At the same time he saluted the de-escalation of the Sino-U.S. trade war, Agriculture Secretary Sonny Perdue announced on Monday the release of $3.6 billion in trade-war payments to farmers and ranchers. The money will raise the total for Trump tariff payments to producers to mitigate the impact of retaliatory tariffs on 2019 production to $14.5 billion.
The “phase one” agreement with China, signed on Jan. 15, calls on China to double or triple its purchases of U.S. ag exports this year and in 2021. Only one large purchase has been reported, the sale of 126,000 tonnes of soybeans worth $40.5 million on the day President Trump and Vice Premier Liu He signed the agreement at the White House.
Agriculture is the only sector of the U.S. economy to receive trade-war aid, which has been funneled through a USDA agency created during the Depression era to bolster farm income and commodity prices. The cash payments for 2019 crops and livestock will exceed the cost, roughly $12 billion, of the automobile industry bailout in 2008-09, critics point out. Producers also received $8.6 billion in cash for 2018 losses, so the two-year total is $23.1 billion.
“It’s been a great start to 2020 for American agriculture with the signing of the historic Phase One Deal with China and the signing of USMCA,” said Perdue in a statement, referring to the United States-Mexico-Canada Agreement, which awaits approval by Canada. “While these agreements are welcome news, we must not forget that 2019 was a tough year for farmers as they were the tip of the spear when it came to unfair trade retaliation.”
China, now reeling from a coronavirus outbreak, may seek flexibility its trade commitment, according to a report by Bloomberg News. Bloomberg said the trade deal “has a clause that states the U.S. and China will consult ‘in the event that a natural disaster or other unforeseeable event’ delays either from complying with the agreement. It’s unclear whether China has formally requested such a consultation yet, but the people familiar with the matter said the plan is to ask for it at some point.”
The USDA did not respond immediately to questions if there would be a 2020 version of the Market Facilitation Program, the name of the administration’s trade-war payments. Perdue told the American Farm Bureau last month that there would not be another year of payments. But he made a similar statement in 2018, before the trade war intensified. A Purdue University poll last fall found that most farmers believed there would be MFP payments on 2020 crops, “suggesting a majority of farmers are counting on payments from USDA helping to make up future income shortfalls.”
“The MFP payments will provide necessary assistance to growers impacted by low prices resulting in part from tariffs,” said Chandler Goule, chief executive of the National Association of Wheat Growers. “NAWG understands that the full benefits from the Phase One Deal with China will take time to be fully felt in the market. In the meantime, assistance through MFP is critically important given economic conditions in farm country.”
Five days after signing the “phase one” agreement, Trump told farmers to expect the $3.6 billion in payments. Rural voters were vital to Trump’s election in 2016 and he has praised “patriot farmers” for their forbearance during the trade war. Many farmers subscribe to the view of the trade war as short-term pain for long-term gain in trade relations, say researchers, but the trade-war payments remove the sting.
The Trump tariff payments were a major reason for an upturn in farm income in 2019 despite stagnant commodity prices and a decline in farm exports, the source of 20 cents of each $1 of farm revenue. The USDA is scheduled to make its first forecast of 2020 farm income on Wednesday. It will also update its forecast of 2019 net farm income, pegged at $92.5 billion in a November estimate, the highest in six years. Direct farm program payments would account for nearly a quarter of farm income, the largest share since 2006.
Producers can collect up to $500,000 apiece in the trade war payments, double the payment limit under the traditional crop subsidy program. USDA traditionally regards spouses as eligible for farm supports, so a married couple can collect twice as much as the nominal limit.