After finalizing a business plan and selecting a business entity through which to operate the direct farm business, the next steps are to:
- finalize a site for your direct farm business
- obtain all necessary permits, licenses and registrations required by the State of Illinois and local governments
- adequately insure the operation
County zoning laws, environmental regulations, and potential nuisance claims are important considerations in choosing where to site a farm and may affect what activities are allowable on the land.
The Illinois Counties Code (55 ILCS 5/5) authorizes counties to regulate land use by implementing measures to regulate and restrict the location and use of buildings, structures and land (55 ILCS 5/5-12001). The county's seemingly broad power relating to land use is limited with respect to land used for agricultural purposes (Id.). Specifically, counties may not impose regulations, eliminate uses, buildings, or structures, or require permits with respect to land used for agricultural purposes. However, counties may require certain setback lines for agricultural operations.
This raises the question of what exactly an "agricultural purpose" is, and, more importantly, whether a direct farm business qualifies as one. The Counties Code defines an agricultural purpose as:
the growing of farm crops, truck garden crops, animal and poultry husbandry, apiculture, aquaculture, dairying, floriculture, horticulture, nurseries, tree farms, sod farms, pasturage, viticulture, and wholesale greenhouses when such agricultural purposes constitute the principal activity on the land. . . .
Illinois court cases interpreting this definition indicate that the statute exempts the "production" of agricultural products from county zoning regulation, but the cases fail to specify whether associated direct farm businesses such as farm stands, U-pick operations or agritourism are "agricultural purposes" that are exempt from county zoning restrictions. In some instances, county zoning ordinances following the guidelines of the state statute may provide a precise answer. At the individual county level in Illinois, the zoning ordinance usually will specify that farm stands and U-pick operations are "agriculture," and thus exempt from further zoning restrictions. Whether other farm business operations (e.g. basic food processing such as bagging mixed lettuce) are exempt under the county rules can be more difficult to determine, and farmers who are unsure of their status should contact an attorney for guidance. Below is an example of one county’s interpretation of “agricultural purpose.”
Example: Champaign County Zoning Ordinance
- Roadside stands are permitted by right if operated by the farm operator in an area zoned agricultural. Roadside produce stands not operated by the actual farm operator may be allowed under a special use permit.
- Rural specialty businesses are allowed by right if they qualify as a “minor” rural specialty business. To qualify as a "minor" rural specialty businesses, the total area of the specialty business (that is not otherwise "agriculture") must be less than one acre, total sales display area must be less than 2,000 sq. ft. (no more than 50% of which may be indoors), alcoholic beverages may not be sold unless produced on the premises, and the business may not include a "food service establishment" as defined by the Champaign County Health Ordinance (Ord. No. 573). An exception to this last requirement is that a "minor" rural specialty business may include a "food store" as defined by the county health ordinance. "Major businesses" require a special use permit from the county.
- Agritourism presents a slightly more complex analysis regarding whether it is exempt from county zoning rules. If the operation meets the criteria above, it would qualify as a "minor" rural specialty business, and thus be allowed as a matter of right. However, if the business wished to use sound amplification equipment (for instance, a hayrack ride with "spooky" music over Halloween or a Fall Farm Music Festival) the business also would need a "Temporary Use Permit" as well as an "Entertainment and Recreation License" from the county.
- More intensive farm business activities generally require special use permits. Examples might include farm chemical sales, livestock sales facilities, slaughter house or grain elevators.
An additional zoning/siting concern arises when farmland intersects urban areas—a common situation for many direct farm operations due to the proximity to potential consumers. As towns or other urban areas expand, counties or cities may change the land’s zoning classifications. For example, towns may annex farmland previously under county jurisdiction and subject the property to municipal zoning. Other land use changes may result when the county itself rezones land due to development pressures. In either situation, governments could rezone productive farmland from "agricultural" to "residential" or "commercial," etc. The existing farm operation would be grandfathered as a "non-conforming use," which would allow the continuation of the farming operation, but prohibit other farm-related businesses such as farm stands or U-pick operations. Therefore, it is important to determine the precise zoning classification for the specific property, even if the property has been “farmed” continuously.
In sum, during the planning stage, a careful review of local zoning ordinances is essential. In addition to directly contacting the county clerk or local library for a copy of the applicable ordinances, Northern Illinois University's College of Law has compiled a website with links to many county and municipal rules.
Impacts on Neighboring Land
Farming operations, whether through generation of odors, particulates or even noise, can in some circumstances have a significant impact upon land surrounding the farm. Consequently, when choosing a farm site and planning production and processing activities, direct farm business owners should be aware of two legal issues concerning a farm’s impacts on neighboring land: regulations on the siting of livestock facilities and nuisance law.
The Illinois Livestock Management Facilities Act (LMFA) (510 ILCS 77) and accompanying regulations (8 IAC Part 900) establish requirements for the siting, design, construction and operation of livestock management and livestock waste-handling facilities. They also establish a public information meeting process for facilities of a certain size. The legislature enacted the LMFA, in part, to control environmental and land use problems arising from the expansion and concentration of animal production.
The LMFA does not regulate all livestock farms; rather, it only applies to farms with a “livestock management facility,” which is “any animal feeding operation, livestock shelter, or on-farm milking and accompanying milk-handling area” (510 ILCS 77/10.30). The LMFA would not apply to a pasture operation that uses only free-grazing techniques and temporary shelters.
Anyone who intends to build or expand a livestock management facility or livestock waste management facility must file notice with the Illinois Department of Agriculture (IDOA) (510 ILCS 77/11). Applicants should submit construction plans and IDOA’s Notice of Intent to Construct form. Operators should submit the notice as soon as construction plans are finalized because construction cannot begin until IDOA approves the plan (8 IAC 900.303).
The size of the proposed facility, calculated by “animal units,” affects how long the approval process will take. Farmers can determine the number of “animal units” on their farms by using the conversion chart available at the bottom of IDOA’s LMFA webpage, or by multiplying the number of animals owned by the conversion number for the type of animal being raised (e.g. swine weighing over 55 lbs are multiplied by 0.4). The law treats all facilities under the same owner/operator within ¼ mile as a single facility (510 ILCS 77/10.30).
At a minimum, facilities that have more than 1,000 animal units and facilities that intend to use waste lagoons must file notice at least 37 days before beginning construction. Smaller facilities—i.e., those with fewer than 1,000 animal units and no lagoons—need only file notice 10 days in advance (510 ILCS 77/11). However, actual IDOA approval may take longer. Proposed facilities with over 1,000 animal units or with a lagoon must go through an IDOA public meeting process (8 IAC 900.401). The Department notifies the county, and the county board and residents have 30 days to request a public meeting. If someone requests a public hearing, the Department must hold the meeting within 15 days (8 IAC 900.405). There is a 30-day post-meeting comment period, and then the Department must make a decision within 15 days thereafter (8 IAC Part 900 Subpart D). If the facility is small, or no one requests a public hearing, the Department should make its LMFA decision within 15 days (8 IAC 900.303(1)(b)).
Factors the IDOA will consider in deciding whether to approve a facility include siting, residential setback requirements and waste handling capacity. Setbacks do not apply to livestock management facilities serving fewer than 50 animal units, although these smaller facilities still must comply with the IL EPA “maximum feasible location” requirement (35 IAC 501.317). Essentially, this means that the facility must be as far from neighboring residences as possible or farther away than any already existing facilities (Id.). Facilities serving 50 to 1,000 animal units must be set back ¼ mile from the nearest residence and ½ mile from the nearest populated area. That distance increases by 440 feet for every additional 1,000 animal units the facility serves. If over 7,000 animal units, the facility must be set back ½ mile from the nearest residence and 1 mile from the nearest populated area. Setback distances may be decreased by innovative design or by obtaining waivers from the owners of residences located within the required setback distances (510 ILCS 77/35; 8 IAC 900.202). The law and regulations impose additional siting and construction requirements on facilities proposed near 100 year flood plains and in karst areas (areas where surface water easily flows through rock formations to ground water, posing potential risks for contamination of groundwater) (510 ILCS 77/13; 8 IAC 900.502).
For more information on the LMFA, see Illinois Department of Agriculture’s webpage. Additional information on the LMFA, including a FAQ page, can be found on the University of Illinois Extension site, EZ Regs. EZ Regs provides information on the application of environmental regulations on livestock and crop farms.
A nuisance is the substantial interference, either by act or omission, with a person's right to use and enjoy their property (In re Chicago Flood Litigation, 176 Ill.2d 179, 204 (1997)). The invasion of another's property must be (1) substantial, (2) either intentional or negligent, and (3) unreasonable (Schiller v. Mitchell, 357 Ill. App. 3d 435, 441 (2005)). A nuisance may be a strong smell, loud noise, unsightly object, or some other condition causing substantial discomfort, so long as it is perceptible to the senses (Id. at 442). Direct farm businesses must be aware of conditions they create that rise to the level of actionable nuisance, particularly those businesses in close proximity to land used for non-agricultural purposes. Courts have found some large livestock facilities to be a “nuisance” due to the presence of strong odors and flies such that neighbors can no longer use their property (e.g., unable to open windows in summer due to odors).
There are two types of nuisance claims: private and public. Private nuisance usually affects a single party or a definite, small number of individuals in the use or enjoyment of private rights (Willmschen v. Trinity Lakes Improvement Ass'n, 362 Ill.App.3d 546, 553 (2005)). Public nuisance generally is a condition affecting a substantial number of people or an entire neighborhood or community (City of Chicago v. American Cyanamid, Co., 355 Ill.App.3d 209, 214 (2005)).
Courts frequently balance the interests of both sides in determining liability for nuisance (Gardner v. Int'l Shoe Co., 386 Ill. 418, 429 (1944)). Courts also will consider whether the complaining party came to the nuisance—that is, whether the condition existed when the complaining party acquired the property. While coming to the nuisance does not bar a nuisance action, it may help determine what, if any, damages are appropriate.
If a nuisance action is successful, the court may issue a temporary or permanent injunction, including an order shutting down the offending operation. In the alternative, a court may allow the nuisance to continue, but require the offending party to compensate the complaining party. Parties may also seek to permanently enjoin a potential or anticipated nuisance when it clearly appears that a real and immediate nuisance would occur once the facility were to begin operation (Nickels v. Burnett, 343 Ill. App. 3d 654, 663 (2003)).
The Illinois Farm Nuisance Suit Act (740 ILCS 70) may protect some farmers from nuisance actions. Any farm that has been operating for more than one year, and was not a nuisance when it commenced operations, generally is immune from nuisance liability that results from changed circumstances in the surrounding area. The Act does not protect farmers from liability when they act negligently or operate the farm improperly. It is not clear whether the act protects expansion of a farm’s agricultural activity, or if the protection only applies to the farm as it existed when the surrounding area changed circumstances. Furthermore, courts in other states with similar statutes have sometimes found them unconstitutional because the government requires neighboring property owners to bear a burden—the nuisance—without compensation. Under the Illinois statute, a farmer who successfully defends against a nuisance suit typically does so at the expense of having had to hire a lawyer. Accordingly, the best defense for direct farm businesses is to operate in a reasonable, non-negligent manner and minimize potential interference with neighboring property.
Animal Disease Traceability
“To protect the health of U.S. livestock and poultry and the economic well-being of those industries,” the USDA's Animal and Plant Health Inspection Service (APHIS) developed the National Animal Identification System (NAIS) to identify and record the movement of livestock, poultry and other farmed animals throughout the United States. Through NAIS, APHIS aimed to achieve a 48-hour traceback of the movements of any diseased or exposed animal in the event of an animal disease outbreak. NAIS consisted of three components: premises registration, animal identification, and animal tracing.
The program intended to protect livestock and poultry producers by enabling USDA to identify the location of a disease outbreak and which animals were exposed in order to limit the scope of quarantines and animal destruction while also adequately preventing any further spread. However, the program met significant resistance from producers and state departments of agriculture. In February 2010, the USDA announced it would be overhauling the animal disease traceability system to apply only to animals traveling in interstate commerce and to be more flexible and accommodating to states’ needs. Therefore, registration requirements of premises and animals for disease tracing are in flux. According to USDA press releases, the agency intends to develop a program in collaboration with states and tribal governments, and provide transparency through notice and comment rulemaking. For the most up-to-date information on the status of premises registration requirements, see USDA’s Animal Disease Traceability website.
FDA Food Facility Registration
The Federal Food, Drug and Cosmetic Act (FDCA) requires all facilities that hold, pack, manufacture or produce food for animal or human consumption in the U.S. to register with the U.S. Food and Drug Administration (FDA) prior to beginning manufacturing/processing, packing, or holding food (21 U.S.C. § 350d). Facilities that fail to register face civil and/or criminal prosecution. Many types of direct farm businesses, however, are exempt from registration requirements (21 C.F.R. §1.226). Farms, retail facilities, restaurants, nonprofit food facilities, fishing vessels, and operations regulated exclusively by USDA throughout the entire facility (e.g., facilities that handle exclusively meat, poultry, or egg products) are exempt from the registration requirement. Whether a direct farm business qualifies for an exception to the registration requirement depends on the definitions set forth in FDA regulations:
- Farm (21 C.F.R. § 1.227(b)(3)): A facility in one general physical location devoted to the growing and harvesting of crops, the raising of animals (including seafood), or both. Washing, trimming of outer leaves of, and cooling produce are considered part of harvesting. The term “farm” includes:
- Facilities that pack or hold food, provided that all food used in such activities is grown, raised, or consumed on that farm or another farm under the same ownership; and,
- Facilities that manufacture/process food, provided that all food used in such activities is consumed on that farm or another farm under the same ownership.
- Restaurant (21 C.F.R. § 1.227(b)(10)): A facility that prepares and sells food directly to consumers for immediate consumption.
- “Restaurant” includes entities in which food is provided to humans, such as cafeterias, lunchrooms, cafes, bistros, fast food establishments, food stands, saloons, taverns, bars, lounges, catering facilities, hospital kitchens, day care kitchens, and nursing home kitchens.
- “Restaurant” also includes pet shelters, kennels, and veterinary facilities in which food is provided to animals.
- “Restaurant” does not include facilities that provide food to interstate conveyances, central kitchens, and other similar facilities that do not prepare and serve food directly to consumers.
- Retail Food Establishment (21 C.F.R. § 1.227(b)(11)): A retail food establishment is defined by statute as “an establishment that sells food products directly to consumers as its primary function. A retail food establishment may manufacture/process, pack, or hold food if the establishment's primary function is to sell from that establishment food, including food that it manufactures/processes, packs, or holds, directly to consumers (emphasis added). A retail food establishment's primary function is to sell food directly to consumers if the annual monetary value of sales of food products directly to consumers exceeds the annual monetary value of sales of food products to all other buyers. The term “consumers” does not include businesses. A “retail food establishment” includes grocery stores, convenience stores, and vending machine locations.”
Many questions arise as to whether a facility qualifies for an exemption under these definitions. FDA considers some facilities "mixed-type" that require registration. For example, a maple syrup operation that harvests maple sap and then heats the maple sap into syrup for sale to a distributor or grocery store is an example of mixed-type facility that requires registration, because even though taking sap from a tree is harvesting, heating sap into syrup is considered processing. Processing the sap for consumption off the farm removes the facility from the farm exception, and the facility would not qualify for the retail food establishment exception because the final product is not sold directly to consumers. On the other hand, if the farmer sold the sap only at a roadside stand, then it would qualify for the retail food establishment exception because the farmer would be selling directly to consumers.
The FDA has published a guidance document that contains a long list of questions and answers regarding whether an exception to registration applies. There are also flowcharts at the end of this section that may assist in determining whether a facility is exempt from registration. Businesses that are uncertain whether they must register should contact an attorney or the FDA help line at 1-800-216-7331.
The FDA maintains a webpage that contains step-by-step instructions and tutorials for registering online or by mail. Facilities are required to register only once. However, if information about the facility changes, the facility must update the registration within 60 days of the change. If a facility relocates, it must cancel the existing registration and submit a new registration. If the facility goes out of business or changes ownership, the facility must submit a registration cancellation within 60 days. Cancellations are irreversible. Information on how to update or cancel a registration is available through the same FDA webpage for registering online.
(See flow chart at bottom of page for assistance in deciding whether to register a farm with the FDA)
Federal and State Environmental Regulations
Farmers might also encounter issues with environmental permits and regulations. Because multiple agencies may have regulatory authority (depending on the environment and possible pollutants involve) environmental permitting is often very complex and individualized. This section provides a brief overview of some of the most common issues; however, it is not comprehensive. The Illinois Department of Agriculture maintains a website with information on the programs that it administers. The National Association of State Departments of Agriculture (NASDA), in conjunction with the National Agricultural Law Center, has published a more comprehensive Guide to State Environmental Laws Affecting Illinois Agriculture. Certain federal environmental programs may also apply to agricultural operations, such as the Endangered Species Act and the Safe Drinking Water Act. The EPA has provided brief summaries of its programs on its website. While these resources are useful starting points, farm operations should not rely exclusively on websites because they may not cover every potential environmental issue a farmer may encounter.
Finally, the Illinois Department of Commerce has an office of Regulatory Compliance Assistance to “help small businesses understand their environmental obligations.” Their website may be a helpful place to start, but it is probably best to contact the agency directly to determine specific obligations based on the type of direct farm business.
There are multiple laws that require waste management plans, including the LMFA and the Federal Clean Water Act (CWA) (33 U.S.C. § 1541, et seq.). Three separate agencies in Illinois may require manure management plans: IL EPA, IDOA, and Illinois Natural Resources Conservation Service. Each agency’s requirements and operations subject to the requirements are different. However, University of Illinois Extension, in collaboration with these agencies, has developed a website to help farmers create a management plan that will satisfy all three agencies. Following the steps on the website does not guarantee that all three agencies will approve the plan, but it is an excellent starting point.
The LMFA does not require livestock management facilities serving fewer than 1,000 animal units to prepare and maintain a formal waste management plan (510 ILCS 77/20(b); 8 IAC 900.802). However, when the facility closes, manure must be applied to land at agronomic rates consistent with the Illinois Agronomy Handbook (8 IAC 900.508). Waste management plans for larger facilities must address how to dispose of waste when a facility is removed from service (Id.). The Act also requires that owners and operators have sufficient funds to clean up the facility after it closes (510 ILCS 77/17). Owners must remove all waste from non-lagoon livestock facilities within 12 months (510 ILCS 77/14(k)) and lagoons must be emptied within two years of closing (510 ILCS 77/15(e)). Finally, a certified livestock manager must manage all facilities with more than 300 animal units (510 ILCS 77/30).
Livestock waste handling facilities must be strong enough to hold the particular waste that they contain (510 ILCS 77/13). The Illinois EPA establishes construction standards for livestock waste handling facilities (35 IAC 506). Generally, non-lagoons must meet the standards in the Midwest Plan Services’ Livestock Waste Facilities Handbook (510 ILCS 77/13; 35 IAC 506.304) and facilities using lagoons must comply with the “Design of Anaerobic Lagoons for Animal Waste Management” promulgated by the American Society of Agricultural Engineers or the national guidelines published by the USDA Natural Resource Conservation Service titled Waste Treatment Lagoon (510 ILCS 77/15; 35 IAC 506.204). The LMFA requires reporting of any release of waste of 25 gallons or more to IEPA (510 ILCS 77/18). The release can be reported using a form that is available from the Illinois EPA.
The Clean Water Act (CWA) (33 U.S.C. § 1541, et seq.) requires facilities that house exceptionally large numbers of animals to obtain permits under the National Pollutant Discharge Elimination System (NPDES). The Illinois Environmental Protection Agency (IEPA) administers the CWA in Illinois under an agreement with the EPA. NPDES permits protect water quality by requiring facilities that release pollution into surface waters to treat their water discharges. IEPA sets pollutant limits for NPDES permits based on the facility’s operation and the impairment of the water body to which the facility’s water runs. All large concentrated animal feeding operations (CAFOs) must obtain a permit, and medium CAFOs must obtain a permit if they have man-made ditches or pipes carrying wastewater or manure from the operation to surface waters, or if the operation has animals that come into contact with surface waters in their confined areas. For more information on how to apply for a permit, see the IEPA’s CAFO website. Illinois EPA also addresses the permitting requirements of some common livestock scenarios through its fact sheet Will an NPDES Permit be Required for my Operation? The current federal rule is available on the federal EPA website. IEPA’s livestock regulations are in 25 IAC Parts 501, 501, 560, 570 and 580.
As of the writing of this guide, there was a petition pending before the EPA to also regulate CAFO air emissions under the Clean Air Act. Updates on the status of that petition may be available through the EPA’s website.
The Clean Water Act also requires landowners to obtain permits from the Army Corps of Engineers (the Corps) to discharge dredge or fill materials into waters of the United States (33 U.S.C. § 1344). Accordingly, a permit may be necessary prior to construction or farming in wetlands. These permits, known as Section 404 permits, are only an issue for new farms—the law has an exception for normal farming, silviculture and ranching activities that are part of an established operation (33 U.S.C. § 1344(f)). However, new farms, or farms resuming operations on land that has been unused for so long that modifications to the hydrological regime are necessary to commence operations, should first determine if a permit is necessary. The Corps defines wetlands as “areas that are inundated or saturated by surface or ground water at a frequency and duration sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life in saturated soil conditions. Wetlands generally include swamps, marshes, bogs, and similar areas (33 C.F.R. § 328.3). There are five Army Corps of Engineers districts in Illinois. The Illinois Department of Natural Resources maintains a map that is useful for determining which district has jurisdiction.
The Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Chapter 6) (FIFRA) requires EPA to approve all pesticides sold or distributed in the United States. Upon approval, the pesticides are subject to labeling requirements, and applicators must comply with the use and application restrictions on the labels. Applicators must meet training and certification standards. The FIFRA is also the law that established the worker protection standards discussed in the “Labor and Employment” section of this Guide. The Illinois Pesticide Act (415 ILCS 60) requires all pesticides in Illinois to be similarly registered with and labeled by the Illinois Department of Agriculture. The law also requires licensing of dealers and applicators. These requirements apply equally to organic and non-organic pesticides, though some pesticides are classified as “restricted use” and restrict use to only licensed applicators.
Environmental Incentive Programs
Numerous state and federal programs provide financial and technical assistance to farmers who practice environmentally conscientious agriculture. These programs generally require the farmer to enroll their lands or sign a contract for a certain number of years. In exchange for implementing certain practices (or sometimes building structures), the farmer receives annual payments or technical assistance from the various agencies. A farmer’s lands will probably need to be approved as eligible for the program (i.e., capable of furthering the program’s purpose or priority goals) and will be subject to inspection to ensure ongoing compliance with the program. Providing detailed explanations of how all the programs work is beyond the scope of this guide. For more information on the federal programs, visit the USDA’s Natural Resource Conservation Service’s webpage. For more information on Illinois-specific programs, visit the Illinois Department of Natural Resources website.
Direct farm businesses may also wish to participate in the National Organics Program. Under this program, once a farm has been certified as organic, it may place the official USDA Organic label on its products. For more information on Organic certification, see the “Organic Marketing” chapter of this Guide.
Finally, there are emerging markets which allow farmers to obtain payments in exchange for providing ecosystems services (i.e., tangible benefits that people obtain from ecosystems). These markets, known as ecosystems services markets or environmental markets, quantify activities, such as reducing emissions or setting aside land as nature preserves, and enable the owner to sell the service or benefit to interested parties. Conservation easements and land trusts—in which landowners agree to set aside parcels of land for conservation or wildlife protection—are examples of ecosystem services markets already in operation. Oftentimes, farmers can gain tax benefits from placing conservation easements on their land or transferring land into a land trust. The Land Conservancy of McHenry County maintains a website that provides more general information about land conservation options in Illinois.
Developing markets include the greenhouse gas (GHG) carbon markets, such as the Chicago Climate Exchange, or those being considered in proposed federal cap and trade legislation. Section 2709 of the Farm Security and Rural Investment Act of 2002 (the 2002 Farm Bill) directed the Secretary of Agriculture to “establish technical guidelines that outline science-based methods to measure the environmental services benefits from conservation and land management activities in order to facilitate the participation of farmers, ranchers, and forest landowners in emerging environmental services markets” (16 U.S.C. § 3845). As a result of this legislation, the Department of Agriculture established the Office of Environmental Markets (OEM) in order to help facilitate the creation of market-based approaches to agriculture, rangeland, and forest conservation. More information on ecosystems services markets is available through the USDA’s Environmental Markets website.
To best determine the insurance needs of a direct farm business, start with a visit to a qualified insurance agent—preferably one who is familiar with how direct farm businesses operate. Farmers should be prepared to explain their operation in detail, and should request an insurance proposal from the agent that addresses the operation's every risk and potential amount of loss. Businesses may also wish to compare policies from multiple agents. Necessary insurance products may include premises liability (to cover liability for injuries that may occur on the property), workers' compensation, physical damage to business property, product liability, motor vehicle, crop insurance, and some kind of casualty insurance to cover transactions until title passes to the purchaser.
Many of these insurance needs may be incorporated into a basic farm insurance policy. These include losses to farm dwellings and outbuildings, personal property (including tractors and other equipment), and premises liability arising from some incidental on-farm business operations. Depending upon the scale of the operation and the insurance company, roadside farm stands and U-pick enterprises may or may not be covered under incidental business operations in the basic farm insurance policy. Agritourism, petting zoos or seasonal farm festival activities generally are not considered incidental farm business operations for insurance purposes and will require specific endorsements. Insurance field agents can review all of these operations in order to implement best management practices that are designed to eliminate or reduce potential risks.
Additionally, farmers must consider their liability for selling produce contaminated with harmful bacterial pathogens. Product liability issues generally are minimal in the commodity agriculture production business, especially when selling products for further processing later in the food supply chain. But when selling direct to the consumer, the risk of product liability increases as the injurious product may be traced directly to the direct farm business. Many farmers mistakenly believe that their general farm insurance policy will protect them against liability resulting from harmful pathogens (e.g., Salmonella; E. coli) in raw and unprocessed fruits and vegetables. This may not be the case, however, because general farm insurance policies usually only cover injuries that occur on the farm premises, and foodborne illnesses typically occur somewhere else. In some cases, a general commercial liability insurance policy, or even separate product liability coverage, may be required.
Furthermore, once a direct farm business transitions from agricultural commodity to production of processed goods, or direct sales to consumers of any kind, a basic farm policy may not cover injuries that occur in connection with that processing or sale—even if they occur on the premises insured by the farm policy. Some farm policies define “farming” and “business” separately and exclude any “business” operations—including, in some cases, U-pick operations—from policy coverage. In such a case, insurance coverage would not extend to a patron who trips on a rock in a U-pick parking lot on the premises and sues the farm owner for payment of her medical bills. And certainly, an on-farm business with a commercial scale kitchen would not qualify as "incidental" to the farm operation, but rather a commercial undertaking with particular insurance coverage needs.
Due to the variability of insurance coverage and prices depending upon the specific direct farm business, insurance needs and costs should be assessed early in the business planning process. Moreover, bank financing may require insurance expenses to be incorporated as part of the cost structure and profitability models in the business plan. Further, some potential customers (e.g., restaurants, institutional sales) may require proof of adequate insurance.
Again, it is important to discuss these issues with an insurance specialist and an attorney to ensure the business owner and the direct farm business have the necessary insurance coverage to protect the business assets and minimize personal liability exposure.
- Considered where you want to locate your business? Depending on what type of business (u-pick, agri-tourism, farm stand, etc.) you are considering, this requires:
- Reviewing applicable county and muncipal zoning laws in your area;
- determining permit requirements under the Illinois Livestock Facilities Management Act;
- investigating whether any other environmental permits will be required under Illinois and federal environmental laws
- Have you looked into the registration and permitting requirements? Most registration steps are relatively simple, but failure to comply can have significant consequences.
- Have you informed yourself about insurance options and costs? Insurance (or lack thereof if something goes wrong) can represent a significant cost for a small-scale farmer. It should be considered as part of your initial overall business plan and not left as an afterthought.
Key Contact Information
Illinois Department of Agriculture (information on the Livestock Facilities Management Act):
U.S. Food and Drug Administration (food facilities registration help desk)
Ph: 1-800-216-7331 or 301-575-1056
Illinois Deparment of Commerce, Office of Regulatory Compliance (compliance with environmental regulations)
 The animal unit conversions are:
(1) Brood cows and slaughter and feeder cattle multiplied by 1.0.
(2) Milking dairy cows multiplied by 1.4.
(3) Young dairy stock multiplied by 0.6.
(4) Swine weighing over 55 pounds multiplied by 0.4.
(5) Swine weighing under 55 pounds multiplied by 0.03.
(6) Sheep, lambs, or goats multiplied by 0.1.
(7) Horses multiplied by 2.0.
(8) Turkeys multiplied by 0.02.
(9) Laying hens or broilers multiplied by 0.01 (if the facility has continuous overflow watering).
(10) Laying hens or broilers multiplied by 0.03 (if the facility has a liquid manure handling system).
(11) Ducks multiplied by 0.02.
 FDA has published a helpful, 16-page guide on facility registration titled What You Need to Know About Registration of Food FacilitiesThe Guide explains who must register (including exemptions), and how to register.
 A facility is a large CAFO if it has more than 700 mature dairy cows; 1,000 veal calves; 1,000 beef cattle or heifers; 500 horses; 2,500 swine (each 55 lbs or more); 10,000 swine (each under 55 lbs); 10,000 sheep or lambs; 55,000 turkeys; 30,000 ducks (other than liquid manure handling systems); 5,000 ducks (liquid manure handling systems); 30,000 chickens (liquid manure handling systems); 125,000 chickens except laying hens (other than liquid manure handling systems); 82,000 laying hens (other than liquid manure handling systems).
 A facility is a medium CAFO if it has 200 - 699 mature dairy cows; 300 - 999 veal calves; 300 - 999 beef cattle or heifers; 150 - 499 horses; 750 - 2,499 swine (each 55 lbs or more); 3,000 - 9,999 swine (each under 55 lbs); 3,000 - 9,999 sheep or lambs; 16,500 - 54,999 turkeys; 10,000 - 29,999 ducks (other than liquid manure handling systems); 1,500 - 4,999 ducks (liquid manure handling systems); 9,000 - 29,999 chickens (liquid manure handling systems); 37,500 - 124,999 chickens except laying hens (other than liquid manure handling systems); 25,000 - 81,999 laying hens (other than liquid manure handling systems).