What is ERP Phase 2 and Should I Apply?

Deadline now extended through July 14, 2023

Updated 5.26.23

Has your farm production and income suffered due to natural disasters in the last two years? Did you know you could potentially receive a payment from USDA to alleviate the losses through a new program?

The Emergency Relief Program (ERP) Phase 2 is a revenue-based program that relies on tax and financial records to calculate the losses a farmer experienced because of a natural disaster, instead of the production history FSA programs usually require. ERP provides assistance for crop losses due to certain qualifying disaster events that occurred in calendar years 2020 and 2021.

ERP is currently in its second phase:

• Phase 1 leveraged existing crop insurance indemnity and NAP payment data already on file to automatically distribute payments for eligible crop losses.

• Phase 2 is intended to address farmers and crop losses not covered by Phase 1.

The deadline to apply for ERP Phase 2 is June 2, 2023 July 14, 2023. RAFI-USA is offering a free webinar on how to apply for ERP – Phase 2. Please see more information by clicking on the links below.

Below you’ll find important information and considerations for applying for ERP Phase 2:

Is ERP Phase 2 for you?

First, did you suffer a crop loss due in whole or in part to a qualifying disaster event (see examples below) that occurred in calendar years 2020 or 2021?

The crop loss must have resulted in a decrease of allowable gross revenue in the disaster year as compared to a benchmark year (either tax year 2018 or 2019 which would represent a typical year of gross revenue). 

 If this applies to you, continue reading about eligibility and the application process.

Eligibility

As a farmer, you must have suffered a crop loss due to a qualifying disaster event or related condition in 2020 or 2021. Eligible commodities include crops, trees, bushes, and vines. This excludes livestock, livestock by-products (i.e. dairy), timber, and crops for grazing. 

The qualifying disaster event must have occurred in calendar years 2020 or 2021. Here the list:

—Qualifying Drought
—Derecho
—Excessive Heat
—Excessive Moisture
—Flooding
—Freeze
—Named Hurricanes – and excessive wind, storm surges, and tornadoes as a result of hurricanes
—Smoke exposure
—Wildfire
—Winter storm

Application Requirements

There is an application form for ERP Phase 2 which is explained further below. In addition to a program-specific application, FSA requires several other common forms. Several of them relate to land and conservation compliance provisions. Several other forms collect information on a farmer, their operation, and their business. Forms like this are generally required for any FSA or other USDA agency program, so having an active FSA file is very beneficial regardless of whether you decide to apply for ERP Phase 2. 

Check out our blog, FSA Forms to Have on File and Why, to learn more about these common FSA forms.

Payment Limits

Knowing about current ERP Phase 2 payment limits may help you in making the decision on whether to apply to this program. Even with high revenue losses, FSA is currently capping initial ERP Phase 2 payments at $2,000. This is to ensure funds are spread out to as many producers as possible, as opposed to being used up by the farmers who get their applications in first. Depending on remaining funds later on, FSA may be able to complete a second payment for those who received a maximum payment, but there is no guarantee. So farmers should consider whether it is worth the time necessary to complete the application — especially if financial and tax records are not easily accessible..

Steps to apply 

Although ERP Phase 2 does require an application, collecting financial records, and a somewhat tight application window — we would encourage farmers to consider applying, especially if you have most of the FSA forms already on file and easily accessible financial records. If you do, the steps to apply are quite simple, and remember you always can call your FSA agent to receive guidance on the process.

• Submit a completed ERP Phase 2 application, FSA-521. This form certifies that you experienced a decrease in allowable gross revenue related to losses of eligible crops due to a disaster event that occurred in the 2020 or 2021 calendar year. You can submit by person, or by sending mail, email, or fax to your FSA regional office. 

• Although not required when submitting the application, be prepared to provide all information necessary to verify certifications on FSA-521, if requested by the county committee.

• If you receive an ERP Phase 2 payment,  you must agree to purchase crop insurance or NAP coverage for all crops that suffered a revenue loss in the relevant disaster year for the next two available crop years. Please see this blog in which we explain What is NAP insurance and how to get it. (Historically underserved farmers can receive basic NAP coverage for free.)

• Submit the following FSA forms within 60 days after the application deadline, if not already on file: CCC-902, CCC-901, FSA-510, AD-1026, AD-2047. Optional: CCC-860.

Completing the Payment Eligibility Forms 

Let’s take a deeper look at the applications needed in order to apply for ERP 2:

—The payment limitation for ERP, the FSA-510, is determined by the person’s or legal entity’s average adjusted gross farm income. If your average adjusted gross farm income is less than 75% of your average AGI, you cannot receive, directly or indirectly, per program year for ERP Phase 1 and Phase 2 combined, more than $125,000 in payments for specialty crops and high-value crops, and $125,000 in payments for all other crops. 

Optional and if Applicable:

—CCC-860 Historically Underserved: Socially Disadvantaged, Limited Resource, Beginning and Veteran Farmer or Rancher Certification. Please note that underserved producers will be eligible for an increased payment factor.

Please refer to our FSA blog post for more details on the other forms. 

Calculating Amounts for the ERP Phase 2 Application Form 

In order to fill out the ERP Phase 2 application, you will need to calculate your Allowable Gross Revenue for a Bench Year and Disaster Year. You will also need to calculate what your expected revenue would have been for crops impacted during the disaster year. Here we break down several terms and their relation to each other. 

Allowable Gross Revenue

The Farm income from sales of eligible crops and certain government program payments. It includes revenue from all eligible crops that suffered from a qualifying disaster event. For the purposes of ERP Phase 2, “allowable gross revenue” includes income a producer received during the applicable tax year from:

—Sales of eligible crops produced by the producer, which includes sales resulting from value added through post-production activities that were reportable on IRS Schedule F.

Examples of ineligible sources of gross revenue:

—Benefits under any Federal agricultural programs
—Sales of livestock, animal by-products, and any commodities that are excluded from “eligible crops”
—Sales of agricultural commodities resulting from value added through post-production activities
—Resale items not held for characteristic change
—Conservation program payments
—Any pandemic assistance payments

Benchmark Year Revenue

The amount of allowable gross revenue from the tax year 2018 or 2019 that represents a typical year of revenue for your operation. On the FSA-521 form, you will need to select a Benchmark Year and list the Benchmark Revenue.

Important notes: 

—Only one benchmark year can be selected for each disaster year, either 2018 or 2019.

—If you are applying for both 2020 and 2021 disaster years you can use the same benchmark year, or you can also use benchmark years separately when applying for both disaster years.—There are options to adjust the benchmark year revenue in case you are a beginning farmer with no production in 2018/2019 or if you had an increase or a decrease in operation capacity since 2018/2019. In those cases, you would have to fill in an FSA-521-A (this is not a required document to complete FSA-521). The ERP Phase 2 Tool can be used to complete FSA-521-A when an Adjusted Benchmark Year Revenue is necessary (See Top Tips for Farmers at the end.).

Disaster Year Revenue

This will be based on the year the revenue was reported for the purpose of filing a tax return. In the application for ERP Phase 2, filling out the FSA-521, you will complete these steps for each disaster year:

1. Select a representative tax year to pair with the disaster year

2. Certify the allowable gross revenue from the disaster year 

3. Calculate what the allowable gross revenue you expected** to make during the disaster year and assign a percentage to each item: a)specialty and high-value crops and b) other crops

**The percentages represent what you would have reasonably expected for the disaster year if the qualifying disaster event had not occurred.

Important notes: 

—A tax year for ERP Phase 2 purposes, is specific to each applicant, it is based on a fiscal year which can be more than one calendar year.

—You will choose the tax year that best represents your disaster year allowable gross revenue according to: 

For disaster year	You can choose tax years…​
2020	2020 or 2021 as the representative tax year​
2021	2021 or 2022 as the representative tax year​

—Keep in mind, if applying for 2020 and 2021 disaster years, the representative tax year must be paired with only one disaster year, and, the representative tax years must be consecutive.

Top Tips for Farmers

—If you are a farmer with existing FSA records and tax records you may be in a better position to complete the application by the deadline of June 2, 2023. NOW EXTENDED TO JULY 14, 2023.
—Getting in touch with your FSA regional office is very important. They can confirm if you have the required documents on file and assist you with the application form. 
—Please check the official USDA website on the ERP Phase 2. You can find important information, all related forms, and tools to help you put everything in order. For example, if you scroll down you will find a button on the  right called “ERP Phase 2 Tool.” This Excel spreadsheet will help you calculate the revenue amounts and auto-populate an application form based on entries.

Have More Questions or Looking for Help?

Your local FSA agent will be a great resource in helping you complete an application.

However, if you are looking for more assistance, RAFI-USA is offering one-on-one application assistance to farmers interested in applying for this program. If you would like to talk with some about whether or how to apply, please send us an email to [email protected]. Include your name, phone number, and a good time to call you and we’ll be in touch shortly.

ERP Phase 2 – Farmer Case Study

John Doe grows pinto beans and corn as well as raises cattle. Both crops were damaged in 2020 due to hurricane-related wind. He sold the beans and corn in 2020 for $200,000 and $150,000, respectively, and the cattle for $75,000. If the natural disaster had not occurred, John would have expected to sell the bean and corn for $300,000 and $250,000. Cattle sales were unaffected by the disaster.

John selected 2019 as his benchmark revenue year, as it represented typical production for him with the same operational capacity.** In 2019, John sold his beans and corn for $275,000 and $260,000, and his cattle for $85,000.

Based on those financial and tax records, John would use the following numbers on his FSA-521:

—Benchmark Revenue:  $275,000+$260,000 = $535,000 (livestock sales are ineligible under ERP Phase 2)
—Disaster Year Revenue: $200,000+$150,000 = $350,000 (livestock sales are ineligible under ERP Phase 2)
—% Expected Revenue from Speciality and High Value Crops: $300k / ($300k + $250k) = 55%
—% Expected Revenue from Other Crops: $250k / ($300k + $250k) = 45%

These values would be entered on the FSA-521 as shown below. John would submit this completed application to his FSA office for review and approval. The amount John would actually receive would depend upon an ERP Payment Factor (currently 70%) and a maximum payment limit (currently $2,000).

**If John’s farm saw an increase or decrease in operation capacity between 2019 and 2020, he would have been required to calculate an Adjusted Benchmark Year amount using FSA-521a. Examples of increases/decreases in operational capacity are changes in acres under production, production methods, or modified inventory (e.g. orchard trees aged out, lost land, more efficient irrigation system).