Economist Says COVID Aid Will ‘Help Avert Disaster’

04:18PM May 19, 2020
"I think that when you combine what we'll see happen with dairy margin coverage, dairy revenue protection and in this program, I think that we will have averted the disaster."
( USDA )

President Donald Trump and USDA released the long-awaited rules for direct payments under the Coronavirus Food Aid Program (CFAP) at the White House Tuesday, saying enrollment will start next week with initial payments to follow the week after. CFAP and Commodity Credit Corporation payments combined will total $6.20 per cwt for eligible producers. University of Minnesota economist Marin Bozic says the program will help avert disaster in the dairy industry.

“I think [the aid] helps a lot. I don't think that this is going to be a trivial amount,” he says. “I think that when you combine what we'll see happen with dairy margin coverage, dairy revenue protection and in this program, I think that we will have averted the disaster. We were staring into the abyss on April 15.”

In mid-April cheese prices were $1 per pound, and it was not clear what the COVID aid payments would look like for dairy producers.  

“We only still have less than 40% of milk covered under other means so it was looking pretty terrible,” Bozic says. 

The way USDA’s food box program was designed caused processors to get product churning pretty quickly which resulted in a rally that lifted prices for the first few weeks of May. However, producers suffered through poor prices in March and April as well. 

“This payment is going to be a big help in that regard,” he says. “I'm very pleased with USDA actions.” 

We are pleased that USDA heeded calls for higher payments, which will make more dairy farmers eligible for assistance closer to their actual losses, Edge Dairy Cooperative said in a statement. 

“Still, there is more work to be done to ensure that all farms are treated equitably. It is vital that our dairy farmers, no matter the size of their businesses, be made as close to whole as possible and as soon as possible,” the Cooperative wrote. 

The rule released on Tuesday does not cover any potential losses for the second half of the year, so it’s designed to leave the doors open to another round of direct payments if needed down the road. 

“We've seen some of them already being incorporated in the HEROES Act, which is the democratic bill that is now with the Senate, setting the stage for another potential round of direct payments if they should be needed in a second part of the year,” Bozic explains. 

The higher payment cap and flexibility for LLCs will also provide a benefit to producers, he says. The rule states that each stakeholder in the LLC is eligible for up to $250,000 in payments for a total of $750,000 per business, according to USDA. That is a far cry from the $125,000 per commodity originally announced. 

“That will help producers that would have had payments that are over $1 million or much more. But $750,000 is a reasonable help in this situation,” Bozic says. “This just came out about 45 minutes ago; I've been chatting with producers around the country and the first reactions were very positive.”

Still, there are a few rules that need clarification including whether or not forward contracted milk will be included in the production count. 

“Altogether, I think that it is reasonable,” he says. “I think that it is going to make a difference.”