US about-face on farm subsidies reflects vagaries of China trade deal
Beijing did not commit to a timeline for ramping up imports to meet the 2020 goal of $36.5bn
Chicago — As US President Donald Trump touted the signing of a US-China trade deal in January, he told cash-strapped farmers they would soon need bigger tractors and “a little more land” to meet additional Chinese demand for US agricultural goods.
His administration assured farmers that they would no longer need the billions in aid the government had provided to offset their losses from the trade war Trump launched with China in 2017.
Now, with Chinese buying of most farm goods still lagging behind 2017 levels, the administration says it may extend the farm subsidy programme for a third year — money farmers say they still desperately need. Such an extension would expand what has already been an enormous industry bailout.
The about-face reflects vagaries in the so-called phase one trade deal: China did not commit to a timeline for ramping up imports of US farm goods to make the 2020 goal of $36.5bn, up from $24bn in 2017.
It also underscores economic uncertainty as China slowly reopens ports, roads and factories amid a coronavirus outbreak that has killed thousands of people and spread globally.
Demand for US soya beans and sorghum have been curbed by another deadly disease, swine fever, which has killed millions of pigs and shrunk China’s huge herd by about half since August of 2018, according to expert estimates. The crops are staple ingredients in animal feed.
Though the US Midwest planting season is still about a month away, the slow ramp-up of Chinese purchases means farmers need guarantees of government aid now to invest in seeds and fertiliser and secure bank loans.
“The rubber is not hitting the road like we have been told it would,” said Doug Schroeder, chair of the Illinois Soybean Association, who grows soya beans and seed corn on his 1,620ha farm near Mahomet, Illinois.
The administration devoted $16bn to trade aid, much of that in direct payments to farmers, up from $12bn in 2018. Trump, who is up for re-election in November, said in a February 21 tweet that farmers would have more aid in 2020 if they need it.
The trade subsidies represents one of the biggest yet farm sector bailouts not related to a natural disaster. The trade aid that farmers have received is nearly triple what the treasury department estimated it ultimately cost taxpayers to bail out the car industry during the financial crisis of 2008.
For many farmers, the aid represents a lifeline and an awkward reality of government dependence.
“It’s uncomfortable and embarrassing to talk about it, because the grocery store doesn’t get this kind of help; the dry cleaner doesn’t get this kind of help,” said Charlie Zanker, a maize and soya bean farmer in Hamburg, Iowa. “But without it, too many of us would be out of business.”
With the trade aid a dding to existing government disaster programmes and taxpayer-subsidised crop insurance, government subsidies accounted for about a fourth of US net farm income in 2019, according to data from the US agriculture department. And net cash income is expected to fall sharply this year without those subsidies.
Dozens of farmers interviewed by Reuters said without more assistance they may not be able to plant this spring. China was the top buyer of US soya beans in 2017 and a top importer of sorghum, dairy and other products.
Agriculture department data showed that US exporters shipped $1.36bn worth of agricultural goods to China during January, well below the $2.39bn shipped out in January 2017.
Purchases of sorghum have picked up slightly in recent weeks but are still down from 2017. But purchases of soya beans, typically the top US agricultural export to China, have totalled just 1.13-million tonnes, according to the data. That compares with 2.83-million tonnes in the same period of 2017.
China’s ministry of commerce and state planning agency did not respond to requests for comment.
Most farmers are doing more repairs on their equipment, not buying new or trading in equipment for something new, like they have in the pastRoger Hadley, president of the Allen County Farm Bureau
“We certainly haven’t seen the market rise as we were hoping after the phase one agreement, but I believe it will,” agriculture secretary Sonny Perdue said in a February 21 statement, just after Trump's tweeted about the possibility of trade aid. “I hope we can show that a third round is not needed for 2020 — we still believe farmers want trade rather than aid.”
The agreement was signed on January 15 and officially took effect on February 15. Trump’s economic adviser, Larry Kudlow, has said coronavirus could slow China’s purchases. The trade agreement contains a clause that calls for consultations if a natural disaster or other unforeseeable economic event delays compliance, though China has not invoked that clause in reaction to the coronavirus epidemic. A US treasury official said in February the government does not expect the virus to change China’s commitments.
Farmers are curbing investments despite Trump’s repeated assurances. Many are shifting some land from soya beans to maize, which is less dependent on the Chinese market, while others are buying cheaper seed and being more cautious about buying new machinery.
“Most farmers are doing more repairs on their equipment, not buying new or trading in equipment for something new, like they have in the past,” said Roger Hadley, an Indiana maize and soya bean farmer and president of the Allen County Farm Bureau.
Farm subsidies are nothing new in the US and accounted for a substantial share of farm incomes before the trade disruption.
The trade aid programme has nonetheless been criticised by some academic researchers, including Joseph Glauber, senior research fellow at the International Food Policy Research Institute and a former chief economist at the agriculture department. He found at least five empirical studies showing the department overstated the trade war impact on US soya bean market and farmers, and the agency may have overpaid some producers.
Department officials have disputed these findings, but the US Government Accountability Office (GAO) is investigating the programme. US senator Debbie Stabenow, a Democrat from Michigan, had requested the GAO to examine whether the model for distributing payments accurately reflects trade war damage to incomes and whether the agency was effective in preventing fraud, waste and abuse in the programme.
Even with generous aid, however, farm debt levels are forecast this year to reach the highest levels since 1982, when adjusted for inflation, according to agriculture department data.
In response, farm lenders say they are closely reviewing their customers’ books and tightening the issuance of fresh loans to financially vulnerable farmers who depend on crop prices increasing due to increased buying by China.
Trump could come through with a third round of aid because of political pressures, said Jim Knuth, senior vice-president of Farm Credit Services of America, the largest agricultural lender in the upper Midwest.
“It’s going to be politically popular on both sides of the aisle to support farmers and agriculture this year,” Knuth said.
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