U.S. Agricultural Sector Facing Additional Pressure Due to COVID-19

Published on: 08:47AM May 01, 2020

Prior to the emergence of the COVID-19 pandemic in the United States, American farmers were already facing the likely continuation of a persistent decline in commodity prices and farm income for the 2020 crop year.  Although U.S. farm income increased about 11 percent to $93.6 billion in 2019, that figure was still 24 percent below the record level achieved in 2013.  Even that reduced figure was only possible due to the infusion of $23 billion in government program payments in 2019, a substantial share derived from the Market Facilitation Program (MFP) payments made to farmers to offset losses in trade revenue due the trade war with China that reduced U.S. agricultural exports in 2018 and 2019.

As of early February, USDA’s Economic Research Service was forecasting that net farm income for 2020 would increase by about three percent to $96.7 billion.  Of course, that forecast did not take into account the damage that the COVID-19 outbreak would wreak on the U.S. agriculture sector, both in terms of disruptions to the supply chain from the closure of most institutional sources of demand for food from schools and restaurants and reduction of demand for vehicle fuel from reduced driving, which has hit the U.S. ethanol industry really hard.

In a virtual event sponsored by Farm Foundation on April 28th, Dan Basse from the AgResource company, a firm which provides agricultural research and advisory services, believes that federal assistance totaling between $45 and $60 billion will be needed for U.S. agriculture due to the disruptions caused by the COVI-19 pandemic.

A down payment on that needed assistance was announced by President Trump at his daily press briefing on April 17th.  That package will provide $19 billion in assistance to farmers, with about $16 billion provided as direct payments to farmers and the remainder to be used to purchase perishable products such as milk, meat, and produce for delivery to food banks and other institutional outlets that are servicing a record number of families who have lost work during the current shutdown.

USDA is basically emptying out the piggy bank in putting together this package.  It includes the $9.5 billion in funding allocated for assisting farmers in the CARES Act legislation enacted on March 27th, $6.5 billion in CCC funding, which exhausts that resource until it is partially replenished by $14 billion on June 30 (as a result of another CARES Act provision), and about $3 billion from Section 32 funding typically used to purchase commodities for school lunch programs.

Of the direct assistance, $9.6 billion will be paid to livestock producers, $3.9 billion to row crop producers, and $3 billion to specialty and ‘niche’ crop producers.  Payouts will be based on 85 percent of the price loss experienced by each commodity between January 1 and April 15, and payments may not exceed $125,000 per commodity and $250,000 per producer.  USDA plans to conduct an abbreviated rulemaking process for this new program, and hopes to start dispensing payments by the end of May.

Many farm groups and their Congressional supporters have raised concerns about the relatively low payment limits applied to crop producers under this package, but my guess is that restriction was necessary because of the relatively limited availability of funds at this time.  There is already preliminary discussion going on in Congress about the need for an additional COVID relief package to be passed during May, and it is likely that there will be a strong push to include more funds to assist farmers and ranchers.  Some members of Congress, including House Agriculture Committee chairman Collin Peterson (D, MN) have pushed language that would raise the borrowing authority of the Commodity Credit Corporation (CCC), which was set at $30 billion by statute in the 1980’s.  If that figure had been indexed to inflation at the time, Farm Bureau economists have estimated that the borrowing authority would now be $67 billion.

USDA has also announced some details on how the $3 billion will be expended on fresh produce, meat, and dairy products, which they have dubbed the “Farmers to Families Food Box Program”.  The program will begin with the procurement of an estimated $100 million per month in fresh fruits and vegetables, $100 million per month in a variety of dairy products and $100 million per month in meat products. Participating distributors and wholesalers will then package a pre-approved box of fresh produce, dairy and meat products for delivery to food banks, community and faith-based organizations and other non-profits serving Americans in need.  The successful bidders will have to at least partially process or cook the meat products before delivery, as few food banks and similar outlets have the capacity to store significant amounts of fresh or even frozen meat.

Demand at food banks across the country has skyrocketed in recent weeks, as millions of families face financial pressure due to lost income from being furloughed from closed businesses.  As of April 30, there have been more than 30 million Americans who have filed first-time claims for unemployment insurance benefits since mid-March.  Many food banks in especially hard hit regions have noted that a large share of the visitors to their facilities have never sought food from this source previously. 

There has been a strong push by nutrition advocacy groups to increase the monthly SNAP benefit as part of federal COVID relief, which would provide some help, but such a provision would leave out a large segment of the population in need.  While many recently unemployed individuals would likely meet the income requirements for SNAP eligibility, many of them would still have assets that would exceed the minimum level, which is only $2,250 for households without an elderly or disabled member, and $3,500 for those with such family members.  This is why addressing the capacity of food banks is so important.