By Diane Huntrods, AgMRC, Iowa State University.

Overview
The Value-Added Producer Grant (VAPG) Program is a competitive grants program administered by the Rural Business Cooperative Service at USDA to help producers move into value-added agricultural enterprises. The term "value-added" refers to an agricultural commodity or product that has changed physically or was produced, marketed or segregated (for example, identity preserved, eco labeling, etc.) in a manner that enhances its value or expands its customer base.

First authorized in 2001, the program was expanded and improved under the 2002 Farm Bill and now has been improved even further under the 2008 Farm Bill. This program aims to provide planning and/or capital investment for value-adding enterprises started by farmers, ranchers, foresters and fishermen. These enterprises help increase income, create new jobs, contribute to community and rural economic development, and enhance food choices for consumers.

To be eligible for grant funding, applicants for a VAPG must meet requirements that are outlined in the Notice of Funds Available (NOFA) published in the Federal Register. If you are an independent producer, a farmer or rancher cooperative, agricultural producer group or a majority-controlled producer-based business venture, you are eligible to apply for a value-added grant. The NOFA will provide definitions for each of these categories, along with other requirements of the program. A new NOFA is published each fiscal year and includes any information relating to any particular emphasis USDA is considering.

Types of Grants
When applying for a grant, applicants must choose between two different types of activities for funding. Funding is available for:

1. Planning grants to develop feasibility studies, business plans, marketing plans and legal evaluations.
2. Working capital grants to purchase inventory, office equipment and supplies; pay salaries, utilities and office rent; cover legal and accounting costs; conduct marketing campaigns; and develop branding and packaging materials.

Applicants are eligible to apply for only one of these two types of grants each grant cycle.

Grant funds may not be used for repair, acquisition or construction of a building or facility or to purchase, rent or install fixed equipment. Cash and/or in-kind matching funds are required, must be at least equal to the amount of Federal funds awarded and must be expended in advance. That is, for each grant dollar advanced, an equal amount of match must have been expended first.

New Program Features and Priorities
The 2008 Farm Bill made some positive changes to this program. Those changes include:

• An expanded definition of value-added to include locally produced agricultural food product.
• New priorities for awarding grants to projects that focus on increasing opportunities for small and mid-size family farmers and ranchers, beginning farmers and ranchers and socially disadvantaged farmers and ranchers.
• Grants for projects that help farmers and ranchers establish marketing partnerships that are equitable for all parties involved. This is called “mid-tier value chains.” This will help those mid-size farms that are too large to market directly but too small to be profitable selling raw commodities.
• Twenty percent of the total funding (10% for each) will be set aside for projects from beginning or socially disadvantaged farmers and ranchers and from mid-tier value chains.
• USDA will now be offering a simplified application form and process for small projects requesting less than $50,000. Many of the smaller grants are single farmer projects or lower cost feasibility studies, for which larger-scale working capital applications are unnecessarily complex.

Matching Funds
The program requires a one-to-one match. A cash match is defined as actual funds dedicated to the project. An in-kind match includes time, equipment, space, staff salaries, etc. Examples of a cash match might be third-party contributions from groups, farm organizations or individuals donating cash toward a project; the salary of a person or persons working on a project (cash transaction); travel expenses to attend meetings or participate in training sessions; state appropriations or non-federal funds that have not been spent; bank financing; revolving loan funds; or county financing.

Examples of in-kind contributions include space; equipment; supplies, copies, telephone and other expenses that are dedicated to the project; volunteer time/unpaid services provided to a recipient by an individual or employee working on a project ( non-cash transaction); value of hours of non-federally funded personnel assisting with project, for example, State Dept. of Agriculture, local economic development agencies, volunteer board members, etc; donation of office space or meeting rooms; or donation of inventory including equipment or buildings.

Types of Valued-Added Activities Eligible for Grants
VAPG funds may be used for:

• Commodity processing
• Market differentiation
• Commodity segregation
• On-farm production of renewable energy
• Local food
• Mid-tier value chain

Increasing value by changing commodity’s physical state, by marketing the commodity’s special identity or character, by keeping the commodity physically apart in production and distribution, by aggregating and marketing food for local markets, by linking farmers with local and regional supply networks in which they are an equal partner and realizing value by transforming natural resources into energy on the farm.

Some examples include: wine, flour, cheese, jam, biodiesel, organic, grass-fed, humane, state branding, GMO-free, no-rBGH, varietal purity, wind, solar, geothermal, on-farm biodiesel, buy local - buy fresh, community-based food enterprises, supplying local preferences, farm to institution, farm to food service or restaurant and value chain using a consumer seal

VAPG funds may not be used for:

• Agricultural production, harvesting or commodity transportation.
• Research and development (the specific value-added product must already be known and have a high probability of success).
• Land, real estate facility planning, design, engineering, acquisition, repair, improvement or construction.
• Purchase or rent of machinery and equipment (other than office and computer equipment), vehicles or boats.
• Payments to any firm not at least 51 percent owned by US citizens or permanent residents.
• Payments to owners or family members (salaries, dividends, etc.)
• Grant application costs or lobbying.

Examples of Past Grant Recipients
Pinn-Oak Ridge Farm, Delavan, Wisconsin - In 2005, Steve and Darlene Pinnow received a $150,000 grant to brand and direct market their pasture-raised lamb. It has allowed them to expand their market from 40 restaurants and grocery stores to 60 retailers in Wisconsin and Illinois. The Pinnows are now working with a distributor in Chicago who learned about their pastured lamb from the USDA announcement of their VAPG grant..

Prairie Pride, Inc., Deerfield, Missouri - This new-generation producer cooperative will be converting soybean oil into biodiesel fuel with the help of a $300,000 working capital grant awarded in 2006. The new facility will ultimately crush 21 million bushels of soybeans per year to obtain soy oil. The refinery will then convert that soy oil into 30 million gallons of biodiesel.

The case studies of 53 other VAPG recipients are also available for reference. At its website, USDA Rural Development provides the success stories of eight VAPG recipients and a complete list of all VAPG recipients by year.

Preparing an Application
To determine if you are eligible to apply for a VAPG grant, view USDA Rural Development's online Eligibility Assessment.

Before you actually begin to prepare your application, locate a resource person in your county, state or region who can give you some professional advice on your grant application and on your business ideas. The AgMRC Value-Added Agricultural Consultants and Service Providers list provides the names and contact information for grant writers, etc. by state.

The most recent information on funding availability and applications is available through your state USDA Rural Development Office. Check with them or your state’s Department of Agriculture about recent news or upcoming workshops about the program. They can provide information, applications and guidance on when and how to apply for a grant.

Links
Mid-Tier Value Chains in Value Added Producer Grant Program, AgMRC Blog.

Research on the Value Added Producer Grant Program, AgMRC Blog.

USDA Producer Value Added Grant Program: A Reviewer's Perspective, University of Missouri.

Value-Added Producer Grants (VAPG) Program, Rural Development, USDA - Official website for the program.

Value Added Producer Grant Deadline Approaching, AgMRC Blog.

VAPG Application Information and Template, University of Nebraska - The Food Processing Center has developed a template for producers who are interested in applying for either a planning or working capital VAPG.

Developed March 2010.