LegiStorm

Summary:

On May 23, 2019, Secretary of Agriculture Sonny Perdue announced that the U.S. Department of Agriculture (USDA) would undertake a second trade aid package in 2019 valued at up to $16 billion—similar to a trade aid package initiated in 2018 valued at $12 billion—to assist farmers in response to trade damage from continued tariff retaliation and trade disruptions. Under the 2019 trade aid package, USDA will use its authority under the Commodity Credit Corporation (CCC) Charter Act to fund three separate programs to assist agricultural producers in 2019 while the Administration works to resolve the ongoing trade disputes with certain foreign nations, most notably China. The three programs are similar to the 2018 trade aid package but are funded at different levels: The Market Facilitation Program (MFP) for 2019, administered by USDA's Farm Service Agency, is to provide up to $14.5 billion in direct payments to producers of affected commodities (compared with up to $10 billion in 2018). A Food Purchase and Distribution Program, administered through USDA's Agricultural Marketing Service, will use $1.4 billion (compared with $1.2 billion in 2018) to purchase surplus commodities affected by trade retaliation, such as fruits, vegetables, some processed foods, beef, pork, lamb, poultry, and milk, for distribution by USDA's Food and Nutrition Service to food banks, schools, and other outlets serving low-income individuals. The Agricultural Trade Promotion Program, administered by USDA's Foreign Agriculture Service, will be provided $100 million ($200 million in 2018) to assist in developing new export markets on behalf of U.S. agricultural producers. The broad discretionary authority granted to the Secretary under the CCC Charter Act to implement the trade aid package also allows the Secretary to determine how the aid is to be calculated and distributed. Some important differences between the 2018 and 2019 trade aid packages include the following. The 2019 package includes an expanded funding commitment of $16 billion versus $12 billion under the 2018 package. The 2019 package focuses on the same three commodity groups—non-specialty crops (grains and oilseeds), specialty crops (nuts and fruit), and animal products (hogs and dairy)—but includes an expanded list of eligible commodities (41 eligible commodities in 2019 compared with nine in 2018). The MFP payment formula for 2019 is modified for non-specialty crops to be a single county payment rate rather than commodity-specific rates that were applied in 2018. This is done to minimize influencing producer crop choices and avoid large payment-rate discrepancies across commodities. MFP payments for non-specialty crops will be based on planted acres in 2019, not harvested production as in 2018. This change will avoid having MFP payments reduced by the lower yields that are expected across major growing regions due to the widespread wet spring and delayed plantings. The 2019 package includes expanded payment limits per individual per commodity group ($250,000 versus $125,000 under the 2018 initiative) and an expanded maximum combined payment limit across commodity groups ($500,000 versus $375,000). It continues the expanded adjusted gross income (AGI) criteria (no restriction if at least 75% of AGI is from farming operations) adopted under the 2019 Supplemental Appropriations for Disaster Relief Act (P.L. 116-20) and applied to 2018 MFP payments retroactively. Payments may be made in up to three tranches, with the second and third tranches dependent on market developments. The first payment started in August and consisted of the higher of either 50% of a producer's calculated payment or $15 per acre. USDA announced on November 15, 2019, that the second tranche of payments would go out on November 18, 2019. The third tranche would depend on USDA's evaluation of market and trade conditions. If deemed necessary, they would occur in January 2020. As of November 25, 2019, USDA had made $10.2 billion in 2019 MFP payments. USDA's use of CCC authority to initiate and fund agricultural support programs without congressional involvement is not without precedent, but the scope and scale of its use for the two trade aid packages—at $28 billion—has increased congressional and public interest. Some have questioned whether MFP payments have established a precedent that might persist as long as trade disputes remain unresolved. Others have questioned the equity of their distribution across commodity sectors and regions. Finally, some economists worry that large MFP payments might contribute to a violation of U.S. trade commitments to the World Trade Organization.