Climate Change and Fiscal Sustainability: Conservation and Risk Management Programs

by HeatherManzo, Penn State Extension Educator, Allegheny County

This article is the last in a four-part series for Passages discussing how the agricultural community can better understand and address a changing climate. PASA, in partnership with Penn State, was awarded a U.S. EPA Environmental Justice grant (#96335501) for educational programs related to climate change and agriculture. This grant supports this Passages series, several field days and webinars, and pre-conference tracks at the recent 25^th Farming for the Future conference. Join us as we explore Farming in a Changing Climate.

This last article in the series highlights the fiscal sustainability of farms by providing an overview of crop insurance, conservation and risk management programs available through the USDA.

 

The Farm Bill is renewed every five years in order to reflect the changing needs of the agricultural community. This cycle includes specialty funding for small, new, low resourced, organic, minority and urban farms₁. USDA is comprised of many agencies, which are interested in reaching these non-traditional types of agricultural operations in addition to traditional large-scale agriculture and commodity operations. The goal of this article is provide an overview the agencies and allocations available to farming operations of all sizes and styles.

Predicting weather has always been a part of the delicate dance of farming and the seasons. It is true that working with nature via sustainable farming practices such as soil building, contouring and cover crops can help increase the resiliency of a farm in the face of a changing climate. However, farm income can be lost by unforeseen natural disasters such as severe storms; prolonged weather events like drought can reduce yields by destroying crops, land and infrastructure. Farms are a business and crops are the inventory and that value must be protected in order to allow for fiscal survival when natural events occur. This is the premise for crop insurance, which is just one program available to support fiscal sustainability.

Climate related weather events are costly, and on the rise, so much so that the National Oceanic and Atmospheric Administration (NOAA) created a searchable online database known as ‘The Billion Dollar Club’₂. This resource tracks weather and climate related events such as super storms, winter storms, floods, and wildfires that cause US$1 Billion or more in damage, of which there were ten in 2015 alone, and three of those occurred in Pennsylvania. These ten events caused 155 deaths and economic devastation in many sectors. Climate change scientists at Columbia University’s Earth Institute and Tufts University are currently analyzing data to understand what agriculture looks like in Pennsylvania under various climate change models, in order to understand what opportunities and interventions farmers may consider as part of the USDA Agriculture and Food Research Initiative (AFRI) funded Enhancing Food Security in the Northeast (EFSNE) grant₃.

A recent example of crop damage attributable to weather fluctuations which will likely hit home for many readers is the damage fruit trees suffered in April 2016. A warm March was followed by hard frost and freeze in some areas of the state. NOAA classified the 2015-2016 winter as the warmest on record in the lower 48 states with the average temperature across the US 4.6°F higher than the average temperature recorded in the last 100 years₄. It is too early to tell the extent of the yield and related economic impacts will be from this weather event. According to early estimates of yield impact from the Penn State Fruit Research and Extension Center in Biglerville, Adams County, fruit growers are expecting 85-90 percent of a full crop of apples, 75-80 percent of a full crop of peaches and 50 percent of a full crop of tart cherries₅. Damage was most significant to apricots, plums and pears due to early dormancy breaks, with peaches and apples fairing slightly better₆.

According to the 2012 PA Ag Census, agriculture in PA is valued at US$7.4 Billion annually, and $160 Million of that comes from tree products including fruit and nuts₇. The economic and social impact of all agricultural efforts shapes the fabric of our communities and the landscape that Pennsylvanians call home. This is recognized by the federal government via allocations programs designed to protect the industry, primarily through the United States Department of Agriculture (USDA). Farms and businesses wanting to apply for federal grants and contracts simply need to obtain System for Award Management (SAM) and Duns & Bradstreet (DUNS) numbers, which are free via a short form and take a couple of weeks to process. Let’s examine some of those programs.

Overview of USDA Agencies and Selected Programs

The United States Department of Agriculture (USDA) is the federal executive body responsible for developing and implementing policy and funding programs related to forestry, agriculture, food and farming. The following departments are under their purview; note this is not an exhaustive list:

Natural Resources Conservation Service (NRCS)

The Natural Resources Conservation Service provides technical and financial assistance to farmers by working with them on the ground on projects that focus on conservation and the use of technology to improve farm systems. NRCS’s mission is “helping people help the land.” Staff is available to visit farms, get to know the farm and provide consulting on operations as well as suggest appropriate programs. NRCS receives its budget through an allocation system from the federal government to each state. In Pennsylvania, NRCS has regional offices which cover every county, and staff welcomes new relationships with farms and a variety of other land holders.

NRCS programs often operate on an ‘in kind’ basis, meaning that the farmer matches the award amount with equipment, labor and other non-monetary contributions to the project. The farm then receives payments according to an NRCS schedule at agreed upon project milestones. There are many programs available, and when a match is not found with NRCS, there are often resources available through the Farm Service Agency (FSA), and farmers and landholders are encouraged to think of these sister agencies when developing the support network for their business and to be proactive about relationship building. Some NCRS programs of note include:

Agricultural Management Assistance (AMA)

The goal of this program is to reduce risk in production by voluntarily addressing water management, water quality and erosion control by incorporating conservation into farming operations. Farms can have sales of over $1,000, and an implementation cost of 75 percent up to $50,000.

Conservation Stewardship Program (CSP)

This program assists land owners to maintain existing conservation efforts and adopt new conservation efforts including: water, energy, soil, air and habitat. Payments are performance based; contracts are five years with a $200k cap.

Conservation Innovation Grants (CIG)

As the name implies, CIG support development and adoption of innovative approaches and technology to improve conservation of agricultural land.  This grant is flexible in that any project proposal that ties back to that goal of improving conservation may be considered. EQIP is a funding vehicle under the CIG umbrella. Funding levels up to $75k per project with a 50/50 match, therefore a total project of $150k can be accepted.

Environmental Quality Incentives Program (EQIP)

EQIP is commonly known as the high tunnel grant’ because it commonly supports high tunnel projects. The mission of this grant is more expansive that that—its goal is for farms to adopt technology practices and planning to increase growing efficiency through improving wate and air quality, reducing erosion and sedimentation,  and improving created habitat. This grant has ten year contracts, and special incentives for beginning, socially disadvantaged and limited resource farmers. For these categories of growers, up to 50 percent advance on project materials/services is possible to get the project off of the ground.

Farm Service Agency (FSA)

Often, if a match is not found with NRCS, the Farm Service Agency is the next stop. FSA programs are designed to help small farmers to access funds through its microloan and other programs.

 

Rural Development (RD)

The role of USDA Rural Development is to improve the economy and quality of life in rural communities through economic development, loans, grants and technical assistance for community empowerment projects. The Value Added Producer Grant Program (VAPG), available annually and usually announced in spring, is a funding option for those looking to add value to farm products, expand marketing, processing and creating new market opportunities for value-added products are goals. Beginning, small and socially disadvantaged farmers and ranchers may receive priority.

Planning grants are up to $75,000 and working capital grants are up to $250,000. The deadlines are July 1, 2016 for paper applications;  June 24, 2016 for electronic applications

 

RMA

The Risk Management Agency administrates and operates many programs, including all crop insurance programs through the Federal Crop Insurance Corporation (FCIC). Crop insurance plans are sold through private insurance agencies in the private sector. The mission of RMA is to strengthen the economic stability of agricultural producers and rural communities through risk management tools.

There are newer crop insurance programs for small, organic, diversified and non-traditional ag production including aquaculture and mushrooms. Insurance for these types of growers have benefits such as: exemption from administrative fees, reduced out-of-pocket premium expenses, additional subsidy, increase in the substitute yield adjustment, and production history from farming operation they have been involved in previously. An overview of several program in these categories follows:

Organic Crop Insurance

This program provides coverage for certified organic acreage as well as transitional acreage, including any crop grown using organic farming practices.

Whole-Farm Revenue Protection

This is a comprehensive insurance program providing a safety net for the entire farm, and was first available in 2015. The program is crop neutral; anything is covered and is available in every county in the U.S. The policy covers levels up to 85 percent of revenue and can be combined with single crop policies.

Noninsured Crop Disaster Assistance Program (NAP)

Crops considered uninsurable under other programs are covered under NAP when low yields, loss of inventory, or prevented planting occur due to natural disasters, excessive heat, insect infestation and plant disease.

Noninsured Crop Disaster Assistance Program (NAP) for Underserved Farmers

Beginning, socially disadvantaged and limited resource farms, and those farms that are organic and sell at direct market prices are able to receive higher coverage levels than under the regular NAP program. The goal is to level the playing field for organic and direct market farmers who have been farming less than 10 years. Additionally the $250 service fee is waived, and policy holders enjoy a 50 percent premium reduction.

 

The business of farming can be just as challenging as difficult weather conditions or pest problems. It can be worthwhile to occasionally think of the farm in business terms. Those crops, animals and farm products are the revenue generator necessary to allow a farm to continue from one season to the next. Build relationships with staff of the mentioned USDA offices and Extension to create a network of professionals dedicated to protecting and preserving your farm.

Sources:

1.2014 Farm Bill http://www.usda.gov/wps/portal/usda/usdahome?navid=farmbill

2. NOAA’s Billion Dollar Weather and Climate Disasters: Table of Events http://www.ncdc.noaa.gov/billions/events

3. USDA AFRI EFSNE - http://agsci.psu.edu/research/food-security/research-projects/production

4. NOAA Winter 2015-2016 weather analysis - http://www.ncdc.noaa.gov/sotc/summary-info/national/201602

5. Penn State Fruit Times and email with FREC staff: http://extension.psu.edu/plants/tree-fruit/news/2016/assessing-fruit-bud-survival-and-crop-potential

6. Lancaster Farming: http://extension.psu.edu/plants/tree-fruit/news/2016/assessing-fruit-bud-survival-and-crop-potential

7. PA Ag Census: http://www.agcensus.usda.gov/Publications/2012/Online_Resources/Rankings_of_Market_Value/Pennsylvania/

Managing Cash Flow for Your Farm

Cash flow statements are very useful – they may very well be the first place where a farmer will spot a trend in business performance that may benefit or harm the operation in the long run. Cash flow statements show the business’s liquidity, the ability to pay expenses as they come due.

In accounting, there are both active statements and reflective statements.

Active Statements

The cash flow statement, a record of the dollars that came into and went out of the farm, is considered an “active” statement because it is completed multiple times throughout the year. The cash flow statement should be regularly compared to projected cash flow budgets, estimated cash in-flows and out-flows that will occur in the business in an upcoming period. This helps the farm manager to identify how the cash in-flows and out-flows that were expected differed from or mirrored what actually occurred.

Reflective Statements

In comparison to the cash flow statement, the balance sheet and the income statement are “reflective” statements because they are completed on one particular day of the year in which the farm manager is able to see how the business has progressed. With careful management of cash, the farmer has power over his or her business dealings. Business owners and agricultural producers in particular need to take time to document all sources and uses of cash within a business to keep their “finger on the pulse” of their operation.

Updating Cash Flow Statements

To be effective, farmers should regularly update their cash flow statements. What does “regularly” mean? The answer to this question varies based on whether you have a very seasonal operation (such as selling Christmas trees) or a business that receives cash throughout the year (such as a dairy farm). It is recommended that new financial managers begin with a cash flow statement that has monthly intervals. Although there is a bit of work keeping the statement current, having monthly statements provides an early warning of cash deficits or surpluses. By using the cash flow statement and the cash flow budget the farmer can make well informed management decisions such as when to purchase new equipment, or when to open a line of credit to cover cash deficit periods.


After keeping track on a monthly basis for a while, you may find that quarterly or six-month cash flow statements and budgets meet your need because the funds don’t change that much month-to-month. On the other hand, if you grow and direct market fresh vegetables for example, you may need to use a weekly cash flow statement through the summer, because of fluctuations in the variety of produce sold and the demand for each item throughout the growing season.


Cash flow statements and budgets can be created for the entire farm operation or for a specific enterprise, or profit center on the farm. For example, a dairy farm might have several enterprises in addition to dairy production, such as custom work, hay sales, and maple syrup production. Analyzing a specific enterprise allows the farm manager to determine whether an enterprise costs more than it generates in revenue. An enterprise budget helps the farm manager determine whether a new enterprise might be feasible.

Article adapted from Farm $en$e©, Farm Management Tools for Financial Success.

Farm $en$e© farm financial management courses are offered every fall and winter in multiple locations in Pennsylvania. Contact Juliette Enfield or Miguel Saviroff  for more information.
The Farm $en$e© text will be available for purchase through Penn State Agricultural Publications in November 2016.

Contact Information

Juliette Enfield

Extension Educator

Email: jse15@psu.edu

Phone: 814-563-9388

Miguel Antonio Saviroff, MS

Extension Educator

Email: mas60@psu.edu

Phone: 814-445-8911 x144

Developing a Tasting Room Loyalty Program Part 2

By Dr Kathy Kelley--Professor of Horticultural Marketing and Business Management and Dana Ollendyke-- Extension Associate

In our previous post, we discussed what a loyalty program should do for your business--which, simply put, it should help increase your tasting room’s profits! In this post, we will discuss developing an outline for your loyalty program.

A loyalty program rewards program (photo credit: iQoncept/Dollar Photo Club).

The great thing about offering a loyalty program is that customers understand their basic function, as they most likely belong to other programs. Regardless of the type of program you offer, consider these key questions:

• Your overall goal – what do you hope to achieve?
• Will charge customers to join the program, limit the number of members, or will enrollment be free?
• How will customer purchases will be recorded?
• What questions will you ask members that will help enhance the program and their experience?
• What purchases will “count” towards loyalty program benefits, what can members redeem points on, and would a program co-developed with a complementary business be perceived as being even more attractive?
• How you will determine that loyalty has really been established?
• How and when might need to end the program (and steps for doing so)?

The next post in this series will focus on your overall loyalty program goal.

Developing a Tasting Room Loyalty Program Part 1

By Dr Kathy Kelley--Professor of Horticultural Marketing and Business Management and Dana Ollendyke-- Extension Associate

If you are a winery owner, you most likely have some type of “case club” or “customer loyalty” program in place, or you have thought about implementing one at your tasting room. Whatever you call it, the intent is probably the same – you try to reward customers who purchase large quantities of wine from you in the form of a discount and/or invitation to special events.

A customer purchase of multiple bottles of wine (photo credit Efired/ Dollar Photo Club).

If crafted and administered correctly, these programs benefit the customer and the tasting room, but sometimes they do not provide the desired return on investment. This blog series will help you take a look at your current (or potential) loyalty program and decide whether your program needs to be tweaked or radically changed in order to be more successful.

What should a loyalty program do for your business? Simply put, your loyalty program should help increase your tasting room’s profits. A research paper written by Sports Loyalty International, a customer loyalty program developer, outlines some of the general benefits of creating a loyalty program.

By enrolling in a loyalty program, members: 

• may be less likely to “defect” and purchase from another winery
• could increase their spending over time 
• and could be more responsive to promotions.

These factors could reduce your marketing costs since you will have information about their preferences and habits, allowing for a more targeted promotional effort. 

Additionally, customers may shift spending to “higher margin products”, and members could refer your program to friends and family based on their positive experience.

The next post in this series will focus on your business's goals for the loyalty program.

Annie’s Project for Farm Women to be held in Northwestern PA

It’s hard to talk about passing on the farm, but in the long run it’s better to talk about it and make preparations before something unexpected happens.  Farm women can play a key role in planning successful farm transitions.  Annie’s Project is a nationally recognized educational program dedicated to fostering women’s roles in the modern farm enterprise. “Managing for Today and Tomorrow” is an Annie’s Project course geared for farm women of all ages who want to plan now for a successful transition later. 

Penn State Extension along with AgChoice Farm Credit, PAFarm Link, and Pennsylvania Women in Agriculture Network are pleased to offer “Annie’s Project: Managing for Today and Tomorrow”, a course on farm succession planning in Corry, Erie County Tuesday evenings March 1, 8, 15, 22, and 29, 2016 from 5 to 9 pm at the Corry Higher Education Council located at 221 North Center Street, Corry, PA.  

The five-session course includes hands-on activities, relevant educational materials, and the opportunity to interact with local professionals in succession planning, estate planning, retirement planning, and business planning.  Participants of all ages and experience levels will practice tasks to increase confidence in setting goals, nurturing effective family conversations, and defining the farm legacy.  Annie’s Project courses provide an opportunity for dialogue and networking with fellow farm women.

The cost of the program is $125 per person.  Pre-registration is required online or by calling 814-563-9388.  The registration deadline is Thursday, February 18.  For more information please contact Juliette Enfield, Penn State Extension – Warren County at 814-563-9388 or jse15@psu.edu.