed by 
independent third-parties. However, applicants (and applicant family 
members, as necessary) are encouraged to participate in the non-
evaluative portions of planning grants and may contribute time as in-
kind match amounting to up to 25 percent of total project cost, 
provided that a realistic and relevant valuation of their time can be 
documented, as described at Sec.  4284.923.
    Comment: One commenter supports the requirement that applicants for 
working capital be required to submit copies of their feasibility 
studies and business plans at the time of application. The commenter 
states that it is aware of applicants who have submitted working 
capital applications with the intent of ``doing the paperwork'' or 
``writing up the business plan'' in the period of time after the 
announcement of the award of grant funds, but before the date when 
grant obligations must be honored.
    The commenter recommends that the statute's requirement that there 
be a business plan should not prevent the use of VAPG to further plan 
branding activities and the rule should include this permission. The 
commenter points out that the VAPG statute includes among the five 
categories of ``value-added agricultural product'', ``any agricultural 
commodity or product that * * * (ii) was produced in a manner that 
enhances the value of the agricultural commodity or product, as 
demonstrated through a business plan that shows the enhanced value * * 
*'' According to the commenter, the Agency has consistently misapplied 
the language of the statute to assert that no planning activity 
involving branding or nonstandard production method could be supported 
by VAPG. The logic used was to say, the statute calls for a business 
plan, and therefore it must be that any and all planning has been 
completed and therefore no further planning is needed; leaving VAPG 
only to support working capital projects when branding/nonstandard 
production is proposed. According to the commenter, this interpretation 
overreaches the statute's mandate--yes, there must be ``a business plan 
that shows enhanced value'', but the nature of business planning is 
that such a plan is often an entrepreneur's first effort to outline a 
business strategy. This first step is prudently followed by further 
testing (through a feasibility study, for instance) and elaboration 
(through a marketing plan, for instance).
    Response: The statutory language has been interpreted to mean that 
the Secretary may determine whether a business plan requirement for 
this category is in the best interest of the program. The Secretary has 
determined that the business plan is not in the best interest of the 
program at this time. As a result, a business plan is no longer 
required for this product eligibility category and the category is open 
to both planning and working capital applicants.
    Comment: One commenter recommends clarifying Sec.  4284.922(b)(6) 
because, according to the commenter, not all applicants will know there 
is a definition for, or remember to check, the definition for, 
``emerging market,'' and may jump to their own conclusions about what 
that means. The suggested revised text would read as follows:
    (6) If the applicant is an agricultural producer group, a farmer or 
rancher cooperative, or a majority-controlled producer-based business, 
the applicant must demonstrate that it is entering an emerging market 
unserved by the applicant in the previous two years.
    Response: The Agency disagrees with the suggested revision because 
the definition is sufficient and is more explicit than the text 
suggested by the commenter. Therefore, the Agency has not revised this 
paragraph as suggested.
    Comment: One commenter states that agricultural producer groups are 
at an immediate disadvantage because of not being eligible for the 
Reserved Funds pool. If the program still intends to benefit producer 
groups, a portion of the funds could be reserved for these applicants.
    Response: If by ``producer groups,'' the commenter means farmer or 
rancher cooperatives, the Agency has determined to assign priority 
scoring points to cooperatives in the ``Priority Points'' scoring 
criterion. The Agency is unable to assign a portion of reserved funds 
to cooperatives, because reserved fund priorities are set by statute.

Branding Activities (Proposed Sec.  4284.922(c))

    Comment: Numerous commenters express concern over the 25 percent 
limitation on branding activities, recommending either removing it in 
its entirety or lowering the 25 percent. The specific comments received 
are presented below.
    Three commenters recommend not capping branding/marketing 
activities. One of the commenters understands that the original intent 
of the VAPG program was a pronounced focus on enhancing marketing and 
related activities. From the commenter's perspective, branding

[[Page 10108]]

is an essential component of a marketing strategy/plan. As an eligible 
grant category (e.g. marketing activities), it should not be capped. If 
the regulatory interpretation is different, the terms branding and 
product differentiation should be defined in the Sec.  4284.902, with 
examples provided for both eligible and ineligible activities.
    One commenter states that limiting these very valuable tools to 25 
percent (or any significant limitation) would impact a large number of 
applicants, raise interpretation issues, and seems to directly conflict 
with the purpose of the VAPG program. The commenter is uncertain of the 
purpose of limiting some of the most important tools to accomplish the 
goals of the VAPG program.
    There are many examples of value created by packaging and branding 
alone. For example, a current Frito Lay campaign for its Sun Chips 
brand touts ``The World's First 100% Compostable Chip Bag''; the 
proposed rules would exclude growers from VAPG funding to add value 
with similar green packaging.
    The term ``product differentiation'' covers a lot of territory; 
product differentiation in several forms is the very purpose of a 
value-added process. Asking one to create a value-added product without 
product differentiation is arguably an oxymoron.
    One of the commenters states that as an agricultural producer 
group, branding activities are primarily what they do and hopes that 
there will not be restrictions placed on this very important part of 
their activities under which they might apply for grant consideration.
    One commenter states that the branding, packaging, or product 
differentiation activities percent should not be more than 10 percent 
of the total project cost (for those projects that otherwise 
eligibility under one of the five value-added methodologies specified 
in paragraphs (1)(i) through (v) of the definition of a value-added 
agriculture product). If the proposed activities exceed 10 percent, 
this could put the feasibility of the project at a higher risk. There 
is an indication in the VAPG program that branding activity type 
proposals have not provided strong, detailed evidence that the income 
estimated is actually realistic. Packaging can be somewhat of a risky, 
feasible expense, in terms of can it make enough difference in a new 
value-added venture. These activities proposed at 25 percent of the 
total project cost could put the project in a high risk situation. A 
quarter of the project is too much to allow to be at risk, for a value-
added project to be assisted with federal government dollars.
    One commenter states that some cooperatives have built recognized 
name brands, which has helped build consumer loyalty and confidence and 
help to differentiate products in a competitive marketplace. The VAPG 
has been instrumental in leveraging farmers' investment in their own 
products to create and expand markets. The earnings from those sales 
flow through the cooperative to the farmer-members ultimately 
increasing their income.
    However, the proposed rule states: ``Branding activities. 
Applications that propose only branding, packaging, or other similar 
means of product differentiation are not eligible under this subpart. 
However, applications that propose branding, packaging, or other 
product differentiation activities that are no more than 25 percent of 
total project costs of a value-added project for products otherwise 
eligible in one of the five value-added methodologies specified in 
paragraphs (1)(i) through (v) of the definition of value-added 
agricultural product are eligible.''
    Limiting those activities to 25 percent (or any significant 
percentage) would constrain the ability of organizations to use some of 
the best marketing tools available to expand marking opportunities. 
This seems to be in direct conflict with the purpose of the VAPG 
program.
    One commenter points out that its members have built recognized 
name brands, which has in turn built consumer loyalty and confidence, 
differentiating their products in a competitive marketplace. The VAPG 
program has been instrumental in leveraging farmers' investment in 
their own products to create and expand markets. The earnings from 
those sales flow through the cooperative to the farmer-members 
ultimately increasing their income. The commenter states that limiting 
those activities to 25 percent (or any significant percentage) would 
constrain the ability of organizations to use some of the best 
marketing tools available to expand marking opportunities. This is in 
direct conflict with the purpose of the VAPG program. Thus, the 
commenter recommends removing this limitation from the rule.
    One commenter states that it is unclear as to what issue or program 
outcome is being addressed by the proposed limitation on the amount of 
expenditures that can be used for ``branding, packaging, and product 
differentiation.'' For a value-added consumer product, product 
differentiation is a critical element of developing an alternative 
market proposition. Use of packaging and branding are sometimes 
absolutely essential to that process. Funding for these types of 
activities, especially for small ventures, is perhaps the most useful 
part of the Working Capital program, as these dollars are incredibly 
hard to come by for most producer-owned ventures that we are familiar 
with. Thus, limiting expenditures to 25 percent of total project costs 
seem to arbitrarily limit the usefulness of the program to producers. 
The limitation is also vague: What expenses would be included in the 
limitation? Ad copy development? PR consultants? Sales samples? Demos? 
All activities that can be construed as ``branding and 
differentiation''? The commenter suggests that, if there is to be a 
limitation on branding, packaging and product differentiation, a more 
reasonable limit might be 50 percent of total project expenses. The 
commenter's work with over 25 applications in 8 years suggests that 
their clients have requested a maximum of marketing related expenses 
between 25 and 50 percent of total project costs.
    One commenter states that the VAPG statute includes among the five 
categories of ``value-added agricultural product,'' ``any agricultural 
commodity or PRODUCT that * * * (ii) was produced in a manner that 
enhances the value of the agricultural commodity or product.'' 
According to the commenter, RD recently changed its rules to limit this 
category to commodities grown in a ``nonstandard'' manner, such as 
organic. Note that the statute is not restricted to just the way a 
commodity is raised; it also recognizes that PRODUCTS also have value-
added to them through the way they are produced. Quite simply, this 
means that branding is an allowable, bona fide value-added activity 
supported by VAPG statute. The ability to use VAPG to promote branding 
should be permitted. The proposed rule would restrict branding to just 
25 percent of a VAPG grant's purpose. This percentage is arbitrary to 
begin with, and it also begs the question, if branding is 25 percent 
eligible, must not it be 100 percent eligible? The answer is, by 
statute, it is entirely eligible and should be entirely permitted.
    One commenter states that the verbiage in proposed Sec.  
4284.922(c) is problematic for many of its members. Building a brand 
name is one goal of creating value-added products. Brand names help 
create consumer confidence and loyalty in a competitive marketplace. 
The VAPG has been instrumental in leveraging farmers' investments in 
their own brands to

[[Page 10109]]

create and expand markets. The earnings from those sales flow through 
the cooperative to the farmer-members ultimately increasing their 
income. Limiting those activities would constrain the ability of 
organizations to use some of the best marketing tools available to 
expand marketing opportunities. This seems to be in direct conflict 
with the purpose of the VAPG program.
    One commenter believes the 25 percent cap is not needed as long as 
the eligible product for the project meets one of the five value-added 
methodologies and the other project eligibility criteria. However, if 
capped, the program will need to define or illustrate what budget 
activities constitute ``branding'' in order to calculate and confirm 
that application expenses do not exceed the limitation in the budget. 
This commenter states that, for clarity of branding eligibility 
message, the language should be revised to read, ``no more than 25 
percent of the total project costs of a value-added project with 
products otherwise eligible, having resulted from one of the five 
value-added methodologies.''
    Response: The Agency recognizes that branding and packaging are 
important components of value-added marketing strategies. In 
consideration of all of these comments, the Agency has removed in its 
entirety proposed Sec.  4284.922(c), which would have imposed a 25 
percent limitation on the uses of grant and matching funds for these 
activities. Thus, the rule does not contain any funding limitation on 
eligible branding and packaging activities proposed as part of an 
otherwise eligible project.

Reserved Funds Eligibility (Proposed Sec.  4284.922(d))

    Comment: One commenter recommends revising proposed Sec.  
4284.922(d) by adding ``if applicants choose to compete for reserved 
funds'' for clarification and to record documentation standards to read 
as follows:
    In addition to the requirements specified in paragraphs (a) through 
(c) of this section, the requirements specified in paragraphs (d)(1) 
and (2) of this section must be met, as applicable, if applicants 
choose to compete for reserved funds. All eligible, but unfunded 
reserved funds applications will be eligible to compete for general 
funds in that same fiscal year, as funding levels permit.
    Response: The Agency agrees with the suggested revision and has 
revised the rule accordingly (see Sec.  4284.922(c)).

Reserved Funds Eligibility (Proposed Sec.  4284.922(d)(1))

    Comment: One commenter recommends revising proposed Sec.  
4284.922(d)(1), stating that documentation standards need to be 
specified in the rule to establish uniform expectations, and to be 
enforceable for eligibility determinations. The commenter suggested the 
following text:
    (1) If the applicant is applying for beginning farmer or rancher, 
or socially-disadvantaged farmer or rancher reserved funds, the 
applicant must provide the following documentation to demonstrate that 
the applicant meets all requirements for one of these definitions.
    For beginning farmer or rancher, documentation must include a 
description from each of the individual owner(s) of the applicant farm 
or ranch organization, addressing the qualifying elements in the BFR 
definition, including the length and nature of their individual owner/
operator experience at any farm in the previous 10 years, along with 
one IRS income tax form from the previous 10 years showing that each of 
the individual owner(s) did not file farm income; or a detailed letter 
from a CPA or attorney certifying that each owner meets the reserved 
funds BFR eligibility requirements.
    For socially disadvantaged farmer or rancher, documentation must 
include a description of the applicant's farm or ranch ownership 
structure and demographic profile that indicates the owner(s)' 
membership in a socially disadvantaged group that has been subjected to 
racial, ethnic or gender prejudice; including identifying the total 
number of owners of the applicant organization, as well as the number 
of owners that identify themselves as a SDFR; along with a self-
certification statement from the individual owner(s) evidencing their 
membership in said socially disadvantaged group. At least 51 percent of 
the farmer or rancher owners must be members of the socially 
disadvantaged group.
    Response: The Agency agrees with the suggested revisions and has 
revised the rule as suggested by the commenter except for the suggested 
text that 51 percent of the owners must be members of socially-
disadvantaged groups. Instead, the Agency is requiring that, for 
reserved funding, 100 percent of owners must be members of socially-
disadvantaged groups. This requirement is set by statute.

Reserved Funds Eligibility (Proposed Sec.  4284.922(d)(2))

    Comment: One commenter recommends clarifying proposed Sec.  
4284.922(d)(2) to read as follows:
    (2) If the applicant is applying for mid-tier value chain reserved 
funds, the application must provide documentation demonstrating that 
the project meets the Mid-Tier Value Chain definition, and must:
    Response: The Agency agrees with the suggested revision and has 
revised the paragraph as suggested by the commenter.
    Comment: One commenter recommends revising proposed Sec.  
4284.922(d)(2)(i) by adding reference to commodities and value-added, 
because both terms are possible in this MTVC context, to read in part: 
``Through which agricultural commodities and value-added products move 
from production through consumption.''
    Response: The Agency agrees with the suggested revision and has 
revised the paragraph as suggested by the commenter.
    Comment: One commenter recommends revising proposed Sec.  
4284.922(d)(2)(ii) by adding reference to commodities for consistency 
with the combined agricultural product/agricultural commodities 
definition.
    Response: The Agency agrees with the suggested revision and has 
revised the paragraph as suggested by the commenter. The Agency also 
revised this paragraph to make reference to value-added products as 
part of the revision to the definition referenced by the commenter.
    Comment: One commenter states that proposed Sec.  
4284.922(d)(2)(ii) requires applicants to ``describe at least two 
alliances, linkages or partnerships'', whereas proposed Sec.  
4284.922(d)(2)(iv) requires the applicant to document that they have 
``obtained at least one agreement with another member of the supply 
network.'' The commenter asks: Are alliances materially different from 
agreements? Thus, is it one or two alliances? Do two alliances only 
apply to applicants that are Independent Producers?
    Response: For the purposes of Sec.  4284.922(d)(2)(ii), alliances 
are different from agreements. An alliance is a relationship or 
strategic partnership in the chain that may or may not include a formal 
written commitment. An ``agreement'' is a written commitment in the 
form of a contract or letter of intent.
    In addition to the other requirements described in Sec.  
4284.922(d)(2), the application must describe ``at least two

[[Page 10110]]

alliances, linkages, or partnerships, plus one agreement.'' This is a 
requirement of all applicant types, not just Independent Producers.
    Comment: One commenter states that the reserved funds eligibility 
section (proposed Sec.  4284.922(d)(2)(ii)) would be improved by 
allowing linkages with ``other independent producers'' such that this 
paragraph would read as follows:
    (d)(2)(ii) Describe at least two alliances, linkages or 
partnerships within the value chain that link independent producers 
with other independent producers or with businesses and cooperatives 
that market value-added agricultural products in a manner that benefits 
small or medium-sized farms and ranches that are structured as a family 
farm, including the names of the parties and the nature of their 
collaboration;
    Response: The Agency disagrees as this portion of the eligibility 
requirement is based on the statutory definition of Mid-Tier Value 
Chain.
    Comment: One commenter recommends expanding ``mid-tier value 
chain'' projects to include those that market farm-sited renewable 
energy products. There is a recognizable, but undervalued niche to 
farmer-owned wind generation.
    Response: The Agency disagrees with the commenter's recommendation. 
The project eligibility category related to renewable energy was set by 
the 2008 Farm Bill and states that a Value-Added Agricultural Product 
is ``a source of farm- or ranch-based renewable energy, including E-85 
fuel''. The Agency's position is that wind is not an agricultural 
commodity or a Value-Added agricultural product. Thus, the Agency has 
not revised the rule as suggested by the commenter.
    Comment: One commenter recommends adding a new category of funding 
for ``locally-produced agricultural-sited energy projects''; similar to 
the new category ``locally-produced agricultural food products''.
    Response: The Agency disagrees with the commenter's recommendation. 
The project eligibility category related to renewable energy is 
prescribed by statute.
    Comment: One commenter recommends spelling out documentation 
requirements and expectations for applicant awareness and uniformity in 
implementation in proposed Sec.  4284.922(d)(2)(iii). The commenter 
recommends that this paragraph read as follows:
    (iii) Demonstrate how the project, due to the manner in which the 
value-added product is marketed, will increase the profitability and 
competitiveness of at least two, eligible, small or medium-sized farms 
or ranches that are structured as a family farm, including 
documentation to confirm that the participating small or medium-sized 
farms are structured as a family farm and meet these program 
definitions. A description of the two farms or ranches confirming they 
meet the Family Farm requirements, and IRS income tax forms evidencing 
eligible farm income is sufficient;
    Response: The Agency agrees with the suggested revision and has 
revised the paragraph as suggested by the commenter.
    Comment: One commenter recommends spelling out documentation 
requirements and expectations for applicant awareness and uniformity in 
implementation in proposed Sec.  4284.922(d)(2)(iv). The commenter 
recommends that this paragraph read as follows:
    (iv) Document that the eligible agricultural producer group/
cooperative/majority-controlled producer-based business applicant 
organization has obtained at least one agreement with another member of 
the supply network that is engaged in the value-chain on a marketing 
strategy; or that the eligible independent producer applicant has 
obtained at least one agreement from an eligible agricultural producer 
group/cooperative/majority-controlled producer-based business engaged 
in the value-chain on a marketing strategy.
    For Planning grants, agreements may include letters of commitment 
or intent to partner on marketing, distribution or processing; and 
should include the names of the parties with a description of the 
nature of their collaboration. For Working Capital grants, 
demonstration of the actual existence of the executed agreements is 
required.
    Note that Independent Producer applicants must provide 
documentation to confirm that the non-applicant APG/Coop/MAJ partnering 
entity meets program eligibility definitions, except that, in this 
context, the partnering entity does not need to supply any of the raw 
agricultural commodity for the project.
    Response: The Agency agrees with the suggested revisions and has 
revised the rule as suggested by the commenter.
    Comment: In referring to proposed Sec.  4284.922(d)(2)(v), one 
commenter states that the proposed rule continues the requirement that 
the applicant be the producer of the majority of the commodity to which 
value is added. According to the commenter, this is a very unrealistic 
requirement, particularly to small producers who, if they have a 
promising value-added product, must quickly outstrip their own 
agricultural production levels. In Oregon, for example, the commenter 
stated that we have again and again seen bona fide farmers with 
exciting value-added products disqualified by this rule. In order for a 
farmer to justify capital costs to produce a value-added product, they 
need commodity in volume, and thus they turn to neighboring farmers to 
supplement their own crops. To limit VAPG to producers growing 50 
percent or more of the commodity as we currently do, too often mean 
limiting VAPG's assistance for unviable, undercapitalized enterprises. 
Instead, the rule could retain its purpose--to assure that VAPG 
assistance goes to producers and not processors--by reducing the 
requirement and only insisting that the producer raise 10 percent or 
more of the commodity to which value is added.
    Response: The Agency disagrees. Applicants have a number of options 
to form entities with other producers prior to application, which would 
allow them to aggregate necessary product volume for a project.

Eligible Uses of Grant and Matching Funds (Sec.  4284.923)

    Comment: One commenter states that there needs to be some 
investigation of these grants beyond believing what is written. The 
commenter states that recent grants to this area are ``sinful'' and 
contends that giving money for unneeded research to millionaires makes 
no sense. Example one was given a few years ago to research feasibility 
of making/selling hard cider. The commenter states that a State 
university had already done a study and that there were existing cider 
makers in that State. A new grant for $150K was just given to an 
applicant and the commenter expressed views about the use of funds in 
previously conducted studies.
    Response: The Agency disagrees. Grants are made to eligible 
producers of all sizes, including small farmers. Funds for planning 
purposes are intended to evaluate feasibility at the individual 
enterprise level, which precludes the use of studies performed for 
other businesses.
    Comment: One commenter recommends clarifying the language as to 
whether stand-alone marketing programs (completely independent from the 
processing) are eligible. The commenter also recommended more clearly 
defining the term ``branding.''
    Response: As noted in a response to previous comments, the Agency 
recognizes that branding and packaging

[[Page 10111]]

are important components of value-added marketing strategies and, 
subject to the satisfaction of all other eligibility criteria, the rule 
no longer has any funding limitation on the uses of grant and matching 
funds for these activities.

Planning Funds (Sec.  4284.923(a))

    Comment: Numerous commenters recommend keeping the business and 
enterprise planning of VAPG projects farmer-centered. The proposed rule 
includes conflicting provisions on this matter.
    Helpfully, it says farmers may count their time spent on 
development of business and marketing plans as an in-kind contribution 
for purposes of matching funds. Yet the rule also includes conflict of 
interest rules and several program definitions that seem to prohibit 
active participation by the producer in project development and 
planning. This undermines the fundamental principle of the VAPG 
program: That farmers and ranchers should be empowered through these 
grants to explore creative new businesses that will increase farm 
income and create rural wealth. USDA should ensure that the final rule 
is totally consistent on this point--farmers and ranchers should 
directly participate in the development of VAPG projects and be allowed 
to count their time as a contribution toward the program's matching 
requirements.
    Response: The Agency recognizes the necessity and benefit of direct 
participation of farmers and ranchers in project development and 
planning. The Agency also recognizes the necessity of independent, 
third party analysis of project feasibility. Therefore, the Agency will 
allow applicants to participate in the direction and data collection of 
the analysis and allow contribution of time valued at up to 25 percent 
of total project costs as in-kind match. The applicant must be able to 
document the valuation of time contributed.
    Comment: One commenter states that elements of the proposed rule 
that contradict the statute and the statement in Sec.  4284.923(a) 
providing for in-kind matching for participation in development of 
business and marketing plans should be corrected so the rule as a whole 
is consistent and clear and does not lead to arbitrary implementation 
decisions. The commenter is concerned that a variety of sections in the 
proposed rule contradict, or at the very least confuse, the otherwise 
clear directive in the proposed rule that farmers and ranchers are 
encouraged to write or help write business and marketing plans for 
their proposed projects and have the time they invest in the work 
accepted as an eligible in-kind match for a grant.
    The statute clearly states that grants will be awarded to: An 
eligible independent producer (as determined by the Secretary) of a 
value-added agricultural product to assist the producer ``(i) in 
developing a business plan for viable marketing opportunities for the 
value-added agricultural product ; or (ii) in developing strategies 
that are intended to create marketing opportunities for the producer''. 
(7 U.S.C. 1621 (b)(1)(A))
    Preserving this producer-centered approach to grants is fundamental 
to VAPG's success. Our member organizations that have been engaged in 
education and technical assistance on VAPG grants believe that 
successful value-added projects are the result of a profound 
understanding of the complexities of farming businesses that can only 
be provided by the farmers and ranchers who will be participating in 
the enterprise. Conversely, projects that fail most often do so because 
they did not incorporate the insights and experience of the producers 
the business will rely on for its success.
    Response: The Agency recognizes the value of producer participation 
in Planning activities, at the same time acknowledging that an 
unbiased, third party is necessary for the evaluative portions of these 
activities. Therefore, the Agency will retain its requirement that 
feasibility studies be performed by independent third-parties with the 
only limitation on applicant involvement being the provision a Sec.  
4284.923 that allows applicants to claim time on Planning grants as in-
kind match amounting to up to 25 percent of total project costs, 
provided that a realistic and relevant valuation of their time can be 
documented.
    Comment: One commenter recommends emphasizing the importance of the 
marketing element of the VAPG Marketing Grant. Having the funds to come 
out of the gate with a great marketing plan is imperative particularly 
when you are involved in a competitive industry such as wine 
production. The commenter attached one of their labels where marketing 
has been key to its success which has contributed to the early success 
and profitability of this particular wine.
    Response: The Agency agrees with the commenter's suggestion to 
emphasize the marketing element of the program and has revised the rule 
to remove limitations on funding of branding and packaging activities.
    Comment: One commenter states that, as in the proposed rule, the 
final rule should allow for grant payment and in-kind matching credit 
for producer participation in the development of business and marketing 
plans, but also extend the same treatment to feasibility studies.
    The 2009 VAPG NOFA for the first time explicitly excluded farmer 
and rancher time as an allowable in-kind contribution for planning 
grants, substantially reducing the number of applicants that had the 
means to apply and reversing almost a decade of understanding in the 
field of how the VAPG grant works. This was a serious mistake that 
would do severe damage to the program if left uncorrected.
    VAPG grants are at their core producer grants for entrepreneurial 
producer-based projects. It is vital that producers be able to 
contribute their sweat equity to building and launching their project. 
Participation by consultants and outside experts can also be very 
important. But the program should not ever be viewed primarily as a 
grant program that passes funding through farmers and ranchers to paid 
outside consultants. Such a view is contrary to law and contrary to the 
intent of Congress in designing the program.
    In addition to providing grant funds to pay for the time of the 
applicant or the applicant's family members in the project, it is also 
critical that producers be able to choose to contribute in-kind 
services as part of their matching requirements. If they were not 
allowed to do so, it would tilt the program to only the well-off, those 
with access to sufficient capital to fully fund their match 
requirements. Such a result would contradict the very reason for the 
program's existence.
    The commenter strongly supports the provision at Sec.  4284.923(a) 
and urges that it be retained, but also strengthened, in the final 
rule. The final rule on this point should be strengthened in two ways. 
First, the proposed rule's preamble refers appropriately to both the 
applicant and the applicant's family. The sentence in Sec.  
4284.923(a), however, refers only to the applicant and does not mention 
the applicant's family. This oversight should be fixed by adding a 
specific reference to the applicant's family, to match the clear intent 
as rendered in the preamble.
    Second, the major element that is still missing from this provision 
in Sec.  4284.923(a) is an allowance for producer participation in 
planning grants and for in-kind producer matching contributions in the 
development of a value-added business feasibility study. The statute is 
reasonably clear on this matter: A grantee under paragraph (1) shall 
use

[[Page 10112]]

the grant--(A) to develop a business plan or perform a feasibility 
study to establish a viable marketing opportunity for a value-added 
agricultural product; (7 U.S.C. 1621(b)(3)(A)).
    The statute provides that producers may perform feasibility studies 
as part of planning grants. If a producer receiving an award can use 
the grant to themselves perform a feasibility study then certainly they 
should also be able to count portions of their time working on a 
feasibility study as an in-kind match.
    Feasibility studies can be conducted by a qualified consultant, and 
in many cases should be, but with input and contributions from the 
producer(s). The commenter notes that marketing and business plans are 
critical components for the feasibility study and the proposed rule in 
Sec.  4284.923(a) already allows producers and their families to count 
their marketing and business plan development time as part of their in-
kind match. It would be logically inconsistent to say they can count 
time toward the two critical components of the feasibility study, but 
not the feasibility study per se. Moreover, consultants will be relying 
on the producer(s) to supply much of the additional information that 
will provide the basic background and parameters of the feasibility 
study without which they cannot proceed. For these reasons, the 
commenter recommends adding an explicit reference to feasibility 
studies to Sec.  4284.923(a).
    To address both of these issues--family members and feasibility 
studies--the commenter recommends modifying Sec.  4284.923(a) as 
follows:
    (a) Planning funds may be used by applicants for the costs 
associated with conducting and developing a feasibility study, business 
plan, and/or marketing plan associated with the processing and/or 
marketing of a value-added product, including costs required to pay for 
a qualified consultant to conduct and develop a feasibility study, 
business plan, and/or marketing plan associated with the processing 
and/or marketing of a value-added product. In-kind contribution of 
matching funds to cover applicant or family members of the applicant 
participation in development of feasibility studies, business plans 
and/or marketing plans is allowed to the extent that the value of such 
work can be appropriately valued. Funds may not be used to evaluate the 
agricultural production of the commodity itself, other than to 
determine the project's input costs related to the feasibility of 
processing and marketing the value-added product.
    Response: The Agency recognizes the value of producer participation 
in Planning activities, at the same time acknowledging that an 
unbiased, third party is necessary for the evaluative portions of these 
activities. Therefore, the Agency will retain its requirement that 
feasibility studies be performed by independent third-parties. 
Applicants (and applicant family members, as necessary) are encouraged 
to participate in the non-evaluative portions of the study and may 
contribute time as in-kind match amounting to up to 25 percent of total 
project cost, provided that a realistic and relevant valuation of their 
time can be documented. The Agency considers the use of grant funds for 
direct personal financial gain to be a conflict of interest and will 
continue to prohibit use of grant funds to pay applicant/applicant 
family member salaries.
    Comment: One commenter believes planning grants should allow for 
producer involvement in feasibility studies, and for them to count 
their time as in-kind match. The proposed rule makes progress in this 
area by recognizing the importance of their involvement in business and 
marketing planning, but is still lacking regarding feasibility studies. 
Working with many farmers and ranchers over the years, their 
involvement in all aspects ``feasibility studies, business planning and 
marketing planning'' was absolutely key to successful projects. Through 
the feasibility studies they have helped with in the past, the farmers 
or ranchers have assisted with surveys, product testing, data 
collection, and many other activities. This work was critical for 
compiling the feasibility study.
    Also, all of the farmers and ranchers they were seeking to assist 
during the 2009 VAPG round dropped out because they were not able to 
count their time as in-kind match for these activities. To ensure this 
program serves the folks it is designed to make a priority (small and 
mid-size family farmers and ranchers) the in-kind contribution in this 
regard must be fixed and their involvement in feasibility studies must 
be allowed to be counted as in-kind contributions. In the absence of 
such they will only stand to serve the well-healed who do not need the 
assistance in order to launch a value-added business.
    Response: The Agency recognizes the value of producer participation 
in Planning activities, at the same time acknowledging that an 
unbiased, third party is necessary for the evaluative portions of these 
activities. Therefore, the Agency will retain its requirement that 
feasibility studies be performed by independent third-parties. 
Applicants (and applicant family members, as necessary) are encouraged 
to participate in the non-evaluative portions of the study and may 
contribute time as in-kind match amounting to up to 25 percent of total 
project cost, provided that a realistic and relevant valuation of their 
time can be documented.
    Comment: One commenter recommends revising Sec.  4284.923(a) to 
reflect more recent RBS determinations to allow limited applicant and 
family member in-kind contributions for planning grant match purposes, 
and to establish implementation parameters to balance applicant in-kind 
contributions with federal conflict of interest law. The Agency may 
consider limiting this conflict of interest exception for planning 
grants only to applicants that are ``Small-Farms structured as a Family 
Farm''; ``to 10 percent of total project costs for planning grants''; 
or ``for all planning grant applicants that seek grant amounts of 
$50,000 or less as part of a simplified grant request.'' conflict of 
interest and applicant in-kind contribution issues have been highly 
problematic in the past, and account for a large percentage of 
applications submitted but deemed ineligible due to conflict of 
interest. Federal procurement standards prohibit transactions with a 
real or apparent conflict of interest, including owner and family 
member in-kind contributions. If an exception is allowed as above, the 
regulation must be clear as to what is and is not acceptable in order 
to mitigate this issue going forward.
    Response: The Agency recognizes the value of producer participation 
in Planning activities, at the same time acknowledging that an 
unbiased, third party is necessary for the evaluative portions of these 
activities. Therefore, the Agency will retain its requirement that 
feasibility studies be performed by independent third-parties. 
Applicants (and applicant family members, as necessary) are encouraged 
to participate in the non-evaluative portions of the study and may 
contribute time as in-kind match amounting to up to 25 percent of total 
project cost, provided that a realistic and relevant valuation of their 
time can be documented. In addition, applicants for Working Capital 
grants may also contribute their time on eligible working capital tasks 
as in-kind match amounting to up to 25 percent of total project cost, 
provided that a realistic and relevant valuation of their time can be 
documented.

Working Capital Funds (Sec.  4284.923(b))

    Comment: One commenter asks if this is a new clause (exclusion of 
grant funds

[[Page 10113]]

for an owner's salary for eligible activities) or has this always been 
the case? Are owners able to use time spent processing and/or marketing 
and delivering the value-added product as an in-kind match? The 
commenter believes eligible grant activities should qualify to receive 
federal funds or to be used for match (cash and in-kind) to the 
greatest extent possible--the only possible exception would be 
applicant time spent on the feasibility study.
    Response: The Agency considers the use of grant funds for direct 
personal financial gain to be a conflict of interest and will continue 
to prohibit use of grant funds to pay applicant/applicant family member 
salaries. However, the Agency recognizes the value of producer 
participation in Planning activities, as well as the necessity of 
participating in eligible marketing activities. Therefore, both 
Planning and Working Capital applicants (and applicant family members, 
as necessary) may contribute time spent on eligible activities as in-
kind match amounting to up to 25 percent of total project cost, 
provided that a realistic and relevant valuation of their time can be 
documented, as provided for at Sec.  4284.923.
    Comment: One commenter recommends expanding Sec.  4284.923(b) to 
allow the payment of salaries to owners/family members of the value-
added venture. The VAPG primary objective, as defined in this proposed 
rule, is to help the independent producer of agricultural commodities 
increase the producer's income as the end goal. The commenter believes 
that it is counterintuitive to say that paying an owner or family 
members to run their business is a conflict of interest. The commenter 
understands that and agrees that the amount paid has to be reasonable 
and has to be commensurate with the duties preformed.
    To say that it is an eligible cost to pay someone else to run their 
business but that it is not an eligible cost to pay themselves a 
reasonable wage to run their business does not make sense. The 
commenter asks the Agency to consider making this change to 7 CFR parts 
4284 and 1951. If not, then the rule needs to be stated such that this 
is not an allowable expense and needs to be specifically listed in 
Sec.  4284.924.
    Response: The purpose of the program, as given in Sec.  4284.901, 
is to ``enable viable agricultural producers to develop businesses that 
produce and market value-added agricultural products.'' The Agency 
considers the use of grant funds for direct personal financial gain to 
be a conflict of interest and will continue to prohibit use of grant 
funds to pay applicant/applicant family member salaries. However, the 
Agency recognizes the value of producer participation in Planning 
activities, as well as the necessity of participating in eligible 
marketing activities. Therefore, both Planning and Working Capital 
applicants (and applicant family members, as necessary) may contribute 
time spent on eligible activities as in-kind match amounting to up to 
25 percent of total project cost, provided that a realistic and 
relevant valuation of their time can be documented, as provided for at 
Sec.  4284.923.
    Comment: One commenter states that, for stand-alone marketing 
programs, which do not lend themselves to creating feasibility or 
business plans, a marketing plan with clear results should be 
sufficient.
    Response: If the commenter use of ``stand-alone marketing 
programs'' refers to applicants already producing a value-added 
product, but desiring to expand their market, the Agency agrees that a 
feasibility study is unnecessary. However, the Agency disagrees that a 
business plan is unnecessary. The Agency has revised the rule to allow 
Independent Producer applicants requesting $50,000 or more who can 
demonstrate that they are proposing market expansion for existing 
value-added products to submit a business or marketing plan in lieu of 
a feasibility study (see Sec.  4284.922(b)(5)(i)).
    Comment: One commenter states that the working capital paragraph at 
Sec.  4284.923(b) needs to clarify that grant payment of salaries, etc. 
to not only ownership, but also ``immediate family interests'' 
constitutes a conflict of interest and is prohibited.
    Response: The Agency agrees with the commenter and has revised the 
rule accordingly.

Ineligible Uses of Grant and Matching Funds (Sec.  4284.924)

    Comment: Four commenters state that this section should clearly 
state which uses of funds are ineligible. For example, the rule should 
clearly state applicants are not allowed to use grant funds for owner 
salaries. It is unnecessarily confusing to imply such expenses are 
ineligible because they are a conflict of interest.
    Response: The Agency agrees with the commenter and has revised this 
section accordingly. In addition, the Agency notes that the rule now 
clearly states that applicants are not allowed to use grant funds for 
either owner salaries or for immediate family member salaries (see 
Sec.  4284.924(n)).
    Comment: Several commenters state that this section should clearly 
state if some uses of funds are eligible as matching funds, but are not 
an eligible use of grant funds. Section 4284.931(b)(4)(i) of the rule 
states: ``Matching funds are subject to the same use restrictions as 
grant funds,'' but this has not been the practice. For example, the 
rule should clearly state if applicants are allowed to contribute 
inventory they have produced as a match, but cannot use grant funds to 
purchase the same inventory from themselves.
    Response: The Agency agrees and has provided clarification and 
additional examples at Sec. Sec.  4284.923 and 4284.924. However, it is 
unrealistic to anticipate and list every possible example and, 
therefore, the Agency must have the ability to exercise discretion.
    Comment: One commenter states that, as a small producer, he 
believes that eliminating the ability of a producer to use in kind 
options to help match grant funds would disadvantage many lower income 
participants. Driving the grant/research sector into the hands of 
corporate, state, and entities other than small farmers is obviously 
not in the spirit of the program, and the commenter states that this 
direction would be a move towards much more severe conflicts of 
interest between the reciprocation of officials between government 
agencies and corporations. The commenter believes these grant funds are 
best spent with our local producers, not on what the commenter 
perceives of as wasteful university research, and contends that local 
producers are more efficient at disposing of funds than almost any 
other type of researchers.
    Response: The Agency recognizes the value of producer participation 
in planning activities, at the same time acknowledging that an 
unbiased, third party is necessary for the evaluative portions of these 
activities to assist the Agency determining the merits of a particular 
applicant's planned activities. Therefore, the Agency will retain its 
requirement that feasibility studies be performed by independent third-
parties. Applicants (and applicant family members, as necessary) are 
encouraged to participate in the non-evaluative portions of the study 
and may contribute time as in-kind match amounting to up to 25 percent 
of total project cost, provided that a realistic and relevant valuation 
of their time can be documented.
    Comment: One commenter recommends allowing applicants to be paid 
for professional services, as eligible project costs.
    Response: The Agency considers the use of grant funds for direct 
personal financial gain to be a conflict of interest

[[Page 10114]]

and will continue to prohibit use of grant funds to pay applicant/
applicant family member salaries. However, the Agency recognizes the 
value of producer participation in Planning activities, as well as the 
necessity of participating in eligible marketing activities. Therefore, 
both Planning and Working Capital applicants (and applicant family 
members, as necessary) may contribute time spent on eligible activities 
as in-kind match amounting to up to 25 percent of total project cost, 
provided that a realistic and relevant valuation of their time can be 
documented, as provided for at Sec.  4284.923.
    Comment: One commenter states that, with regard to ineligible 
matching funds--donated services that are also paid for with VAPG 
funds--if a consultant or other party will receive cash payments from 
the VAPG project, a conflict of interest exists as to the donation of 
their services. For instance, a consultant should not be able to set a 
high price for their services and then ``donate'' some of that price as 
match. This should be expressly prohibited.
    Response: The Agency does not agree that a change to the rule is 
necessary because it would limit the ability of smaller applicants to 
utilize the services of consultants.
    Comment: One commenter states that, with regard to ineligible 
matching funds--commodity, the existence of a crop is a necessary 
precondition of any value-adding activity. Thus, growers should not be 
able to assert the value of the commodities they raise as part of their 
match.
    Response: The Agency disagrees with the comment and will continue 
to allow applicants to contribute commodity inventory as in-kind, as 
appropriate because the practice is not prohibited under uniform 
administrative requirements regarding cost-sharing.
    Comment: One commenter states that the conflict of interest 
requirement in the proposed rule is suggestive, but bears some 
elaboration to prevent abuse. No owner should be able to pledge their 
assistance as valid ``in kind'' match; their compensation for their 
efforts on a project is the potential increased profit they expect to 
realize. If they are not convinced of such a return, they should not be 
undertaking the project.
    Response: The Agency agrees that the use of grant funds for direct 
personal financial gain is a conflict of interest and will continue to 
prohibit use of grant funds to pay applicant/applicant family member 
salaries. However, the Agency recognizes the value of producer 
participation in Planning activities, as well as the necessity of 
participating in eligible marketing activities. Therefore, both 
Planning and Working Capital applicants (and applicant family members, 
as necessary) may contribute time spent on eligible activities as in-
kind match amounting to up to 25 percent of total project cost, 
provided that a realistic and relevant valuation of their time can be 
documented, as provided for at 4284.923.
    Comment: One commenter states that this section needs to be revised 
to connect conflict of interest issues with procurement transactions, 
to illustrate conflict of interest for owners and family members, and 
to clarify what is not an eligible use of funds.
    Response: The Agency agrees and has revised rule text at Sec. Sec.  
4284.923 and 4284.924, and in the definition of Conflict of Interest.
    Comment: One commenter states that this section should make clear 
that the identity of independent producers may be by name or class, but 
still prohibit industry-wide templates.
    Response: The Agency agrees with the suggestion and has revised 
proposed Sec.  4284.924(k) (now Sec.  4284.924(m) in the interim rule) 
as suggested by the commenter in order to balance the interests of 
applicants ease of application with the Agency's need to identify 
applicant owners.

Pay Any Costs of the Project Incurred Prior to the Date of Grant 
Approval (Proposed Sec.  4284.924(m))

    Comment: One commenter states that the proposed rule restricts the 
use of grant and matching funds for any costs incurred prior to the 
date of grant approval. It would be beneficial for the applicants if 
they could start their project after the application is submitted. This 
should be changed to any cost incurred prior to the application 
submission. Other Agency programs such as the REAP and B&I programs, 
allow the start of the project prior to the award approval. This has 
been successful as long as the applicant is aware that they may not 
receive the grant. Many of the value-added products are created in a 
sensitive timeframe dependant on the commodity's growing season. Often 
the growing season is in conflict with the grant's timeframes.
    Response: Prohibitions on incurring reimbursable costs prior to 
grant approval is standard procedure under Federal grant administrative 
guidelines. This protects applicants--especially small applicants of 
limited means--from incurring costs for a project that might not be 
completed if they did not receive a grant. In addition, timeframes of 
up to 36 months are allowed and could be tailored to accommodate 
growing seasons.
    Comment: One commenter believes that matching funds should be 
allowed from the date of the NOFA because many expenses are incurred to 
start the project during the application period and time prior to the 
funding of the grants. Many of the projects are incurring legal and 
accounting expenses to get prepared if the VAPG is funded. If they do 
not incur these expenses then they are not prepared to start the 
projects as soon as they are awarded. If these expenses are not 
allowed, then the project has to stop and wait for the announcement 
date which can be delayed for months.
    Response: Prohibitions on incurring reimbursable costs prior to 
grant approval is standard procedure under Federal grant administrative 
guidelines. This protects applicants--especially small applicants of 
limited means--from incurring costs for a project that might not be 
completed if they did not receive a grant.

Pay for Any Goods or Services Provided by a Person or Entity That Has a 
Conflict of Interest or an Appearance of a Conflict of Interest 
(Proposed Sec.  4284.924(p))

    Comment: Two commenters state that proposed Sec.  4284.924(p) is in 
conflict with the provision at Sec.  4284.923(a). The emphasis on 
conflict of interest or an appearance of conflict of interest is 
misplaced in reference to in-kind matching funds. All matching 
contributions must be verifiable and the time, or ``sweat equity'', 
that farmers, ranchers and/or their families invest to design and 
develop these value-added enterprises are necessary to their success, 
as the rule otherwise provides in Sec.  4284.923(a).
    One of the commenters states it would be worthwhile to delete the 
definition for conflict of interest entirely or redefine it with 
specific examples and/or exclusions. The other commenter recommends 
deleting the second sentence, to read as follows: (p) Pay for any goods 
or services provided by a person or entity that has a conflict of 
interest or an appearance of conflict of interest.
    One commenter states he was recently notified that he received a 
working capital VAPG and this would have never been possible if he were 
not allowed to contribute in-kind match for his time to develop the 
business plan and feasibility study. The commenter asks USDA to please 
consider removing the conflict of interest clause, because, the 
commenter believes, it hinders small producers and businesses from 
applying because they cannot meet the match

[[Page 10115]]

requirements without being able to provide in-kind match.
    Response: The Agency has revised the text at Sec.  4284.924(a) to 
note the exceptions to the conflict of interest language allowing 
limited contributions of applicant time to in-kind match.

Funding Limitations (Sec.  4284.925)

    Comment: One commenter suggests that the maximum grant amount 
remain at $300,000, not be increased to $500,000.
    Response: The Agency agrees with the commenter. The statute allows 
a maximum of $500,000 at Agency discretion. It is the Agency's 
intention to retain the $300,000 maximum for working capital grants.
    Comment: Four commenters recommend that the final rule include a 
reasonable standard to measure significant benefit to beginning 
farmers.
    Response: The statute has a 10 percent reserve to fund projects 
that benefit beginning farmers or ranchers or socially disadvantaged 
farmers and ranchers as well as giving priority to projects that 
contribute to increasing opportunities for beginning farmers or 
ranchers. The Agency will fully implement the designations stipulated 
in the statute.
    Comment: One commenter recommends creating a 10 percent set-aside 
for farmer-owned community wind projects, similar to the same for mid-
tier value chain projects, or beginning farmers and ranchers.
    Response: The Agency disagrees with the commenter's recommendation. 
Reserved funds designations are stipulated by statute.
    Comment: One commenter recommends allocating the 10 percent set 
aside for beginning and socially disadvantaged farmers to the states 
along with the regular VAPG state allocations with the understanding 
that those funds are exclusively designated for such applicant 
categories. In the event a state is unable to award at least 10 percent 
of their state allocation to such categories, these funds should be 
pooled in a timely manner and made available to states with an excess 
of such applicants. This will ensure that 10 percent or more of the 
funds awarded go to these statutorily designated categories. Because 
these applicant types receive priority points as well, it is very 
unlikely RD will have trouble awarding funds at the required level.
    Response: The Agency disagrees with the commenter's recommendation. 
Allocation of funds to States is counter to statutory direction that 
the VAPG program be a nationally competitive program.
    Comment: One commenter states that the mid-tier value chain (MTVC) 
aspect of VAPG is highly specialized and the 10 percent set aside 
required for such projects does not lend itself well to state 
allocations. Thus, unlike with regular VAPG project, it makes sense to 
conduct a single, nationwide competition for MTVC projects.
    Response: The Agency agrees that allocation of funds to States is 
counter to statutory direction that the VAPG program be a nationally 
competitive program.

Preliminary Review (Sec.  4284.930)

    Comment: One commenter states that primary eligibility 
determinations are based on both applicant and project eligibility 
requirements. Therefore, the commenter recommends that the language in 
this section be revised to maintain consistency throughout the 
regulation.
    Response: The Agency agrees with the suggested revision and has 
added reference to applicant eligibility in this section.

Application Package (Sec.  4284.931)

    Comment: One commenter states that, with regard to ideal 
application content, a much more preferable application requirement 
would consist of: (1) A proposed Form RD 4284-1, VAPG Application, with 
all of the requisite certifications pre-printed on the form; (2) a 
business plan; and perhaps (3) current balance sheet (to reflect 
capacity to perform). A feasibility study could be included working 
capital applications when applicable (although it should not be 
required when non-emerging markets projects are proposed, as already 
discussed above).
    Response: The Agency understands the concern for ease of the 
application process and will consider these points when developing 
application material.

Forms

    Comment: One commenter notes that currently there are no forms 
available for the customer to complete in identifying the required 
criteria, and recommends using Form RD 4279-1, Application for Loan 
Guarantee.
    One commenter states that, regarding the application form, the SF-
424, Application for Federal Assistance, SF-424A, Budget Information--
Non-Construction Programs, and SF-424B, Assurances--Non-Construction 
Programs, are generic forms poorly suited and confusing to farmers. The 
commenter recommends that Rural Development develop a VAPG application 
form specifically designed for the VAPG program.
    Two commenters state that the proposed rule does not reference a 
single, comprehensive form for the applicant to complete in addressing 
the required criteria. The proposed rule should reference a standard 
form. The majority of items applicants must address should be basic, 
check-the-box certifications. Only a few, subjective items should call 
for a narrative statement and the form should provide adequate space 
for most applicants to provide the information. Many Rural Development 
programs can be accessed by completing a comprehensive form and the 
form is often referenced in the rule. The application process for the 
VAPG program should be driven by a standard form, similar to Form RD 
4279-1.
    Response: The Agency understands the concern for ease of the 
application process and will consider these points when developing 
application material.
    Comment: One commenter recommends adding Form RD 1940-20.
    Response: The Agency agrees with the recommendation and has added 
reference to Form RD 1940-20.
    Comment: One commenter recommends removing Form RD 400-1 because it 
covers construction projects, which are ineligible for VAPG projects.
    Response: The Agency agrees with the commenter and has removed Form 
RD 400-1 as a requirement from the rule.
    Comment: One commenter states that Sec.  4284.931(a)(6) needs to be 
changed to remove the need for a DUNS number for an individual and sole 
proprietor to be consistent with other Rural Development programs (i.e. 
REAP). The DUNS number is a number that is designed for businesses. 
Individuals and sole proprietors are eligible entities for the VAPG 
program and a DUNS number should not be required in these 
circumstances.
    Response: The DUNS requirement for all applicants for Federal 
assistance is by OMB directive.

Application Content (Sec.  4284.931(b))

    Comment: One commenter states that the 2009 VAPG rules required 
applicants to list their owners/members by name and the owners of all 
their owners/members organized as any type of legal entity other than 
as individuals. According to the commenter, this poses a significant 
problem for cooperatives, agricultural trade associations, and other 
applicants with multiple owners/members that might be LLCs, 
partnerships, corporations, etc. In many cases, the applicants did not 
have the required information on the owners of their owners/members on 
file, and found it challenging or impossible to get

[[Page 10116]]

it. Legal issues were also raised regarding the release of such 
information in certain states, even if it were available. The commenter 
states several potential applicants declined to apply in 2009 due to 
this requirement. The proposed rule is silent on the matter, which 
presumably means that the requirement has been dropped, and the 
commenter hopes this is the case.
    Response: The Agency agrees and has revised the definitions of 
Farmer or Rancher Cooperative, Agricultural Producer Group, Independent 
Producers, and Majority Controlled Producer-Based Business Ventures to 
indicate that entities may list owner/members by name or by class.

Eligibility Discussion (Sec.  4284.931(b)(2))

    Comment: One commenter recommends deleting ``using the format 
prescribed by the application package,'' in Sec.  4284.931(b)(2) 
through (4), and rewording so the regulation is not dependent upon an 
Agency package, but so the regulation with notifications cited comprise 
the format for the application.
    Response: The Agency disagrees with the proposed change as its 
intention is to provide a comprehensive application package to convey 
format details. All sustentative requirements which are reflected in 
the application are contained in the regulation.
    Comment: One commenter recommends breaking out applicant and 
project eligibility as Sec.  4284.931(b)(1)(i) and (ii) respectively--
they are two distinct eligibility components.
    Response: The Agency agrees with the commenter and has revised the 
rule as suggested.

Evaluation Criteria (Sec.  4284.931(b)(2))

    Comment: One commenter recommends that the performance evaluation 
criteria indicate that applicant or Agency requested performance 
criteria will be incorporated into applicant reporting requirements and 
give examples, as these elements will be detailed in the grant 
agreement or letter of condition.
    Response: The Agency agrees with the commenter and has revised the 
rule as suggested. Additional instruction will be provided in the 
annual notice of funding availability.
    Comment: One commenter recommends that the Agency indicate that the 
proposal evaluation criteria are applicable to both planning and 
working capital applicants.
    Response: The Agency agrees with the commenter and has revised the 
rule as suggested.
    Comment: One commenter recommends that the Agency clarify how 
applicants verify eligible matching funds, especially with regard to 
applicant or family member in-kind contributions that meet to be 
documented requirements and limitations in Sec.  4284.923(a), or non-
federal grant sources.
    Response: The Agency agrees with the commenter and will provide 
guidance in the application package on verification of matching funds.
    Comment: One commenter believes that the narrative requirement of 
VAPG applications is excessive and burdensome to the farmer. The 
commenter recommends that it be replaced by succinct sections of the 
recommended Form RD 4284-1, asking for what is specifically needed and 
no more. Farmers should not be expected to enter into a writing contest 
to receive VAPG assistance. Doing so turns this program into a benefit 
for grant-writers and not farmers.
    Response: The Agency agrees with the commenter and is developing a 
comprehensive application package, which will provide forms and 
templates that encourage succinct responses.

Certification of Matching Funds (Sec.  4284.931(b)(3))

    Comment: One commenter recommends replacing the requirement for 
multiple certifications on matching funds, etc., by a simple preprinted 
certification on a Form RD 4284-1.
    Response: The Agency agrees that multiple certifications can be 
addressed at one place in the application.

Verification of Cost-share Matching Funds (Sec.  4284.931(b)(4))

    Comment: One commenter states that Sec.  4284.931(b)(4)(v) and (vi) 
represent a third operational provision of the proposed rule in 
conflict with the allowance provided in Sec.  4284.923(a). Although the 
proposed rule in Sec.  4284.923(a) states that applicant producer's 
time is an acceptable in-kind contribution, these two provisions each 
contradict that statement. Omitting mention of applicant time or other 
in-kind match in paragraphs (b)(4)(v) and (vi), while including a 
specific reference to eligible third-party contributions implies that 
the only kind of match that applicants can provide are in the form of 
cash. The commenter also states that Sec.  4284.931(4)(vi) 
unnecessarily raises the specter of rejecting the in-kind contributions 
of producers permitted by Sec.  4284.923(a) by cross-reference to the 
conflict of interest definition. The commenter recommends these 
paragraphs be rewritten as follows: Verification of cost-share 
matching. Using the format prescribed by the application package, the 
applicant must provide authentic documentation from the source to 
confirm the eligibility and availability of both cash and in-kind 
contributions that meet the following requirements:
    (v) Matching funds must be provided in the form of confirmed 
applicant cash, loan, or line of credit, and may include payment for 
the time of the applicant/producer or the applicant producer's family 
members to the extent that the value of such work can be appropriately 
valued; or confirmed third-party cash or eligible third-party in-kind 
contribution.
    (vi) Examples of ineligible matching funds include funds used for 
an ineligible purpose, contributions donated outside the proposed grant 
period, third-party or applicant in-kind contributions that are over-
valued, expected program income at time of application or instances 
where the potential for a conflict of interest exists.
    Response: The Agency has considered the commenter's suggested 
revisions and agrees that revision to these two paragraphs is needed. 
Therefore, the Agency has revised the elements in Sec.  
4284.931(b)(4)(v) and (vi) to be consistent with the Agency's intention 
to allow specified and limited applicant in-kind contributions for a 
portion of the project's matching funds for planning and working 
capital grants, and to be consistent with Sec. Sec.  4284.902, 
4284.923(a) and (b), and 4284.924.
    Comment: One commenter states that the requirement for verification 
of matching funds at the time of application is burdensome and 
unnecessary. The farmer should not be expected to have funds on hand or 
committed and then tied up for months while RD reviews the 
applications. There is no harm done if the farmer proves ultimately 
unable to raise matching funds because if the farmer fails to do so, 
then no VAPG funds are going to be disbursed. So why require funds to 
be tied up so far in advance of the project's uncertain selection and 
start date?
    Response: The Agency acknowledges the commenter's concern and will 
provide guidance in the instructions to the rule to balance flexibility 
regarding verification requirements with the need for ascertaining and 
documenting applicant commitment.
    Comment: One commenter wants to know how conflict of interest 
applies to allowable applicant in-kind match for the development of 
business plans and/or marketing plans.
    Response: The allowance of limited contributions of applicant time 
to both Planning and Working Capital grants is an exception to the 
Agency's conflict of

[[Page 10117]]

interest policy and is noted in revised text in Sec. Sec.  4284.923 and 
4284.924.
    Comment: Three commenters state that the proposed rule is 
conflicting on the eligibility of applicant, in-kind matching funds. 
Nothing in this section allows for applicant in-kind matching funds. 
Specifically, Sec.  4284.931(b)(4)(v) lists the eligible forms of 
matching funds and does not include applicant, in-kind matching funds. 
This is contrary to Sec.  4284.923(a), which allows for applicant, in-
kind matching funds for planning grants under qualified circumstances. 
The proposed rule should be clearer on the eligibility of applicant, 
in-kind matching funds.
    One commenter states that applicant in-kind as an eligible match 
(for the development of business plans and/or marketing plans) is not 
included.
    Response: The Agency agrees with the commenters concerning the 
conflicting nature of the proposed rule. Therefore, the Agency has 
revised the elements in Sec.  4284.931(b)(4)(v) and (vi) to be 
consistent with the Agency's intention to allow specified and limited 
applicant in-kind contributions for a portion of the project's matching 
funds for planning and working capital grants and to be consistent with 
Sec. Sec.  4284.902, 4284.923(a) and (b), and 4284.924.

Business Plan (Sec.  4284.931(b)(5))

    Comment: Three commenters state that the proposed rule requires all 
working capital applications to include a copy of the business plan and 
a third-party feasibility study completed for the proposed project. The 
Agency is required to concur in the acceptability or adequacy of these 
documents. The National Office should provide guidance to allow for a 
standardized review process around the country. The review process must 
consider two competing issues. First, the process must be simple enough 
to allow the Agency to complete the review in a timely manner. Second, 
the review process must be flexible enough to accommodate business 
plans and feasibility studies written for ventures in a variety of 
different industries.
    Response: The Agency agrees with the commenter and will develop 
guidance for State Office review of feasibility studies and business 
plans.

Feasibility Study (Sec.  4284.931(b)(6))

    Comment: Two commenters state that the proposed rule requires all 
working capital applications to include a copy of the business plan and 
a third-party feasibility study completed for the proposed project. The 
Agency is required to concur in the acceptability or adequacy of these 
documents. The National Office should provide guidance to allow for a 
standardized review process around the country. The review process must 
consider two competing issues. First, the process must be simple enough 
to allow the Agency to complete the review in a timely manner. Second, 
the review process must be flexible enough to accommodate business 
plans and feasibility studies written for ventures in a variety of 
different industries.
    Response: The Agency agrees with the commenter and will develop 
guidance for State Office review of feasibility studies and business 
plans.
    Comment: One commenter states that a standardized review process is 
needed for every state. It must be simple and timely and flexible to 
accommodate business plans and feasibility studies written for ventures 
in a variety of different industries. Not everyone is making wine out 
of grapes.
    Response: The Agency agrees with the commenter and will develop 
guidance for State Office review of feasibility studies and business 
plans.
    Comment: One commenter suggests the requirement for a feasibility 
study be waived in the case of an individual producer who has been 
successfully operating for six years and beyond.
    Response: The Agency has revised the rule for Independent Producer 
applicants proposing market expansion for existing value-added products 
to require only a business or marketing plan, rather than a feasibility 
study, provided the applicant has produced and marketed the value-added 
product for at least two years.
    Comment: One commenter states that the issuance of a new VAPG 
regulation could greatly encourage the strategy of promoting local and 
regional foods as an important rural development by recognizing local 
foods as a valid value-adding strategy and thus exempting this strategy 
from any feasibility study requirement regardless of whether the 
producer has a history of participating in local foods (i.e., 
regardless of whether the local food strategy would be an ``emerging 
market'' opportunity for a given producer). The commenter states that 
such a rule would greatly simplify the ability of farmers to apply for 
and receive VAPG assistance to begin or continue participate in farmers 
markets, etc.
    The commenter further states that RD has consistently and 
unrealistically required that all applications for working capital 
grants be supported by a feasibility study. The value of such studies 
may be important in many cases, such as when a project involves an 
``emerging market''. Their value is less clear and serves only as a 
barrier in instances where the VAPG project is not for an emerging 
market. An independent producer who has a track record of producing a 
value-added product should not be required to undertake the time and 
expense of a feasibility study when their proven history supports their 
business plan. The commenter states that, in such cases, feasibility 
studies should be optional and if completed and their content is 
persuasive, it could result in greater priority being assigned to such 
projects.
    Response: The Agency generally agrees and will require only a 
business or marketing plan rather than a feasibility study for 
Independent Producer applicants requesting $50,000 or more in working 
capital funds and proposing market expansion for existing value-added 
products.

Simplified Application (Sec.  4284.932)

    Comment: Four commenters recommend including a description of the 
simplified application process in the rule for two reasons. First, the 
simplified application process should be included in the rule, as 
opposed to the annual NOSA. Applicants want to prepare applications 
packages as early as possible to elevate the burden of a narrow 
timeline between program announcement and application deadline. Second, 
the simplified application process should be an abbreviated version of 
a standard form to compete for program funds. The form should be 
similar to Form RD 4279-1A, ``Application for Loan Guarantee--Business 
and Industry Short Form.''
    Response: The Agency understands the concern for ease of the 
application process and will consider these points when developing 
application material.
    Comment: Two commenters believe the Agency should create a 
simplified application for grants of less than $50,000. One of the 
commenters states that the 2008 Farm Bill explicitly calls on Rural 
Development to offer a simplified application for small grants of less 
than $50,000 as recognition that the proposal process is so cumbersome 
that many excellent, inexpensive projects do not get the support they 
deserve. The FY 2009 NOFA, however, did not offer a substantive 
improvement in this regard, and the proposed rule contains only a one 
sentence reference that says ``Applicants requesting less than $50,000 
will be allowed to submit a simplified application, the contents of 
which will be announced in an annual notice issued pursuant to Sec.  
4284.915.'' This issue deserves serious attention and should be dealt 
with in the 2010 NOFA. Given the missed opportunity

[[Page 10118]]

last year and the lack of any substantive proposal in the proposed 
rule, the commenter suggests, if necessary, that Rural Development 
staff work with other agencies, including AMS, FSA, and NIFA, that 
currently use simplified application forms in a variety of grant and 
loan programs, to adopt lessons learned about grants and loan documents 
that are user-friendly for under-resourced groups but still provide 
necessary assurances of merit or credit worthiness.
    The other commenter adds that the simplified application process 
should be an abbreviated version of the full application similar to the 
B&I's use of Form RD 4279-1A for loans less than $600,000. For FY 09, 
the same application materials were required for both the simplified 
applicants and full applicants; however the simplified applicants did 
not need to submit certain information unless they were funded. So 
essentially the same application had to be submitted, the timeframes 
were just different.
    Response: The Agency agrees that the Simplified Application process 
needs improvement and will consider the commenters' points when 
developing application material.
    Comment: One commenter states that the proposed rule is far too 
vague on what is proposed for less than $50,000 grants. The commenter 
recommends such grant applications be limited to a Form RD 4284-1, plus 
a business plan of 5 or less pages, with no requirement for financial 
statements or feasibility study regardless of whether the project 
involves an emerging market.
    Response: The Agency agrees the Simplified Application process 
requires improvement and will consider the commenter's points when 
developing.

Filing Instructions (Sec.  4284.933)

    Comment: One commenter asks if, going forward, USDA will be 
applying a set release/due date annually. Collectively, their 
organizations are in favor of this. Also, could there be more than one 
award date annually to better facilitate the applicant's timeframe for 
applying for working capital and launching the business? As it now 
stands, the time lag between grant application, award, and 
implementation dissuades many potential applicants.
    Response: The Agency will not set a permanent application deadline. 
Because the program is oversubscribed, it is not feasible to have 
multiple application dates.
    Comment: One commenter supports the concept of a fixed annual date 
of application and states that March 15 is a reasonable date.
    Another commenter states that RBS will need to determine whether 
the March 15 annual application deadline is feasible or whether the 
submission deadline should be specified annually with instructions 
added to Sec.  4284.915.
    Response: The Agency disagrees that a fixed annual application date 
is necessary and has revised the rule text to remove the March 15 date 
to provide flexibility to meet unforeseen circumstances.

Processing Applications (Sec.  4284.940)

    Comment: One commenter states that the requirement in Sec.  
4284.940(b) requiring writing feedback to all applicants is probably 
either unworkable because of its burden on employees faced with 
processing many applications or it will be not particularly meaningful 
because many bland written responses will be given. The commenter 
recommends that USDA simply say that Rural Development employees will 
endeavor to provide meaningful feedback to all prospective applicants.
    Response: The Agency disagrees and has retained the text at Sec.  
4284.940 requiring written notification to include reasons for 
ineligible or incomplete findings in order to provide useful feedback 
should the applicant re-apply in the future.

Proposal Evaluation Criteria and Scoring Applications (Sec.  4284.942)

    Comment: One commenter states that the specific elements of scoring 
criteria are not contained in the proposed rule. Presumably this allows 
the Agency to allow the program to evolve to meet changing needs. The 
commenter also encourages the Agency to continue to incorporate strong 
evidence of business viability as critical components of the scoring 
systems.
    Response: The Agency has determined that it needs to provide more 
specific elements in the rule text. Although this diminishes 
flexibility, it facilitates consistency and applicant awareness. The 
Agency agrees that evidence of business viability in the form of strong 
financial, technical and logistical support to successfully complete 
the project should continue to be a critical component of scoring.
    Comment: One commenter recommends that the Agency revise this 
section to clarify that all scoring references must be readily 
identified information cited within the proposal itself and not to 
external sources of information, or it will not be considered.
    Response: The Agency agrees with the recommendation and has revised 
the paragraph accordingly.
    Comment: One commenter states that the operative provisions in the 
rule itself for the priority categories need to be significantly 
strengthened to make them actual priorities rather than minor 
preferences. The commenter recommends that Sec.  4284.942 be 
strengthened as follows:
    (b) Scoring applications. The maximum number of points that will be 
awarded to an applicant is 100, plus an additional 10 points if the 
project is located in a rural area. The criteria specified in 
paragraphs (b)(1) through (7) of this section will be used to score 
each application. The Agency will specify how points are awarded for 
each criterion in a Notice published each fiscal year.
    (1) Nature of the proposed project (maximum 20 points).
    (2) Personnel qualifications (maximum 20 points).
    (3) Commitments and support (maximum 10 points).
    (4) Work plan/budget (maximum 20 points).
    (5) Contribution to priority beneficiaries (maximum 25 points).
    (6) Administrator priority categories and points (maximum 5 
points).
    (7) Rural or rural area location (10 points may be awarded).
    (c) Priority groups. In the event of applications equally ranked 
but in which one application substantially serves one or more of the 
priority groups and the other does not, or one serves a priority group 
or groups to a significantly greater degree than the other, the one 
that better serves the priority group shall be the higher ranked 
proposal.
    The commenter states it is difficult to see how the intent of 
Congress has been met in a proposed rule that proposes to provide just 
15 points out of 110 points to proposals which fulfill the statutory 
priority. They feel there needs to be a more substantial weighting of 
the ranking criteria to create a real priority.
    Assuming the Agency prefers to keep the point total constant, they 
adjusted the numbers to give more weight to the statutory priority 
while not doing damage to the overall construct of the scoring system.
    Also, the ``type of applicant'' phrase in the proposed rule's 
scoring system is vague and potentially very misleading. The commenter 
recommends that clear and unambiguous language be substituted to tie 
these points directly to the statutory priorities.
    Language should also be added to the final rule to make clear that 
``priority''

[[Page 10119]]

means, among other things, that if applications are otherwise equally 
ranked but one application substantially serves one or more of the 
priority groups and the other does not, or one does so to a 
significantly greater degree than the other, the one that better serves 
the priority group is the higher ranked proposal.
    Another commenter states that the approach proposed in Sec.  
4284.942(b) continues the past practices. The commenter proposed the 
following 100 point system as more likely to result in wider 
distribution of VAPG awards to projects that meet VAPG goals and that 
better rewards merit and project types that fit into the VAPG mission:
    50 points. Merits of the project (awarded by independent review 
panels). Essentially a business plan competition, looking at each 
project's prospect for success and impact on revenue and market share. 
If the request is for working capital, 40 points maximum if no 
feasibility study is included (thus encouraging but not requiring a 
feasibility study).
    10 points. If the project involves an emerging market (leaving it 
up to the independent review panel to determine the project is in fact 
legitimately new and not just an established enterprise under a 
different name). (thus encouraging innovative new ideas over 
continuation of past practices).
    15 points. Smaller grant size requests. 10 points if seeking a 
grant of 50 percent of less than the maximum permitted by the NOSA; 15 
points if seeking a grant of 25 percent or less than the maximum 
permitted by the NOSA. (thus encouraging many small grants, increasing 
the number of applicants that may be assisted)
    5 points. If 50 percent or more of the commodity to which value is 
to be added is grown by the producer (thus encouraging this, without 
requiring it).
    5 points. If all of the owners of the applicant entity are involved 
in farming (thus encouraging this, without requiring it).
    5 points. If all cash match (thus encouraging a higher level of 
commitment, versus the softer use of ``in kind'' match, while 
discouraging projects that lack financial strength).
    10 points. If Beginning/Socially Disadvantaged/or Small/Medium 
Family Farm (thus, honoring the statute's requirement for such 
priority, without overly prioritizing a category that already lays 
statutory claim to 10 percent of the VAPG funds). The current proposal 
of 15 points is excessive.
    10 point penalty. If Planning Grant Applicant that received a 
Planning Grant within the past 3 years; If working capital Grant 
Applicant that received a working capital Grant within the past 3 
years. (Thus discouraging repeat grantees somewhat and encouraging the 
distribution of VAPG awards to more, different farmers.)
    Response: The Agency reviewed the various comments and has not been 
persuaded to make changes other than reducing the number of points for 
type of applicant from 15 to 10. The 5 points removed here have been 
inserted into nature of the proposed project. This reduction is based 
on the Agency's experience in the FY 2009 funding in which 65 percent 
of awards were made to applicants that received 15 points in one of the 
priority categories. It is the position of the Agency that reducing 
priority points from 15 to 10 will result in a better balance between 
applicants in priority categories and other applicants who do not 
qualify for priority points who also submit worthy applications.
    Comment: One commenter states their grant represented a cost of 
$167,300 per independent producer, and they did not get any points 
under Section V.A.2. vii. The NOSA issued in September of 2009 states: 
``2 points will be awarded to applications with a project cost per 
owner-producer of $100,001-$200,000.'' A man and wife are considered 
two independent producers. Shouldn't we get these two points?
    It is easy, in reading the grant application, to confuse the 
``Planning Grant Criteria'' and the ``Working Capital Criteria.'' The 
commenter wonders whether the reviewer confused the two in grading 
their grant. There is a sea of black and white in the grant application 
and the commenter wonders whether clever use of print types and sizes 
couldn't help in that department.
    Response: This is an administrative item about a specific 
application and is not appropriately addressed in regulations comments.
    Comment: One commenter recommends that additional weight be 
provided to applications that spread the benefits among a number of 
producers in the aggregate. The commenter states that, in doing so, 
this would ensure that the funds invested by USDA and the benefits of a 
future project generated through a VAPG award would be distributed to a 
wider number of producers, while lowering overall costs to the 
government.
    Response: The Agency agrees with the commenter as to the benefits 
that may be obtained by providing additional weight to applications 
that spread the benefits among a number of producers in the aggregate. 
To do this, the Agency has revised the rule by including 10 points for 
cooperatives as a priority category under the Type of Applicant scoring 
criterion.
    Comment: One commenter states that they support small farmers and 
would like the VAPG to allow small farmers to explore their new 
business ideas, to create a sustainable environment for the community. 
Sustainability saves the planet!
    Response: The Agency agrees with the commenter and notes that small 
farmers are a program priority as mandated by statute.

Type of Applicant

    Comment: Numerous commenters state that the Agency should ensure 
that the legislative priority for projects that targeted to small and 
mid-sized family farms and ranches and socially disadvantaged farmers 
and ranchers set by the 2008 Farm Bill are clearly expressed in the 
final rule and in the scoring/evaluation process. Congress has spoken--
these are mandated VAPG priorities. Yet, the proposed rule would award 
only 15 ranking points out of a potential 110 ranking points for 
projects targeted to this group. USDA should ensure the final rule 
awards 25 total points for the priority group, and target small, mid-
sized and socially disadvantaged farmers and ranchers should take 
priority over projects that are not targeted in that fashion if 
proposals are otherwise equally ranked.
    Response: The Agency disagrees with the suggestion to increase the 
points for this criterion to 25. It is the position of the Agency that 
reducing priority points from 15 to 10 will result in a better balance 
among applicants in priority categories and other applicants who do not 
qualify for priority points who also submit worthy applications.
    Comment: One commenter states that the program should target small, 
mid-sized and socially disadvantaged farmers as defined by the 2008 
Farm Bill and award extra points to these targeted groups.
    Response: The Agency notes that the program does target these 
farmers with the reserved funding and priority points.
    Comment: One commenter recommends awarding all the points for the 
priority group defined in the 2008 Farm Bill and adding clear language 
that states proposals targeting small, mid-sized and socially 
disadvantaged farmers and ranchers should take priority over projects 
that are not targeted in that fashion if proposals are otherwise 
equally ranked.
    Response: The statute targets the specific categories mentioned by 
the commenter, as well and Beginning

[[Page 10120]]

Farmers and Ranchers and requires that they receive priority in the 
form of reserved funding and additional points.
    Comment: One commenter states that the evaluation and scoring 
should be changed to better reflect Congressional intent in 
establishing priority beneficiaries for the program. The commenter 
believes the 15 points for beginning farmers and ranchers, socially 
disadvantaged farmers and ranchers and small and mid-size family 
farmers and ranchers should be increased to at least 25 points for 
projects that propose to provide contributions and opportunities for 
farmers and ranchers meeting these definitions.
    One commenter encourages USDA not to increase the number of points 
for New and Beginning Farmers beyond the current 15. The commenter 
states that the VAPG program should continue to benefit a wide range of 
producers. While recent actions to set aside program funds for New and 
Beginning Farmers and Ranchers is appropriate, the substantial majority 
of funds should be awarded based on projected viability of the 
business, and be accessible to a wide number of active farmers. The 
commenter states that, for those individuals/families that are just 
getting into agriculture, it is a terribly challenging task to 
capitalize and ``get good'' at agricultural production AND to 
participate in the creation/launch of a value-added enterprise. To this 
extent, New and Beginning Farmers should be given modest special 
support through the VAPG program, but USDA should not transform this 
program into a special form of subsidy for this group of producers at 
the expense of other eligible categories of farmers. Awarding 15 points 
for New and Beginning Farmers is an appropriate way of supporting these 
ventures.
    Response: It is the position of the Agency that reducing priority 
points from 15 to 10 will result in a better balance between applicants 
in priority categories and other applicants who do not qualify for 
priority points who also submit worthy applications.

Rural or Rural Area

    Comment: Numerous commenters raised concern on this proposed 
scoring criterion. These concerns are presented below.
    One commenter states that the proposed rule adds a new priority 
that awards 10 points to projects that are ``rural''. This is confusing 
because almost by definition all commodities start out as rural and are 
then tailored to an urban consumer. How a project's ``rural'' character 
is assessed is highly unclear and confusing. The commenter states that 
this new priority is not necessary and it is not part of the statutory 
logic behind the program, which is to support agricultural producers, 
with no regard to the geographic or urban/rural location.
    Two commenters state that the standards are vague as to how the 
``projects located in a rural area'' language would be applied and the 
reasoning given for the additional weight. The additional 
classification of ``rural'' provides cooperatives with packinghouses or 
other facilities in an urban area at a competitive disadvantage for 
grant funds. Although the beneficiary of a project is the farmer and 
most likely located in a rural area, many activities such as 
processing, packaging and marketing of products do not take place in 
rural areas. Many cooperatives have infrastructure located closer to 
urban markets. The commenters believe this language conflicts with the 
goal of providing additional benefits to rural producers, especially in 
the state of California.
    One of the commenters states that, depending on the definition of 
``rural area,'' proposals from states such as California could be 
precluded from the points entirely and put at a disadvantage 
nationally. The commenter states that using the proposed scoring 
criteria would cause additional confusion while being irrelevant to the 
goal of increasing producer income, which ultimately supports those 
rural areas. The commenter encourages USDA to adjust the proposed 
scoring criteria, keeping these concerns in mind.
    Another commenter states that the definition of projects that 
``will take place in rural places'' is vague. The commenter supports 
the idea that entities that are headquartered and based in rural 
communities should get increased points compared to those that are 
headquartered in urban centers. However, the commenter does not support 
the idea that all tasks (i.e. advertising, promotions, contract 
manufacturing, etc) must also be located in rural places in order to 
qualify for the additional 10 points.
    One commenter states that the proposed rule Sec.  4284.942 grants 
10 additional scoring points (above the 100 ordinarily possible) to 
``projects located in a rural area,'' generally defined as areas with 
less than 50,000 in population. This could pose many applicants 
problems--including those located in rural areas.
    The VAPG is a marketing grant. Marketing projects are often 
performed in areas with large populations because that is where the 
people are. This rule would apparently penalize projects that involve 
market launches, promotions, and advertizing campaigns conducted in 
areas with the highest concentration of customers. A similar question 
arises when a planning project involves contracting with advertising 
venues, specialists, or consultants located in urban areas, which would 
presumably conduct much of their work in their hometowns.
    Many cooperatives, agricultural trade associations, and other 
applicants are headquartered in locations that exceed 50,000 in 
population, however the growers that actually benefit are by-and-large 
rural. The new rule would seem to penalize an applicant conducting a 
project in its headquarters city even though the benefits would flow to 
rural areas. This scoring bias seems contrary to the VAPG's stated 
purpose of increasing income to growers.
    One commenter states that the proposed rule grants 10 additional 
scoring points (above the 100 ordinarily possible) to ``projects 
located in a rural area,'' generally defined as areas with less than 
50,000 in population. The meaning of this is clearly not defined and 
ultimately may run counter to the program's intent. Although the 
beneficiary of a project is ultimately the rural producer, many 
activities such as processing, packaging, marketing of products does 
not take place in ``rural'' areas; nor are cooperatives necessarily 
headquartered in ``rural'' areas while their profits are channeled back 
to those areas. Using this as scoring criteria does not seem relevant 
to the goal of increasing producer income, which ultimately supports 
those rural areas.
    One commenter hopes there will not be restrictions placed on their 
ability to receive grant support if their marketing activities take 
place in metropolitan areas. The commenter states that, while they 
often do market in rural communities, including the one in which they 
live and work, the majority of the customers of their producers are in 
major markets, like New York, Southern California, Texas, Chicago, and 
Florida.
    Response: The Agency agrees with the concerns raised by the 
commenters. Further, the statute does not include a rural area 
requirement for this program. Therefore, the Agency has removed this 
provision from the rule.

Grant Agreement (Sec.  4284.951)

    Comment: One commenter states that the title of this section should 
be changed to, ``Obligate and Award Funds.'' The commenter suggested 
reworking the sections as follows:

[[Page 10121]]

    (a) Letter of conditions (must include 90 day provision for grantee 
to meet LOC conditions (remove from (b) GA section)).
    (b) Grant agreement and conditions.
    (c) Other documentation, (should document the various other forms 
the grantee will execute in connection with the grant).
    (d) Grant disbursements (must clarify the process for disbursing 
funds, including SF 270, Request for Advancement or Reimbursement, and 
supporting documentation expectations).
    The commenter states that these changes provide the applicant/
grantee with a more comprehensive understanding of the process and 
requirements associated with the award.
    Response: The Agency agrees with the commenter's suggestion and has 
revised the rule accordingly.

Monitoring and Reporting Program Performance (Sec.  4284.960)

    Comment: One commenter states that the Agency should clarify that 
the project must be completed per terms and conditions specified in the 
approved work plan and budget, grant agreement and Letter of 
Conditions. The commenter states that this brings the work plan and 
budget concept back to project performance as the performance benchmark 
for all eligible activities.
    Response: The Agency agrees with the suggested revision and has 
revised the paragraph accordingly.
    Comment: In referring to Sec.  4284.960(b)(4), one commenter states 
that the Agency should provide examples of what additional project and/
or performance data might be requested by the Agency to meet 2008 Farm 
Bill categories and expectations, such as jobs created, increased 
revenues, renewable energy capacity or emissions reductions, results of 
supply chain arrangements, BFR or SDFR. The commenter states that this 
is a heads up on the grant agreement requirements.
    Response: The Agency agrees with the suggested revision and has 
revised the paragraph as suggested by the commenter.
    Comment: One commenter suggests adding a new paragraph to Sec.  
4284.960(b) that states that, as part of the monitoring process, RBS 
may terminate or suspend the grant for lack of adequate or timely 
progress, reporting, or documentation, or for failure to comply with 
Agency requirements.
    Response: The Agency agrees with the suggested revision and has 
added a new paragraph (see Sec.  4284.960(b)(5)) as suggested by the 
commenter.

Transfer of Obligations (Sec.  4284.962)

    Comment: One commenter recommends revising this section to indicate 
that any transfer of obligation is at the discretion of the Agency and 
determined on a case-by-case basis. The commenter also recommends 
augmenting the language relating to requirements for the substituted 
applicant so that all eligibility requirements are spelled out, 
including maintaining the applicant type of the original applicant, and 
maintaining the identity and number of independent producers originally 
committed to the project for both general and reserved funds. The 
commenter also suggests that the Agency emphasize that the project must 
continue to meet all Product, Purpose, Branding, and Reserved Funds 
eligibility requirements. The commenter states that, for anything less 
than this, it would be better to return the funds to the program for 
use by another competitive grantee that has endured the process and 
eligibility analysis.
    Response: The Agency agrees with the suggested revisions and has 
revised the rule as suggested by the commenter except for the suggested 
text regarding maintaining applicant type, maintaining the identity and 
number of independent producers originally committed to the project, 
because this would unnecessarily limit the Agency's flexibility.

Grant Close Out and Related Activities (Sec.  4284.963)

    Comment: One commenter recommends revising this section to indicate 
actual closeout practices. Grant closeout is not usually about 
suspension or termination of a grant prematurely, and that message will 
be provided to the grantee in Sec.  4284.960(b)(5). Closeout is usually 
about administrative wrap-up post the completion of the grant project 
or funding period. The commenter states that typical closeout 
activities include a Letter to Grantee with final closeout instructions 
and reminders for amounts de-obligated for any unexpended grant funds, 
final project performance reports due, submission of necessary 
deliverables, audit requirements, any outstanding items of closure.
    Response: The Agency agrees with the commenter and has revised the 
rule Sec.  4284.963 and added additional text describing grant closeout 
activities.

Preamble

    Comment: One commenter states that the final rule should give 
proper acknowledgement of the statutory VAPG priorities by 
strengthening the grant evaluation criteria and scoring section. The 
2008 Farm Bill amended the VAPG program in several important ways, 
including identifying priority groups for funding and establishing two 
program reserved funds. The commenter believes that these program 
modifications are significant and should be addressed in the preamble 
to the rule in the Summary section and in the Supplemental Information 
section. Most importantly, the proposal evaluation criteria and scoring 
applications section (Sec.  4284.942) needs to be strengthened to make 
the statutory priorities actual programmatic priorities.
    The statutory priorities and set-asides are clearly intended to 
ensure that these producer groups and this type of rural development 
marketing model are more likely to be supported with VAPG grant funds. 
Because the language changes in the 2008 Farm Bill fundamentally 
address the character of the VAPG grant program Congress intended to 
create, the commenter believes that they should be clearly referenced 
in the discussion of the rule. They find the omission of such a 
discussion in the preamble to the proposed rule to be quite glaring.
    Response: The Agency agrees that discussion of 2008 Farm Bill 
priorities should be included in the preamble. However, the Agency's 
experience in implementing the reserved funding and priority scoring in 
2009 highlighted the need to balance statutory priorities with fairness 
to other applicants who also submitted worthy applications.

Preamble--Summary

    Comment: One commenter suggests adding the following language to 
the Summary section when issuing the final rule:
    The program provides a priority for funding for projects that 
contribute to opportunities for beginning farmers or ranchers, socially 
disadvantaged farmers or ranchers, and operators of small- and medium-
sized family farms and ranches. Further, it creates two reserved funds 
each of which will include 10 percent of program funds each year to 
support applications that support opportunities for beginning and 
socially disadvantaged farmers and ranchers and for proposed projects 
that develop mid-tier value marketing chains.
    Response: The Agency agrees and has added the suggested text to the 
Preamble Summary.

Preamble--Supplementary Information

    Comment: One commenter suggests the addition of the following 
language to the SUPPLEMENTARY INFORMATION section:

SUPPLEMENTARY INFORMATION: 

[[Page 10122]]

I. Background

B. Nature of the Program

    This subpart contains the provisions and procedures by which the 
Agency will administer the Value-Added Producer Grant (VAPG) Program. 
The primary objective of this grant program is to help Independent 
Producers of Agricultural Commodities, Agriculture Producer Groups, 
Farmer and Rancher Cooperatives, and Majority-Controlled Producer-Based 
Business Ventures develop strategies to create marketing opportunities 
and to help develop Business Plans for viable marketing opportunities 
regarding production of bio-based products from agricultural 
commodities. As with all value-added efforts, generating new products, 
creating expanded marketing opportunities, and increasing producer 
income are the end goal.
    Eligible applicants are independent agricultural producers, farm 
and rancher cooperatives, agricultural producers groups, and majority-
controlled producer-based business ventures.
    Added text: ``The program includes priorities for projects that 
contribute to opportunities for beginning farmers or ranchers, socially 
disadvantaged farmers or ranchers, and operators of small- and medium-
sized family farms and ranches. Applications from these priority groups 
will receive additional points in the scoring of applications. In the 
case of equally ranked proposals, preference will be given to 
applications that more significantly contribute to opportunities for 
beginning farmers and ranchers, socially disadvantaged farmers and 
ranchers, and operators of small- and medium-sized family farms and 
ranches.
    Further, the program includes two reserved funds each of which will 
include ten percent of program funds each year to support applications 
that support projects that benefit beginning and socially disadvantaged 
farmers and ranchers and that develop mid-tier value marketing 
chains.''
    Response: The Agency agrees and has added the suggested text to the 
description of the program.

General

    Comment: One commenter states that the widespread opinion of the 
VAPG program is that it is a ``grant program with barriers.'' The 
commenter states that, during Rural Development-sponsored jobs forums 
in Oregon in January 2010 and in many other settings, this analysis has 
been repeated by a number of producers who cited VAPG's complex rules 
poorly suited to modern agricultural realities, its difficult narrative 
application content, and its lengthy application process. The commenter 
states that the proposed rule does little more than institutionalize 
the design and delivery of the VAPG program that Rural Development has 
used in past NOSA's. The commenter recommends that it would be better 
to leave the existing RD Instructions 4284-A and 4284-J in place with 
the few changes required by the 2008 Farm Bill than to go forward with 
this proposed rule.
    The commenter also encourages Rural Development's leadership to 
take a step back from this proposed rule and instead engage the 
agricultural community in a series of listening sessions with VAPG 
constitutes to find a more sensitive program design. While this will 
delay the implementation of a new rule and may temporarily delay VAPG 
program delivery, it will ultimately result in a program that is far 
more effective and efficient in meeting the needs for which it was 
designed.
    Response: The Agency acknowledges the commenter's concerns and 
welcomes feedback and suggestions from the agricultural community. The 
Agency is attempting to address these concerns within the context of 
the proposed rule.

General--Program Design

    Comment: One commenter recommends full utilization of Rural 
Development's core strength--the field office structure. The commenter 
states that delivery of VAPG should be accomplished by allocating all 
or nearly all VAPG funds to the state level for delivery via local 
competitions conducted by local experts most familiar with local 
conditions and local opportunities. This will assure a nationwide 
geographic distribution of VAPG funds, and it will defuse the current 
high hurdle presented to local producers who are asked to submit 
projects for review and selection/non-selection by remote national 
players. The commenter states that despite noble efforts by national 
Rural Development staff, the VAPG program has been repeatedly delayed 
and interrupted in its delivery, with extremely short NOSA application 
windows followed by long months of waiting for award selections and 
announcements. This is inevitable when the staffing strengths of state 
offices are bypassed and work must pass through the inevitable 
bottleneck of a small national office staff no matter how motivated.
    The commenter also states VAPG selection process should be 
redesigned as a straightforward business plan competition on a state by 
state basis. Every state would receive an allocation, similar to the 
approach currently used with the Rural Business Enterprise Grant 
program. Every state would conduct a competition overseen by its own 
independent review panel constituted as currently outlined in RD 
Instruction 4284-J, Sec.  4284.912(a). In creating these panels, states 
could even be encouraged to allow applicants to present their business 
plans and answer questions, so that the heavy burden of grant writing 
could be further reduced and program accessibility increased.
    The commenter states that, in making awards, RD state offices 
should be given the authority to reduce award sizes to assure an 
efficient use of their state allocation. The current process of making 
awards on an all or nothing basis is an inefficient use of scarce 
federal grant dollars.
    Response: The Agency acknowledges the commenter's concerns and is 
continuing to work to streamline the program and support field staff 
that implement the program. However, the Agency does not have the 
authority to institute state allocations.

List of Subjects in 7 CFR Part 4284

    Agricultural commodities, Grant programs, Housing and community 
development, Rural areas, Rural development, Value-added activities.

    For the reasons set forth in the preamble, Chapter XLII of title 7 
of the Code of Federal Regulations is amended as follows:

PART 4284--GRANTS

0
1. The authority citation for part 4284 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989.


0
2. Part 4284 is amended by revising subpart J to read as follows:
Subpart J--Value-Added Producer Grant Program
Sec. General
4284.901 Purpose.
4284.902 Definitions.
4284.903 Review or appeal rights.
4284.904 Exception authority.
4284.905 Nondiscrimination and compliance with other Federal laws.
4284.906 State laws, local laws, regulatory commission regulations.
4284.907 Environmental requirements.
4284.908 Compliance with other regulations.
4284.909 Forms, regulations, and instructions.
4284.910-4284.914 [Reserved]

Funding and Programmatic Change Notifications

4284.915 Notifications.
4284.916-4284.919 [Reserved]

[[Page 10123]]

Eligibility

4284.920 Applicant eligibility.
4284.921 Ineligible applicants.
4284.922 Project eligibility.
4284.923 Eligible uses of grant and matching funds.
4284.924 Ineligible uses of grant and matching funds.
4284.925 Funding limitations.
4284.926-4284.929 [Reserved]

Applying for a Grant

4284.930 Preliminary review.
4284.931 Application package.
4284.932 Simplified application.
4284.933 Filing instructions.
4284.934-4284.939 [Reserved]

Processing and Scoring Applications

4284.940 Processing applications.
4284.941 Application withdrawal.
4284.942 Proposal evaluation criteria and scoring applications.
4284.943-4284.949 [Reserved]

Grant Awards and Agreement

4284.950 Award process.
4284.951 Obligate and award funds.
4284.952-4284.959 [Reserved]

Post Award Activities and Requirements

4284.960 Monitoring and reporting program performance.
4284.961 Grant servicing.
4284.962 Transfer of obligations.
4284.963 Grant close out and related activities.
4284.964-4284.999 [Reserved]

General


Sec.  4284.901  Purpose.

    This subpart implements the value-added agricultural product market 
development grant program (Value-Added Producer Grants (VAPG)) 
administered by the Rural Business-Cooperative Service whereby grants 
are made to enable viable agricultural producers (those who are 
prepared to progress to the next business level of planning for, or 
engaging in, value-added production) to develop businesses that produce 
and market value-added agricultural products. The provisions of this 
subpart constitute the entire provisions applicable to this Program; 
the provisions of subpart A of this part do not apply to this subpart.


Sec.  4284.902  Definitions.

    The following definitions apply to this subpart:
    Administrator. The Administrator of the Rural Business-Cooperative 
Service or designees or successors.
    Agency. The Rural Business-Cooperative Service or successor for the 
programs it administers.
    Agricultural commodity. An unprocessed product of farms, ranches, 
nurseries, and forests and natural and man-made bodies of water, that 
the independent producer has cultivated, raised, or harvested with 
legal access rights. Agricultural commodities include plant and animal 
products and their by-products, such as crops, forestry products, 
hydroponics, nursery stock, aquaculture, meat, on-farm generated 
manure, and fish and seafood products. Agricultural commodities do not 
include horses or other animals raised or sold as pets, such as cats, 
dogs, and ferrets.
    Agricultural food product. Agricultural food products can be a raw, 
cooked, or processed edible substance, beverage, or ingredient intended 
for human consumption. These products cannot be animal feed, live 
animals, non-harvested plants, fiber, medicinal products, cosmetics, 
tobacco products, or narcotics.
    Agricultural producer. An individual or entity directly engaged in 
the production of an agricultural commodity, or that has the legal 
right to harvest an agricultural commodity, that is the subject of the 
value-added project. Agricultural producers may ``directly engage'' 
either through substantially participating in the labor, management, 
and field operations themselves or by maintaining ownership and 
financial control of the agricultural operation.
    Agricultural producer group. A membership organization that 
represents independent producers and whose mission includes working on 
behalf of independent producers and the majority of whose membership 
and board of directors is comprised of independent producers. The 
independent producers, on whose behalf the value-added work will be 
done, must be confirmed as eligible and identified by name or class.
    Applicant. The legal entity submitting an application to 
participate in the competition for program funding. The applicant must 
be legally structured to meet one of the four eligible applicant types: 
Independent Producer, Agricultural Producer Group, Farmer or Rancher 
Cooperative, or Majority-Controlled Producer Based Business.
    Beginning farmer or rancher. This term has the meaning given it in 
section 343(a) of the Consolidated Farm and Rural Development Act (7 
U.S.C. 1991(a)) and is an entity in which none of the individual owners 
have operated a farm or a ranch for more than 10 years. For the 
purposes of this subpart, a beginning farmer or rancher must be an 
Independent Producer that, at the time of application submission, 
currently owns and produces more than 50 percent of the agricultural 
commodity to which value will be added and has an applicant ownership 
or membership of 51 percent or more beginning farmers or ranchers. 
Except as provided, for the purposes of Sec.  4284.922(c)(1)(i), to 
compete for reserved funds, for applicant entities with multiple 
owners, all owners must be eligible beginning farmers or ranchers.
    Branding. The activities involved in the practice of creating a 
name, symbol or design that identifies and differentiates a product 
from other products that attracts and retains customers or encourages 
confidence in the quality and performance of that individual or firm's 
products or services.
    Business plan. A formal statement of a set of business goals, the 
reasons why they are believed attainable, and the plan for reaching 
those goals, including pro forma financial statements appropriate to 
the term and scope of the project and sufficient to evidence the 
viability of the venture. It may also contain background information 
about the organization or team attempting to reach those goals.
    Change in physical state. An irreversible processing activity that 
alters the raw agricultural commodity into a marketable value-added 
product. This processing activity must be something other than a post-
harvest process that primarily acts to preserve the commodity for later 
sale. Examples of eligible value-added products in this category 
include, but are not limited to, fish fillets, diced tomatoes, bio-
diesel fuel, cheese, jam, and wool rugs. Examples of ineligible 
products include, but are not limited to, pressure-ripened produce, raw 
bottled milk, container grown trees, plugs, and cut flowers.
    Conflict of interest. A situation in which a person or entity has 
competing personal, professional, or financial interests that make it 
difficult for the person or business to act impartially. Regarding use 
of both grant and matching funds, Federal procurement standards 
prohibit transactions that involve a real or apparent conflict of 
interest for owners, employees, officers, agents, or their immediate 
family members having a financial or other interest in the outcome of 
the project; or that restrict open and free competition for 
unrestrained trade. Specifically, grant and matching funds may not be 
used to support costs for services or goods going to, or coming from, a 
person or entity with a real or apparent conflict of interest, 
including, but not limited to, owner(s) and their immediate family 
members. See Sec.  4284.923(a) and (b) for limited exceptions to this 
definition and practice for VAPG.
    Departmental regulations. The regulations of the Department of

[[Page 10124]]

Agriculture's Office of Chief Financial Officer (or successor office) 
as codified in 7 CFR parts 3000 through 3099, including, but not 
necessarily limited to, 7 CFR parts 3015 through 3019, 7 CFR part 3021, 
and 7 CFR part 3052, and successor regulations to these parts.
    Emerging market. A new or developing, geographic or demographic 
market that is new to the applicant or the applicant's product. To 
qualify as new, the applicant cannot have supplied this product, 
geographic, or demographic market for more than two years at time of 
application submission.
    Family farm. The term has the meaning given it in Sec.  761.2 of 
title 7, Code of Federal Regulations as in effect on November 8, 2007 
(see 7 CFR parts 700-799, revised as of January 1, 2007), in effect 
that, a Family Farm produces agricultural commodities for sale in 
sufficient quantity to be recognized as a farm and not a rural 
residence, owners are primarily responsible for daily physical labor 
and management, hired help only supplements family labor, and owners 
are related by blood or marriage or are immediate family.
    Farm or ranch. Any place from which $1,000 or more of agricultural 
products were raised and sold or would have been raised and sold during 
the previous year, but for an event beyond the control of the farmer or 
rancher.
    Farm- or Ranch-based renewable energy. An agricultural commodity 
that is used to generate renewable energy on a farm or ranch owned or 
leased by the independent producer applicant that produces the 
agricultural commodity. On-farm generation of energy from wind, solar, 
geothermal or hydro sources are not eligible.
    Farmer or rancher cooperative. A business owned and controlled by 
independent producers that is incorporated, or otherwise identified by 
the state in which it operates, as a cooperatively operated business. 
The independent producers, on whose behalf the value-added work will be 
done, must be confirmed as eligible and identified by name or class.
    Feasibility study. An analysis by a qualified consultant of the 
economic, market, technical, financial, and management capabilities of 
a proposed project or business in terms of the project's expectation 
for success.
    Financial feasibility. The ability of a project or business to 
achieve the income, credit, and cash flows to financially sustain a 
venture over the long term.
    Fiscal year. The Federal government's fiscal year.
    Immediate family. Individuals who are closely related by blood, 
marriage, or adoption, or live within the same household, such as a 
spouse, domestic partner, parent, child, brother, sister, aunt, uncle, 
grandparent, grandchild, niece, or nephew.
    Independent producers.
    (1) Individual agricultural producers or entities that are solely 
owned and controlled by agricultural producers. Independent producers 
must produce and own the majority of the agricultural commodity to 
which value will be added as the subject of the project proposal. 
Independent producers must maintain ownership of the agricultural 
commodity or product from its raw state through the production and 
marketing of the value-added product. Producers who produce the 
agricultural commodity under contract for another entity, but do not 
own the agricultural commodity or value-added product produced are not 
considered independent producers. Entities that contract out the 
production of an agricultural commodity are not considered independent 
producers. Independent producer entities must confirm their owner 
members as eligible and must identify them by name or class.
    (2) A steering committee comprised of specifically identified 
agricultural producers in the process of organizing one of the four 
program eligible entity types that will operate a value-added venture 
and will supply the majority of the agricultural commodity for the 
value-added project during the grant period. Such entity must be 
legally authorized before the grant agreement will be approved by the 
Agency.
    (3) A harvester of an agricultural commodity that can document 
their legal right to access and harvest the majority of the 
agricultural commodity that will be used for the value-added product.
    Local or regional supply network. An interconnected group of 
entities through which agricultural based products move from production 
through consumption in a local or regional area of the United States. 
Examples of participants in a supply network may include agricultural 
producers, aggregators, processors, distributors, wholesalers, 
retailers, consumers, and entities that organize or provide 
facilitation services and technical assistance for development of such 
networks.
    Locally-produced agricultural food product. Any agricultural food 
product, as defined in this subpart, that is raised, produced, and 
distributed in:
    (1) The locality or region in which the final product is marketed, 
so that the total distance that the product is transported is less than 
400 miles from the origin of the product; or
    (2) The State in which the product is produced.
    Majority-controlled producer-based business venture. An entity 
(except farmer or rancher cooperatives) in which more than 50 percent 
of the financial ownership and voting control is held by independent 
producers. Independent Producer members must be confirmed as eligible 
and must be identified by name or class, along with their percentage of 
ownership.
    Marketing plan. A plan for the project conducted by a qualified 
consultant that identifies a market window, potential buyers, a 
description of the distribution system and possible promotional 
campaigns.
    Matching funds. A cost-sharing contribution to the project via 
confirmed cash or funding commitments from eligible sources without a 
real or apparent conflict of interest, that are used for eligible 
project purposes during the grant funding period. Matching funds must 
be at least equal to the grant amount, and combined grant and matching 
funds must equal 100 percent of the total project costs. All matching 
funds must be verified by authentic documentation from the source as 
part of the application. Matching funds must be provided in the form of 
confirmed applicant cash, loan, or line of credit, or provided in the 
form of a confirmed applicant or family member in-kind contribution 
that meets the requirements and limitations in Sec.  4284.923(a) and 
(b); or confirmed third-party cash or eligible third-party in-kind 
contribution; or confirmed non-federal grant sources (unless otherwise 
provided by law). See examples of ineligible matching funds and 
matching funds verification requirements in Sec. Sec.  4284.924 and 
4284.931.
    Medium-sized farm. A farm or ranch that is structured as a family 
farm that has averaged $250,001 to $1,000,000 in annual gross sales of 
agricultural commodities in the previous three years.
    Mid-tier value chain. Local and regional supply networks that link 
independent producers with businesses and cooperatives that market 
value-added agricultural products in a manner that:
    (1) Targets and strengthens the profitability and competitiveness 
of small and medium-sized farms and ranches that are structured as a 
family farm; and
    (2) Obtains agreement from an eligible agricultural producer group, 
farmer or rancher cooperative, or majority-

[[Page 10125]]

controlled producer-based business venture that is engaged in the value 
chain on a marketing strategy.
    (3) For mid-tier value chain projects, the Agency recognizes that, 
in a supply chain network, a variety of raw agricultural commodity and 
value-added product ownership and transfer arrangements may be 
necessary. Consequently, applicant ownership of the raw agricultural 
commodity and value-added product from raw through value-added is not 
necessarily required, as long as the mid-tier value chain proposal can 
demonstrate an increase in customer base and an increase in revenue 
returns to the applicant producers supplying the majority of the raw 
agricultural commodity for the project.
    Planning grant. A grant to facilitate the development of a defined 
program of economic planning activities to determine the viability of a 
potential value-added venture, and specifically for the purpose of 
paying for a qualified consultant to conduct and develop a feasibility 
study, business plan, and/or marketing plan associated with the 
processing and/or marketing of a value-added agricultural product.
    Produced in a manner that enhances the value of the agricultural 
commodity. The use of a recognizably coherent set of agricultural 
production practices in the growing or raising of the raw commodity, 
such that a differentiated market identity is created for the resulting 
product. Examples of eligible products in this category include, but 
are not limited to, sustainably grown apples, eggs produced from free-
range chickens, or organically grown carrots.
    Product segregation. Separating an agricultural commodity or 
product on the same farm from other varieties of the same commodity or 
product on the same farm during production and harvesting, with 
assurance of continued separation from similar commodities during 
processing and marketing in a manner that results in the enhancement of 
the value of the separated commodity or product.
    Pro forma financial statement. A financial statement that projects 
the future financial position of a company. The statement is part of 
the business plan and includes an explanation of all assumptions, such 
as input prices, finished product prices, and other economic factors 
used to generate the financial statements. The statement must include 
projections for a minimum of three years in the form of cash flow 
statements, income statements, and balance sheets.
    Project. All of the eligible activities to be funded by grant and 
matching funds.
    Qualified consultant. An independent, third-party, without a 
conflict of interest, possessing the knowledge, expertise, and 
experience to perform the specific task required in an efficient, 
effective, and authoritative manner.
    Rural Development. A mission area of the Under Secretary for Rural 
Development within the U.S. Department of Agriculture (USDA), which 
includes Rural Housing Service, Rural Utilities Service, and Rural 
Business-Cooperative Service and their successors.
    Small farm. A farm or ranch that is structured as a Family Farm 
that has averaged $250,000 or less in annual gross sales of 
agricultural products in the previous three years.
    Socially disadvantaged farmer or rancher. This term has the meaning 
given it in section 355(e) of the Consolidated Farm and Rural 
Development Act (7 U.S.C. 2003(e)): A farmer or rancher who is a member 
of a ``socially disadvantaged group.'' In this definition, the term 
farmer or rancher means a person that is engaged in farming or ranching 
or an entity solely owned by individuals who are engaged in farming or 
ranching. A socially disadvantaged group means a group whose members 
have been subjected to racial, ethnic, or gender prejudice because of 
their identity as members of a group without regard to their individual 
qualities. In the event that there are multiple farmer or rancher 
owners of the applicant organization, the Agency requires that at least 
51 percent of the ownership be held by members of a socially 
disadvantaged group. Except as provided, for the purposes of Sec.  
4284.922(c)(1)(ii), to compete for reserved funds, all farmer and 
rancher owners must be members of a socially disadvantaged group.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, 
the Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    State director. The term ``State Director'' means, with respect to 
a State, the Director of the Rural Development State Office.
    State office. USDA Rural Development offices located in each state.
    Total project cost. The sum of all grant and matching funds in the 
project budget that reflects the eligible project tasks associated with 
the work plan.
    Value-added agricultural product. Any agricultural commodity that 
meets the requirements specified in paragraphs (1) and (2) of this 
definition.
    (1) The agricultural commodity must meet one of the following five 
value-added methodologies:
    (i) Has undergone a change in physical state;
    (ii) Was produced in a manner that enhances the value of the 
agricultural commodity;
    (iii) Is physically segregated in a manner that results in the 
enhancement of the value of the agricultural commodity;
    (iv) Is a source of farm- or ranch-based renewable energy, 
including E-85 fuel; or
    (v) Is aggregated and marketed as a locally-produced agricultural 
food product.
    (2) As a result of the change in physical state or the manner in 
which the agricultural commodity was produced, marketed, or segregated:
    (i) The customer base for the agricultural commodity is expanded 
and
    (ii) A greater portion of the revenue derived from the marketing, 
processing, or physical segregation of the agricultural commodity is 
available to the producer of the commodity.
    Venture. The business and its value-added undertakings, including 
the project and other related activities.
    Working capital grant. A grant to provide funds to operate a value-
added project, specifically to pay the eligible project expenses 
related to the processing and/or marketing of the value-added product 
that are eligible uses of grant funds.


Sec.  4284.903  Review or appeal rights.

    A person may seek a review of an Agency decision under this subpart 
from the appropriate Agency official that oversees the program in 
question or appeal to the National Appeals Division in accordance with 
7 CFR Part 11.


Sec.  4284.904  Exception authority.

    Except as specified in paragraphs (a) and (b) of this section, the 
Administrator may make exceptions to any requirement or provision of 
this subpart, if such exception is necessary to implement the intent of 
the authorizing statute in a time of national emergency or in 
accordance with a Presidentially-declared disaster, or, on a case-by-
case basis, when such an exception is in the best financial interests 
of the Federal Government and is otherwise not in conflict with 
applicable laws.
    (a) Applicant eligibility. No exception to applicant eligibility 
can be made.
    (b) Project eligibility. No exception to project eligibility can be 
made.

[[Page 10126]]

Sec.  4284.905  Nondiscrimination and compliance with other Federal 
laws.

    (a) Other Federal laws. Applicants must comply with other 
applicable Federal laws, including the Equal Employment Opportunities 
Act of 1972, the Americans with Disabilities Act, the Equal Credit 
Opportunity Act, Title VI of the Civil Rights Act of 1964, Section 504 
of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
and 7 CFR part 1901, subpart E.
    (b) Nondiscrimination. The U.S. Department of Agriculture (USDA) 
prohibits discrimination in all its programs and activities on the 
basis of race, color, national origin, age, disability, and where 
applicable, sex, marital status, familial status, parental status, 
religion, sexual orientation, genetic information, political beliefs, 
reprisal, or because all or part of an individual's income is derived 
from any public assistance program. (Not all prohibited bases apply to 
all programs.) Persons with disabilities who require alternative means 
for communication of program information (Braille, large print, 
audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 
(voice and TDD). Any applicant that believes it has been discriminated 
against as a result of applying for funds under this program should 
contact: USDA, Director, Office of Adjudication and Compliance, 1400 
Independence Avenue, SW., Washington, DC 20250-9410, or call (800) 795-
3272 (voice) or (202) 720-6382 (TDD) for information and instructions 
regarding the filing of a Civil Rights complaint. USDA is an equal 
opportunity provider, employer, and lender.
    (c) Civil rights compliance. Recipients of grants must comply with 
Title VI of the Civil Rights Act of 1964, Section 504 of the 
Rehabilitation Act of 1973. This includes collection and maintenance of 
data on the basis of race, sex and national origin of the recipient's 
membership/ownership and employees. These data must be available to 
conduct compliance reviews in accordance with 7 CFR Part 1901, subpart 
E. For grants, initial compliance review will be conducted after Form 
RD 400-4, ``Assurance Agreement,'' is signed and one subsequent 
compliance review after the last disbursement of grant funds have been 
made, and the facility or programs has been in full operations for 90 
days.
    (d) Executive Order 12898. When a project is proposed and financial 
assistance is requested, the Agency will conduct a Civil Rights Impact 
Analysis (CRIA) with regards to environmental justice. The CRIA must be 
conducted and the analysis documented utilizing Form RD 2006-38, 
``Environmental Justice (EJ) and Civil Rights Impact Analysis (CRIA) 
Certification.'' This certification must be done prior to grant 
approval, obligation of funds, or other commitments of Agency 
resources, including issuance of a Letter of Conditions, whichever 
occurs first.


Sec.  4284.906  State laws, local laws, regulatory commission 
regulations.

    If there are conflicts between this subpart and State or local laws 
or regulatory commission regulations, the provisions of this subpart 
will control.


Sec.  4284.907  Environmental requirements.

    All grants awarded under this subpart are subject to the 
environmental requirements in subpart G of 7 CFR part 1940 or successor 
regulations. Applications for planning grants are generally excluded 
from the environmental review process by Sec.  1940.333 of this title. 
Applicants for working capital grants must submit Form RD 1940-20, 
``Request for Environmental Information.''


Sec.  4284.908  Compliance with other regulations.

    (a) Departmental regulations. Applicants must comply with the 
regulations of the Department of Agriculture's Office of Chief 
Financial Officer (or successor office) as codified in 7 CFR parts 3000 
through 3099, including, but not necessarily limited to, 7 CFR parts 
3015 through 3019, 7 CFR part 3021, and 7 CFR part 3052, and successor 
regulations to these parts.
    (b) Cost principles. Applicants must comply with the cost 
principles found in 2 CFR part 230 and in 48 CFR part 31.2.
    (c) Definitions. If a term is defined differently in the 
Departmental Regulations, 2 CFR part 230, or 48 CFR 31.2 and in this 
subpart, such term shall have the meaning as found in this subpart.


Sec.  4284.909  Forms, regulations, and instructions.

    Copies of all forms, regulations, instructions, and other materials 
related to the program referenced in this subpart may be obtained 
through the Agency.


Sec. Sec.  4284.910-4284.914   [Reserved]

Funding and Programmatic Change Notifications


Sec.  4284.915   Notifications.

    In implementing this subpart, the Agency will issue notifications 
addressing funding and programmatic changes, as specified in paragraphs 
(a) and (b) of this section, respectively. The methods that the Agency 
will use in making these notifications is specified in paragraph (c) of 
this section, and the timing of these notifications is specified in 
paragraph (d) of this section.
    (a) Funding and simplified applications. The Agency will issue 
notifications concerning:
    (1) The funding level and the minimum and maximum grant amount and 
any additional funding information as determined by the Agency; and
    (2) The contents of simplified applications, as provided for in 
Sec.  4284.932.
    (b) Programmatic changes. The Agency will issue notifications of 
the programmatic changes specified in paragraphs (b)(1) through (4) of 
this section.
    (1) The following is the set of Administrator priority categories 
that may be considered if the provisions specified in Sec.  
4284.942(b)(6) are not to be used for awarding Administrator points:
    (i) Unserved or underserved areas.
    (ii) Geographic diversity.
    (iii) Emergency conditions.
    (iv) Priority mission area plans, goals, and objectives.
    (2) Additional reports that are generally applicable across 
projects within a program associated with the monitoring of and 
reporting on project performance.
    (3) Any requirement specified in Sec.  4284.933.
    (4) Preliminary review information.
    (c) Notification methods. The Agency will issue the information 
specified in paragraphs (a) and (b) of this section in one or more 
Federal Register notices. In addition, all information will be 
available at any Rural Development office.
    (d) Timing. The Agency will make the information specified in 
paragraphs (a) and (b) of this section available as specified in 
paragraphs (d)(1) through (3) of this section.
    (1) The Agency will make the information specified in paragraph (a) 
of this section available each fiscal year.
    (2) The Agency will make the information specified in paragraph 
(b)(1) of this section available at least 60 days prior to the 
application deadline, as applicable.
    (3) The Agency will make the information specified in paragraphs 
(b)(2) through (4) of this section available on an as needed basis.


Sec. Sec.  4284.916-4284.919   [Reserved]

Eligibility


Sec.  4284.920  Applicant eligibility.

    To be eligible for a grant under this subpart, an applicant must 
demonstrate

[[Page 10127]]

that they meet the requirements specified in paragraphs (a) through (d) 
of this section, as applicable, and are subject to the limitations 
specified in paragraphs (e) and (f) of this section.
    (a) Type of applicant. The applicant must demonstrate that they 
meet all definition requirements for one of the following applicant 
types:
    (1) An independent producer;
    (2) An agricultural producer group;
    (3) A farmer or rancher cooperative; or
    (4) A majority-controlled producer-based business venture.
    (b) Emerging market. An applicant that is an agricultural producer 
group, a farmer or rancher cooperative, or a majority-controlled 
producer-based business venture must demonstrate that they are entering 
into an emerging market as a result of the proposed project.
    (c) Citizenship.
    (1) Individual applicants must certify that they:
    (i) Are citizens or nationals of the United States (U.S.), the 
Republic of Palau, the Federated States of Micronesia, the Republic of 
the Marshall Islands, or American Samoa, or
    (ii) Reside in the U.S. after legal admittance for permanent 
residence.
    (2) Entities other than individuals must certify that they are at 
least 51 percent owned by individuals who are either citizens as 
identified under paragraph (c)(1)(i) of this section or legally 
admitted permanent residents residing in the U.S. This paragraph is not 
applicable if the entity is owned solely by members of one immediate 
family. In such instance, if at least one of the entity owners is a 
citizen or national, as defined in paragraph (c)(1) of this section, 
then the entity is eligible.
    (d) Legal authority and responsibility. Each applicant must 
demonstrate that they have, or can obtain, the legal authority 
necessary to carry out the purpose of the grant, and they must evidence 
good standing from the appropriate state agency or equivalent.
    (e) Multiple grant eligibility. An applicant may submit only one 
application in response to a solicitation, and must explicitly direct 
that it compete in either the general funds competition or in one of 
the named reserved funds competitions. Separate entities with identical 
or greater than 75 percent common ownership may only submit one 
application for one entity per year. Applicants who have already 
received a planning grant for the proposed project cannot receive 
another planning grant for the same project. Applicants who have 
already received a working capital grant for the proposed project 
cannot receive any additional grants for that project.
    (f) Active VAPG grant. If an applicant has an active value-added 
grant at the time of a subsequent application, the currently active 
grant must be closed out within 90 days of the application submission 
deadline for the subsequent competition, as published in the annual 
NOFA.


Sec.  4284.921  Ineligible applicants.

    (a) Consistent with the Departmental regulations, an applicant is 
ineligible if the applicant is debarred or suspended or is otherwise 
excluded from or ineligible for participation in Federal assistance 
programs under Executive Order 12549, ``Debarment and Suspension.''
    (b) An applicant will be considered ineligible for a grant due to 
an outstanding judgment obtained by the U.S. in a Federal Court (other 
than U.S. Tax Court), is delinquent on the payment of Federal income 
taxes, or is delinquent on Federal debt.


Sec.  4284.922  Project eligibility.

    To be eligible for a VAPG grant, the application must demonstrate 
that the project meets the requirements specified in paragraphs (a) 
through (c) of this section, as applicable.
    (a) Product eligibility. Each product that is the subject of the 
proposed project must meet the definition of a value-added agricultural 
product, including a demonstration that:
    (1) The value-added product results from one of the value-added 
methodologies identified in paragraphs (1)(i) through (v) of the 
definition of value-added agricultural product;
    (2) As a result of the project, the customer base for the 
agricultural commodity or value-added product is expanded; and
    (3) As a result of the project, a greater portion of the revenue 
derived from the marketing or processing of the value-added product is 
available to the applicant producer of the agricultural commodity.
    (b) Purpose eligibility.
    (1) The grant funds requested must not exceed the amount specified 
in the annual solicitation for planning and working capital grant 
requests, per Sec.  4284.915.
    (2) The matching funds required for the project budget must be 
eligible and without a real or apparent conflict of interest, available 
during the project period, and source verified in the application.
    (3) The proposed project must be limited to eligible planning or 
working capital activities as defined at Sec.  4284.923, as applicable, 
with eligible tasks directly related to the processing and/or marketing 
of the subject value-added product, to be demonstrated in the required 
work plan and budget as described at Sec.  4284.922(b)(5).
    (4) Applications that propose ineligible expenses in excess of 10 
percent of total project costs will be deemed ineligible to compete for 
funds. Eligible applications selected for award must eliminate any 
ineligible expenses from the project budget.
    (5) The project work plan and budget must demonstrate eligible 
sources and uses of funds and must:
    (i) Present a detailed narrative description of the eligible 
activities and tasks related to the processing and/or marketing of the 
value-added product along with a detailed breakdown of all estimated 
costs allocated to those activities and tasks;
    (ii) Identify the key personnel that will be responsible for 
overseeing and/or conducting the activities or tasks and provide 
reasonable and specific timeframes for completion of the activities and 
tasks;
    (iii) Identify the sources and uses of grant and matching funds for 
all activities and tasks specified in the budget; and indicate that 
matching funds will be spent at a rate equal to or in advance of grant 
funds; and
    (iv) Present a project budget period that commences within the 
start date range specified in the annual solicitation, concludes not 
later than 36 months after the proposed start date, and is scaled to 
the complexity of the project.
    (6) Except as noted in paragraphs (b)(6)(i) and (ii) of this 
section, working capital applications must include a feasibility study 
and business plan completed specifically for the proposed value-added 
project by a qualified consultant. The Agency must concur in the 
acceptability or adequacy of the feasibility study and business plan 
for eligibility purposes.
    (i) An Independent Producer applicant seeking a working capital 
grant of $50,000 or more, who can demonstrate that they are proposing 
market expansion for an existing value-added product(s) that they 
currently own and produce from at least 50 percent of their own 
agricultural commodity and that they have produced and marketed for at 
least 2 years at time of application submission, may submit a business 
or marketing plan for the value-added project in lieu of a feasibility 
study. These applications must still document for increased customer 
base and increased revenues

[[Page 10128]]

returning to the applicant producers as a result of the project, and 
meet all other eligibility requirements. Further, the waiver of the 
independent feasibility study does not change the proposal evaluation 
or scoring elements that pertain to issues that might be supported by 
an independent feasibility study, so applicants are encouraged to well-
document their project plans and expectations for success in their 
proposals.
    (ii) All four applicant types that submit a Simplified Application 
for working capital grant funds of less than $50,000 are not required 
to provide an independent feasibility study or business plan for the 
project/venture but must provide adequate documentation to demonstrate 
the expected increases in customer base and revenues resulting from the 
project that will benefit the producer applicants supplying the 
majority of the agricultural commodity for the project. All other 
eligibility requirements remain the same. The waiver of the requirement 
to submit a feasibility study and business plan does not change the 
proposal evaluation or scoring elements that pertain to issues that 
might be supported by a feasibility study or business plan, so 
applicants are encouraged to well-document their project plans and 
expectations for success in their proposals.
    (7) If the applicant is an agricultural producer group, a farmer or 
rancher cooperative, or a majority-controlled producer-based business 
venture, the applicant must demonstrate that it is entering an emerging 
market unserved by the applicant in the previous two years.
    (8) All applicants requesting working capital funds must either be 
currently marketing each value-added agricultural product that is the 
subject of the grant application, or be ready to implement the working 
capital activities in accord with the budget and work plan timeline 
proposed.
    (c) Reserved funds eligibility. In addition to the requirements 
specified in paragraphs (a) and (b) of this section, the requirements 
specified in paragraphs (c)(1) and (2) of this section must be met, as 
applicable, if applicants choose to compete for reserved funds. All 
eligible, but unfunded reserved funds applications will be eligible to 
compete for general funds in that same fiscal year, as funding levels 
permit.
    (1) If the applicant is applying for beginning farmer or rancher, 
or socially-disadvantaged farmer or rancher reserved funds, the 
applicant must provide the following documentation to demonstrate that 
the applicant meets all the requirements for one of these definitions.
    (i) For beginning farmers and ranchers, documentation must include 
a description from each of the individual owner(s) of the applicant 
farm or ranch organization, addressing the qualifying elements in the 
beginning farmer or rancher definition, including the length and nature 
of their individual owner/operator experience at any farm in the 
previous 10 years, along with one IRS income tax form from the previous 
10 years showing that each of the individual owner(s) did not file farm 
income; or a detailed letter from a certified public accountant or 
attorney certifying that each owner meets the reserved funds beginning 
farmer or rancher eligibility requirements. For applicant entities with 
multiple owners, all owners must be eligible beginning farmers or 
ranchers.
    (ii) For socially disadvantaged farmers and ranchers, documentation 
must include a description of the applicant's farm or ranch ownership 
structure and demographic profile that indicates the owner(s)' 
membership in a socially disadvantaged group that has been subjected to 
racial, ethnic or gender prejudice; including identifying the total 
number of owners of the applicant organization; along with a self-
certification statement from the individual owner(s) evidencing their 
membership in a socially disadvantaged group. All farmer and rancher 
owners must be members of a socially disadvantaged group.
    (2) If the applicant is applying for Mid-Tier Value Chain reserved 
funds, the applicant must be one of the four VAPG applicant types and 
the application must provide documentation demonstrating that the 
project meets the Mid-Tier Value Chain definition, and must:
    (i) Demonstrate that the project proposes development of a local or 
regional supply network of an interconnected group of entities 
(including nonprofit organizations, as appropriate) through which 
agricultural commodities and value-added products move from production 
through consumption in a local or regional area of the United States, 
including a description of the network, its component members, either 
by name or by class, and its purpose;
    (ii) Describe at least two alliances, linkages, or partnerships 
within the value chain that link independent producers with businesses 
and cooperatives that market value-added agricultural commodities or 
value-added products in a manner that benefits small or medium-sized 
farms and ranches that are structured as a family farm, including the 
names of the parties and the nature of their collaboration;
    (iii) Demonstrate how the project, due to the manner in which the 
value-added product is marketed, will increase the profitability and 
competitiveness of at least two, eligible, small or medium-sized farms 
or ranches that are structured as a family farm, including 
documentation to confirm that the participating small or medium-sized 
farms are structured as a family farm and meet these program 
definitions. A description of the two farms or ranches confirming they 
meet the Family Farm requirements, and IRS income tax forms evidencing 
eligible farm income is sufficient;
    (iv) Document that the eligible agricultural producer group/
cooperative/majority-controlled producer-based business venture 
applicant organization has obtained at least one agreement with another 
member of the supply network that is engaged in the value chain on a 
marketing strategy; or that the eligible independent producer applicant 
has obtained at least one agreement from an eligible agricultural 
producer group/cooperative/majority-controlled producer-based business 
venture engaged in the value-chain on a marketing strategy;
    (A) For Planning grants, agreements may include letters of 
commitment or intent to partner on marketing, distribution or 
processing; and should include the names of the parties with a 
description of the nature of their collaboration. For Working Capital 
grants, demonstration of the actual existence of the executed 
agreements is required.
    (B) Independent Producer applicants must provide documentation to 
confirm that the non-applicant agricultural producer group/cooperative/
majority-controlled partnering entity meets program eligibility 
definitions, except that, in this context, the partnering entity does 
not need to supply any of the raw agricultural commodity for the 
project;
    (v) Demonstrate that the applicant organization currently owns and 
produces more than 50 percent of the raw agricultural commodity that 
will be used for the value-added product that is the subject of the 
proposal; and
    (vi) Demonstrate that the project will result in an increase in 
customer base and an increase in revenue returns to the applicant 
producers supplying the majority of the raw agricultural commodity for 
the project.

[[Page 10129]]

    (d) Priority. In addition, applicants that demonstrate eligibility 
may apply for priority points if they propose projects that contribute 
to increasing opportunities for beginning farmers or ranchers, socially 
disadvantaged farmers or ranchers, or if they are Operators of small- 
or medium-sized farms or ranches that are structured as a family farm, 
propose Mid-Tier Value Chain projects, or are a farmer or rancher 
Cooperative.
    (1) Applicants seeking priority points as beginning farmers or 
ranchers or as socially disadvantaged farmers or ranchers must provide 
the documentation specified in paragraphs (c)(1)(i) or (ii), as 
applicable, of this section. For entities with multiple owners or 
members, 51 percent of owners or members must be eligible beginning 
farmers or ranchers or socially disadvantaged farmers or ranchers, as 
applicable.
    (2) Applicants seeking priority points as Operators of small- or 
medium-sized farms and ranches that are structured as a family farm 
must:
    (i) Be structured as family farm;
    (ii) Meet all requirements in the associated definitions; and
    (iii) Provide the following documentation:
    (A) A description from the individual owner(s) of the applicant 
organization addressing each qualifying element in the definitions, 
including identification of the average annual gross sales of 
agricultural commodities from the farm in the previous three years, not 
to exceed $250,000 for small operators or $1,000,000 for medium 
operators;
    (B) The names and identification of the blood or marriage 
relationships of all applicant/owners of the farm; and
    (C) A statement that the applicant/owners are primarily responsible 
for the daily physical labor and management of the farm with hired help 
merely supplementing the family labor.
    (3) Applicants seeking priority points for Mid-Tier Value Chain 
proposals must be one of the four eligible applicant types and provide 
the documentation specified in paragraphs (c)(2)(i) through (c)(2)(vi) 
of this section, demonstrating that the project meets the Mid-Tier 
Value Chain definition.
    (4) Applicants seeking priority points for a Farmer or Rancher 
Cooperative must:
    (i) Demonstrate that it is a business owned and controlled by 
Independent Producers that is legally incorporated as a Cooperative; or 
that it is a business owned and controlled by Independent Producers 
that is not legally incorporated as a Cooperative, but is identified by 
the state in which it operates as a cooperatively operated business;
    (ii) Identify, by name or class, and confirm that the Independent 
Producers on whose behalf the value-added work will be done meet the 
definition requirements for an Independent Producer, including that 
each member is an individual agricultural producer, or an entity that 
is solely owned and controlled by agricultural producers, that is 
directly engaged in the production of the majority of the agricultural 
commodity to which value will be added; and
    (iii) Provide evidence of ``good standing'' as a cooperatively 
operated business in the state of incorporation or operations, as 
applicable.
    Sec.  4284.923 Eligible uses of grant and matching funds.
    In general, grant and cost-share matching funds have the same use 
restrictions and must be used to fund only the costs for eligible 
purposes as defined in paragraphs (a) and (b) of this section.
    (a) Planning funds may be used to pay for a qualified consultant to 
conduct and develop a feasibility study, business plan, and/or 
marketing plan associated with the processing and/or marketing of a 
value-added agricultural product. Planning funds may not be used to 
compensate applicants or family members for participation in 
feasibility studies. However, in-kind contribution of matching funds to 
cover applicant or family member participation in planning activities 
is allowed so long as the value of such contribution does not exceed a 
maximum of 25 percent of the total project costs and an adequate 
explanation of the basis for the valuation, referencing comparable 
market values, salary and wage data, expertise or experience of the 
contributor, per unit costs, industry norms, etc., is provided. Final 
valuation for applicant or family member in-kind contributions is at 
the discretion of the Agency. Planning funds may not be used to 
evaluate the agricultural production of the commodity itself, other 
than to determine the project's input costs related to the feasibility 
of processing and marketing the value-added product.
    (b) Working capital funds may be used to pay the project's 
operational costs directly related to the processing and/or marketing 
of the value-added product. Examples of eligible working capital 
expenses include designing or purchasing a financial accounting system 
for the project, paying salaries of employees without ownership or 
immediate family interest to process and/or market and deliver the 
value-added product to consumers, paying for inventory supply costs 
from a third party necessary to produce the value-added product from 
the agricultural commodity, and paying for a marketing campaign for the 
value-added product. In-kind contributions may include appropriately 
valued inventory of raw commodity to be used in the project. In-kind 
contributions of matching funds may also include contributions of time 
spent on eligible tasks by applicants or applicant family members so 
long as the value of such contribution does not exceed a maximum of 25 
percent of the total project costs and an adequate explanation of the 
basis for the valuation, referencing comparable market values, salary 
and wage data, expertise or experience of the contributor, per unit 
costs, industry norms, etc. is provided. Final valuation for applicant 
or family member in-kind contributions is at the discretion of the 
Agency.


Sec.  4284.924  Ineligible uses of grant and matching funds.

    Federal procurement standards prohibit transactions that involve a 
real or apparent conflict of interest for owners, employees, officers, 
agents, or their immediate family members having a personal, 
professional, financial or other interest in the outcome of the 
project; including organizational conflicts, and conflicts that 
restrict open and free competition for unrestrained trade. In addition, 
the use of funds is limited to only the eligible activities identified 
in Sec.  4284.923 and prohibits other uses of funds. Ineligible uses of 
grant and matching funds awarded under this subpart include, but are 
not limited to:
    (a) Support costs for services or goods going to or coming from a 
person or entity with a real or apparent conflict of interest, except 
as specifically noted for limited in-kind matching funds in Sec.  
4284.923(a) and (b);
    (b) Pay costs for scenarios with noncompetitive trade practices;
    (c) Plan, repair, rehabilitate, acquire, or construct a building or 
facility (including a processing facility);
    (d) Purchase, lease purchase, or install fixed equipment, including 
processing equipment;
    (e) Purchase or repair vehicles, including boats;
    (f) Pay for the preparation of the grant application;
    (g) Pay expenses not directly related to the funded project for the 
processing and marketing of the value-added product;
    (h) Fund research and development;

[[Page 10130]]

    (i) Fund political or lobbying activities;
    (j) Fund any activities prohibited by 7 CFR parts 3015 and 3019, 2 
CFR part 230, and 48 CFR subpart 31.2.
    (k) Fund architectural or engineering design work;
    (l) Fund expenses related to the production of any agricultural 
commodity or product, including seed, rootstock, labor for harvesting 
the crop, and delivery of the commodity to a processing facility;
    (m) Conduct activities on behalf of anyone other than a 
specifically identified independent producer or group of independent 
producers, as identified by name or class. The Agency considers 
conducting industry-level feasibility studies or business plans, that 
are also known as feasibility study templates or guides or business 
plan templates or guides, to be ineligible because the assistance is 
not provided to a specific group of Independent Producers;
    (n) Pay owner or immediate family member salaries or wages;
    (o) Pay for goods or services from a person or entity that employs 
the owner or an immediate family member;
    (p) Duplicate current services or replace or substitute support 
previously provided;
    (q) Pay any costs of the project incurred prior to the date of 
grant approval, including legal or other expenses needed to incorporate 
or organize a business;
    (r) Pay any judgment or debt owed to the United States;
    (s) Purchase land; or
    (t) Pay for costs associated with illegal activities.


Sec.  4284.925  Funding limitations.

    (a) Grant funds may be used to pay up to 50 percent of the total 
eligible project costs, subject to the limitations established for 
maximum total grant amount.
    (b) The maximum total grant amount provided to a grantee in any one 
year shall not exceed the amount announced in an annual notice issued 
pursuant to Sec.  4284.915, but in no event may the total amount of 
grant funds provided to a grant recipient exceed $500,000.
    (c) A grant under this subsection shall have a term that does not 
exceed 3 years, and a project start date within 90 days of the date of 
award, unless otherwise specified in a notice pursuant to Sec.  
4284.915. Grant project periods should be scaled to the complexity of 
the objectives for the project. The Agency may extend the term of the 
grant period, not to exceed the 3-year maximum.
    (d) The aggregate amount of awards to majority controlled producer-
based businesses may not exceed 10 percent of the total funds obligated 
under this subpart during any fiscal year.
    (e) Not more than 5 percent of funds appropriated each year may be 
used to fund the Agricultural Marketing Resource Center, to support 
electronic capabilities to provide information regarding research, 
business, legal, financial, or logistical assistance to independent 
producers and processors.
    (f) Each fiscal year, the following amounts of reserved funds will 
be made available:
    (1) 10 percent to fund projects that benefit beginning farmers or 
ranchers, or socially-disadvantaged farmers or ranchers; and
    (2) 10 percent to fund projects that propose development of mid-
tier value chains.
    (3) Funds not obligated by June 30 of each fiscal year shall be 
available to the Secretary to make grants under this subsection to 
eligible entities as determined by the Secretary.


Sec. Sec.  4284.926-4284.929  [Reserved]

Applying for a Grant


Sec.  4284.930  Preliminary review.

    The Agency encourages applicants to contact their State Office well 
in advance of the application submission deadline, to ask questions and 
to discuss applicant and project eligibility potential. At its option, 
the Agency may establish a preliminary review deadline so that it may 
informally assess the eligibility of the application and its 
completeness. The result of the preliminary review is not binding on 
the Agency. To implement this section, the Agency will issue a 
notification addressing this issue in accordance with Sec.  4284.915.


Sec.  4284.931  Application package.

    All applicants are required to submit an application package that 
is comprised of the elements in this section.
    (a) Application forms. The following application forms (or their 
successor forms) must be completed when applying for a grant under this 
subpart.
    (1) Form SF-424, ``Application for Federal Assistance.''
    (2) Form SF-424A, ``Budget Information-Non-Construction Programs.''
    (3) Form SF-424B, ``Assurances--Non-Construction Programs.''
    (4) Form RD 400-4, ``Assurance Agreement.''
    (5) Form RD 1940-20, ``Request for Environmental Information.'' 
Applications for planning grants are generally excluded from the 
environmental review process by Sec.  1940.333 of this title.
    (6) All applicants are required to have a DUNS number (including 
individuals and sole proprietorships).
    (b) Application content. The following content items must be 
completed when applying for a grant under this subpart:
    (1) Eligibility discussion. The applicant must demonstrate in 
detail how the:
    (i) Applicant eligibility requirements in Sec. Sec.  4284.920 and 
4284.921 are met;
    (ii) Project eligibility requirements in Sec.  4284.922 are met;
    (iii) Eligible use of grant and matching funds requirements in 
Sec. Sec.  4284.923 and 4284.924 are met; and
    (iv) Funding limitation requirements in Sec.  4284.925 are met.
    (2) Evaluation criteria. Using the format prescribed by the 
application package, the applicant must address each evaluation 
criterion identified below.
    (i) Performance Evaluation Criteria. As part of the application, 
applicants for both planning and working capital grants must suggest 
one or more relevant criterion that will be used to evaluate the 
performance of the grant project during its operational phase post-
award, as benchmarks to ascertain whether or not the primary goals and 
objectives proposed in the work plan are accomplished during the 
project period. These benchmarks should relate to the overall project 
goal of creating and serving new markets, with a resulting increase in 
customer base and increase in revenues returning to the producer 
applicants; as well as to the practical and/or logistical activities 
and tasks to be accomplished during the project period. The Agency 
application package will provide additional instruction to assist 
applicants when responding to this criterion. Applicant suggested 
performance criteria will be incorporated into the applicant's semi-
annual and final reporting requirements if selected for award, and will 
be specified in the grant agreement associated with the award. In 
addition, applicants for both planning and working capital grants must 
identify the number of jobs anticipated to be created or saved as a 
direct result of the project. Planning grant applicants should identify 
the number of jobs expected to be created or saved as a result of 
continuing the project into its operational phase. Working capital 
grant applicants should identify the actual number of jobs created or 
saved as a result of the project.

[[Page 10131]]

    (ii) Proposal evaluation criteria. Applicants for both planning and 
working capital grants must address each proposal evaluation criterion 
identified in Sec.  4284.942 in narrative form, in the application 
package.
    (3) Certification of matching funds. Using the format prescribed by 
the application package, applicants must certify that:
    (i) Cost-share matching funds will be spent in advance of grant 
funding, such that for every dollar of grant funds disbursed, not less 
than an equal amount of matching funds will have been expended prior to 
submitting the request for reimbursement; and
    (ii) If matching funds are proposed in an amount exceeding the 
grant amount, those matching funds must be spent at a proportional rate 
equal to the match-to-grant ratio identified in the proposed budget.
    (4) Verification of cost-share matching funds. Using the format 
prescribed by the application package, the applicant must demonstrate 
and provide authentic documentation from the source to confirm the 
eligibility and availability of both cash and in-kind contributions 
that meet the definition requirements for Matching Funds and Conflict 
of Interest in Sec.  4284.902, as well as the following criteria:
    (i) Matching funds are subject to the same use restrictions as 
grant funds, and must be spent on eligible project expenses during the 
grant funding period.
    (ii) Matching funds must be from eligible sources without a real or 
apparent conflict of interest.
    (iii) Matching funds must be at least equal to the amount of grant 
funds requested, and combined grant and matching funds must equal 100 
percent of the total eligible project costs.
    (iv) Unless provided by other authorizing legislation, other 
Federal grant funds cannot be used as matching funds.
    (v) Matching funds must be provided in the form of confirmed 
applicant cash, loan, or line of credit; or provided in the form of a 
confirmed applicant or family member in-kind contribution that meets 
the requirements and limitations specified in Sec.  4284.923(a) and 
(b); or provided in the form of confirmed third-party cash or eligible 
third-party in-kind contribution; or non-federal grant sources (unless 
otherwise provided by law).
    (vi) Examples of ineligible matching funds include funds used for 
an ineligible purpose, contributions donated outside the proposed grant 
funding period, third-party in-kind contributions that are over-valued, 
or are without substantive documentation for an independent reviewer to 
confirm a valuation, conducting activities on behalf of anyone other 
than a specific Independent Producer or group of Independent Producers, 
expected program income at time of application, or instances where a 
real or apparent conflict of interest exists, except as detailed in 
Sec.  4284.923(a) and (b).
    (5) Business plan. For working capital grant applications, 
applicants must provide a copy of the business plan that was completed 
for the proposed value-added venture, except as provided for in 
Sec. Sec.  4284.922(b)(6) and 4284.932. The Agency must concur in the 
acceptability or adequacy of the business plan. For all planning grant 
applications including those proposing product eligibility under 
``produced in a manner that enhances the value of the agricultural 
commodity,'' a business plan is not required as part of the grant 
application.
    (6) Feasibility study. As part of the application package, 
applicants for working capital grants must provide a copy of the third-
party feasibility study that was completed for the proposed value-added 
project, except as provided for at Sec. Sec.  4284.922(b)(6) and 
4284.932. The Agency must concur in the acceptability or adequacy of 
the feasibility study.


Sec.  4284.932  Simplified application.

    Applicants requesting less than $50,000 will be allowed to submit a 
simplified application, the contents of which will be announced in an 
annual notice issued pursuant to Sec.  4284.915. Applicants requesting 
working capital grants of less than $50,000 are not required to provide 
feasibility studies or business plans, but must provide information 
demonstrating increases in customer base and revenue returns to the 
producers supplying the majority of the agricultural commodity as a 
result of the project. See Sec.  4284.922(b)(6)(ii).


Sec.  4284.933  Filing instructions.

    Unless otherwise specified in a notification issued under Sec.  
4284.915, the requirements specified in paragraphs (a) through (e) of 
this section apply to all applications.
    (a) When to submit. Complete applications must be received by the 
Agency on or before the application deadline established for a fiscal 
year to be considered for funding for that fiscal year. Applications 
received by the Agency after the application deadline established for a 
fiscal year will not be considered.
    (b) Incomplete applications. Incomplete applications will be 
rejected. Applicants will be informed of the elements that made the 
application incomplete. If a resubmitted application is received by the 
applicable application deadline, the Agency will reconsider the 
application.
    (c) Where to submit. All applications must be submitted to the 
State Office of Rural Development in the State where the project 
primarily takes place, or on-line through grants.gov.
    (d) Format. Applications may be submitted as paper copy, or 
electronically via grants.gov. If submitted as paper copy, only one 
original copy should be submitted. An application submission must 
contain all required components in their entirety. Emailed or faxed 
submissions will not be acknowledged, accepted or processed by the 
Agency.
    (e) Other forms and instructions. Upon request, the Agency will 
make available to the public the necessary forms and instructions for 
filing applications. These forms and instructions may be obtained from 
any State Office of Rural Development, or the Agency's Value-Added 
Producer Grant program Web site in http://www.rurdev.usda.gov/rbs/coops/vadg.htm.


Sec. Sec.  4284.934-4284.939  [Reserved]

Processing and Scoring Applications


Sec.  4284.940  Processing applications.

    (a) Initial review. Upon receipt of an application on or before the 
application submission deadline for each fiscal year, the Agency will 
conduct a review to determine if the applicant and project are 
eligible, and if the application is complete and sufficiently 
responsive to program requirements.
    (b) Notifications. After the review in paragraph (a) of this 
section has been conducted, if the Agency has determined that either 
the applicant or project is ineligible or that the application is not 
complete to allow evaluation of the application or sufficiently 
responsive to program requirements, the Agency will notify the 
applicant in writing and will include in the notification the reason(s) 
for its determination(s).
    (c) Resubmittal by applicants. Applicants may submit revised 
applications to the Agency in response to the notification received 
under paragraph (b) of this section. If a revised grant application is 
received on or before the application deadline, it will be processed by 
the Agency. If a revised application is not received by the specified 
application deadline, the Agency will not process the application and 
will inform the applicant that their

[[Page 10132]]

application was not reviewed due to tardiness.
    (d) Subsequent ineligibility determinations. If at any time an 
application is determined to be ineligible, the Agency will notify the 
applicant in writing of its determination.


Sec.  4284.941  Application withdrawal.

    During the period between the submission of an application and the 
execution of award documents, the applicant must notify the Agency in 
writing if the project is no longer viable or the applicant no longer 
is requesting financial assistance for the project. When the applicant 
notifies the Agency, the selection will be rescinded or the application 
withdrawn.


Sec.  4284.942  Proposal evaluation criteria and scoring applications.

    (a) General. The Agency will only score applications for which it 
has determined that the applicant and project are eligible, the 
application is complete and sufficiently responsive to program 
requirements, and the project is likely feasible. Any applicant whose 
application will not be reviewed because the Agency has determined it 
fails to meet the preceding criteria will be notified of appeal rights 
pursuant to Sec.  4284.903. Each such viable application the Agency 
receives on or before the application deadline in a fiscal year will be 
scored in the fiscal year in which it was received. Each application 
will be scored based on the information provided and/or adequately 
referenced in the scoring section of the application at the time the 
applicant submits the application to the Agency. Scoring information 
must be readily identifiable in the application or it will not be 
considered.
    (b) Scoring Applications. The criteria specified in paragraphs 
(b)(1) through (b)(6) of this section will be used to score all 
applications. For each criterion, applicants must demonstrate how the 
project has merit, and provide rationale for the likelihood of project 
success. Responses that do not address all aspects of the criterion, or 
that do not comprehensively convey pertinent project information will 
receive lower scores. The maximum number of points that will be awarded 
to an application is 100. Points may be awarded lump sum or on a 
graduated basis. The Agency application package will provide additional 
instruction to assist applicants when responding to the criteria below.
    (1) Nature of the Proposed Venture (graduated score 0-30 points). 
Describe the technological feasiblity of the project, of the project, 
as well as the operational efficiency, profitability, and overall 
economic sustainability resulting from the project. In addition, 
demonstrate the potential for expanding the customer base for the 
value-added product, and the expected increase in revenue returns to 
the producer-owners providing the majority of the raw agricultural 
commodity to the project. Applications that demonstrate high likelihood 
of success in these areas will receive more points than those that 
demonstrate less potential in these areas.
    (2) Qualifications of Project Personnel (graduated score 0-20 
points). Identify the individuals who will be responsible for 
completing the proposed tasks in the work plan, including the roles and 
activities that owners, staff, contractors, consultants or new hires 
may perform; and demonstrate that these individuals have the necessary 
qualifications and expertise, including those hired to do market or 
feasibility analyses, or to develop a business operations plan for the 
value-added venture. Include the qualifications of those individuals 
responsible to lead or manage the total project (applicant owners or 
project managers), as well as those individuals responsible for 
actually conducting the various individual tasks in the work plan (such 
as consultants, contractors, staff or new hires). Demonstrate the 
commitment and the availability of any consultants or other 
professionals to be hired for the project. If staff or consultants have 
not been selected at the time of application, provide specific 
descriptions of the qualifications required for the positions to be 
filled. Applications that demonstrate the strong credentials, 
education, capabilities, experience and availability of project 
personnel that will contribute to a high likelihood of project success 
will receive more points than those that demonstrate less potential for 
success in these areas.
    (3) Commitments and Support (graduated score 0-10 points). Producer 
commitments to the project will be evaluated based on the number of 
independent producers currently involved in the project; and the 
nature, level and quality of their contributions. End-user commitments 
will be evaluated on the basis of potential or identified markets and 
the potential amount of output to be purchased, as evidenced by letters 
of intent or contracts from potential buyers referenced within the 
application. Other Third-Party commitments to the project will be 
evaluated based on the critical and tangible nature of the contribution 
to the project, such as technical assistance, storage, processing, 
marketing, or distribution arrangements that are necessary for the 
project to proceed; and the level and quality of these contributions. 
Applications that demonstrate the project has strong direct financial, 
technical and logistical support to successfully complete the project 
will receive more points than those that demonstrate less potential for 
success in these areas.
    (4) Work Plan and Budget (graduated score 0-20 points). In accord 
with Sec.  4284.922(b)(5), applicants must submit a comprehensive work 
plan and budget. The work plan must provide specific and detailed 
narrative descriptions of the tasks and the key project personnel that 
will accomplish the project's goals. The budget must present a detailed 
breakdown of all estimated costs associated with the activities and 
allocate those costs among the listed tasks. The source and use of both 
grant and matching funds must be specified for all tasks. An eligible 
start and end date for the project itself and for individual project 
tasks must be clearly indicated and may not exceed Agency specified 
timeframes for the grant period. Points may not be awarded unless 
sufficient detail is provided to determine that both grant and matching 
funds are being used for qualified purposes and are from eligible 
sources without a conflict of interest. It is recommended that 
applicants utilize the budget format templates provided in the Agency's 
application package.
    (5) Priority Points (lump sum score 0 or 10 points). Priority 
points may be awarded in both the General Funds competition, as well as 
the Reserved Funds competitions. Qualifying applicants may request 
priority points if they meet the requirements for one of the following 
categories and provide the documentation specified in Sec.  
4284.922(d), as applicable. Priority categories include: Beginning 
Farmer or Rancher, Socially Disadvantaged Farmer or Rancher, Operator 
of a Small or Medium-sized farm or ranch that is structured as a Family 
Farm, Mid Tier Value Chain proposals, and Farmer or Rancher 
Cooperative. It is recommended that applicants utilize the Agency 
application package when documenting for priority points and refer to 
the documentation requirements specified in Sec.  4284.922(d). All 
qualifying applicants in this category will receive 10 points.
    (6) Administrator Priority Categories (graduated score 0-10 
points). Unless otherwise specified in a notification issued under 
Sec.  4284.915(b)(1), the Administrator of USDA Rural Development 
Business and Cooperative

[[Page 10133]]

Programs has discretion to award up to 10 points to an application to 
improve the geographic diversity of awardees in a fiscal year.


Sec. Sec.  4284.943-4284.949  [Reserved]

Grant Awards and Agreement


Sec.  4284.950  Award process.

    (a) Selection of applications for funding and for potential 
funding. The Agency will select and rank applications for funding based 
on the score an application has received in response to the proposal 
evaluation criteria, compared to the scores of other value-added 
applications received in the same fiscal year. Higher scoring 
applications will receive first consideration for funding. The Agency 
will notify applicants, in writing, whether or not they have been 
selected for funding. For those applicants not selected for funding, 
the Agency will provide a brief explanation for why they were not 
selected.
    (b) Ranked applications not funded. A ranked application that is 
not funded in the fiscal year in which it was submitted will not be 
carried forward into the next fiscal year. The Agency will notify the 
applicant in writing.
    (c) Intergovernmental review. If State or local governments raise 
objections to a proposed project under the intergovernmental review 
process that are not resolved within 90 days of the Agency's award 
announcement date, the Agency will rescind the award and will provide 
the applicant with a written notice to that effect. The Agency, in its 
sole discretion, may extend the 90-day period if it appears resolution 
is imminent.


Sec.  4284.951  Obligate and award funds.

    (a) Letter of conditions. When an application is selected subject 
to conditions established by the Agency, the Agency will notify the 
applicant using a Letter of Conditions, which defines the conditions 
under which the grant will be made. Each grantee will be required to 
meet all terms and conditions of the award within 90 days of receiving 
a Letter of Conditions unless otherwise specified by the Agency at the 
time of the award. If the applicant agrees with the conditions, the 
applicant must complete, sign, and return the Agency's Form RD 1942-46, 
``Letter of Intent to Meet Conditions.'' If the applicant believes that 
certain conditions cannot be met, the applicant may propose alternate 
conditions to the Agency. The Agency must concur with any proposed 
changes to the Letter of Conditions by the applicant before the 
application will be further processed. If the Agency agrees to any 
proposed changes, the Agency will issue a revised or amended Letter of 
Conditions that defines the final conditions under which the grant will 
be made.
    (b) Grant agreement and conditions. Each grantee will be required 
to sign a grant agreement that outlines the approved use of funds and 
actions under the award, as well as the restrictions and applicable 
laws and regulations that pertain to the award.
    (c) Other documentation. The grantee will execute additional 
documentation in order to obligate the award of funds including, but 
not limited to,
    (1) Form RD 1940-1, ``Request for Obligation of Funds;''
    (2) Form AD-1047, ``Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters-Primary Covered Transaction;''
    (3) Form AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion-Lower Tier Covered 
Transactions;''
    (4) Form AD-1049, ``Certification Regarding Drug-Free Workplace 
Requirements;''
    (5) Form RD 400-4, ``Assurance Agreement (under Title VI, Civil 
Rights Act of 1964);''
    (6) Form SF-3881, ``ACH Vendor/Miscellaneous Payment Enrollment 
Form;''
    (7) RD Instruction 1940-Q, Exhibit A-1, ``Certification for 
Contracts, Grants and Loans;'' and
    (8) Form SF-LLL, ``Disclosure of Lobbying Activities.''
    (d) Grant disbursements. Grant disbursements will be made in 
accordance with the Letter of Conditions, and/or the grant agreement, 
as applicable. A disbursement request may be submitted by the grantee 
not more frequently than once every 30 days by using Form SF 270, 
``Request for Advance or Reimbursement.'' The disbursement request is 
typically in the form of a reimbursement request for eligible expenses 
incurred by the grantee during the grant funding period. Adequate 
supporting documentation must accompany each request, and may include, 
but is not limited to, receipts, hourly wage rates, personnel payroll 
records, contract progression certification, or other similar 
documentation.


Sec. Sec.  4284.952-4284.959  [Reserved]

Post Award Activities and Requirements


Sec.  4284.960  Monitoring and reporting program performance.

    The requirements specified in this section shall apply to grants 
made under this subpart.
    (a) Grantees must complete the project per the terms and conditions 
specified in the approved work plan and budget, and in the grant 
agreement and letter of conditions. Grantees are responsible to expend 
funds only for eligible purposes and will be monitored by Agency staff 
for compliance. Grantees must maintain a financial management system, 
and property and procurement standards in accordance with Departmental 
Regulations.
    (b) Grantees must submit prescribed narrative and financial 
performance reports that include a comparison of accomplishments with 
the objectives stated in the application. The Agency will prescribe 
both the narrative and financial report formats in the grant agreement.
    (1) Semi-annual performance reports shall be submitted within 45 
days following March 31 and September 30 each fiscal year. A final 
performance report shall be submitted to the Agency within 90 days of 
project completion. Failure to submit a performance report within the 
specified timeframes may result in the Agency withholding grant funds.
    (2) Additional reports shall be submitted as specified in the grant 
agreement or Letter of Conditions, or as otherwise provided in a 
notification issued under Sec.  4284.915.
    (3) Copies of supporting documentation and/or project deliverables 
for completed tasks must be provided to the Agency in a timely manner 
in accord with the development or completion of materials and in 
conjunction with the budget and project timeline. Examples include, but 
are not limited to, a feasibility study, marketing plan, business plan, 
success story, distribution network study, or best practice.
    (4) The Agency may request any additional project and/or 
performance data for the project for which grant funds have been 
received, including but not limited to,
    (i) Information about jobs created and/or saved as a result of the 
project;
    (ii) Increases in producer customer base and revenues as a result 
of the project;
    (iii) Data regarding renewable energy capacity or emissions 
reductions resulting from the project;

[[Page 10134]]

    (iv) The nature of and advantages or disadvantages of supply chain 
arrangements or equitable distribution of rewards and responsibilities 
for mid-tier value chain projects; and
    (v) Recommendations from Beginning Farmers or Socially 
Disadvantaged Farmers.
    (5) The Agency may terminate or suspend the grant for lack of 
adequate or timely progress, reporting, or documentation, or for 
failure to comply with Agency requirements.


Sec.  4284.961  Grant servicing.

    All grants awarded under this subpart shall be serviced in 
accordance with 7 CFR part 1951, subparts E and O, and the Departmental 
Regulations with the exception that delegation of the post-award 
servicing of the program does not require the prior approval of the 
Administrator.


Sec.  4284.962  Transfer of obligations.

    At the discretion of the Agency and on a case-by-case basis, an 
obligation of funds established for an applicant may be transferred to 
a different (substituted) applicant provided:
    (a) The substituted applicant:
    (1) Is eligible;
    (2) Has a close and genuine relationship with the original 
applicant; and
    (3) Has the authority to receive the assistance approved for the 
original applicant; and
    (b) The project continues to meet all product, purpose, and 
reserved funds eligibility requirements so that the need, purpose(s), 
and scope of the project for which the Agency funds will be used remain 
substantially unchanged.


Sec.  4284.963  Grant close out and related activities.

    Grant closeout is the administrative wrap-up of a grant that has 
concluded or has been terminated. Typical closeout activities include a 
letter to the grantee with final instructions and reminders for amounts 
to be de-obligated for any unexpended grant funds, final project 
performance reports due, submission of outstanding deliverables, audit 
requirements, or other outstanding items of closure.


Sec. Sec.  4284.964-4284.999  [Reserved]

    Dated: February 4, 2011.
Dallas Tonsager,
Under Secretary, Rural Development.
[FR Doc. 2011-3036 Filed 2-22-11; 8:45 am]
BILLING CODE 3410-XY-P