Even More Billions in U.S. Farm Bailouts Risk Violating Trade Agreements

Thursday, August 6, 2020

If Congress provides another $20 billion in aid to farmers in the next COVID-19 spending bill, total federal farm spending this year could top $50 billion, setting a new record – and once again violating U.S. commitments to international trading partners.

Bailout payments designed to help farmers hurt by the COVID-19 pandemic and President Trump’s trade war likely pushed federal farm spending in 2019 beyond the subsidy caps set by an international trade agreement.

Last year, farm spending for the first time topped the spending limit set by a 1994 trade agreement. Federal farm spending will likely exceed the $19.1 billion cap on “trade distorting” subsidies in 2020 as well.

This year, farm spending has been inflated by more than $7 billion in Paycheck Protection Program loans, including $1.8 billion to California farmers. Adding another $20 billion in farm spending, as some legislators have proposed, will further increase the likelihood that the U.S. will exceed the cap – and invite legal challenges from trading partners.

By contrast, providing more financial assistance to protect farmworkers and meatpacking  workers from COVID-19 would not count against the cap.

Taxpayers provided $34 billion to farmers during the 2019 crop year – well above the cap set by the 1994 World Trade Organization agreement. Those payments included $14.5 billion from the Market Facilitation Program, or MFP, designed to offset the president’s trade war, and $6.5 billion to address the impacts of COVID-19.

Federal Farm Payments for the 2019 Crop Year
 

Agricultural Risk Coverage/Price Loss Coverage

$5 billion*

Market Facilitation Program

$14.5 billion

Coronavirus Food Assistance Program

$5.9 billion

Crop insurance premium subsidies

$6.3 billion

 Disaster relief and all other subsidies

$2.3 Billion

Total

$34 billion

*Final amount unknown until October 2020

Source: EWG, from Department of Agriculture data

 

Federal Farm Payments for the 2020 Crop Year (Estimated)
 

Agricultural Risk Coverage/Price Loss Coverage

$6 billion*†

Paycheck Protection Program

$7.3 billion**

Coronavirus Food Assistance Program

$16 billion

Crop insurance premium subsidies

$6.5 billion

 Disaster relief and all other subsidies

$2.9 billion

Total

$38.7 billion

Proposed Senate bailout

$20 billion

Total with proposed bailout

$58.7 billion

*Final amount unknown until October 2021

**Based on EWG analysis. Amount reflects highest possible current total

†Estimate based on 2019 levels and crop price trends

Source: EWG, from Department of Agriculture data

 

Not all farm payments count against the $19.1 billion cap in the 1994 agreement. Only subsidies provided through five programs – Agricultural Risk Coverage, Price Loss Coverage, crop insurance premium subsidies, MFP and some Coronavirus Food Assistance Program, or CFAP, payments – may potentially count. Other programs that pay farmers to protect the environment, protect workers from COVID-19, or provide food assistance do not count.

As crop prices fell and farm subsidy spending increased, the U.S. likely crossed the threshold in 2019 and could do so again this year. Spending for 2020 is escalating quickly, with the addition of $9.5 billion in CFAP funding, and an estimated $7.3 billion in Paycheck Protection Program funding to farmers, in addition to annual price assistance programs and crop insurance premium support. According to agricultural market reports, nearly a third of total farm income in the U.S. will likely come from direct government aid and subsidized crop insurance.

Whether U.S. spending exceeds the threshold also depends on whether farm spending exceeds 5 percent of total farm sales.

The USDA initially estimated that the value of 2019 farm sales would be $378 billion. If correct, spending on “trade distorting” subsidies would probably exceed the 5 percent threshold. If CFAP payments are considered trade-distorting, subsidy spending likely exceeded the $19.1 billion cap by $11 billion. For subsidies to remain under the cap, actual farm sales in 2019 must top $400 billion, which is unlikely. In fact, estimates of actual farm sales in 2019 continue to fall.

The U.S. will not have to report these subsidies to our trading partners until at least 2022, and international legal challenges typically take years to be resolved. But trading partners could ultimately be allowed to place tariffs on everything from cars to prescriptions drugs to electronics – as Brazil did after winning a similar trade dispute over cotton subsidies.

Providing more financial assistance to food processors or farm workers threatened by COVID-19, as other legislators have proposed, would not increase the risk of a trade war. Nor would expanding past efforts to address discrimination that has robbed black farmers of millions of acres of land. Spending to reduce the threat of COVID-19 would also help the U.S. avoid disruptions of food supplies caused by the closing of meatpacking plants and food processing plants.

 

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