American farmers are on pace to receive the largest amount of government aid since 2005.
Argus Media reported last month that a growing season mired in trade uncertainty and historic flooding is catalyzing this development. In 2019, federal aid and direct farm payments totaled $22.4 billion, which is the highest figure in 14 years and accounts for approximately one-quarter of total income, according to a report from the U.S. Department of Agriculture (USDA).
The increased share of federal assistance helped American farmer income reach a six-year high of $92.5 billion in 2019, even as gross income is falling due to the U.S. trade dispute with China and spring floods that lowered corn and soybean yield.
The farmers who were affected by 2019’s floods collected a number of disaster assistance payments that went up to an estimated $1.75 billion, which represented a four-year high. The Trump administration set aside $28 billion in trade aid relief for farmers during the last two years to ease the losses from the trade war with China. In 2019, farmers were expected to have received approximately 75 percent of the $14.5 billion of direct cash payments “The magnitude and the sheer size of the payments, especially the government payments, is unusual,” USDA senior economist Carrie Litkowski stated.
However, federal aid has not been a lifesaver for farms in 2019 as growers pile on more debt while cash receipts remain stagnant. Chapter 12 bankruptcy filings, which is a type of reorganization farmers can go through, went up for the fourth straight fiscal year, based on data from the U.S. federal courts. It has become more difficult for farmers to pay down debt, and farm lenders are starting to recognize this.
According to Arlan Suderman, chief commodities economist at the New York-based firm INTL FCStone, bankers have announced they will limit the amount of credit extended to farmers next season. Suderman remarked that the restricted credit would incentivize farmers to limit costs — fertilizers and pesticides for example — and instead plant more soybeans in 2020.
American farmers receiving government aid should concern American taxpayers. The U.S. government has historically had an intimate relationship with the agriculture industry that is characterized by considerable cronyism. Various segments of the agricultural economy receive hefty subsidies. The wheat industry was a recipient of $47.8 billion in subsidies from 1995 to 2019. The corn industry received a whopping $113.9 billion in this same time frame.
The current trade war has caused some notable distortions in the American agricultural sector, which prompted the Trump administration to give American farmers $12 billion in bailout money. Even with this money and other forms of government aid, American farmers will continue entering bankruptcy. This path is clearly proving to be unsustainable.
Instead, the U.S. should reconsider its trade war policy and let America’s agricultural sector sort itself out through market mechanisms. If certain enterprises fail, they should not be bailed out. At the very least, the federal government should not be in charge of agricultural aid. Instead, we should take advantage of our federalist system, which would give states more flexibility in pursuing agricultural policies unique to their political and economic contexts.
No matter how the agricultural lobby tries to spin it, the current federal approach has to be discarded.