Tuesday, October 29, 2013

What Does Health Care Reform Mean for Pennsylvania Agricultural Producers?

by Walt Whitmer, M.S., Senior Extension Associate and Cathy Bowen, Ph.D., Professor of Agricultural & Extension Education Consumer Issues

Regardless of whether you are the sole-proprietor of a farm with no employees, have a few employees, hire seasonal farm workers, or are a large operation with a number of full and/or part-time employees, you need to understand your options under The Patient Protection and Affordable Care Act (ACA). Choosing which options provided for under the ACA is best for you and/or your family and employees will depend on a number of considerations you need to take into account.

For most agricultural producers and other small businesses, the best place to begin your search is to visit the Small Business Health Options Program (SHOP) Marketplace, Businesses with fewer than 50 full-time employees can also call the SHOP Marketplace at 1-800-706-7893 (TTY users: 1-800-706-7915). Health insurance coverage through SHOP starts as soon as January 1, 2014. Open enrollment began October 1, 2013. You can enroll and begin offering insurance any time during the year – although waiting beyond the March 31, 2014 open enrollment closing date may have implications and costs for you and/or your employees.

While small employers, those with less than 50 full time equivalent (FTEs) employees are currently not required to offer health coverage, there are a number of important options and provisions in the new law that farmers, farm families and farm employees will want to consider. Among these are:

  • Sole proprietors are considered “individuals” and are subject to the ACA’s individual mandate. This mandate requires you to have health insurance or pay a penalty. 
  • Farmers and farm families who don’t currently have health insurance, can explore options and compare prices and services on  (the health insurance marketplace) or with private companies.  Note, however, that premium tax credits will only be available for insurance that is purchased on  Premium tax credits are subsidies, or assistance from federal funds that help pay for premiums. They are comparable to the subsidy farmers get when they purchase crop insurance.  In short, farmers or consumers pay for part of their insurance premium and money from federal funds collected from taxes pay for the remaining part of their premiums.
  • If you currently have an insurance policy, you can compare the costs of your current policy to policies available on
  • For 2014, the SHOP Marketplace is open to employers with 50 or fewer full-time-equivalent employees (FTEs). Starting in 2014, businesses with 50 or fewer full-time equivalent (FTE) employees can use SHOP to offer coverage to their employees. As the employer, you control the coverage offered and how much you pay toward premium costs. With one online application, on your own or with the help of an agent, broker, or other assists, you can compare price, coverage, and quality of plans in a way that's easy to understand. 
  • Any farm operation with close to 50 full-time equivalent (FTE) employees should consult with their professional advisor after learning the basics about their options from  Do the math and develop a plan with your professional advisor that optimizes the mandate requirements within your business model.  A full-time employee is one who works on average 30 hours per week or 130 hours per month. Full-time equivalents are determined by dividing the total hours worked by part-time employees by 120.
  • If you have fewer than 25 employees and provide health insurance to them through the SHOP Marketplace you may qualify for a 35% small business tax credit.  In 2014, this credit will increase to 50% and you can still deduct from your taxes the rest of your premium costs not covered by the tax credit. To qualify for the Small Business Health Care Tax Credit, you must pay at least 50% of your full-time employees' premium costs. You don’t need to offer coverage to your part-time employees or to dependents.
  • Choosing the coverage that’s right for your business. There are four categories of plans in the SHOP Marketplace:  Bronze, Silver, Gold, and Platinum.  They offer similar benefits, but differ based on how much enrollees share in the costs. In 2014, SHOP is open to employers with 50 or fewer full-time equivalent (FTE) employees. All plans offered through the SHOP must provide a set of essential health benefits. What your employees pay for deductibles and copayments – and the total amount they spend out-of-pocket for the year – depends on which plan category you choose. 

The Kaiser Family Foundation has developed a video
"Health Reform Hits Main Street."  Checkout the video on
Penn State Extension "Health Insurance and You" website.

Penn State Extension’s website “Health Insurance and You” provides additional information about health care topics for individuals, families, and businesses. There is also a wealth of information for farmers and small business available on HealthCare.Gov and many other sites. In light of the fast-approaching deadlines for enrollment, it will be important for all farm operations (and other small businesses) to begin to prepare now.  Consult with your current insurance provider or other professionals. Learn about the options and mandates that are part of the ACA and what they mean for your business. Finally, develop a plan that represents the best path forward for you and your operation.

Monday, October 21, 2013

Adding Value to Farm Food Production

by John Berry, Extension Educator, Lehigh County

Most farmers are on the lookout for ways to generate more net revenue. The question is something close to “What can we do to utilize our resources to their best advantage?” Many opportunities exist, but in order to be feasible they must match the values of the farm family. One common method is the move to identify farm crops as being sustainable. The challenge is how to verify claims and meet the documentation requirements to satisfy buyers. There are several competing verification systems in place that are trying to address this very concern. Some are driven by a singular philosophical mission and others are more inclusive of all those businesses along the chain from farm to fork.

As an example, individual farm operations within the specialty crop supply chain are experiencing increasing demands to demonstrate "sustainability" to their customers. These demands have resulted in a growing number of certification and/or supplier education programs and thus the potential for redundant or even conflicting requirements. Most of these programs focus on a niche market, a limited set of crops, and/or a specific link in the supply chain, and thus are not designed to provide the specialty crops industry as a whole with a comprehensive system for measuring sustainable performance. However, The Stewardship Index aims to provide such a system.

The StewardshipIndex for Specialty Crops project is a multi-stakeholder initiative developing a system for measuring sustainable performance throughout the specialty crop supply chain. The project offers a suite of outcomes-based metrics to enable operators at any point along the supply chain to benchmark, compare, and communicate their own performance. The Stewardship Index does not seek to provide standards, but instead provides a yardstick for measuring sustainable outcomes. In the future, the project may also provide tools and resources to help specialty crop companies advance sustainability goals.

For this project "specialty crops" is defined broadly to include fruits, vegetables, nuts, and horticulture. The founding members of the project regard sustainability as an ongoing process to advance environmental, socially responsible, and economic values. The project does not aim to identify a level of performance that is "sustainable," but instead to provide measures to help all participants implement sustainable values.

Quantitative sustainability metrics, developed collaboratively, can offer significant benefits to specialty crop industry participants, and the eventual consumer. As envisioned, this project will:

·         Help operations across the supply chain (farms, distributors, processors, retailers, etc) identify opportunities for increasing efficiency and reducing costs;
·         Provide a standardized system for measuring performance, thus reducing the potential for duplicate monitoring and reporting systems;
·         Allow individual operators to engage in the sustainability journey starting at (and regardless of) their current level of performance;
·         Address the unique needs of the specialty crop industry while demonstrably improving environmental and social impacts;
·         Enable verifiable marketing claims backed by measurable performance data;

·         Help reduce the likelihood of future industry regulation by solving problems and demonstrating improved performance to regulators.

Thursday, October 17, 2013

What is Sustainable Agriculture?

by John BerryExtension Educator, Lehigh County

We hear quite a bit about the concepts of sustainability lately. Everything from fuel to employment to housing is referred to as needing to be sustainable.  As producers, have we reconsider our food and fiber production in terms of sustainability? What are the ecological, economic, social and philosophical issues that sustainable agriculture addresses?

The long-term viability of our current food production system is being questioned for many reasons. The news media regularly presents us with the paradox of starvation a midst plenty. One time we see starving children the next we see food being thrown away. Possible adverse environmental impacts of agriculture and increased awareness of foodborne illness also demand our attention. "Farm crisis's" seem to recur with regularity.

The prevailing agricultural system, variously called "conventional farming," "modern agriculture," or "industrial farming" has delivered tremendous gains in productivity and efficiency. Food production worldwide has risen in the past 50 years; the World Bank estimates that between 70% and 90% of the recent increases in food production is the result of conventional agriculture rather than greater acreage under cultivation. Not only have consumers come to expect abundant and inexpensive food they are getting this food with ever fewer acres being farmed.

Some terms defy definition. “Sustainable agriculture” has become one of them. In such a quickly changing world, can anything be sustainable? What do we want to sustain? With the contradictions and questions has come a hard look at our present food production system and thoughtful evaluations of its future. If nothing else, the term “sustainable agriculture” has provided talking points, a sense of direction, which has sparked much excitement and innovative thinking in the agricultural world.

Actually, sustainable agriculture was addressed by Congress in the 1990 Farm Bill. Under that law, “the term sustainable agriculture means an integrated system of plant and animal production practices having a site-specific application that will, over the long term:
  • satisfy human food and fiber needs 
  • enhance environmental quality and the natural resource base upon which the agricultural economy depends 
  • make the most efficient use of nonrenewable resources and on-farm resources and integrate, where appropriate, natural biological cycles and controls 
  • sustain the economic viability of farm operations 
  • enhance the quality of life for farmers and society as a whole.” 

Given this official definition, the idea of agricultural sustainability is not a new phenomenon. Historically, farming played an important role in our development and identity as a nation. From strongly agrarian roots, we have evolved into a culture with few farmers. Less than two percent of Americans now produce food for all U.S. citizens and many overseas.

World population continues to grow. According to recent United Nations population projections, the world population will grow to 9.4 billion in 2050. The rate of population increase is especially high in many developing countries. In these countries, the population factor, combined with rapid industrialization, poverty, political instability, large food imports and debt burden, make long-term food security especially urgent.

Finally, the challenge of defining and dealing with concerns associated with today's food production system is inherently laden with controversy and emotion. It is unfortunate, but true, that some in the commercial agriculture community view sustainable agriculture as a personal criticism on conventional agriculture of which they are justifiably proud, and we have all benefited.

Material from the National Ag Library was used for this article.

Cause Marketing Opportunities for your Business

By Kathy Kelley, Professor of Horticultural Marketing and Business Management    
It is October and many of us think a bit more about charities and cause marketing this month.  Over the past couple of years, Dana has written a couple of blogs about building a cause marketing program for your business: charitable activities and cause marketing products. I wanted to add a bit more to this important discussion.

It is suggested that consumers “feel good” about spending their money on goods that support a cause.  With so many local, national, and international causes already being supported by your customers’ generosity, how can you compete with them and the businesses that sponsor them?  Consider the following which could help bolster your cause marketing program:

  • Make sure that the donation process is transparent.   For each dollar that you collect you need to show how and where these funds were distributed.  Consumers who do not see any progress associated with the money they donated may very well choose not to donate anymore.  Be sure to indicate on your website, in your promotional activities, and in-store that money collected helps to do great things. 
  • Consider a cause that has a natural connection with your business.  Perhaps a member of the business has suffered from a disease that could benefit from a donation.   Or, if fruit and vegetables are your primary product why not support a cause that helps eliminate hunger?
    Here is an example of cause marketing.  This local baker will
    donate a portion of the proceeds from these cookie
    sales to Traci's Hope, an organization that provides
    financial support to breast cancer patients

Promote that you are accepting donations in addition to selling a product or two where the proceeds go directly to support the cause.  You, as the business owner, may assume that consumers would automatically understand that there is more than one way to support a cause; however, it may not occur to consumers that they can make a donation in place of making a purchase.              

Finally, involve employees in more than just the process of collecting donations or indicating to customers what purchases support the cause.  Involve them in the process of selecting the cause and associated administration needed to support events or activities.  The more employees support the effort the more likely they are to alert customers that your business is involved in collecting donations to help those in difficult situations.

Friday, October 4, 2013

Precision Fitting your Farm Bottom Line: Accrual Adjustments for the Production Based Income Statement

By Miguel Saviroff, Extension Educator, Somerset County

The Income Statement is a tool performance evaluation form a management point of view. The Accrual Income Statement offers a more accurate picture of farm business profits and financial position. It shows the farm’s net income for the production year. Usually, the production or fiscal year is made to coincide with your calendar year. The net income is defined as your farm returns from sales, minus total production expenses as they happen along the year. Any gain or loss on the sale of capital assets should be added to this amount. The following is the format for the Cash Based Income Statement:

+Total Revenue
- Total Expenses
Net farm income from operations
+ Gain (or – Loss) on sale of capital assets
Net Farm Income.

Here’s a simple example of a Cash Based Income Statement:

Table 1. Income Statement

Crop Sales
20,000 bu
Livestock Sales
2500 cwt
Gross Income

Cash Expenses

Net Cash Income


Net farm Income

* Note1: depreciation, a non-cash expense, is required by IRS to be recorded in cash-Basis and accrual basis Income Statement.

Net income can be cash-basis or accrual adjusted. Cash-based includes only cash receipts, cash expenses, and depreciation.

In farming, due to inventories of crops and livestock, accounts receivable, accounts payable and prepaid expenses, produced or incurred in one year and sold, used or received the following year, we are more interested in the accrual adjusted income statement. In this format, farm sales are accounted only in the year when a crop was harvested or livestock was finished and ready to sell, no matter if the product started growing or was being raised in the previous production cycle. Likewise, the only expenses considered are those associated with the products harvested or finished in the current production year. Year-end accrual adjustments to cash basis income statement will create your accrual income statement; all you need is a beginning and an ending balance sheet for the year.

Table 2 outlines the process for adjusting cash basis income to approximate accrual income.

Table 2. Adjusting cash basis records to approximate accrual basis records
Cash basis
Adjustments to cash basis
Equals accrual basis
Cash Receipts
- Beginning inventories
+ Ending inventories
- Beginning accounts 
+ Ending accounts receivable
Gross Revenue
Cash disbursements
- Beginning accounts payable
+ Ending accounts payable
- Beginning accrued expenses
+ Ending accrued expenses
+ Beginning prepaid expenses
-  Ending prepaid expenses
+ Beginning supplies
   (fuel, chemical, seeds, etc.)
-  Ending supplies
+ Beginning investment in          growing crops
-  Ending investments in 
   growing crops

Operating expenses
Depreciation expense
No adjustment made  (see note 1)
Depreciation expense
Cash net income

Accrual adjustment net income (pre-tax)
Cash income and Social Security taxes
- Beginning income taxes and
   S.S. taxes payable 
+ Ending income taxes and
    S.S. taxes payable 
-  Beginning current portion
    of deferred tax liability  
+ Ending current portion of
   deferred tax liability  

Cash Net income (after tax)

Accrual adjusted net income (after- tax)
Source: Adapted from Financial Guidelines from Agricultural Producers, Recommendations of the Farm Financial Standard Council, 1997. 

When you make adjustments, an increase (beginning to ending) in assets, such as inventories and account receivable will have a positive impact of change on the year’s Net farm Income. In the same way, an increase in an accrual-type liability item will cause a negative impact (decrease) in Net Farm Income.

Cash to accrual income adjustment of $ 5,000 is illustrated below for crop sales:

Table 3
Cash receipts from Crop sales this year
       $ 100,000
less:   Beginning crop inventory           (produced in prior year)
plus:   Ending crop inventory (current year production)
equals: Accrual crop revenue
(approximate value of current year production)

The beginning inventory value is subtracted from cash receipts, because it is already sold or consumed by the farm livestock during the year, and the sales are included as cash receipts. The ending inventory value is added to cash receipts, because this is the current year’s production that has not yet been sold or consumed.

The process for accounts receivable is the same. Beginning accounts receivable are subtracted from cash receipts because this amount was collected during the year and recorded as cash receipts. Ending accounts receivable are added, because they represent production during the year that is ending although payment has not been received yet.
Table 4 shows an $8,000 year-end adjustment for accounts receivable.

Table 4
Cash receipts from crop sales
Less: Beginning accounts receivable
Plus: Ending accounts receivables
+$ 33,000
Equal: Accrual crop revenue

There are several adjustments to cash disbursements or expenses, including account payable and accrued expenses. They are often the largest expense adjustments, and accrued interest will be the largest accrued expense.

Table 5 shows a -$2,000 adjustment of accrued interest expenses. They are expenses that helped produce income during the accounting year but for which no cash has yet been spent.

Table 5
Cash disbursements for interest paid this year
less:   Beginning accrued interest (interest owed but not paid in prior year)
plus:   Ending accrued  interest (interest owed but not paid in current year)
Equals: Accrual interest expense (approximate cost of borrowed funds)

Once you have calculated changes in inventory ($5,000+$8,000-$2,000), you can compare Income Statements: cash basis (left) and accrual- adjusted basis (right). The farm appears to be profitable on a cash basis. However, after adjusting the cash basis income statement, it increased from $105,000 to $116,000 for the same period.

Table 1. Cash vs. Accrual Income Statement
$ Cash
$ Accrual
Crop Sales
20,000 bu
Livestock Sales
2500 cwt
Gross Income

Cash Expenses

Net Cash Income


Accrual Adjustment

Net farm Income


Many farmers leave out these adjustments from the calculation of net profit without realizing they are understating the “Bottom Line.” Using some financial tools such as FINPACK relieves you from many calculations that are done internally by the program. For any assistance in figuring out a close figure for your real profitability, contact Miguel Saviroff at Penn State Extension at 814-445-8998 Extension 144.