The next round of trade aid payments are being planned. It’s still unclear what entity will provide the funds and how compensation will be calculated, but Ag Secretary Sonny Perdue has provided some clues. Perdue has also requested feedback- and certain commodity representatives are lobbying hard for increased compensation for the next round. We take a look back at some of the previous MFP payments, and discuss the likelihood of increased compensation. Will the Trump Administration be able to improve the trade aid formula?
What We Know About the Next Round of Trade Aid Payments
Larry Lee of Brownfield Ag News reported on some of the latest developments with a trade aid package for US farmers. Ag Secretary Sonny Perdue provided some clues in comments he made after a meeting with G-20 Ag ministers in South Korea. Perdue says that the next portion of the Market Facilitation Program (MFP) is still being developed. He has no idea how much farmers will get, and which commodities might see payments. Perdue says that they’re trying to gain an understanding from farmers about what worked and didn’t work from the last round trade aid.
“We’re trying to listen to all of the stakeholder comments from last year (on) the implementation of the program, what went well, what we’d like to improve and we’re working those programs to present to the President.”
Direct Payments Likely
There are still many unknowns. One thing Perdue was willing to confirm is that the aid is likely to come in the form of direct payments.
“We are assuming it will contain direct payments for commodities. Certainly, the President’s concept of buying commodities for humanitarian purposes may also be part of that.”
President Trump has suggested that the government should purchase grain from farmers and use it to feed starving nations. This idea has been met with quite a bit of criticism, but doesn’t appear to be off the table at this point in time.
Payments Made Via the CCC
Perdue also confirmed that the new round of MFP payments would be handled through the Commodity Credit Corporation (CCC), and would need to be defensible to the World Trade Organization.
Perdue Requests Feedback
Perdue has said that the USDA wants feedback about the last round of MFP payments in order to plan for the new ones. It sounds like they’re getting plenty of it. Julie Harker of Brownfield Ag News says the National Corn Growers Association (NCGA) has created a rare call-to-action for its members to call the White House and say that “Another penny for corn farmers won’t cut it.”
The NCGA feels that aid payments in the last round weren’t enough for corn farmers, and they probably won’t be enough this time either. In the last round, corn farmers received one cent per bushel.
Many Factors Negatively Impacting Corn Farmers
NCGA President Lynn Chrisp is lobbying hard for corn.
“If you are looking at lost opportunities whether you’re dealing with pork or ethanol or dried distiller’s grains which all is headed to a market by China that all has a ripple effect back to corn.”
It’s nearly a perfect storm. Not only are corn growers dealing with the repercussions of the Chinese trade war, but they’re also up against the RFS waivers for oil refineries and terrible weather conditions in the Midwest that has delayed planting.
For awhile it seemed like there might be some good news coming out of the China trade talks. However, now Chrisp says it’s time for corn growers to make their voices heard.
“It’s just downright serious and the timing for this just couldn’t have been worse.”
Increased Compensation May Not Be Possible
NCGA feels like their last trade aid payments weren’t enough, but even if the USDA wanted to increase their compensation, it might not be feasible. Jerry Hagestrom of DTNPF explains.
To start, amounts of compensation need to be defensible to the World Trade Organization (WTO). They can’t violate the rules on subsidies.
Perdue said that USDA would calculate “the legally defensible trade damage done to our producers,” give that estimate to Trump and would be “prepared to defend those amounts” to the World Trade Organization.
Another limiting factor is the government entity making the payments. If the MFP payments go through the CCC like Perdue has predicted, there are certain limitations with that. The CCC is allowed to spend $30 billion a year, and might be nearing that spending cap as the fiscal year ends September 30.
Perdue says he’s keeping Congress informed about the developments of the aid package, and looking into the supplemental disaster bill that’s moving through Congress to see if wording would allow an opportunity to address trade mitigation. It remains unclear whether or not the USDA needs congressional funding to make the planned payments.
Perdue has predicted that the next aid package may total $15-20 billion.
Previous MFP Payments
Jacqui Fatka of Farm Futures takes a look back at the previous MFP payments. She explains how they were structured and feedback from the various entities that received them. The deadline for the last round just ended, and all of the allocated funds have yet to be distributed.
In August and December of last year the USDA offered producers up to $12 billion in trade mitigation. This included the MFP, which came in the form of direct payments to farmers as compensation for trade disruption. As of May 13, $8.52 billion has been paid out. The top five states receiving payments were Illinois, Iowa, Kansas, Nebraska and Indiana. The top five commodities receiving compensation were soybeans, corn, wheat, cotton and sorghum. Compensation was also available for dairy, hog, fresh sweet cherry and shelled almond producers.
Trade Aid Payments Were Unbalanced
Fatka also covered the aid formula and feedback from commodity groups in an article published last December. At that time, the formula for the second round of payments had just been announced, and many were critical that the assistance was unbalanced and didn’t account for their feedback.
Take corn for example.
Corn received just 1 cent/bu. for production, but the National Corn Growers Assn. (NCGA) said an economic analysis it commissioned estimates that corn farmers suffered an average loss of 44 cents/bu. from the beginning of May, right before tariffs were announced, through July, when tariffs were implemented. Based on USDA yield averages and acres of corn planted, that amounts to a $6.3 billion loss to corn farmers.
NCGA president Lynn Chrisp called these payments,
“Woefully inadequate to even begin to cover the losses being felt by corn farmers. USDA did not take into account the reality that many of our farmers are facing.”
Corn, Dairy Hoping for More
NCGA hoped the USDA would include ethanol and dried distillers grains with solubles (DDGS) to the calculation of damages for corn in the last round of payments. They also asked that farmers who experienced lower production numbers due to disasters be allowed to use alternate numbers to 2018 production- to ensure those farmers wouldn’t be penalized twice. Both NCGA suggestions were heard, but not implemented in payment calculations for round two.
The dairy industry was also seeking more compensation for the second round of trade aid payments. The National Milk Producer’s Federation (NMPF) calculated that as of May 2018, the industry had lost more than $1 billion. They shared this information with Ag Secretary Sonny Perdue, but ultimately the first round of trade aid payments only allowed $127 million for dairy.
Now is the Time to Speak Out
When it comes down to it, just about all farmers are grateful for the help. But what they really want are their markets back. The sooner that happens, the sooner producers can begin to build upon lost exports from last year.
Unfortunately, the likelihood that the trade war with China will end soon seems to be growing more and more remote. Another round of trade aid is being planned, and the government wants feedback. Now is the time to do it.
It’s still unclear whether increased compensation is even possible. It likely depends on available funds through the CCC, but also can’t violate WTO regulations on subsidies. It’s possible funds could come through Congress via the supplemental disaster bill. Maybe a combination of the two could get corn producers the additional compensation they desperately need.
