Farm Subsidies Favor South, Irking Other Regions

This article originally appeared on Stateline, an initiative of the Pew Charitable Trusts.

Lenci Sickler, a fifth-generation farmer who oversees more than 10,000 acres in western North Dakota, stops short of saying whether farmers in Southern states are better off than his peers in the Midwest.

The payment rates vary by county, but a 2019 federal payment program intended to help farmers facing low prices caused by President Donald Trump’s trade war with China has paid the South higher rates than the Midwest.

The payments are intended to support farmers for crops like soybeans and corn that were subject to retaliatory tariffs from China. In North Dakota, which typically sends more than two-thirds of its soybeans to China, it’s more expensive to send exports to new markets such as Europe.

Lawmakers, academics and farmers question whether the aid has favored certain regions and states, and whether the payments line up with farmers’ actual economic losses.

Local farmers in western North Dakota, whose counties are generally receiving a lower rate than eastern counties, are disappointed about the rates, though they won’t complain, Sickler said. “But it’s still a little disheartening to know that we were at the bottom of the list just based on locations.”

Farmers in the Midwest face tough decisions heading into the new year after being walloped by historic rain and flooding on top of trade uncertainties and several years of low commodity prices. Even with the apparent end to Trump’s trade war with China, they’ll continue to endure 2019’s unprecedented economic and weather challenges. Economists predict fewer crops in the Dakotas, Illinois, Indiana and Ohio.

It’s likely the U.S. Department of Agriculture will distribute a third tranche of the trade-related payments, called Market Facilitation Program (MFP) payments, to farmers who grow soybeans, corn and other crops affected by the tariffs. It’s not yet known who would be eligible, how payments would be distributed or when.

This year’s payments of up to $14.5 billion have been critical to shoring up the farm economy.

They also picked “winners and losers between regions and crops,” according to a November report from Democratic members of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, fueling a partisan fight on Capitol Hill.

The report provides evidence that the 2019 MFP awarded 95% of top payment rates to Southern farmers; helped wealthy farms and foreign companies; and offered no long-term investment or plan for rebuilding lost markets. The minority members represent the Corn Belt, West and Northeast.

But states in the Midwest, which have more farmers and farm acreage, have received the highest payouts across two years of the program. Rough estimates show Illinois ($2.6 billion) and Iowa ($2.5 billion) at the top, followed by Minnesota ($1.7 billion) and Kansas ($1.6 billion).

Between the Market Facilitation Program and two additional programs, the Trump administration has authorized roughly $28 billion in 2018 and 2019 to compensate farmers and ranchers for their losses caused by trade tariffs and to shore up political support from an important constituency, according to a November report from the conservative American Enterprise Institute.

The differences between the 2018 and 2019 programs and a lack of transparency in how this year’s payments were calculated has opened the USDA to criticism.

Unlike the 2018 payments, which were based on production, this year’s payment rates were distributed on a per acre basis and range from $15 to $150. Rates of more than $100 an acre are concentrated in Georgia, Alabama, Mississippi, Arkansas, Texas and Arizona, according to the University of Illinois publication farmdoc daily.

The difference is caused in part by the increasing MFP payment per pound of cotton, which went from 6 cents to 26 cents between 2018 and 2019. Cotton is largely produced in the South. By contrast, the payment per pound of corn went from 1 cent to 14 cents.

Counties in the West, upper Midwest and Eastern seaboard tended to be paid at rates below $50 an acre. 

The average payment rate in North Dakota, where agriculture represents about a quarter of the state’s economy, was $31 an acre. Many counties in the southwestern part of the state were paid at the minimum rate. Southeastern North Dakota, where five counties rank among the top 20 soybean bushel producers in the country, was paid at rates up to $60 an acre. As in other states, payment rates in neighboring counties differed wildly.

“It’s not equitable necessarily from farm to farm,” said Mark Watne, president of the North Dakota Farmers Union, “and then it’s not enough to offset what may have been substantially higher prices had we not had a trade war.”

‘We’d Rather Have Better Trade’

The Market Facilitation Program was designed to support farmers facing low prices for their crops because of trade disputes and retaliatory tariffs, and not to provide relief from natural disasters, flooding and other extreme weather.

The first year of payments, in 2018, was restricted to producers of a limited number of crops—soybeans, corn, cotton, sorghum, wheat, sweet cherries, shelled almonds—and hog and dairy producers. Crop payments were based on harvested production in 2018 and the value of U.S. exports after Chinese tariffs. 

In 2019, the program took a different approach to avoid influencing planting decisions. As officials had the year before, they estimated damage from retaliatory tariffs, but the number of eligible crops increased from nine to 41. Among the new crops were chickpeas, dried beans and lentils.

But announcing a second payment year in May had broader effects.

“No official at USDA would have ever announced a payment like this in a planting season,” said Jonathan Coppess, a clinical assistant professor in agricultural and consumer economics at the University of Illinois at Urbana-Champaign. “One of the results of that we’re seeing is late harvest. Just having a late planting season is not an isolated incident. It causes other challenges.”

Per-acre payment rates were based on the “impact of unjustified trade retaliation in that county,” according to the USDA. The department calculated the aggregate effect on commodities in each county and divided that figure by the average total acres of eligible crops reported to the department between 2015 and 2018.

While about three-fourths of 2018 payments went to soybean growers and were concentrated in Corn Belt states, that changed this year. Producers growing different eligible crops received the same payment rate because the rates were set by county rather than by crop. 

During an October hearing of the U.S. Senate Agriculture Committee, USDA Deputy Secretary Stephen Censky insisted the 2019 MFP payments are equitable and based on models the department created to show the effects of retaliatory tariffs.

“That has been done on a consistent basis without any kind of consideration of North, South, East, West or anything like that to take a look at what are the actual effects,” Censky said.

According to the Senate Democrats, five Southern states—Georgia, Mississippi, Alabama, Tennessee and Arkansas—received the highest per-acre payment rates in the first round of 2019 MFP payments. 

“And while the impacts of the retaliatory tariffs are widespread, the payment rates have not aligned to help the regions and crops harmed the most,” according to the report by the Senate Agriculture Committee’s Democratic members.

Meghan Cline, communications director for the committee’s Republican chairman, U.S. Sen. Pat Roberts of Kansas, did not respond to several requests for comment.

Other critics point to a lack of transparency in how the USDA calculated MFP payment rates, the broad discretion it allows Agriculture Secretary Sonny Perdue to spend taxpayer dollars without congressional approval and a failure to account for cross-commodity effects.

For example, low soybean prices lead to low canola oil prices. Canola farmers are considered in the county payment rates, but the 2019 program doesn’t attach a price to canola.

“The pressure on the MFP program, the political pressure, is growing and it signals a bigger problem in the farm economy,” said David Widmar, an agricultural economist at Agricultural Economic Insights, LLC. “Producers still, to this day, are not profitable enough to cover all their obligations.” 

Amid 2019’s economic and weather challenges, producers sought help from an array of federal programs. In addition to MFP, they had access to crop insurance, disaster assistance, regular crop programs and cover crop payments. 

It’s unclear to what extent the programs interacted and whether the USDA considered the potential for overlapping payments, said Carl Zulauf, professor emeritus in the department of agricultural, environmental and development economics at the Ohio State University in Columbus. 

“I think that’s a really important policy question that we as policy analysts and policymakers need to grapple with,” Zulauf said. “When you sum the programs together, were farmers overcompensated for losses due to natural disasters?”

To be sure, payments are providing much-needed cash flow to struggling farms. Agricultural credit conditions and farm incomes are expected to continue declining in coming months in states including Missouri, Kansas and Nebraska, according to a November report from the Federal Reserve Bank of Kansas City in Missouri.

Meanwhile farm bankruptcies were up 24% in 2019 from 2018. Over the 12-month period ending in September, Chapter 12 filings were highest in Wisconsin (48), followed by Georgia, Nebraska and Kansas (37 each). Iowa, Kansas, Minnesota, Nebraska, South Dakota and Wisconsin were among the states that experienced filings at or above 10-year highs, according to the American Farm Bureau Federation. 

Farmers won’t complain about the MFP payments, said Sickler, the North Dakota farmer. “But I think most farmers would echo, we’d rather have better trade.”

Dakota Farming

This year, spring and fall flooding battered the Dakotas and other Midwestern states. Republican governors in North and South Dakota declared emergencies, and the states received federal disaster relief. Agricultural producers had trouble getting out into saturated fields for spring planting and again months later for fall harvest. 

Historic flooding and rainfall prevented a record 19.6 million acres from being planted across the country this year. South Dakota led all states with 3.9 million acres, followed by Ohio at 1.6 million acres, Illinois at 1.5 million acres and Missouri at 1.4 million acres.

Only two of the top 10 states—Arkansas (1.33 million acres) and Texas (867,000 acres)—are outside the Midwest. Unplanted acres were not eligible for Market Facilitation Program payments.

“It’s hard for a farmer to just not plant,” said Krista Joy Swanson, a farmer and visiting research specialist in agricultural and consumer economics at the University of Illinois at Urbana-Champaign. “It’s in your blood. It’s your passion. It’s what you want to do.”

But there was still an opportunity for those farmers to receive a Market Facilitation Program payment. They could have filed a claim for “prevented planting,” insurance coverage that protects producers who are unable to plant a crop by a certain date, and subsequently planted a cover crop that was eligible for payment through the program. If they did, they were eligible for payments at the minimum $15 an acre rate.

“Those individuals that had the prevent planting came out with a hell of a lot more welfare than anyone else,” said Doug Sombke, president of the South Dakota Farmers Union, “because they got paid, not only for the prevent planting and their crop insurance, but they also got paid for the loss of marketplace on acres they didn’t grow anything on.”

The lack of planting reached local economies beyond farms. If a farmer spends roughly $500 an acre on things such as soil sampling, chemicals and seed sales, that’s $500 multiplied by the prevent planting acres that isn’t being spent with ancillary businesses, Sombke said.

“They’re under extreme financial pressure right now,” Sombke said of the other businesses. “But guess what? They don’t have an MFP payment or crop insurance that covers them.”

When the agricultural industry suffers, farmers make fewer purchases, said South Dakota state Sen. Arthur Rusch, a Republican. “Our sales tax revenues are lower, which is a big source of revenue here in South Dakota. So, it’s all interconnected.”

Rusch introduced a concurrent resolution in January 2019 urging Trump to make agricultural exports a priority and protect agricultural products from tariffs. It was adopted by the Senate but not the House.

In her December budget address, South Dakota Gov. Kristi Noem, a Republican, noted that agriculture faces an uncertain outlook in 2020. The budget did not include discretionary inflation increases for overall K-12 education, Medicaid providers and state employees, among the state’s biggest expenditures. 

“Her concern is that the revenue isn’t there,” Rusch said, “and that’s largely because of the poor farm economy, which is not entirely due to the trade tariffs, but that has had a significant effect.”

As a U.S.-China trade deal looms, there’s hope—along with skepticism that the uncertainty is coming to an end. Even if a deal advances, farmers face a long road ahead. 

“How do we transition from the end of the trade war, if it ends today, to where the markets catch up?” said Widmar, the agricultural economist. “China is not going to wake up tomorrow and buy all the beans they haven’t bought over the past 18 months.”