The 2019 version of the Trump administration’s Market Facilitation Program overestimated trade damages and was marked by regional payment disparities among farmers growing the same crops, according to an investigation by the Government Accountability Office.
The report by GAO, the investigative arm of Congress, also called for USDA's Office of the Chief Economist to be more transparent about the economic analyses the department uses for such programs. Seth Meyer, who became USDA's chief economist in early 2020 after two years away from the department, defended USDA's handling of the program.
The Trump administration used USDA’s Commodity Credit Corp. spending authority to launch the first version of MFP in 2018 after China imposed retaliatory tariffs on U.S. exports, including farm commodities, with the largest benefits by far going to soybean growers.
The 2018 program, of which soybean growers were the largest beneficiary, was fairly simple, compensating farmers according to the estimated decline in commodity sales to China in 2017. The GAO report said the 2017 baseline for calculating trade damages was “justifiable.”
For 2019, USDA came up with a new payment formula. Trade damages were based on the highest level of exports over the previous 10 years, and then payments to farmers were calculated according to their county’s production of the eligible crops.
The changes in the formula resulted in growers of several commodities, including wheat, being overpaid, the report said. For example, the trade damage for wheat was calculated by totaling the highest export level for durum wheat during the 10-year period, which occurred in 2017, with the highest export level for all other varieties of wheat in 2013.
USDA then used that total to estimate the 2018 trade decline at $836 million, a figure that was triple the 2018 MFP estimate for trade damages to wheat and twice the value of U.S. wheat exports to China in 2017.
The report said the 2019 trade baseline used for corn was more than six times the amount for 2018 and that the baselines for cotton and sorghum were 3.8 and 2.6 times the 2018 baselines for those commodities respectively.
The Trump administration's argument for the methodology was that many commodities had been affected by longstanding non-tariff trade barriers in addition to the retaliatory tariffs. The report notes that USDA avoided a product-specific payment rate in order to avoid influencing farmers' planting decisions.
The disparities in county payments rates for the 2019 MFP resulted from the way the formula was designed to address complaints that the 2018 payments didn’t account for indirect effects of trade disruptions, GAO said.
“USDA paid higher rates to producers of a crop in a county where others planted crops with higher trade damages per acre than it paid producers of that same crop where others planted crops with lower trade damages per acre,” the report said.
As a result, corn producers received an average of $69 per acre in the South, compared to $61 in the Midwest, $34 in the Northeast, and $29 in the West, the report said.
“Crop payment rates were generally higher in the South because of the South’s higher proportion of cotton, sorghum and soybeans, which had higher trade damages per acre.”
Meyer rejected GAO's recommendations that his office revise its internal review process to provide more information about its decision-making.
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“While different alternatives clearly change the amount of assistance and distribution between different crops or regions, OCE’s role was to inform the political leadership of the Department and did not make decisions or establish the rationale for selecting a particular alternative," Meyer wrote in a letter that accompanied the GAO report.
The disparities GAO cites are due not to his office’s analysis and review procedures “but rather to policy decisions and, due to the change in Administration, USDA does not have insight into the rationale behind which alternatives were selected," Meyer wrote.
He said the department was working on an "expedited timeline" to carry out the program, which was announced in May 2019 and then implemented in July.
Meyer also challenged the report’s criticism of the way the 2019 trade baselines were calculated. The report’s finding “does not take into account that the decision on what is the appropriate baseline depends on the policy goals and that there is not one single most representative baseline.”
But Senate Agriculture Chairwoman Debbie Stabenow, the Michigan Democrat who requested the GAO study, said it “confirms that the Trump USDA picked winners and losers in their trade aid programs and left everyone else behind. Making larger payments to farmers in the South than farmers in the Midwest or elsewhere, regardless of whether those farmers actually experienced a larger loss, undermines our future ability to support farmers when real disasters occur."
An earlier GAO report, also requested by Stabenow, said an increase in payments for the 2019 MFP allowed large farming operations to collect an additional $519 million over the 2018 program.
For 2019, USDA doubled the payment limit from $125,000 to $250,000.
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