March 12, 2020

 

US farmers dependent on government aid after US-China Phase 1 deal

 

The US government's farm subsidy programme is set to be extended for a third year as China has yet to make do on its pledge to purchase additional US agriculture goods as part of the US-China Phase 1 trade deal, reported Reuters.

 

The trade deal did not specify an exact timeline for China to increase its imports of US agriculture goods to hit its US$36,5 billion 2020 goal (higher than the US$24 billion purchased in 2017 pre-trade war).

 

The unclear timeline also highlights economic issues with China steadily reopening ports and lifting transportation restrictions after the COVID-19 outbreak, which has slowed down in the country but rapidly spread across the world.

 

The African swine fever (ASF) outbreak has also slowed demand for US soybeans and sorghums, staple ingredients in livestock feed. ASF has decimated more than 40% of China's swine herd since it was first discovered in August 2018.

 

With China's purchase pledge uncertain, US farmers need government aid to invest in seeds, obtain fertilisers and get bank loans, especially as the planting season in the Midwest will begin next month.

 

The US government allocated US$16 billion for trade aid, majority to farmers. This is higher than the US$12 billion aid in 2018. US President Donald Trump said the government is prepared to provide additional aid in 2020.

 

The aid is one of the largest farm industry bailouts in the US that isn't related to a natural disaster. The aid is triple compared to the US Treasury Department's estimations to bail out the American auto industry back in the 2008 financial crisis.

 

Reuters said many of the US farmers interviewed regarding the government aid said they could not plant in spring without the assistance.

 

Pre-trade war 2017, China was the biggest buyer of US soybeans and a major importer of US sorghum, dairy and other agriculture produce.

 

Data from the US Department of Agriculture (USDA) showed US$1.36 billion agricultural goods were exported from the US to China in January 2020. This is a far cry from the US$2.39 billion worth in January 2017.

 

The data also showed 1.13 million tonnes of US soybeans were purchased by China in January 2020, compared to 2.83 million tonnes at the same time in 2017.

 

Sonny Perdue, USDA secretary expects to China to bump purchases and believes that a third round of government aid will not be required for farmers this year.

 

Some US farmers have changed from soybeans to corn, which isn't as dependant on China. Others are purchasing more affordable seed or withholding from investment in new machines.

 

Joseph Glauber, International Food Policy Research Institute senior research fellow and former USDA chief economist lambasted the trade-aid programme for US farmers. He said there are a minimum of five empirical studies that show the USDA overstated the impact of the US-China trade war on US soybeans and farmers, possibly overpaying these producers.

 

The findings were disputed by the USDA, but investigations are being conducted by the US Government Accountability Office.

 

According to data from the USDA, farm debt levels will hit record levels last seen in 1982 (after inflation adjustment) even with the trade-aid. This has resulted in US farm lenders tightening their check books, reducing loan approvals to farmers depending on crops purchased by China.

 

Jim Knuth, Farm Credit Services of Americasenior vice president said the third round of trade-aid to farmers may be lesser than previous rounds. However, he said both sides of the US political divide are certain to support US farmers and the country's agriculture industry in 2020.

 

-      Reuters