A. Bryan Endres Rachel H. Armstrong © 2013, All Rights Reserved 2 Nebraska Direct Farm Business Guide TABLE OF CONTENTS INTRODUCTION 9 I. USING THIS GUIDE 10 II. OVERVIEW OF ADMINISTRATIVE AGENCIES 12 A. FEDERAL AGENCY RULEMAKING 12 B. STATE RULEMAKING 13 III. THE FOOD AND DRUG ADMINISTRATION’S FOOD CODE 13 IV. NEBRASKA DEPARTMENT OF AGRICULTURE (NDA) 14 A. ADULTERATED FOOD 14 B. FOOD PROCESSING FACILITIES 14 C. LOCAL INTERPRETATION 15 D. COTTAGE FOODS 15 CHAPTER 1: STRUCTURING THE BUSINESS 19 I. PLANNING THE DIRECT FARM BUSINESS 19 A. FEASIBILITY STUDIES 19 B. BUSINESS PLANS 20 C. CHOOSING A BUSINESS NAME 20 D. CHOOSING A BUSINESS ENTITY 22 II. LOOKING TO THE FUTURE: ESTATE PLANNING 28 CHAPTER 2: SETTING UP THE DIRECT FARM BUSINESS 29 I. SITING 29 A. ZONING 29 B. IMPACTS ON NEIGHBORING LAND 30 C. FENCE LAW 32 II. REGISTRATION 33 A. ANIMAL DISEASE TRACEABILITY 33 B. FDA FOOD FACILITY REGISTRATION 33 III. FEDERAL AND STATE ENVIRONMENTAL REGULATIONS 35 A. WASTE MANAGEMENT 35 B. STORMWATER RUNOFF 37 C. WETLANDS 37 D. PESTICIDE REGULATION 37 E. ENVIRONMENTAL INCENTIVE PROGRAMS 38 IV. INSURANCE 39 V. CHECKLIST 41 CHAPTER 3: MANAGING AND MARKETING THE DIRECT FARM BUSINESS 46 I. CONTRACTING 46 3 Nebraska Direct Farm Business Guide A. GENERAL CONTRACT LAW 46 B. CONTRACT LAWS THAT PROTECT FARMERS 51 C. SPECIAL ISSUES 52 II. MARKETING 56 A. LABELING AND ADVERTISING 56 B. NEBRASKA DOMESTIC MARKETING LOGOS 59 C. INTERNET MARKETING 60 D. EMAIL MARKETING 62 E. SIGNAGE 62 III. INTELLECTUAL PROPERTY 63 A. TRADEMARKS AND TRADE NAMES 64 B. PATENTS 66 C. COPYRIGHTS 66 D. TRADE SECRETS 67 IV. WEIGHTS AND MEASURES 68 V. KEY CONTACT INFORMATION 69 CHAPTER 4: TAXATION 71 I. REGISTRATION REQUIREMENTS 71 A. FEDERAL 71 B. STATE 72 II. TAXATION OF BUSINESS INCOME 72 A. FEDERAL TAXATION (26 U.S.C. SUBTITLE A) 72 B. STATE TAXATION OF BUSINESS INCOME 75 III. INCOME, EMPLOYEE AND SELF EMPLOYMENT TAXES 75 A. FEDERAL EMPLOYEE-RELATED TAXES 75 B. NEBRASKA EMPLOYEE-RELATED TAXES 77 C. FARMERS WHO ARE SELF-EMPLOYED 78 IV. SALES AND SERVICES TAXES 78 A. SALES TAX ON FARM PRODUCT SALES 79 B. SALES TAX ON FARM PURCHASES 80 C. FUEL USE TAXES 80 V. PROPERTY TAXES 82 VI. CHECKLIST 83 VII. KEY CONTACT INFORMATION 83 CHAPTER 5: LABOR AND EMPLOYMENT 84 I. MINIMUM WAGE AND OVERTIME 84 A. FEDERAL: THE FAIR LABOR STANDARDS ACT 84 II. NEBRASKA: MINIMUM WAGE AND OVERTIME 87 III. CHILD LABOR LAWS 87 A. FEDERAL 87 4 Nebraska Direct Farm Business Guide B. NEBRASKA CHILD LABOR REGULATIONS 88 IV. WORKER HEALTH AND SAFETY 88 A. OCCUPATIONAL SAFETY AND HEALTH ACT 88 B. TOXIC SUBSTANCES DISCLOSURE TO EMPLOYEES 89 C. FEDERAL INSECTICIDE, FUNGICIDE AND RODENTICIDE ACT 89 V. MIGRANT AND SEASONAL WORKERS 90 A. THE MIGRANT AND SEASONAL AGRICULTURAL WORKER PROTECTION ACT 90 VI. H-2A VISAS 92 VII. UNPAID EMPLOYEES: INTERN AND STUDENT WORKER PROGRAMS 92 VIII. INJURIES AND WORKERS’ COMPENSATION 94 IX. EMPLOYER LIABILITY WHEN EXEMPT FROM WORKERS’ COMPENSATION REQUIREMENTS 96 A. EMPLOYER’S NEGLIGENCE 96 B. CONTRIBUTORY NEGLIGENCE OF THE EMPLOYEE 96 C. EMPLOYER RESPONSIBILITY FOR EMPLOYEE’S INJURY TO OTHERS 97 X. CHECKLIST 100 XI. KEY CONTACT INFORMATION 100 CHAPTER 6: DAIRY 103 I. FEDERAL REGULATION 103 A. FDA: PASTEURIZATION AND GRADE A PASTEURIZED MILK ORDINANCE 103 B. USDA: GRADING AND MILK MARKETING ORDERS 104 II. STATE REGULATION 107 III. ORGANIC MILK 108 IV. RAW MILK 108 V. RBGH FREE LABELING 108 VII. CHECKLIST 110 VIII. KEY CONTACT INFORMATION 110 CHAPTER 7: EGGS 111 I. FEDERAL OVERSIGHT OF EGGS 111 A. USDA’S OVERSIGHT OF EGGS 111 B. FDA’S OVERSIGHT OF EGGS 113 C. THE FOOD SAFETY MODERNIZATION ACT 114 II. NEBRASKA REGULATION OF EGGS 114 A. PRODUCTION AND HANDLING 114 B. LABELING AND ADVERTISING 114 III. CHECKLIST 116 IV. KEY CONTACT INFORMATION 116 CHAPTER 8: FRUITS AND VEGETABLES 117 I. UNPROCESSED FRUITS AND VEGETABLES 117 A. FEDERAL REQUIREMENTS 117 5 Nebraska Direct Farm Business Guide B. STATE MARKETING AND LABELING REQUIREMENTS 119 C. PESTICIDE REQUIREMENTS 120 D. STATE PRODUCE SAMPLING REQUIREMENTS 121 II. PROCESSED FRUITS AND VEGETABLES 121 A. VALUE-ADDED PROCESSING: COTTAGE FOODS 122 B. JUICE 123 C. WINE, BEER AND SPIRITS 124 III. OTHER CONSIDERATIONS FOR FRUITS AND VEGETABLES 125 IV. CHECKLIST 126 V. KEY CONTACT INFORMATION 126 CHAPTER 9: GRAINS, CEREALS, AND OILSEEDS 127 I. GRAIN INSPECTION STANDARDS 127 II. LICENSING OF WAREHOUSES AND DEALERS 128 A. THE UNITED STATES WAREHOUSE ACT 128 B. NEBRASKA STATUTES: BUYING, WAREHOUSING AND HANDLING OF GRAIN 128 III. SELLING GRAINS 129 IV. VALUE ADDED AND COTTAGE FOOD REGULATIONS 130 V. CHECKLIST 132 VI. KEY CONTACT INFORMATION 132 CHAPTER 10: HONEY 133 I. BEE KEEPING 133 II. PROCESSING AND MARKETING 133 A. ORGANIC HONEY 134 III. CHECKLIST 136 IV. KEY CONTACT INFORMATION 136 CHAPTER 11: LIVESTOCK AND POULTRY 137 I. RAISING AND CARING FOR ANIMALS 137 A. LIVESTOCK ANIMAL WELFARE ACT 137 B. FEEDING GARBAGE 138 C. BRANDS 138 II. DISEASED ANIMALS AND DEAD ANIMAL DISPOSAL 138 A. ANIMAL DISEASE CONTROL 138 B. DISPOSAL OF DEAD ANIMALS 139 III. SLAUGHTERING AND PROCESSING 140 A. THE FEDERAL HUMANE SLAUGHTER ACT 140 B. FEDERAL MEAT AND POULTRY PROCESSING 140 C. POULTRY: FEDERAL 142 IV. MARKETING MEAT AND POULTRY PRODUCTS 143 A. FEDERAL: LABELING AND STORING OF MEAT AND POULTRY PRODUCTS 143 6 Nebraska Direct Farm Business Guide B. FEDERAL: NUTRITION CONTENT LABELING 144 C. STATE: LABELING, MARKETING AND FOOD SAFETY REGULATIONS 148 D. SPECIALTY PRODUCTS AND MARKETING 148 V. CHECKLIST 151 VI. KEY CONTACT INFORMATION 151 CHAPTER 12: ORGANIC CERTIFICATION 153 I. ORGANIC LABELING AND MARKETING 153 II. ORGANIC CERTIFICATION PROCESS 154 III. PRODUCTION REQUIREMENTS 155 A. CROPS 156 B. LIVESTOCK AND POULTRY 157 IV. HANDLING AND PROCESSING 158 V. CHECKLIST 161 GLOSSARY OF TERMS 162 7 Nebraska Direct Farm Business Guide ACKNOWLEDGEMENTS & LEGAL DISCLAIMERS ACKNOWLEDGEMENTS This Guide was made possible, in part, by a grant from the National Institute of Food and Agriculture under the Agriculture and Food Research Initiative. A. Bryan Endres, an Associate Professor of Agricultural Law at the University of Illinois, and Rachel H. Armstrong, an attorney and research associate at the University of Illinois and the Executive Director of Farm Commons1 developed the content for this Guide for Nebraska farmers. Photo Credits: Pg. 109 courtesy of Wendy Andersen; pgs. 103 and 114 courtesy of Nicholas R. Johnson. All other photos courtesy of Lisa Bralts. All rights reserved. LEGAL DISCLAIMERS This Guide is not intended as legal advice. It is not intended to, and cannot substitute for, sound legal advice from a competent, licensed attorney. Rather, it is meant to help readers understand the many issues that must be considered when establishing and operating a direct farm business. There is more to farming than just growing crops and selling to customers. The authors’ hope is that this Guide will illustrate the legal issues that direct farm entrepreneurs must consider and then guide them towards experts and additional resources that will set their direct farm businesses on a track towards success. The legal information provided by this Guide is a general overview of the many laws and regulations that may be applicable to a direct farm business. The reader should never assume that the information contained herein applies to his or her specific situation without consulting a competent attorney in his or her home state. Further, though the authors have made every effort to ensure the accuracy of the information in this Guide, they cannot guarantee that all of it is correct. Laws, regulations, and guidelines can change at any time, and the status of laws and regulations in the future cannot be predicted with any certainty. Therefore, every user of this Guide should at all times independently ensure that the legal information is up-to-date before using it in any way. Any URLs provided herein are purely for the convenience of the user, and the authors of this guide disclaim any liability for the content of the referenced websites. Finally, any opinions, findings and conclusions, or recommendations expressed in this Guide are those of the authors and do not necessarily reflect the view of the funding organizations. 1 www.farmcommons.org 8 Nebraska Direct Farm Business Guide 9 Nebraska Direct Farm Business Guide INTRODUCTION If you are reading this Guide, then you are probably well aware of the growing interest in local foods. Consumers seek out local producers for a variety of reasons. Some believe that locally grown food is healthier, safer and tastier while others hope that local farmers are more invested in the community and stewardship of the land. And, many people buy locally because they want to learn more about where their food comes from and make connections with the people who produce it. Although consumer demand is the primary motivation for expanded local food networks, national leaders, in an era of bioterrorism threats and increased energy costs, have recognized that direct farm businesses can play a critical role in local and regional food security plans. For example, the Federal Farmer-to-Consumer Direct Marketing Act (7 U.S.C. Chapter 63) recognizes the importance of direct farm businesses by funding state direct marketing assistance programs and directing a yearly survey to determine what methods of direct farm marketing are being used. Direct farm businesses can meet these demands while increasing profitability for farmers and local producers. Selling directly to consumers increases the farmer’s share of the consumer’s food dollar, which often goes predominantly to brokers and processors in conventional food supply systems. Furthermore, building a connection with customers and the community can make farming a more enjoyable and rewarding experience.