Business and Financial

Written by Barry Ward, Leader, Production Business Management, OSU Extension

Ohio cropland varies significantly in its production capabilities and, consequently, cropland values and cash rents vary widely throughout the state. Generally speaking, western Ohio cropland values and cash rents differ from much of eastern Ohio and parts of southern Ohio cropland values and cash rents. The primary factors affecting these values and rates are land productivity and potential crop return, and the variability of those crop returns. Soils and drainage capabilities are the two factors that heavily influence land productivity, crop return and variability of those crop returns.

Other factors impacting land values and cash rents may include buildings and grain storage, field size and shape, field accessibility, market access, local market prices, field perimeter characteristics and potential for wildlife damage, previous tillage system and crops, tolerant/resistant weed populations, population density, USDA Program Yields, and competition for the cropland in a region. Ultimately, supply and demand of cropland will determine the value or rental rate for each parcel.

The Western Ohio Cropland Values and Cash Rents study was conducted from February through April in 2020. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were rural appraisers, agricultural lenders, professional farm managers, ag business professionals, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel.

The study results are based on 167 surveys. Respondents were asked to group their estimates based on three land quality classes: average, top, and poor. Within each land-quality class, respondents were asked to estimate average corn and soybean yields for a five-year period based on typical farming practices. Survey respondents were also asked to estimate current bare cropland values and cash rents negotiated in the current or recent year for each land-quality class.

According to the Western Ohio Cropland Values and Cash Rents Survey, cropland values in western Ohio are expected to decline slightly in 2020 by 1.5 to 2.6 percent depending on the region and land class. Cash rents are expected to be flat to slightly lower decreasing from 0.7 to 2.0 percent depending on the region and land class.

For the complete survey research summary go to the OSU Extension Farm Office website at:

https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents

Written by Ellen Essman and Peggy Hall

This edition of the Ag Law Harvest has a little bit of everything—Ohio and federal legislation responding to COVID issues, new USDA guidance on bioengineered foods, and a judicial review of Bayer’s Roundup settlement.  Read on to learn about the legal issues currently affecting agriculture.  

Ohio COVID-19 immunity bill stalls.  While the Ohio House and Senate agree with the concept of immunity for COVID-19 transmissions, the two chambers don’t yet see eye-to-eye on the parameters for COVID-19 liability protection.  H.B. 606, which we reported on here, has passed both the House and Senate, but the Senate added several amendments to the legislation.  The House won’t be addressing those amendments soon because it’s in recess, and doesn’t plan to return for business until at least September 15.   The primary point of disagreement between the two bills concerns whether there should be a rebuttable presumption for Bureau of Workers’ Compensation coverage that certain employees who contract COVID-19 contracted it while in the workplace.  The Senate amendment change by the Senate concerns exemption from immunity for "intentional conduct," changed to "intentional misconduct.”  Currently, there is not a plan for the House to consider the Senate’s amendments before September 15.

Lawmakers propose bill to avoid more backlogs at processing plants.

Most people are aware that the COVID-19 pandemic created a huge backlog and supply chain problem in U.S. meatpacking plants.  A group of bipartisan representatives in the House recently proposed the

Requiring Assistance to Meat Processors for Upgrading Plants Act, or RAMP-UP Act.  The bill would provide grants up to $100,000 to meat and poultry processing plants so the plants could make improvements in order to avoid the kind of problems caused by the pandemic in the future.  The plants would have to provide their own matching funds for the improvements.  You can find the bill here. 

Revisiting the Paycheck Protection Program, again.  In a refreshing display of non-partisanship, Congress passed legislation in late June to extend the Paycheck Protection Program (PPP).  Employers who haven’t taken advantage of PPP now have until August 8, 2020 to apply for PPP funds to cover payroll and certain other expenses.  Several senators also introduced the Paycheck Protection Program Small Business Forgiveness Act, a proposal to streamline an automatic approval process for forgiveness of PPP loans under $150,000, but there’s been little action on the bill to date.  Meanwhile, the American Farm Bureau Federation is in discussion with the Senate on its proposal for other changes to PPP that would expand access to PPP for agriculture.

More clarification for bioengineered food disclosure. You may recall that the National Bioengineered Food Law was passed by Congress in 2016.  The legislation tasked USDA with creating a national mandatory standard for disclosing bioengineered foods. The standard was implemented at the beginning of 2020, but USDA still needed to publish guidance on validating a refining process and selecting an acceptable testing method.  On July 8, 2020, that guidance was published. The guidance provides steps for industry to take when validating a food refining process under the rule.  A lot of food refining processes remove traces of modified genetic material. So, if a refining process is validated, there is no further need to test for bioengineered material to disclose.  The guidance also contains instructions on testing methods. Basically, “any regulated entity that is using a food on the AMS List of Bioengineered Foods and does not want to include a bioengineered food disclosure because the food or ingredient is highly refined and does not include detectable modified genetic material” should follow these testing instructions. Therefore, any entity with highly refined foods that do “not include detectable modified genetic material” should follow the recently published guidance. 

Bayer settlement proposal under scrutiny.  Last month, Bayer, the owner of Roundup, announced that it would settle around 9,500 lawsuits related to alleged injuries caused by using the product.  Not only was the proposal supposed to settle previous lawsuits, but it was also meant to address any future lawsuits stemming from purported injuries caused by Roundup.  A judge from the United States District Court for the Northern District of California recently pumped the breaks on this plan, stating that any settlement that would resolve “all future claims” against Roundup must first be approved by the court.  A hearing will be held on July 24, where the court will decide whether or not to “grant preliminary approval of the settlement.”

Written by Peggy Kirk Hall and Barry Ward, Leader, Production Business Management

Many farmers have utilized the CARES Act’s Paycheck Protection Program (PPP) to obtain federal funds to help with payroll and certain non-payroll expenses in the wake of COVID-19.  As we’ve discussed on our Farm Office Live webinars here, Congress revised the PPP with the passage of the Paycheck Protection Program Flexibility Act earlier this month.  As a result of the new legislation, the Small Business Administration released a series of Interim Final Rules (IFRs) and a new forgiveness application.  The IFRs, available here, clarify certain points contained in the bill and provide revisions to previous IFRs.  All of these changes affect how farmers can use the funds and how much of the funds can be forgiven from loan repayment requirements. 

The new PPP provisions

• The “covered period” that applies to the issuance and use of PPP loan expenditures was to end on June 30, 2020, but the law now extends that date to December 31, 2020.  This means that borrowers now have until December 31 to spend PPP loan proceeds.
• The “covered period” for loan forgiveness has also changed.  Borrowers will now be able to have up to 24 weeks of costs forgiven and not subject to repayment.  But borrowers who received loans prior to June 5, 2020 may choose to use the 8-week period provided in the original PPP.  A borrower need not wait until the end of the covered period to apply for forgiveness if the borrower has expended the loan funds prior to the end of the covered period.
• The requirement that 75% of loan proceeds be used for payroll costs in order to receive full forgiveness has been reduced to 60%.   This means that forgiveness is not applicable for any portion of non-payroll costs that exceed the 40% maximum for non-payroll.  Under the original law, forgivable non-payroll costs could not exceed 25%.
• The amount eligible for forgiveness can equal the full loan amount plus accrued interest, and the IFR revises the eligible costs for both the 8-week and 24-week covered periods as follows:
  • Payroll costs for 24 weeks at a maximum of $46,154 per employee and for 8-weeks at a maximum of $15,385 per employee, as well as benefits such as health care costs, state payroll taxes paid by the employer, and retirement contributions.  Note that there are limitations to including health insurance contributions made on behalf of self-employed persons, general partners and owner-employees of S-corporations and to including employer retirement payments on behalf of self-employed persons or general partners.
  • Owner compensation replacement is calculated according to 2019 net profit.  The forgiveness limit for an 8-week covered period is 8/52 of the 2019 net profit, up to $15,385 and for a 24-week covered period, is restricted to two and a half months or 2.5/12 of 2019 net profit, up to $20,833.
  • Mortgage interest, rent payments on lease agreements, and utility payment costs are eligible to the extent that they would be deductible as business mortgage, rent and utility payments on Form 1040 Schedule F or Schedule C.  Note that although this language defines the forgivable portions of these non-payroll costs, such costs are not actually deductible if forgiven.
• Employers will have a longer period to rehire employees and restore salaries without reducing the forgiveness amount.  This “safe harbor” date for rehiring employees is extended to December 31, 2020.
• An employer who isn’t able to rehire employees by the end of the “safe harbor” period may qualify for an exemption from a corresponding forgiveness reduction that would occur if the employer can document that:
  • The employer is unable to rehire persons who were employees on February 15, 2020 or to rehire similarly qualified persons, or
  • The employer is unable to return to the same level of business activity it was at before February 15 due to COVID-19 standards and requirements.
• For new loans taken out after June 5, loan proceeds that are not forgiven may be repaid in five years rather than two years.  Loans prior to June 5 remain at a two-year repayment term, unless the lender agrees otherwise.
• Borrowers can defer repayment of the loan until the date that the lender receives the borrower’s forgiveness amount, or until 10 months from the end of the borrower’s forgiveness period if not applying for forgiveness.              
• The original law prohibited borrowers  from using the CARES Act provision that allows employers to defer payroll taxes once they received loan forgiveness, but the new law allows borrowers who receive forgiveness to also defer payroll taxes under the CARES Act.

The forgiveness application and process

A new forgiveness application was also released to correspond with the changes in the new PPP Flexibility Act.  As laid out in the application instructions, borrowers are eligible to use a shorter “EZ application” for loan forgiveness if they meet one of these criteria:

• Borrower is self-employed and has no employees or
• Borrower didn’t reduce salaries or wages for employees by more than 25% and didn’t reduce numbers or hours of employees or
• Borrower experienced reductions in business activity as the result of health directives related to COVID-19 and did not reduce salaries or wages of employees by more than 25%.

The forgiveness process could take up to five months.  It begins with a borrower submitting the application to the lender that provided the loan, who will have 60 days to review the application and send the approved application on to the SBA.  The SBA will have up to 90 days to review the application, confirm the amount to be forgiven and remit to the lender the forgivable amount and any accrued interest, less any advance payments made to the borrower under the Economic Injury Disaster Loan program. 

The Loan Forgiveness Application Form is here and its instructions are here.  The Loan Forgiveness Application Form EZ is available here and its instructions are here. 

Uncertainties remain

Despite the recent changes to PPP, several gray areas and uncertainties remain, such as:

• PPP Loans received prior to June 5, 2020 allow the borrower to choose between an 8 week and a 24 week covered period.  Farmers with a loan based on owner compensation replacement and no employees will likely benefit from choosing the 24 week covered period to meet the criteria for full loan forgiveness.  One possible downside with choosing the 24 week covered period might be further rule changes that might be unfavorable to the borrower, although this is unlikely.  There is still uncertainty as to whether a self-employed person needs to write a check to themselves to qualify for forgiveness based on the owner compensation replacement portion of the PPP Loan. The safe alternative would be to write this check even if the check is deposited back into the same account.
• According to some sources there is ongoing discussion regarding legislation that would grant forgiveness to all PPP loans under $150,000. This discussion of a safe harbor based on the size of the PPP loan is apparently being advanced by certain banks.

We encourage employers who obtained a PPP loan to talk with their lenders and accountants to capitalize on and comply with the PPP changes and make decisions about the forgiveness options.  For those who have not yet applied for a PPP loan, the deadline is soon approaching —applicants have until June 30, 2020 to apply for a loan.

Read more about the PPP’s original provisions in our blog post here.

There’s much disagreement over what we know about COVID-19, but one thing we can agree upon is that it has left an impact on the food supply chain.  For some food producers, that impact is creating opportunity.  Many growers see the potential of filling the gaps created by closed processing facilities, thin grocery shelves, and unwillingness to shop inside stores.   If you’re one of those growers who sees an opportunity to sell food, we have a few thoughts on legal issues to consider before moving into the direct food sales arena.  Doing so will reduce your risks and the potential of legal liability.

1.  Follow COVID-19-related guidelines

Perhaps this goes without saying, but businesses should take COVID-19 guidelines seriously.  Doing so will hopefully reduce the potential of a COVID-19 transmission in the operation while also minimizing the risk of an enforcement action and potential legal liability for failing to protect employees and customers.   Follow the Ohio Department of Health Responsible RestartOhio Guidelines that are now in effect.  Engaging directly with customers places a grower in the “Consumer, Retail and Services” sector guidelines, which are here.  Mandatory requirements include protecting the health and safety of employees, customers and guests by establishing six-foot distances or barriers, wearing face masks, handwashing and sanitizing, checking for symptoms daily, posting signs, deep cleaning, and dealing with suspected and confirmed cases of COVID-19.   The FDA has also issued “Best Practices for Retail Food Stores, Restaurants and Food Pick-Up and Delivery Services” here, and OSU’s direct marketing team has many helpful resources for implementing the practices here.   Develop protocols based upon the guidelines, carefully train employees on protocols, and document your compliance.

2.  Determine what food safety regulations apply to you

For food safety purposes, the Ohio Department of Agriculture and local county health department require licensing or inspection of certain types of food sale activities.  The regulations are a bit messy, and it’s challenging to know when an operator is affected by these regulatory requirements.  We’ve explained licensing laws pertaining to sales directly at the farm in this law bulletin, “Selling Foods at the Farm:  When Do You Need a License?”   There are more stringent requirements for those who sell meat, process food, or sell higher risk foods or several different types of foods.   We’ve provided a few simple guidelines in the chart at the end of this post, but please refer to the above law bulletin for further details.  Additionally, produce growers need to comply with Good Agricultural Practice (GAPs) and Food Safety Modernization Act (FSMA) rules.  Learn more about those on our Fruit and Vegetable Safety Program website here.

3.  Check your zoning

If you’re within a municipality, you may have zoning regulations that apply to your production and sales activities.  Check your local zoning regulation to ensure that those activities are “permitted uses” within your designated zoning district.  If not, you may need to seek a “conditional use” permit.  Also be aware that some municipal zoning regulations regulate “home businesses,” and a home bakery or cottage food operation that has customers coming to the home to purchase the goods might fall into that category. 

If you’re outside a municipality, Ohio’s agricultural exemption from county and township zoning applies to your production and sales activities.  Local zoning can’t prohibit your activities regardless of your zoning district, with limited exceptions if you’re in a “platted subdivision” situation (on a lot under 5 acres in a platted area of at least 15 other contiguous lots).  Note, however, that county and township zoning can regulate a “farm market” that receives more than 50% of its gross income from goods that weren’t raised on the owner’s farm.   You might need to comply with a few zoning regulations that pertain to the size and setback lines for your structure, the parking area, and ingress and egress points for customers.

4.  You may have to collect sales taxes on some items

Most takeaway food items to be consumed off-site, such as meat and produce, aren’t subject to Ohio’s sales tax.  But if you sell items that are not exempt from sales tax, you’ll need to collect sales taxes on the items.  If you’re planning to sell ready-to-eat items on site, beverages, flowers, or container plants, you must charge and collect sales taxes and obtain a vendor’s license in order to submit the taxes to the state.  Find more details in our law bulletin on vendor’s licenses and sales taxes here.

5.  Review contracting situations

You’ll likely be presented with a contract or agreement in many situations, such as a farmers’ market contract or an agreement for selling on an online sales platform.  Or you may need to generate your own contract for selling whole animals or establishing a “community supported agriculture” operation.  In either instance, read your contracts carefully.  Be sure to include and review important terms such as price, quality delivery dates, payment processes, late fees, data use, and other provisions related to your type of sale.   Don’t hesitate to involve an agricultural attorney to be sure that you’ve minimized your legal risk.

6.  Talk to your insurance provider

Direct food sales might not be adequately covered by your insurance policy.   You’ll need to know whether you have sufficient premises liability coverage if a customer is harmed on your farm, coverage for transporting foods or for selling at a farmers’ market (typically required by the market) and product liability coverage in case someone claims illness or other injury from consuming your food.  You may need to increase coverage or purchase additional riders to the policy, depending on your risk level.  Reviewing your policy with your provider and aligning coverage with your food sales activities is imperative to reducing your liability risk.

7.  Do you need a separate business entity?

Consider whether your food sales activities put other assets at risk, and whether your insurance is sufficient to address that risk.  If not, you should consider forming a separate business entity for your direct marketing business.   Forming a Limited Liability Company for your direct food sales activities can help shield your other assets from the liability of the food sales.  Talk with an agricultural attorney to assess your needs and determine what type of entity is best for your situation.

8.  Keep great records

This one applies to everything above.  Maintain records of what you do in regards to COVID-19 precautions, employee training, food safety compliance, and financial records of your expenditures and sales.  If a liability incident arises, document it carefully.  Keep the records for the required amount of time, which is typically three years for receipts for purchases and sales, ten years for insurance and employee records, and permanently for other records.

9.  Don’t stop here

This list is a starting point for legal considerations for direct food sales, but it shouldn’t be the end.  There may be other legal issues that affect your particularly situation.  To learn more and fully consider all risks of direct marketing, talk with others who’ve directly sold food, visit with your accountant, lawyer and insurance provider, and learn the best practices for growing and marketing your food products.