Key Factors in Attaining the ‘Actively Engaged in Farming’ Designation

Key Takeaways:
  • Contributions of land, capital, equipment, labor and management pave the way to the ‘AEF’ designation.
  • Documentation of contributions is key.
  • Rules vary for different entity types.

 

Producers who seek to participate is programs administered by the USDA Farm Service Agency (FSA) know they must submit a Form CCC-902, or Farm Operating Plan, to provide information about their farming operations that the FSA uses to determine their program eligibility.

But before any consideration of specific program participation is made, the FSA must determine if a farmer meets the agency’s definition of Actively Engaged in Farming (AEF). The AEF designation is essential to establish a producer’s eligibility for most FSA program payments.

It sounds a little obvious, but the AEF rules are designed to prevent manipulation of farm operations to increase payments without real involvement by the producer.

How is AEF Determined?

Critical to the AEF determination are key benchmarks known informally as “left-hand” and “right-hand” contributions. These terms refer to the contributions of assets and management made by the producer to the farming operation. Essentially, a farm owner must show that they have made both kinds of contributions — left-hand and right-hand — to establish AEF eligibility.

Additionally, the law requires that producers seeking the AEF designation have a share of profits or losses that are proportional to their ownership, and that they make contributions that are at risk of loss proportionate to their share.

Failure to meet AEF criteria carries significant risk for a producer, making them ineligible for major FSA programs, including ARC/PLC, and some disaster assistance and conservation programs subject to AEF. So, a first-time applicant must ensure that their left-hand and right-hand contributions to the operation meet the FSA’s criteria.

Left-Hand Contributions — The Capital Side

Left-hand contributions are capital-side inputs that demonstrate management of the farm operation, including contributions of land, capital and equipment.

These are contributions that indicate financial or structural commitment to the farming operation, including ownership, leasing arrangements and investment capital. A producer may fulfill the requirement for a left-hand contribution by demonstrating one category of investment — land, capital or equipment — or any combination of the three.

Right-Hand Contributions — Active Labor or Management

Right-hand contributions are those that demonstrate active labor or management of the farm operation, including:

  • Active personal labor, meaning the producer performs physical work to keep the operation running.
  • Active personal management, meaning the producer provides planning, supervision, decision-making and direction of day-to-day business activities related to the farm operation.
  • A combination of the two.

Meeting AEF Requirements

For a first-time applicant, meeting the AEF requirements may seem daunting. But being prepared with the right documentation to support the Form CCC-902 makes the process go smoothly. Essentially, a producer must provide documentation that shows:

  • A “separate and distinct interest” in land, crops or livestock
  • Responsibility for the producer’s share of the operation
  • Separate business accounts from other parties

To show active labor or management, records that demonstrate measurable involvement might include:

  • Farm logs, calendars or work diaries
  • Decision-making documentation
  • Input purchase approvals
  • Time spent on planning and supervision

It’s important to understand that documentation must meet USDA’s guidelines, or it can be deemed insufficient to qualify for the AEF designation. Applicants can and should receive professional guidance to ensure their documentation meets the requirements. Proper documentation can help avoid payment reviews and audits by the USDA.

How Different Entity Types Meet AEF Requirements

The AEF and left-hand/right-hand requirements vary with entity type, and producers must understand what their entity needs to show in order to gain the designation.

For instance:

  • Individuals must provide both left-hand and right-hand contributions, as described in this article.
  • Joint operations require each member to contribute significantly.
  • Corporations, LLCs and LLPs must provide capital, land and equipment, and members with 50% or more ownership must provide labor or management.
  • Trusts must contribute capital, land and equipment, and beneficiaries holding 50% or more must provide labor or management.

Questions?

To qualify for the Actively Engaged in Farming (AEF) designation, which qualifies producers for participation in USDA payment and support programs, farm owners must show they have made both “left-hand” and “right-hand” contributions to their farming operation.

If you would like to discuss the documentation you need to support an application for AEF designation, contact an Adams Brown farm program advisor.