2020 has been a historically tough year for wine producers, particularly those in California. First, the coronavirus pandemic closed tasting rooms and restaurants, disrupting business and key supply chains — thus cutting off primary revenue streams — for many producers. Then, Northern California’s wine country was hit by the state’s worst fire season yet, resulting in the destruction of numerous historic properties as well as the lingering specter of possible smoke taint haunting this year’s crop.
Despite all this, relief for the wine industry has thus far been meager. The Payment Protection Program, for instance, did little to directly alleviate the cash-flow problems many wineries are experiencing as a result of the COVID-19 recession.
The industry’s luck may be on the upswing, however. The U.S. Department of Agriculture last month announced an additional round of $14 billion of direct relief for its Coronavirus Food Assistance Program, or CFAP. CFAP was created by the USDA in April in response to significant drops in demand and oversupply in markets like dairy and produce. The relief program was seeded with an initial $19 billion in funding – $16 billion of it in the form of direct support for produce, meat and dairy producers whose supply chains had been disrupted by the pandemic. The main criterion for ag producers to qualify for the program was to demonstrate a price decline of at least 5% for their commodity.
The new round of funding is again designed to cover losses incurred by producers of these price trigger commodities since April. This time, however, the list of qualifying commodities has been expanded significantly to also include specialty “sales commodity” crops, a category which includes wine grapes (and, in fact, all grapes). Significantly, sales commodities need not meet the 5% price trigger to qualify for relief.
The rate at which they will be compensated will, however, differ. Price trigger commodities, for instance, will receive the greater of either the number of eligible acres times $15 per acre or the result of a more complex calculation that factors in the number of eligible acres, a crop-specific rate, and the producer’s weighted 2020 Actual Production History approved yield. Egg producers receive payments in the amount of 75% of the producers’ 2019 production.
Payments to producers of sales commodities like wine, on the other hand, will be tied to the producers’ 2019 sales. The rate at which grape producers are paid decreases as the producers’ sales climb up the five sales brackets created by the program. So, for instance, for their 2019 grape sales of up to $49,999, producers would be paid at a rate of 10.6%. For the highest bracket — all sales over $1 million — the rate is reduced to 8.8.%, by comparison.
To reiterate: These are direct payments. They are not a loan; and they do not depend on an individual company’s financial circumstances for eligibility. You do not need to demonstrate that your business has faced COVID-related difficulty. The government has determined that these industries face severe market pressures; grape growers and wineries that grow their own grapes qualify simply in virtue of their producing these impacted agricultural commodities.
So, how do wine growers get their payments? To apply for this round of CFAP payments, producers will need to make an appointment at a USDA Farm Service Agency county office. Applications for relief are being accepted through Dec. 11. Applicants will want to be sure they have all the accurate, relevant information from 2019 at the ready. To ensure you get all you are entitled to through this program, make sure you work closely with your accounting team.
The accountants in BPM’s Wine Industry Group are at the ready to serve wine producers seeking relief through CFAP. From helping you get the full USDA relief you’re entitled to, to minimizing your tax obligations through sophisticated tax planning strategies, to helping you meet your regulatory compliance obligations, BPM’s integrated team of accountants, auditors, consultants and other professional services providers has the talent and the resources to help wine producers succeed during these challenging times. Our Wine and Craft Beverage group is among the largest of its kind on the West Coast, and we have made a strong name for ourselves in the community for our active participation in industry trade groups and other associations.
To learn more, contact BPM Partner Larry Solari.