Ag Policy Blog

WASHINGTON, D.C. (DTN) -- The Trump administration’s plans to develop a second trade aid package for farmers hurt by reduced exports to China resulted in rounds of lobbying and scrutiny of the idea on Tuesday.

Corn and wheat lobbyists are trying to get a better deal for their growers in this package than they got in the first package.

Soybean growers fared the best in the first round of trade aid because they had been the biggest exporters to China and lost the most when China stopped importing U.S. farm products after the Trump administration imposed tariffs on Chinese goods and China retaliated by putting tariffs on U.S. commodities. Agriculture Department officials said the formula they developed that provided most of the aid to soybean producers was necessary because they had to follow World Trade Organization rules.

While soybean producers got a Market Facilitation Program (MFP) payment of $1.65 per bushel, corn growers got one cent.

“A penny didn’t cut it before and won’t cut it now,” said a spokeswoman for the National Corn Growers Association. “NCGA is working to determine if there are some alternative options that can be shared with the administration.”

Wheat growers got 14 cents per bushel. A National Association of Wheat Growers spokeswoman said that NAWG had requested a meeting with USDA Chief Economist Rob Johansson and Agriculture Undersecretary for Trade and Foreign Agricultural Affairs Ted McKinney.

Joseph Glauber, a former USDA chief economist now with the International Food Policy Research Institute, told The Hagstrom Report that “the best way to get money out to farmers is through the same sort of program [USDA] ran last year (MFP). The problem is that the formula they used compensated only those commodities for which there had been significant trade in 2017. So soybeans gets compensated, corn for all intents and purposes does not. Would they rethink the formula this time around?

“I think it is hard to acquire commodities to store – they would have to use the CCC [Commodity Credit Corporation] Charter Act, and it would be costly,” he said.

Glauber noted that, while Trump tweeted about distributing U.S. commodities as international humanitarian aid, “we don’t typically package soybeans in food aid (occasionally they do fortify grains with meal), but food aid is typically in the form of food grains (wheat, rice, flour).”

Glauber said various forms of aid could result in problems for the United States at the WTO.

“If they try dumping a lot of corn, wheat, and soybeans via concessional sales or humanitarian aid, you risk a WTO challenge as an export subsidy,” Glauber said, noting the agricultural ministers from WTO member countries had agreed at a 2015 meeting in Nairobi that export subsidies are prohibited.

“A second round of MFP payments will also raise a lot of eyebrows in Geneva and could prompt a WTO challenge similar to the cotton dispute,” he said, a reference to the case that Brazil won against the U.S. cotton program years ago.

Glauber said one year of MFP payments is not likely to be challenged, but “if you start running ad hoc programs every year (like the disaster bills in the late 1990s), it eventually could cause someone to file a dispute (like Brazil did for cotton).”

A market analyst said that the prospect of another round of trade aid might prompt more farmers to plant soybeans, even though they are in surplus, in hopes that trade aid payments would be higher than for other commodities.

The Washington Post ran two articles on farm trade aid on Tuesday. One focused on the politics of developing the trade aid package while the other was analysis that noted the taxpayers may be paying for subsidies to farmers who likely voted for Trump and might again in 2020.

-The Washington Post – “GOP senators raise alarms, criticize Trump as U.S.-China trade war heats up” https://www.washingtonpost.com/…

-The Washington Post – “Trump is taxing Americans to support farmers struggling from his trade war” https://www.washingtonpost.com/…

CCC, Section 32 Complicated Funding Mechanisms

The Commodity Credit Corporation and Section 32 discussed in a report alert Tuesday based on an interview with Senate Agriculture Appropriations Subcommittee Chairman John Hoeven, R-N.D., are more complicated than the article indicated.

Section 32 and the Commodity Credit Corporation are two separate accounts, not one, as indicated by the article. Although Hoeven referred to Section 32 as a source of money for trade aid, and President Donald Trump has said that tariff money can be used for a new round of aid, the Congressional Research Service noted in a recent report that it appears both the Market Facilitation Program payments that went to the commodity producers and the purchases of meat, fruit and vegetables and nuts most likely came from the Commodity Credit Corporation.

The USDA entity was established in 1933 and federally chartered by the CCC Charter Act of 1948 to “buy, sell, lend, make payments and engage in other activities for the purpose of increasing production, stabilizing prices, assuring adequate supplies, and facilitating the efficient marketing of agricultural commodities.”

Under its Charter Act, CCC has authority to borrow from the Treasury, but in recent years that amount has been limited to $30 billion per fiscal year.

Section 32 of the Agricultural Adjustment Act of 1935 created a permanent appropriation that since 1935 has set aside the equivalent of 30% of annual customs receipts to support the farm sector through the purchase of surplus commodities and a variety of other activities.

According to the Congressional Research Service, most of the appropriation is transferred to USDA's child nutrition account, with a separate amount transferred to the Commerce Department for fisheries activities. “The Secretary of Agriculture, acting through USDA’s Agricultural Marketing Service (AMS), has had broad discretion in how to spend the remaining non-transferred (unobligated and carryover) money,” CRS said in a 2016 report.

But CRS said in a February report, “The administration’s trade aid announcement does not specify whether the CCC or Section 32 authority is being used to make the purchases under the announced Food Purchase and Distribution Program. However, the scale of the $1.2 billion program indicates that the CCC is most likely the source since the typical annual amount of funding available in Section 32 for purchases is rarely more than half of this amount. Whether from the CCC or Section 32, the administration’s purchases appear to use distribution channels similar to those under Section 32.”

Whether the administration uses Section 32 for trade aid or not, it is true, as Trump has said, that the government’s tariff income is rising.

The appropriation for Section 32 is expected to go up from $10.6 billion to $15.1 billion for fiscal year 2020 due to the increased tariff income from the increase in tariffs imposed on foreign products by the Trump administration, according to the explanatory notes in the Agriculture Department’s fiscal year 2020 budget request. Section 32 gets 30% of tariffs from the calendar year prior to the start of a fiscal year. Calendar year 2018 is the last full calendar before Oct. 1, 2019, which is the beginning of fiscal year 2020. Almost all of that increase goes to the transfer for child nutrition programs, based on formulas in the statute that keep the amounts for other uses constant or in line with inflation.

In its fiscal year 2020 budget request, the Trump administration has proposed to fund the programs currently funded by Section 32 directly and permanently from the Treasury instead of relying on a portion of U.S. customs receipts. The administration said that this proposal would increase transparency by providing mandatory appropriations in lieu of customs receipts, thereby reducing the variability from fluctuating receipts and providing funding for all of programmatic needs. In addition, the proposal would eliminate the likelihood that large unobligated balances could accrue for Congress to rescind and use for other purposes.

Jerry Hagstrom can be reached at jhagstrom@njdc.com

Follow him on Twitter @hagstromreport

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