Farm Policy: USDA’s Trade Aid Package

Summary

In early 2018, the Trump Administration—citing concerns over national security and unfair trade practices—imposed increased tariffs on certain imported products in general and on U.S. imports from China in particular. Several of the affected foreign trading partners (including China) responded to the U.S. tariffs with their own retaliatory tariffs targeting various U.S. products, especially agricultural commodities.

On July 24, 2018, Secretary of Agriculture Sonny Perdue announced that the U.S. Department of Agriculture (USDA) would be taking several temporary actions to assist farmers in response to trade damage from what the Administration has characterized as “unjustified retaliation.” Specifically, the Secretary said that USDA would authorize up to $12 billion in financial assistance—referred to as a trade aid package—for certain agricultural commodities using Section 5 of the Commodity Credit Corporation (CCC) Charter Act (15 U.S.C. 714c). USDA intends for the trade aid package to provide short-term assistance until the ongoing trade disputes are resolved. The aid package includes (1) a Market Facilitation Program (MFP) of direct payments to farmers of soybeans, corn, cotton, sorghum, wheat, hogs, and dairy who are most affected by the trade retaliation; (2) a Food Purchase and Distribution Program to partially offset lost export sales of affected commodities; and (3) an Agricultural Trade Promotion (ATP) Program to expand foreign markets.

On August 27, 2018, Secretary Perdue announced details of the trade aid package, including an initial tranche of $6.1 billion in outlays. Under this initial phase, the MFP is to provide $4.7 billion in direct payments to qualifying agricultural producers. To be eligible, a producer must have an ownership share in the commodity, be actively engaged in farming, and be in compliance with adjusted gross income restrictions and conservation provisions. The first sign-up period started September 4, 2018, and extends through January 15, 2019. During this period, an eligible producer may apply for MFP payments—equal to an announced MFP payment rate times 50% of the producer’s 2018 production of eligible commodities. USDA estimates that over three-fourths ($3.6 billion) of the $4.7 billion in initial MFP payments could go to soybean producers. If warranted, USDA may announce a second payment period in early December 2018. MFP payments are capped on a per-person or per-legal-entity basis at a combined $125,000 for eligible crop commodities and, separately, a combined $125,000 for dairy production and hogs.

In addition to the initial round of MFP payments, the Administration announced a Food Purchase and Distribution Program that is to undertake $1.2 billion in government purchases of excess food supplies. USDA has targeted an initial 29 commodities for purchases and distribution through domestic nutrition assistance programs. Purchasing orders and distribution activities are to be adjusted based on the demand by the recipient food assistance programs geographically.

The smallest piece of the trade aid package is an allocation of $200 million to the ATP to boost the trade promotion efforts at USDA’s Foreign Agricultural Service, including foreign market development for affected agricultural products.

USDA’s use of its discretionary authority under the CCC Charter Act to make direct payments without further congressional action has historically been somewhat intermittent and limited in its scale. While the use of this authority is not without precedent, the scope and scale of this trade aid package has increased congressional and public interest. Furthermore, the significant variation in the announced MFP payment rates for affected commodities and the general lack of transparency behind the MFP payment rate calculations may elicit questions about equitable treatment among affected commodities.