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Inside Washington
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Trade aid payments under fire

Senate Democrats said USDA is picking winners and losers with top payment rates heading to southern farmers.

The Administration’s Market Facilitation Program (MFP) has treated farmers unfairly by, among other things, sending 95% of the top payment rates to southern farmers, who have been harmed less than other regions, as well as not accounting for regional disparities, and may be doing more harm than good, according to a new report released by Senate Democrats this week.

The group, led by Senate Agriculture Committee ranking member Debbie Stabenow (D., Mich.) and Democrat leader Sen. Chuck Schumer (D., N.Y.), released the new report detailing how the Trump Administration is picking winners and losers in its attempt to aid farmers affected by what they say is President Donald Trump’s “turbulent trade agenda.” The data show that, in the wake of the trade uncertainty created by the President’s actions, the $25 billion in mitigation payments to help farmers have been distributed unevenly across the country, benefitting some regions more than others.

The U.S. Department of Agriculture reported that as of Nov. 4, 564,181 applications amounting to $6.687 billion were paid out to farmers from the first round of 2019 trade aid. The top five states receiving money include Illinois, Iowa, Kansas, Nebraska and Minnesota. The top commodities include row crops such as corn and soybeans, hogs, dairy, cherries and almonds. Last year’s MFP paid out a total of $8.6 billion for 1.03 million applications.

The Senate’s report, however, looked at the payment rates, which range from $15 to $150 per acre. The 2018 aid was based on actual production on acres, but in an effort to not distort planted acres as well as to offer a more distributable aid package to all farmers, USDA changed gears in 2019 to offer a per acre payment.

The report claims that there are “clear regional disparities” as the payment rates are higher in the South, with Georgia, Mississippi, Alabama, Tennessee and Arkansas receiving the highest per acre payments. Farmers in Georgia have already received over $50 per acre in the first round of 2019 payments, while farmers in 34 other states received $25 or less, including 14 states that received $10 or less per acre.

The report also detailed that a record number of farmers were prevented from planting due to flooding and wet weather this spring, meaning that some farms were not planted. Unplanted acres did not receive any payments under MFP. In places where farmers were able to plant cover crops, these acres were eligible for MFP payments of $15 per acre.

“This meant that weather could dramatically change a farm’s payment rate. For example, an average-sized farm (443 acres) in Pottawattamie County, Iowa, would have a payment of $29,238 if planted to eligible commodities, $6,645 if planted to cover crops or $0 if it was too wet to plant even cover crops,” the report said.

“While the impacts of the retaliatory tariffs are widespread, the payments rates have not aligned to help the regions harmed the most,” the report added. In the North, Midwest and West, farmers who previously exported their products to China are farther away from alternative markets. This extra distance to the new markets creates additional transportation costs on top of lower prices. These differences in price related to location are not new and are tracked by the “basis” for a particular area.

For example, after China's retaliatory tariffs were announced, the local soybean price dropped by 60 cents/bu. in North Dakota and 30 cents/bu. in Iowa relative to the national price. With a significant portion of soybeans grown in northern and western states no longer being exported through Pacific Northwest ports to China, the likely alternative markets would be accessed through the Gulf of Mexico instead. “Southern soybean farmers would already be closer to these alternative markets, and while they would still feel the broader impacts of losing the Chinese market, the relative impact would be less than the northern, midwestern and western growers who have the impact from increased transportation costs as well,” the report stated.

The National Farmers Union (NFU) also worried that the vast majority of trade assistance would flow to the largest operations rather than more vulnerable small- and medium-sized operations; by some estimates, more than half of the first tranche of payments went to just one-tenth of all recipients. Since then, USDA doubled the payment limit for row crops from $125,000 to $250,000 and loosened income restrictions, “paving the way for millionaires to claim an even larger share of assistance,” NFU said.

“During times of financial difficulty like these, bigger farms with more equity have a cushion to protect them from low prices and bad weather, but smaller operations might not be able to withstand more than a few hard years in a row,” NFU president Roger Johnson said.

Livestock producers were also not treated fairly, the report claims. Even when both commodities received direct payments, USDA calculated payments to hog producers and dairy producers differently. Hog producers were paid on a snapshot of recent production, while dairy farmers were paid based on production history that is six to eight years old and may not reflect current circumstances.

“Farmers need help to stay afloat as this Administration’s erratic trade actions continue to harm our agricultural economy,” Stabenow said. “The problem is USDA’s flawed aid formula is a short-term solution that picks winners and losers while failing to adequately help the farms hit the hardest.”

Schumer added, “This report shows that as America’s farmers are grappling with extreme uncertainty caused by President Trump’s chaos, the Trump Administration is using a flawed formula that helps big, wealthy farms and billion-dollar, foreign-owned companies, while small farms get left behind. The USDA must stop picking winners and losers and ensure all of America’s farmers get the help they need — not just a lucky few.”

Besides the claimed flaws, these programs are just a temporary solution to the very long-term damage inflicted on the U.S.'s trade relationships.

The report also stated that, over the past few decades, farmers have invested $971 million of their own money in developing trade with China. However, it noted that the market development portion of USDA's trade assistance package is, by far, the smallest.

“It is clear that more significant investments will be needed over multiple years, if not decades, but there seems to be no plan or proposal from the Trump Administration to do so,” the report noted.

There is also growing concern that some of the damage to export markets will either be permanent or take decades of investment to recover. The report cited examples of the ban on soybean exports to Japan to counter inflation during the Nixon Administration and the lost U.S. beef sales to China following the lone case of bovine spongiform encephalopathy (BSE) in 2003.

Senate Democrats, and many others, are rightfully questioning: Is President Trump doing more harm than good than good for farmers?

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