Antecedentes en la colaboración entre ciencia e industria en el sistema español de I+D

The income measure used for AGR-Lite is linked to IRS 1040 Schedule F or equivalent tax forms. Values for AGR-Lite are drawn directly from those items reported on the following 2006 Schedule F form 1040. A discussion of the variables included in the calculation of AFI, defined by the contract, follows in the next section of the paper. Subsequently the paper identifies the variables used in computing AE and other critical parts of the insurance plan.

Allowable Farm Income

AFI, by definition, includes any income generated from the production of insurable commodities less any added value due to post production activities, which the contract refers to as incidental to the business of farming. Added value created during the stage of production, as a result of post production activities, increases the value of the commodity, is not covered under AGR-Lite. Incidental post production activities

constitute activities which are normally performed to prepare a commodity for its normal condition for market. Such activities may include but are not limited to sorting, washing, packing, grading, that does not alter the physical nature of the commodity which

producers are required to report to the IRS. Activities such as canning or freezing alter the physical state of the agricultural commodity, which increases the value of the commodity, are considered not incidental to the business of farming. This added value created through non-incidental activities will not be covered under the AGR-Lite policy. For example, a grape grower who produces wine from grapes would not report income obtained through wine sales. Income received from the sale of wine, resulting from a value added process, does not constitute AFI and thereby not covered by AGR-Lite. Whereas income generated from the marketing of grapes would be considered AFI. Producers will only report income defined by the contract corresponding to the items below taken from IRS Schedule F Form 1040. It is important to note the discussion of allowable items below correspond to individuals filing on a cash basis. Alternatively, if filing using the accrual method, appropriate items can be found on page two of Schedule F form 1040. If inclusion of income other than that defined as AFI is found on the AFI worksheet, Figure D.1 in Appendix D, prior to the insurance year, the corresponding

amounts will be deducted for AGR-Lite calculations. If such income is found following the closing date, the individual’s contract will be terminated effective the date of notice.

Eligible Income Items

The calculation of AFI includes items 3, 4, 5b, 7a, 7c, and 10 from Schedule F form 1040. Line 3 of Schedule F reports the sales of animals and agricultural

commodities purchased for resale obtained from subtracting Line 2 (cost basis of animals and agricultural commodities purchased for resale) from Line 1 (sales of all animals and agricultural commodities purchased for resale). Income generated from the sale of agricultural commodities including animals, produce, and grains, located on Line 4, will be included in calculating AFI. Line 5b of schedule F reports all cooperative

distributions directly related to the sales of agricultural commodities. Any income reported as such is considered AFI. Commodity Credit Corporation (CCC) loans (Line 7a of Schedule F) which were received from production placed under loan that the insured elected to report are considered AFI and will be included. Furthermore

individuals will include the taxable amount of forfeited CCC loans, Line 7c of Schedule F in the AFI calculation. Finally, other income, Line 10 of Schedule F, is considered AFI. Income qualifying as other income may include income generated from bartering, bypassed acreage payments received by the insured in accordance with a contract specifying payment to the insured for forgoing harvest of the commodity, payments received to forgo the production or harvest of an agricultural commodity through diversions, and set-asides.

Ineligible Income Items

Ineligible income, which is thereby excluded from AFI calculations, includes federal or state fuel tax credits and refunds, cooperative dividends, custom hire (machine work), agricultural program payments (Loan Deficiency Program (LDP) payments, Direct Payments, Counter-Cyclical Program payments, Conservation Reserve Program (CRP) payments, Conservation Reserve Enhancement Program (CREP) payments, Farm Service Agency (FSA) loans, Noninsured Crop Disaster Assistance Program (NAP) payments, ad hoc disaster assistance, Marketing Loss Assistance (MLA) payments). Figure D.4 in Appendix D reveals which payments to include in AFI calculations. However, it is important to note this is not an exhaustive list. Other sources considered ineligible income include crop insurance payments, net gain from commodity hedges, animals for sport and show, timber, forest, and forest products.

Allowable Expenses

In addition to maintaining thorough income records, farm managers must also maintain accurate expense documentation. Although AGR-Lite guarantees gross income, expenses are referenced in downsizing farm scenarios and monitored to prevent moral hazard. Moral hazard occurs when the presence of insurance alters the expected loss of a given event. These records will be referenced as part of claim submission procedures to analyze the insured’s expense activity within a production year. If expense activity appears inconsistent or abnormal there will be resulting implications to the guarantee level. A discussion of those items considered AE follows. Again, refer to the 2006 Schedule F form 1040 above to locate the AE items. Additionally Figure D.2 in Appendix D presents a form to assist in documenting the necessary items to include in

AE calculations. AE by definition includes expenses directly associated with the

production and gross income from insurable commodities. Conversely, indirect expenses include expenses which do not directly influence production or gross income. Those expenses considered indirect to the farming operation, do not constitute AE and as such are excluded from the total. Examples of these items, considered indirect, include

employee benefits, interest expense, pension and profit-sharing, rent or leasing, and taxes. Furthermore, post production expenses are not considered AE and must be excluded. Costs associated with post production activities may include costs incurred as a result of processing, packaging, packing or any other post production activity. The following items from IRS Form 1040 Schedule F will be used in deriving AE:

Line 2 - Cost basis or other basis of animals and other agricultural commodities that were bought for resale and sold during the tax year

Line 12 – Car and truck expenses Line 13 – Chemical expenses Line 14 – Conservation expenses Line 15 – Custom hire (Machine Work)

Line 16 – Depreciation and section 179 expense deduction (include only the amount of depreciation allowed for animals)

Line 18 – Feed purchased

Line 19 – Fertilizer and lime expenses Line 20 – Freight and trucking expense Line 21 – Gasoline, fuel, and oil expense Line 22 – Insurance (other than health)

Line 24 – Labor hired (less employment credits) (exclude share holder wages) Line 27 – Repairs and maintenance

Line 28 – Seeds and plants purchased Line 29 – Storage and warehousing

Line 30 – Supplies purchased (Exclude those used in post-production value added operations such as processing, packing, packaging, ect.)

Line 32 – Utilities

Line 33 – Veterinary, breeding, and medicine

Line 34 – Other farm expenses (include only those expenses directly related to the production of agricultural commodities that the IRS allows the insured to report.)