What Will USDA Come Up with for Tariff Aid Program #2?

Posted on 05/14/2019 8:27 AM

Farmers: Trump aid plan should include Mexico & Canada trade countermeasures


The only thing for sure about the likely $15 billion new version of President Trump's coming and promised tariff aid package for the ag sector is that it will not be the initial suggestion the president made on May 10: food aid for needy nations. Reason: anyone vetting this (it wasn't) would easily note there are a host of hurdles making the program unworkable and at odds with World Trade Organization (WTO) rules (export subsidies, etc.). One former USDA official said, “When I was at USDA, we used to have to fight for $15 MILLION, now with just a tweet, it's $15 BILLION!” The additional $3 billion above last year's $12 billion package could, if utilized more equitably, go a long way toward making the next aid program more agreeable to growers outside the soybean sector who felt they were not properly addressed in the aid's first round.

President Donald Trump today tweeted that U.S. farmers are still going to come out all right in the tariff fight. "Our great Patriot Farmers will be one of the biggest beneficiaries of what is happening now. Hopefully China will do us the honor of continuing to buy our great farm product, the best, but if not your Country will be making up the difference based on a very high China buy," he said in the post. "This money will come from the massive Tariffs being paid to the United States for allowing China, and others, to do business with us. The Farmers have been 'forgotten' for many years. Their time is now!"

Then what will it look like? A modified Market Facilitation Program (MFP) is the prediction of many. But the first version of that uncreative USDA approach was criticized by many growers, other than the soybean sector which garnered the bulk of the payouts. Another issue is the payment rates under any aid program.

Some say Trump's $12 billion program announced for 2018 was too tilted toward soybeans and should have provided more aid for other ag sectors. This would be the same concern if round two is similar to round one, which some say is likely because a USDA official is saying the plan may be announced in “day, not weeks or months.”

Others note the last program was limited to direct China-related impacts. It should also cover countermeasures Mexico and Canada have made on the U.S. ag sector relative to President Trump's metal tariffs on those ally countries. So logic would suggest NAFTA-related aid should also be made. This would go a long way toward making U.S. dairy, hog and other ag sectors at least feel the aid program is property balanced. Of course, all impacted sectors say they prefer getting their income from the marketplace. But if the aid pie is passed....

Even if the program is limited to China-related tariffs, the program also needs to cover not just direct impacts but also indirect impacts. There are correlative impacts between crops, as some commodities have seen more plantings this year relative to fewer soybean plantings, weather concerns notwithstanding. Further, while the retaliation is coming primarily from China, U.S. products in many cases have been able to move to other markets. Any eventual aid package could/should take these factors into consideration the next time around, analysts note.

A program also needs to be based on planted or prevented planted acres to avoid double penalizing farmers who lost their crops, some say. Using RMA APHs or PLC yields makes a lot of sense, some say. Others have and will continue to argue that crop and revenue insurance are already available to help offset some lost weather-related production. Where that criticism falls flat, some stress, is in the fact that crop insurance is based on futures market prices, which have been depressed due to the trade war.  So, crop insurance — while vital — does virtually nothing to compensate for losses due to the trade war.  And, anyone who loses their crop is stuck with those terrible prices, with no help from MFP (as currently structured).

If MFP again, some adjustments needed. While observers say USDA Secretary Sonny Perdue and his staff did an excellent job pushing MFP through in its initial debut, “with some adjustments based on what we learned from last time, the MFP can be improved to better mitigate impacts,” one farm policy expert said.

Some say USDA should not limit the next aid program to one concept because just like farm policy, one size does not fit all.

One suggestion for soybean growers: base the payout on planted and considered planted acres, but only on reduced plantings from a time frame, perhaps a five-year Olympic average. (Pay soybean growers based on how many acres they reduced from the baseline established.) Supporters of this idea note that USDA Secretary Sonny Perdue consistently told growers not to expect another trade policy related aid program for the 2019 crops. The reasoning: With soybeans the major crop impacted by China's countermeasures, why pay the sector for increased plantings relative to a baseline? This would be like a stealth paid acreage reduction program.

The reverse would be true for corn, sorghum, cotton and perhaps other commodities which have seen their planted and considered plantings increase from growers who reduced their soybean acreage intentions.

The fruit and vegetable industries have also been negatively impacted by countermeasures to Trump tariffs, not limited to China. Many say these farm products were not adequately compensated in the initial tariff aid program.

Another issue overlooked is some farmers are running out of storage.

How are aid payouts counted relative to WTO guidelines (boxes — green, blue and amber — link for details)? U.S. non-product specific support, which has included emergency market loss assistance (MLA) payments, counter-cyclical program payments, and crop insurance subsidies, has consistently fallen within the de minimis exemption and thus has never been included as part of the U.S. total Aggregate Measure of Support (AMS).

Bottom line, according to one industry contact: “USDA has to write a policy that can be tied to trade... it is harder for them to make the case for all crops. And, USDA thinks that a corn/soybean farmer is the same.” But analysts note that while it is true that many corn farmers also grow soybeans, this is not universally the case. There are parts of the country where farmers grow corn but not soybeans. 

Some details of the 2018 trade aid program:

 MFP: Eligible Commodities, Payment Rates, and Production Base

 

 

Commoditya

Per-Unit Rate ($)b

 

Unit

 

Production Basec

Estimated Total Payment ($ Million)d

Soybeans

1.65

bushel

Harvested crop in 2018

$7,259.4

Hogs

8.00

head

Inventory during July 15 to August 15, 2018e

$580.6

Cottonf

0.06

pound

Harvested crop in 2018

$553.8

Sorghum

0.86

bushel

Harvested crop in 2018

$313.6

Dairy (milk)

0.12

cwt.g

Historical MPP-Dairy productionh

$254.8

Wheat

0.14

bushel

Harvested crop in 2018

$238.4

Corn

0.01

bushel

Harvested crop in 2018

$192.0

Fresh sweet cherries

0.16

pound

Harvested crop in 2018i

$111.5

Shelled almonds

0.03

pound

Harvested crop in 2018j

$63.3

Total

 

 

 

$9,567.4

Source: USDA, “USDA Launches Second Round of Trade Mitigation Payments,” press release, December 17, 2018; USDA, “USDA Announces Details of Assistance for Farmers Impacted by Unjustified Retaliation,” press release, August 27, 2018; USDA, “Market Facilitation Program (MFP),” August 2018; USDA, Notice of Funds Available, Market Facilitation Program (MFP), August 27, 2018, and “USDA Adds Shelled Almonds and Fresh Sweet Cherry to Market Facilitation Program,” press release, September 21, 2018.

Notes:

  1. Crops that are grazed in the field or used as forage are not eligible for MFP payments.
  2. The per-unit payment rate is based on the USDA-determined trade damage.
  3. A crop producer requesting an MFP payment must have a crop acreage report (Form FSA-578) on file with USDA. Producers who do not have an acreage report would follow the “late-filed” acreage report process.
  4. The estimated total payment is based on the announced MFP per-unit payment rate (column two) times the harvested production base (using 2017 production) or inventory (hogs). This could be received by a producer as a single payment or in two equal tranches.
  5. Payment for hog operations is based on the total number of head of live hogs during the July 15 to August 15, 2018, period that correctly reflects the farm’s operations. Production records for hogs may include, but are not limited to, breeding records, inventory records, sales receipts, rendering receipts, or veterinary records.
  6. Both upland cotton and extra-long-staple cotton are eligible for MFP payments.
  7. cwt. = hundred pounds or hundredweight.
  8. The payment for dairy production is based on the historical production reported for the Margin Protection Program for Dairy. For existing dairy operations, the production history is established using the highest annual milk production marketed during the full calendar years of 2011, 2012, and 2013. Dairy operations are also required to have been in operation on June 1, 2018.
  9. Sweet cherries intended for process market or juice are not eligible for MFP. The quantity of production for sweet cherries is on a “pack-out” basis.
  10. Shelled almonds will be based on the total eligible kernels or such similar term as edible meat weight.

Food Purchases in the Trade Aid Package

USDA Trade Aid Package Food Purchases

 

Commodity

Target Amount ($1,000s)

Pork

$558,800

Apples

$93,400

Pistachios

$85,200

Dairy

$84,900

Oranges

$55,600

Grapes

$48,200

Rice

$48,100

Potatoes

$44,500

Walnuts

$34,600

Cranberries

$32,800

Orange Juice

$24,000

Plums/Prunes

$18,700

Navy Beans

$18,000

Pecans

$16,000

Beef

$14,800

Kidney Beans

$14,200

Peanut Butter

$12,300

Peas

$11,800

Macadamia

$7,700

Lemons/Limes

$3,400

Sweet Corn

$2,400

Hazelnuts

$2,100

Lentils

$1,800

Blueberries

$1,700

Strawberries

$1,500

Pears

$1,400

Grapefruit

$700

Apricots

$200

Figs

$15

Total

$1,238,815

Source: USDA, “USDA Announces Details of Assistance for Farmers Impacted by Unjustified Retaliation,” press release, August 27, 2018.

 

USDA Trade Aid Package Food Purchases, Details to Be Determined

 

Commodity

Target Amount ($1,000s)

Almonds

$63,300

Sweet Cherries

$111,500

Total

$174,800

Source: USDA, “USDA Announces Details of Assistance for Farmers Impacted by Unjustified Retaliation,” press release, August 27, 2018.

 

Trade-Affected Share of Production for Affected Commodities

 

 

Commodity

 

Unit

 

2017 Production

2017 Exports Facing Retaliation

 

Share (%)

Soybeans

Million bu.

4,392.0

1,166.0

27%

Hogs

Million head

25,598.0

3,705.6

14%

Cotton

Million lbs.

10,042.8

1,175.8

12%

Sorghum

Million bu.

364.0

181.4

50%

Dairy (milk)

Million cwt.

2,155.0

46.3

2%

Wheat

Million bu.

1,741.0

55.6

3%

Corn

Million bu.

4,604.0

58.9

0%

Fresh sweet cherries

Million lbs.

875.1

NA

NA

Shelled almonds

Million lbs.

2,270.0

NA

NA

Source: USDA, “Cost Benefit Analysis—Market Facilitation Program,” July 24, 2018.

Notes: NA = Not available. Data for the year 2017 is most current data available at time of publication of source.

 


 

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