TOPEKA, Kan. (RFD-TV) — The One Big Beautiful Bill Act (OBBBA) makes significant enhancements to Federal Crop Insurance provisions for beginning farmers and ranchers. These changes are designed to make crop insurance more affordable and accessible during the critical early years of operation.
However, underlying regulatory rules pose a complication for structuring farming/ranching businesses that include other family members or other people in general. This complication can impact estate/succession planning for the farming operation.
OBBBA Provisions
OBBBA expands the definition of a beginning farmer or rancher (BFR) from an individual who has not actively operated and managed a farm or ranch for more than 5 crop years to one who has not done so for more than 10 crop years. This allows a greater number of newer producers to qualify for the special benefits and extends the duration they can receive them.
BFRs already receive an additional 10 percentage points of premium subsidy on their “buy-up” policies (coverage above the catastrophic level). The OBBBA provides a higher, tiered additional subsidy for the first four years:
| Crop Years of BFR Participation | OBBBA Additional Premium Subsidy | Total Additional Premium Subsidy |
| Years 1 & 2 | +5 percentage points | 15 percentage points |
| Year 3 | +3 percentage points | 13 percentage points |
| Year 4 | +1 percentage point | 11 percentage points |
| Years 5 through 10 | +0 percentage points | 10 percentage points (existing BFR benefit) |
The additional subsidy is in addition to the base premium subsidy all producers receive, making their total premium cost significantly lower, especially in the first two years.
The OBBBA maintains the existing suite of benefits for BFRs, which include:
- Waiver of Administrative Fees: The administrative fee for coverage is waived.
- Use of Another Person’s Production History: BFRs are allowed to use the production history of another person (e.g., a parent or former landowner) when establishing their Actual Production History (APH).[5] This is vital because a new farmer may not have sufficient records to qualify for an adequate APH, which is used to set the insurable yield and coverage level.
Impact of the Provisions
The OBBBA provisions significantly strengthen the financial safety net for beginning farmers. For instance, the enhanced premium subsidies reduce the out-of-pocket cost of crop insurance, making it more affordable for new operations with limited capital. Additionally, doubling the eligibility period enables BFRs to benefit from subsidies and other assistance for a full decade, covering a larger portion of their critical start-up phase. In addition, retaining the ability to use previous producers’ APH helps ensure that new farmers can purchase a policy that provides meaningful coverage levels.
The Regulatory Issue Potentially Impacting Structure and Transition
The USDA’s Risk Management Agency (RMA) is the governmental body that is responsible for the overall financial stability and integrity of the federal crop insurance system. It’s the role of the RMA to manage and oversee the Federal Crop Insurance Program (FCIP). RMA’s key functions include:
- Program Administration and Oversight: As noted, the RMA manages the FCIC, which is the entity that ultimately provides the insurance. It also administers the FCIC in partnership with private insurance companies, known as Approved Insurance Providers (AIPs).
- Product Development and Pricing:
- RMA develops and approves the terms, conditions, and forms for all crop insurance policies (e.g., Yield Protection, Revenue Protection, Whole-Farm Revenue Protection).
- RMA is responsible for developing and approving the premium rates for these policies.
- Financial Management and Subsidies:
- RMA administers the premium subsidies and expense subsidies that the Federal government provides to farmers and the AIPs, respectively, making the insurance affordable.
- It provides reinsurance to private insurance companies through the Standard Reinsurance Agreement (SRA), essentially sharing the risk of major losses and maintaining the program’s financial viability.
- Compliance and Education:
- The RMA ensures that the AIPs comply with federal regulations and policy procedures.
- It provides risk management information and supports educational and outreach programs to help producers understand and utilize crop insurance.
Farming in an Entity
The RMA takes the position that for a farming entity to qualify for the OBBBA’s increased crop insurance premium subsidy under the BFR program, RMA’s all “substantial beneficial interest” holders must qualify as a BFR. A “substantial beneficial interest holder” is generally defined as someone with a 10 percent or more ownership interest in the business entity.
To reiterate, if the farming entity has multiple owners, and even one of the owners with a substantial beneficial interest does not meet the BFR criteria (e.g., they have been farming for more than the allowed number of years), the entire entity is ineligible for the BFR benefits. Anyone who owns 10 percent or more of the business entity (e.g., a partnership, LLC, or corporation) that is applying for crop insurance is considered a substantial beneficial interest holder. This rule applies to both individuals and other business entities that may have an ownership stake in the farming operation.
The spouse of an individual applicant is also considered to have a substantial beneficial interest unless they can prove they are legally separated. This is to ensure that spouses who are part of the farming operation are also accounted for under the rules.
Impact on Planning
The RMA’s position that all substantial beneficial ownership interest owners of a farming entity must qualify as a BFR to receive BFR crop insurance benefits can significantly complicate farm estate and transition planning in certain situations. The rule forces families to carefully structure ownership to ensure only individuals meeting the BFR criteria hold a substantial beneficial interest in the entity applying for benefits.
Consequently, traditional estate planning tools that grant ownership to multiple family members, such as trusts or partnerships including non-farming or experienced farming heirs, may cause the entity to lose eligibility for the BFR program’s premium subsidies and other benefits, potentially undermining the financial viability of transferring the operation to the next generation. Planners must, therefore, create structures that satisfy both the family’s desire for equitable distribution and the RMA’s strict eligibility requirements, often resulting in more complex and restrictive ownership arrangements.
Conclusion
If, indeed, the RMA’s position on BFRs and farming entities runs counter to Congressional policy of expanding crop insurance subsidies to BFRs, it might be possible that Congress will either provide a statutory fix or direct the RMA to write a less restrictive rule.
