Trade aid for agriculture this time around will be similar to trade aid last time, but with a key difference. A single rate of payment will be figured for each county based on the trade damage it has experienced for covered crops. Each producer in that county will receive a payment based on that blended estimate of damage and the number of acres planted.
But don’t think of the trade aid as a market loss payment. It’s a market facilitation payment. Even though the words “trade damage” are as common as pepper throughout press conferences and media releases explaining the package.
“The model we used to develop the trade damages is the same model as we used last year,” explained Undersecretary Rob Johansson. “We are comparing the difference in trade with the tariffs on our exports as to trade without those tariffs. But we are looking back a number of years, to look at what China has purchased from us in the past, and we are bringing that into our baseline for applying those tariffs.”
That expanded scope brought the numbers for this round of trade aid to $16 billion. Last time, the total was $12 billion.
As before, the $16 billion is being put into three different programs. There will be $14.5 billion in a market facilitation program, $1.4 billion for food pantry purchases and distribution, and $100 million for trade promotion.
The market facilitation program will make direct payments to producers via FSA offices around the country, and is itself divided into three buckets, specialty crops, non-specialty crops, and pork and dairy producers.
For non-specialty crops, payments will be determined for individual counties based on the number of acres in these crops: Alfalfa, hay, barley, canola, corn, dried peas, cotton, flax seed, lentils, long and medium grain rice, mustard seeds, oats, peanuts, rape seed, safflower, sesame seed, small and large chickpea, sorghum, soybean, sunflower seeds, Japonica rice, upland cotton and wheat.
“Rob and his team have gone through to look at the trade damage each county is feeling, and then we come up and divide that by the acres planted within that county,” Undersecretary of Agriculture Bill Northey said.
This should avoid swaying planting decisions, he added.
Specialty crops that will be covered this time are tree nuts, sweet cherry, cranberry and grape. Those growers will receive payments based on their acres of production.
“They won’t have a blended rate like we talked about in the first, non-specialty category,” Northey said. “It will be based on the impact to that commodity, times the acres of production.”
Rates for dairy and pork are not being announced yet.
The MFP payments will be divided into three installments. The first is coming out in July or August, just after the number of planted acres are tallied.
The second payment will likely be late fall or November, and the third in 2020 — if the latter two are made.
“We hope to have a trade agreement well before those second and third payments are made,” Northey said. “We know we will make the first payment. The second and third depend on if we still have trade damages to our producers.”
Northey acknowledged that the amount of the payments won’t come close to covering the damage done to the agriculture sector.
“These payments are not designed to be a market loss payment,” he said. “They are a market facilitation payment. It’s not going to perfectly reflect what some producers feel the loss of these markets have been.”
The funds are intended to help producers extend their marketing, pay for storage, or look at other flexibilities to carry them through to a trade agreement.
The exact payment rates and other details of the trade aid programs will all go through the usual rule-making process involving the U.S. Office of Management and Budget.
For the food purchase program, like last time, commodities affected by trade retaliation will be purchased and distributed to USDA food banks, schools, and other entities that help low income families.
The purchases will be done in phases, to accommodate the capacity of food banks, as well as to ensure that a variety of products are available for an extended period of time.
The trade promotion money will be targeted to missions that either re-establish existing trade or develop new markets.
Funds for the tariff program will come from revenues collected by the U.S. Customs and Border Protection.
When the United States imposes a tariff on a product, the duty is paid at the border, generally by a U.S. broker representing a U.S. importer.
The cost of small tariffs are sometimes absorbed into the margins of the importer, but in the case of large tariffs like the ones now in play, the costs are generally passed on to the consumers who purchase the products — unless they can find suitable substitutes.
Tariffs thus do affect the bottom line of domestic consumers. A study by the Federal Reserve Bank of New York along with Princeton University and Columbia University estimated the recent tariffs will have reduced U.S. real income by $1.4 billion per month by the end of 2018.