USDA Report: Farm Payments Up 42%, Farm Debt Rising

, Economist | September 19, 2019, 1:29 pm EST
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On August 30th the U.S. Department of Agriculture presented its August 2019 Farm Income Forecast. What struck me most: the eye-popping one year 42.5% increase in federal government direct farm program payments. That’s right, federal government direct payments to farmers are expected to rise by $5.6 billion in just one year. 

Let’s put that into perspective. There are about 2 million farmers in the U.S., according to the most recent USDA Census of Agriculture. So, on average that’s an extra $2,800 check to each farmer in 2019 compared to 2018. That’s almost triple the amount presidential candidate Andrew Yang promised as an annual “freedom dividend” to American families. Unfortunately, these farm payments aren’t as equitable as Yang’s freedom dividend. According to a recent Environmental Working Group investigation the majority of these types of payments have gone to the largest, wealthiest farmers.

Why such a big bump in direct government payments to farmers?

The increase in direct payments comes from an explosion in expenditures from the Market Facilitation Program (MFP). MFP provides financial support to farmers and ranchers who grow or raise foods that are impacted by “unjustified foreign retaliatory tariffs, resulting in the loss of traditional export markets.” In 2018 USDA paid out $5.1 billion in MFP payments. But that value is expected to rise to $10.7 billion in 2019, which is a 109% increase from the prior year. The huge jump in MFP is due to shifting trade agreement terms the U.S. has with China, Canada and Mexico initiated by the current administration. Federal commodity insurance indemnities are also expected to rise, mostly due to flooding in the Midwest, by about 80% or $6.1 billion.

Again, to put these billions of dollars of MFP and insurance payments into perspective, consider the National School Lunch Program (NSLP), which feeds 29.7 million children each year. NSLP costs the federal government $13.8 billion annually, or about $465 per child per year. By comparison, the one-year increase in MFP payments ($5.6 million) combined with the one-year increase in commodity insurance indemnities payments ($6.1 million) is almost equal to the cost of the NSLP for one year. That’s a lot of money.

USDA’s forecast also indicated that overall direct payments (which includes MFP insurance indemnities, conservation programs and a few other types of direct payment programs) to farmers account for nearly 22 percent of net farm income. USDA concluded that net farm income, excluding federal indemnities and direct payments, would be down in 2019. So bottom line, MFP and other federal government direct payments kept farm incomes afloat this year compared to last year.

Rising debt and bankruptcies among U.S. farmers is concerning

An increase in debt and bankruptcies among U.S. farmers was also reported in the August forecast. According to USDA, debt levels in the farm sector are at their highest levels since 1982. This is mostly due to increased real estate debt, which accounted for 60% of farm debt in 2019. Both farm sector assets and equity are expected to be about the same in 2019 compared to the prior year, which means that the debt to asset ratio (a key measure of farm financial health) for U.S. farmers will increase in 2019. Bankruptcies have also been trending upwards since 2016. All of these trends are concerning and worth watching both in the short and longer-term.

Many other trends in the farm sector were reported in the August forecast, including a decline in farm expenses from 2018 to 2019 as well as changes in prices and quantities of crops and livestock expected this year. USDA has posted the full video recording of the August forecast here.  USDA will provide another forecast on November 27th.

In the meantime, all this information USDA shared in its August forecast has me thinking about how the current system of government payments could be improved, especially for small, mid-sized, and socially disadvantaged farmers. Even more important, a key question is if the current government support system can withstand additional pressure put on it by climate change, which is already making it more difficult to grow food, fuel and fiber in the U.S. and other countries.

Which makes me wonder (I wonder about a lot of things): can more government funding also be used to reward farmers for being protectors of our climate, land and water? Can government help protect farmers from the looming climate crisis? The answer to these questions is almost certainly yes, because farmers and our food supply likely will depend upon such government action. The trick will be to ensure that new policies to address the economic, environmental and climate challenges farmers face are equitable and informed by the best available science.  Luckily, there is great energy around making equitable, science-based policies a reality and there’s no better time to act than right now.

 

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