‘Here’s your check’: Trump’s massive payouts to farmers will be hard to pull back

‘Here’s your check’: Trump’s massive payouts to farmers will be hard to pull backJuly 14, 2020

Government payments to farmers have surged to historic levels under President Donald Trump as the Agriculture Department floods the industry with cash to stem the financial losses from Trump’s tariff fights and the coronavirus pandemic.

But as agriculture grows more reliant on unprecedented taxpayer support, farm policy experts and watchdog groups warn the subsidies are growing too big and too fast, with no strings attached and little oversight from Congress — and that Washington could have a difficult time shutting off the spigot.

Direct farm aid has climbed each year of Trump’s presidency, from $11.5 billion in 2017 to more than $32 billion this year — an all-time high, with potentially far more funding still to come in 2020, amounting to about two-thirds of the cost of the entire Department of Housing and Urban Development and more than the Agriculture Department’s $24 billion discretionary budget, according to a POLITICO analysis. But lawmakers have taken a largely hands-off approach, letting the department decide who gets the money and how much.

The massive payments have been a political boon to Trump in farm country — he tweeted in January that he hoped the money would be “the thing they will most remember” — but risk creating a culture of dependency, as farmers and ranchers work the bonus subsidies into their financial plans when making large, up-front investments in seed, feed and farm machinery.

“It’s a big problem for agriculture because it’s not sustainable,” said Anne Schechinger, senior economics analyst at the Environmental Working Group, a nonprofit watchdog organization. “It’s really difficult once you’re giving farmers this much money to then take away those [payments].”

It’s a problem for taxpayers, too: The size, speed and lack of scrutiny of the payments should concern the public, says Neil Hamilton, emeritus professor and former director of Drake University’s Agricultural Law Center.

“It’s just, ‘Here’s your check.’ There’s an incredible amount of trust that [farmers] will use it wisely,” he said. “But at the end of the day, it’s your and my tax money. It’s not a crazy idea to ask what the public’s getting from this, or could the public expect more for it.”

The spending surge began in mid-2018 when USDA started writing checks to farmers and ranchers to pay for the damage from Trump’s trade war, which brought about higher tariffs that crushed agricultural exports and commodity prices. Farm sales to China plummeted from $19.5 billion in 2017 to just $9 billion the next year; as producers continued to hemorrhage profits in 2019, farm bankruptcies jumped nearly 20 percent last year.

The trade bailout has now spanned three years and surpassed $23 billion, even though it was never appropriated by Congress. Instead, the money was funneled through USDA’s Commodity Credit Corporation, a Depression-era agency that can borrow from the U.S. Treasury to stabilize the farm economy.

“The administration picked these trade fights promising agriculture that this would lead to some better world at some point,” Hamilton said. “Rather than suffering any consequence for the ill-conceived strategy, they just said, ‘Hey, let’s tap the bank. We’ll buy our way out of this.’”

Because agriculture is both high-risk and vital to the food supply, the government has long been in the business of helping farmers and ranchers manage economic downturns, natural disasters and other headwinds; Congress routinely passes farm bills that include a suite of subsidies, conservation incentives, crop insurance and other safety net programs. Under the Obama administration, total direct payments to farmers ranged from $9.8 billion to nearly $13 billion per year.

But under Trump, the trade bailout and coronavirus relief efforts have pushed farm spending to more than twice that level, with far more in the pipeline.

USDA is currently distributing $16 billion in farm rescue payments, on top of standard farm bill subsidies, plus another round of trade bailout checks earlier this year. But bipartisan lawmakers are now calling for adding as much as $50 billion to Agriculture Secretary Sonny Perdue’s arsenal in the next stimulus package to help producers stung by supply chain disruptions.

Farm industry groups and their allies on Capitol Hill argue the money is needed to stem the steep losses after many of the biggest food purchasers, like schools and restaurants, stopped buying. Even as the cost of beef climbed at grocery stores during the pandemic, for example, the money wasn’t reaching cattle ranchers who received unusually low prices for their livestock from meatpackers.

Perdue himself has said there wasn’t enough aid to go around, forcing USDA to leave entire sectors out of its coronavirus relief program, like ethanol producers who shuttered half of their nationwide operations because of plunging fuel consumption.

A USDA spokesperson defended the aid programs as necessary to offset other nations’ “unfair and illegal trade retaliation” against farmers. The spokesperson said Trump is trying to “fix broken trade deals and ensure all Americans enjoy free and fair trade with countries around the world,” touting the new USMCA pact, partial agreements with China and Japan and ongoing negotiations with the European Union and the United Kingdom.

“Recent estimates indicate damages to the U.S. agricultural sector from the pandemic alone could be as much as $50 billion over the next two years,” the spokesperson said in an email. “The president has issued billions of dollars of support to ensure American agriculture remains financially viable.”

Even before the pandemic, the industry was already in a vulnerable spot after a seven-year downturn in agriculture and farm debt rising to historic levels. The trade aid and coronavirus relief programs have been a critical lifeline for the hardest-hit producers. But the growing reliance on massive, one-off bailout packages could leave a painful hangover as soon as next year.

“It’s hard rolling back these things,” said Joseph Glauber, senior fellow at the International Food Policy Research Institute and former USDA chief economist. “The headlines are going to scream when [USDA] puts out a February 2021 farm income forecast that doesn’t show any ad hoc payments. Those will be ripped out of the balance sheet.”

For example, the University of Missouri’s Food and Agricultural Policy Research Institute in June released its baseline estimates, showing government farm payments falling from at least $32.8 billion this year to $16.6 billion in 2021. Barring a strong economic recovery, the drop-off would leave a gaping hole in many farmers’ bottom lines: According to FAPRI’s analysis, net farm income would sink from $90.6 billion in 2020 to $79.4 billion next year, a far cry from the 2013 peak of $139 billion.

For some farmers, the lost income could be the difference between staying in business or closing up shop. With less money coming in amid Trump’s trade war, a growing number of farmers started falling behind on their loans; the rate of delinquencies hit an eight-year high in the first quarter of 2020, according to S&P Global Market Intelligence.

That’s also a problem for the broader rural economy, from community banks and farm equipment makers to non-agricultural businesses that still rely on the sector to keep money flowing to the area.

The heartland’s reliance on steady farm income means the recurring debates in Washington over extending farm rescue payments for yet another year are likely to continue.

“There will obviously be political pressure to make sure the sector is as financially healthy as possible,” said Patrick Westhoff, FAPRI’s director. “If we’re looking at a sharp downturn in farm income in front of us without additional payments, you can bet there will be a lot of pressure for payments to occur.”

While most farmers and ranchers welcomed the sorely needed trade aid and coronavirus relief payments, ad hoc payments are seen as less reliable than established subsidies, crop insurance and other programs that producers can count on year in, year out. And the mixed messages from Washington each year about whether more bailout payments are on the way can leave farmers guessing as they try to make critical business decisions like securing farm loans or choosing which crops to plant.

“It’s one more source of uncertainty, and this is a time of a lot of uncertainty,” Westhoff said. “How much more complicated can we make this for producers?”

Pressure for more farm payments

Early this year, before the coronavirus started spreading in the U.S., industry groups and farm-state lawmakers were already calling for USDA to extend the trade bailout program for a third year — even though Trump had just signed a phase one pact with China that he touted as a historic win for U.S. agriculture, effectively voiding the main reason for another bailout.

Among those seeking another round of tariff relief payments in 2020 was the American Farm Bureau Federation. The powerful farm lobby group, which welcomes Trump as a regular guest at its annual gatherings, came out in support of more payments after some internal debate about whether the aid was still needed this year.

“We feel like we’ve crossed the deep part of this [trade war], but let’s trust but verify,” Dale Moore, the Farm Bureau’s executive vice president, said of the group’s thinking at the time.

Perdue repeatedly urged farmers not to plan on any more trade aid, arguing that the direct payments weren’t meant to become a permanent price-support program. But he was overruled by a Trump tweet promising farmers more bailout money if the agreement with China and the NAFTA 2.0 deal with Canada and Mexico didn’t soon pan out.

Once the coronavirus hit the U.S., any hopes for a farm rebound in 2020 were dashed, and the need for a surge of government payments to keep farmers afloat was widely accepted in Washington. Schools, restaurants and meatpacking plants shut down, and producers left without buyers were forced to start dumping milk, euthanizing livestock and plowing fruits and vegetables into the ground.

Between the coronavirus, trade headwinds and severe flooding in the Midwest last year, Moore said, “things are so far out of whack” that farmers need more financial help than the annual safety net programs can provide.

“Right now, that safety net is chock full of holes,” he said. “We’re headed into our seventh year of a down farm economy. Is that trendline going to change? Forget all the other factors that occurred in the last two or three years.”

November elections could shape future farm payments

Starting next year, the flood of government payments to farmers could be up in the air with a new Congress and potentially a new administration. Recent polls have shown former Vice President Joe Biden with a large lead over Trump.

“You have an election in November that could put a very different dynamic in the White House on this,” said Glauber, the former USDA chief economist.

Trump counts farmers and ranchers as some of his most loyal supporters, and he’s quick to talk up his trade bailout in stump speeches and on Twitter. “Our great farmers will receive another major round of ‘cash,’ compliments of China tariffs, prior to Thanksgiving,” Trump tweeted last November, even though U.S. businesses and consumers are paying for the duties rather than China.

That has bought the president significant support in rural America.

“The crossbar that President Trump’s team set, in terms of the number of times I’ve heard the president say ‘farmer, rancher,’ is fairly unusual,” Moore said. “Whether or not a different president would pay as much attention to agriculture as President Trump has, I can’t answer that question.”

Democrats have also stepped up their outreach to rural voters since being almost wiped out across the Midwest in 2016. It’s unclear if their renewed focus on farm policy would carry over into the White House if Biden wins in November.

So far, Biden’s campaign has laid out an agriculture and rural policy platform that includes boosting farm exports and avoiding the tariff fights that have battered the industry under Trump. Biden has also hit the president specifically for the bailout payments in campaign ads. One spot features an Iowa farmer who says of Trump’s trade policy: “We’re going to screw you over and pay you off with somebody else’s money.”

The Trump administration has also faced accusations of using the trade bailout to shore up the president’s political standing with a key constituency.

“There’s definitely a connection between his supporters and the people who are getting the money from these huge payments,” said Schechinger of the Environmental Working Group. “I’m not going to say that he created [the trade bailout] to give money to his voters, because we can’t really prove that. But we do know that his base was largely in rural areas, and that is where this money has gone.”

Hamilton, the former Drake Agricultural Law Center director, said it’s “hard to see it as anything but political vote-buying” in battleground states like Iowa and Wisconsin that have received the bulk of the payments.

“Iowa’s kind of ground-zero in terms of the impact on soybean sales to China, or half of our ethanol plants being offline,” he said. “Look at where the payments are going. … Iowa’s probably a fairly important state in terms of the president’s hopes and plans for how he gets reelected.”

On the other hand, he said, there appears to be widespread support for the farm payments in Congress, including among farm-state Democrats. “They’re not going to say, ‘Stop the payments,’ right?” Hamilton said. “Everybody’s happy to receive them.”

The swelling of farm bailout program stands out as the defining feature of Trump’s farm policy. The record payments have overshadowed the president’s efforts to rewrite agricultural trade deals, rebalance biofuel policies between farmers and oil interests and overhaul clean water protections, meatpacking regulations and more.

“The top [issue] has to be the fact that you had record farm spending over these years,” Glauber said. “Most of it — the non-Covid stuff, the trade war in particular — was self-inflicted.”

Glauber, who spent more than three decades at USDA until 2014, said he doesn’t fault farmers who sorely need the financial help — or Perdue and the agency officials who were directed by the White House and Congress to quickly come up with complex farm rescue plans. But he said the aid should be considered “in a more rational way,” including more direction from lawmakers about how to divvy up the money among the many sectors of agriculture.

“They’re essentially giving [USDA] a blank piece of paper and saying, ‘Here’s a bunch of money. You decide how to spend it,’” he said. “The bigger question is, if you’re spending all this money, how do you wean yourself off it?”

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