Farmers wonder how ag 'bailout' for farmers affected by trade war will work
ROLETTE, N.D.—A multibillion-dollar package meant to combat agricultural losses in a trade war with China has left farmers and economists wondering how the money will be distributed.
U.S. Secretary of Agriculture Sonny Perdue announced Tuesday plans to authorize up to $12 billion in assistance for farmers "in response to trade damage from unjustified retaliation," referring to China's tariffs against U.S. products. China imposed those sanctions after President Donald Trump announced tariffs on Chinese imports.
Some of that "trade damage" has been felt by farmers in North Dakota, which ships most of its soybeans to China.
The White House's recognition that tariffs have hurt ag producers is appreciated, said Ryan Pederson, a farmer from Rolette, N.D., who also is the vice president of the North Dakota Soybean Growers Board.
"This bailout will help to alleviate that," he said Friday. "In the long run, we need to get trade figured out."
But questions remain: Who'll get the money? How will it be distributed?
"It's a nationwide bailout," he said. "How do you make any bailout equitable? That will be the challenge."
Waiting for months
The funds are meant to be a "short-term solution to allow President Trump time to work on long-term trade deals," Perdue said in a statement. The $12 billion package aligns with the estimated $11 billion impact the trade war is expected to have on U.S. agricultural goods, according to a news release from the U.S. Department of Agriculture.
The USDA listed three programs for allocation: direct incremental payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy and hogs; funds to buy unexpected surplus for fruits, nuts, rice, legumes, beef, pork and milk that can be given to food banks and other nutrition programs; and money to develop other export markets.
The USDA has not released information on how the funds would be distributed among farmers or the formula for payments. By press time, the agency had not returned a request for that information.
There were more than 2 million farms in the U.S. in 2015, according to "America's Diverse Farms," a 2016 USDA report. If the funds were distributed evenly to farms based on those numbers, each farm would get about $5,800.
The USDA also said there were about 3.2 million farmers operating 2.1 million farms in 2012, according to the agency's most recent Census of Agriculture. That would give each farmer $3,750, though it's unlikely all farmers (or all farms) will qualify for relief.
Some thought farmers would be compensated for losses while selling ag products this summer, said North Dakota Agriculture Commissioner Doug Goehring. But, Goehring said, that notion has been "wiped out."
The USDA has used historical production based on acres to distribute financial aid in the past, said Frayne Olson, an agribusiness professor and crop economist for North Dakota State University. But increased soybean production in North Dakota is relatively recent, having arisen over the past six to seven years. So, using that formula may shortchange farmers in the state, he said.
One interpretation of the announcement is that payments would be based on this year's production and the losses incurred, but harvest can drag into November, Olson said. Sign-up for the program is expected to begin in September, but farmers may not know how much they will produce until the end of the year, he said.
"Even though it may be more accurate to actually compensate those people who have been hurt the worst by using 2018 only, it is going to take longer," he said.
Unlike wheat and corn, which can be sold any time of the year, U.S. soybeans are typically exported at the end of the year. Elevators are now preparing for shipments and trying to determine how many railcars they need for crops, Olson said. The tariffs have stumped the industry as it tries to determine how many soybeans will be shipped from the U.S., he added.
"Everybody is still trying to figure out what this means and how it is going to work," he said.
Even after farmers sign up, it could take months to figure out losses and to get checks to cover the losses, Olson said. And the payments probably won't fully compensate for the losses already incurred.
"This is not going to make farmers whole," he said of the bailout. "This will help."
Goehring and Olson acknowledged the funds will help farmers, but agriculturists would rather see money from trade than aid, they both said.
"Get this all straightened out," Goehring said. "Let's get back to doing business."
Olson did note the recent drop in prices cannot be attributed solely to the tariffs. Crops are looking good not only in North Dakota but across the nation, so an expected increase in supply likely is a factor in the price drop, he said.
Soybeans stayed above $10 a bushel for the first part of the year. Toward the end of May, prices plummeted to about $8.20 per bushel, the lowest in 10 years.
"If the tariffs were removed tomorrow, prices would recover, but not to the level that we saw at the end of May," Olson said.
There may be opportunity for other markets to open up across the world, Goehring said. Some countries such as Australia, Europe, Russia and Ukraine are experiencing droughts.
That means there could be a greater global demand for grains and fewer players that can supply products, he said.
"It may give us a good position to leverage getting some things corrected," he said.
Trump announced this week a preliminary trade agreement with the European Union that would work toward "zero tariffs" on non-automobile industrial products. The EU also agreed to import more soybeans.
It's great news for U.S. soybean growers, Pederson said. But North Dakota would have to compete against farmers to the east—Illinois, Indiana and Iowa, for example—to ship soybeans to Europe.
"We'll see a benefit, but we won't see the same proportional benefit as other parts of the country," he said.
It's unclear how long the trade war will continue, and exactly how the world will view the U.S. for issuing the bailout also remains to be seen, University of North Dakota economics professor David Flynn said.
Nor should the move to issue the bailout be given "kudos," Flynn added.
"We don't really give credit to you for suddenly making right what you made wrong through the trade sanctions," he said. "That's not worth any kind of accolades because this problem didn't exist without the trade sanctions."
The bailout wasn't budgeted and will have to be made up somehow, Flynn said, adding he hasn't seen any proposals of how to account for the additional spending.
"At the end of the day, it's the American taxpayer that's paying it," he said.