USDA lawyers may have an answer this week on whether Trump tariff payments, intended to mitigate the impact of the trade war, can be given to farmers unable to plant a crop this year, said Agriculture Secretary Sonny Perdue on Monday. Meanwhile, two economists said that if the trade war continues into 2020, the administration “will have to be prepared to deal with again making major trade-aid payments or seeing the agricultural economy sink.”
Besides the year-old trade dispute with China, President Trump threatened last week to impose duties on all imports from Mexico, the No. 1 U.S. food and ag trade partner, unless Mexico stopped immigrants from crossing the southern border. After meeting with Mexican Agriculture Minister Victor Villalobos, Perdue told reporters, “Our goal is to work where the tariffs are not implemented.” Tariffs would start at 5 percent on June 10 and advance to 10 percent on July 1, then rise by 5 percentage points each month until reaching 25 percent on Oct. 1.
“We look forward to ratification of the USMCA. That’s what we’ve been working on, and that’s what we will continue to work on,” said Perdue. Lawmakers such as House Agriculture chairman Collin Peterson say tariffs on Mexico would jeopardize prospects in Congress for adoption of the United States-Mexico-Canada Agreement, the successor to NAFTA.
Farmers may be unable to plant millions of acres of crops this spring because of unusually rainy weather, potentially reducing farm income due to lower production. “We know the weather hasn’t improved very much, and we will have a lot of prevented planting or changes in acres,” said Perdue. The USDA has announced up to $14.5 billion in trade mitigation payments, also called Trump tariff payments, for farmers based on their plantings this year. Perdue said the USDA’s legal shop is examining whether payments can be made on prevented-planting land.
“I hope to have a conclusion, a definitive answer, for those producers very soon, hopefully by the end of the week,” said Perdue. The question, he said, is whether a trade impact can be attached to land that does not produce a crop.
Growers can file for a prevented-planting indemnity on their crop insurance policies. Indemnities are calculated at 55 percent of a grower’s revenue coverage for corn and 60 percent of revenue coverage for soybeans. Farmers also have the option of planting crops with a lower level of crop insurance coverage or taking a much lower indemnity for corn, set at a 35-percent rate, and planting soybeans in hopes a late-planted crop will produce a high enough yield to be worthwhile.
Five university economists said the USDA decision to pay only on planted land “provides incentives to plant crops and not take prevented-planting payments” although the USDA has not said how large the payments would be. “Our goal all along was for producers to make their decision based on the market,” said Perdue.
Economists Brent Gloy and David Widmar said the new round of Trump tariff payments “will provide some help” in alleviating the “substantial” impact of the trade war. “Exacerbating the problem would be an outbreak of tariffs with Mexico — which is where we seem to be headed,” they wrote at the Agricultural Economic Insights blog.
“At this point,” they wrote, “there is great uncertainty about the trade war(s) but also regarding the prospects for crop yields in 2019. … We can only hope that the trade war(s) would find resolution sooner rather than later. If it lasts beyond this year, the government will have to be prepared to deal with again making major trade aid payments or see the agricultural economy sink.”