NCFC Submits Comments to USDA on Rural Energy for America Program (REAP)

November 2, 2026

Ms. Natalie Melton
Program Management Division
Rural Business-Cooperative Service
United States Department of Agriculture
1400 Independence Avenue, SW
Washington, DC 20250

 

Re: Unleashing American Energy and Economic Prosperity; Rural Energy for America
Program (REAP). [Docket No. RBS–26-Business-0529] RIN 0570–AB13

Dear Ms. Melton:

The National Council of Farmer Cooperatives (NCFC)¹ appreciates the opportunity to provide our views in response to the U.S. Department of Agriculture’s (USDA) final rule and comment period implementing the Rural Energy for America Program (REAP) published in the Federal Register on October 1, 2026.

NCFC members represent a broad section of the agriculture industry and access a number of USDA programs administered by the Rural Business-Cooperative Service including Value-Added Producer Grants and REAP – as grants to cooperatives spread the benefits to many farmers who own and control those businesses. Farmer cooperatives offer their farmer-owners opportunities to market their products and compete in a global marketplace. The increased earnings of the cooperative flow back to the farmer-owners in increased patronage dividends, boosting farmers’ income from beyond the farm gate. These earnings are then recycled through rural communities as farmers and ranchers purchase goods and services from local businesses, thereby sustaining rural America.

Additionally, cooperative projects spread the benefits among a larger number of producers in the aggregate. In doing so, this ensures that the funds invested by USDA and the benefits of a project generated through a REAP grant are distributed to a wider number of producers while lowering overall costs to the government in administering the program.

¹ Since 1929, NCFC has been the voice of America’s farmer cooperatives. Farmer cooperatives, businesses owned, governed, and controlled by farmers and ranchers, are an important part of the success of America’s agricultural supply chain. Our members are regional and national farmer cooperatives, which are in turn comprised of nearly 1,700 local farmer cooperatives across the country. Our members provide agronomy and other technical expertise and services, supply nearly every agricultural input available, provide credit and related financial services, market a wide range of commodities, produce value-added products, and produce energy for our nation’s supply chain.

Farmer Cooperative Eligibility

Farmer cooperatives are entities owned, controlled, and used by their farmer members. Typically, members join the cooperative by purchasing a share of stock, and management is controlled by a board of directors elected by the members. Voting power is generally one-member, one-vote. The cooperative’s profits are allocated based on member patronage, not financial investment. Earnings from business conducted with its members are taxed once – either as income of the cooperative or as income of the farmer-members when the earnings are passed through to them.

NCFC’s largest concern is that the rule appears to have been written with a farm or a small business in mind, but not with the recognition of the cooperative structure. To access REAP, a farmer cooperative needs to apply as a small business but it is owned by many members, and that structure conflicts with the “Highest Level Owner” test given the following:

• Definition (§ 4280.104): “Highest-level owner means the entity applying does not have any other entity that owns or controls it.”
• Eligibility (§ 4280.120): Agricultural Producers and Rural Small Businesses “must be considered Highest Level Owners, meaning no other entity owns or controls the Applicant entity.”

This creates a number of issues for farmer cooperatives:

• Members that are businesses could disqualify the co-op. Many co-op members are not individuals. They are farm LLCs, corporations, partnerships, family trusts, or other co-ops. Example 2 in the rules suggests eligibility depends on being owned by individuals “not by one or more entities.” Read that way, a co-op with any entity members is “owned by” other entities and fails the test. One LLC member out of hundreds of members could arguably be enough to disqualify a co-op.
• Federated co-ops are shut out entirely. A regional or federated co-op is owned by local co-ops, so it is never the highest-level owner. The local co-ops might qualify, but only if their own members pass the test.
• One member’s grant could block the whole co-op. The rule allows one award per fiscal year. That limit also covers other “entities owned by” the same people, such as “entities owned by John Smith and Jane Doe.” Applied literally to a co-op with hundreds of farmer-owners, a REAP grant to any one member’s farm could block the co-op’s application, or the other way around. Checking for duplicates by owner would also mean listing every member.
• Disclosure would be very burdensome. § 4280.131 requires applicants to give the owner names and percent of ownership. Again, a co-op would have to trace ownership through every member that is a business, which is impractical for large memberships. As stated above, cooperatives are owned and controlled by their members, typically on a one-member, one-vote basis. This shared ownership structure makes the ownership percentage reporting requirement nearly impossible to fulfill and fails to take into account the unique ownership structure of farmer cooperatives.

We believe these potential conflicts were inadvertent and are unintended, as clearly USDA intends co-ops to be eligible as stated on the website under “Who may apply for the program” includes “A Cooperative [including those qualified under Section 501(c)(12) of IRS Code].”

Additionally, the following Small Business Administration’s definitions cited in the regulation addresses cooperatives and states that its members should not be considered affiliates by virtue of being a member, which makes sense. However, the additional requirement of a cooperative ensuring that all members also meet the test of qualifying as “small” is extremely burdensome, especially given the varying SBA size limitations – different criteria such as revenue versus number of employees, and different caps for different commodity sectors. It would be very difficult to know how to classify members and ensure their eligibility, which would discourage farmer co-op program participation. Below is the SBA definition USDA references in the regulation.

§ 121.105 How does SBA define “business concern or concern”?
(a)

1. 1. Except for small agricultural cooperatives, a business concern eligible for assistance from SBA as a small business is a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.
   2. A small agricultural cooperative is an association (corporate or otherwise) acting pursuant to the provisions of the Agricultural Marketing Act (12 U.S.C.A. 1141j) whose size does not exceed the size standard established by SBA for other similar agricultural small business concerns. A small agricultural cooperative’s member shareholders are not considered to be affiliates of the cooperative by virtue of their membership in the cooperative. However, a business concern or cooperative that does not qualify as small under this part may not be a member of a small agricultural cooperative. [Emphasis added.]

(b) A business concern may be in the legal form of an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust or cooperative, except that where the form is a joint venture there can be no more than 49 percent participation by foreign business entities in the joint venture.

(c) A firm will not be treated as a separate business concern if a substantial portion of its assets and/or liabilities are the same as those of a predecessor entity. In such a case, the annual receipts and employees of the predecessor will be taken into account in determining size.

[61 FR 3286, Jan. 31, 1996, as amended at 70 FR 51248, Aug. 30, 2005]

Conclusion

REAP has allowed cooperative producer-owners to leverage their own funds to engage in projects that ultimately reduce energy costs and boost farmers’ incomes. NCFC and our member cooperatives look forward to continuing to work with USDA to advance the goals of REAP and would welcome the opportunity to discuss the above issues so that there can be more clarity as to the treatment of farmer cooperatives under the REAP final rule.

 

Sincerely,

Duane Simpson
President & CEO