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https://missouriindependent.com/2022/10/26/program-meant-to-help-farmers-in-trade-war-overspent-lacked-transparency-and-compliance-checks/ Program
meant to help farmers in trade war overspent, lacked transparency and
compliance checks The $23 billion in USDA program payouts set a precedent for spending without Congressional approval, experts say BY: MADISON MCVAN, EMILY FEATHERSTON AND JAMIE GREY - OCTOBER 26, 2022 10:11 AM This article was produced in collaboration
with Investigate Midwest and Gray
Television’s InvestigateTV. A U.S. Department of Agriculture program
touted as relief for lost trade during the Trump-era trade war with China
spent unprecedented amounts of money, bypassed Congressional approval and
lacked checks to ensure the payments went to eligible farmers. The Market Facilitation Program, or MFP, doled
out more than $23 billion, more than all other USDA direct payment subsidies
combined over its duration. But the USDA failed to make sure the money was
going to the farmers who needed it, according to the Government Accountability
Office, a nonpartisan government agency. Over the course of the MFP, the USDA’s own
internal auditors found the agency sent more than $800 million to farms
“improperly” — including to recipients who didn’t qualify for aid. To help farmers quickly, the USDA bypassed
Congressional approval by funding the MFP through a little-known agency
“credit card”: the Credit Commodity Corporation. The CCC, a government-owned
entity designed to protect
the farming industry, had never been used to fund such a single, large-scale
program at the discretion of the Secretary of Agriculture before. Unlike most farm subsidies approved by
Congress as part of the Farm Bill, discretionary CCC-funded programs can be
designed quickly and administered by USDA alone, making them more flexible. But that flexibility came with side effects.
It opened the door for industry groups to lobby the USDA directly — and they
did so with much success. And the GAO has criticized the way USDA
designed the program. The agency used an “inappropriately high”
baseline to calculate payments, distributed unequal payments for farmers
producing the same crop and lacked transparency in its methods, the GAO
wrote. Less than 4% of the funds went to historically
underserved farmers including low-income, racial minority, veteran and
beginning farmers. Meanwhile, at least $163 million went to
high-income farms and individuals making more than $900,000 per year. “The MFP was a $23 billion program. So it’s a
lot of money to go to about a half a million farmers,” said Steve Morris,
director of natural resources and environment at the GAO, which produced
three reports about the MFP. “In terms of the oversight that USDA conducted,
what we found was that the way they conducted their oversight had a lot of
limitations.” USDA did not respond to multiple requests for
comment over several months. The agency did respond to the GAO’s reports,
agreeing with some of the findings but disagreeing with the GAO’s criticism
of its methodology for calculating payments. MFP began as a one-time assistance program in
2018 as part of a larger package aimed at addressing the negative effects of
retaliatory tariffs on American agricultural products levied by China and
others. But in the summer of 2019, as the trade war
continued, the USDA initiated a second round of MFP payments with different
eligibility criteria and payment rates. Lobbyists and industry groups helped decide
some of those changes, especially who would benefit from the second round of
funds, according to USDA emails obtained via a public records request. Some policy experts say it created an
expectation among farmers for more government help in the future. “I think, without a doubt, this has set an
expectation that whenever there are bumps — or perceived bumps — in the road,
that the USDA will automatically trigger out payments in one form or
another,” said Johnathan Coppess, an agricultural policy expert at the
University of Illinois. The USDA maintains a detailed internal dataset
that includes ID numbers for individuals and partnerships, home addresses,
farm addresses, crops grown, acres planted and more. But data available to
the public is more vague. For example, public spreadsheets don’t specify
which crop a farmer received a payment for. They also don’t include the
physical address of the farm — only the address to which the payment was
sent, as well as the county where the farmer applied for MFP. In an effort to provide some transparency,
Investigate Midwest and InvestigateTV turned two dozen USDA spreadsheets into
a map of payments made in the Market Facilitation Program. ‘A lot of people were hurting’ The MFP payments made it easier for U.S.
farmers to weather losing the country’s top buyer of corn and soybeans, said
Brett Neibling, a soybean farmer and board member of the Kansas Soybean
Association. The impact of the tariffs on producers varied
by location and by farm; Neibling had on-site storage that allowed him to
wait for better prices and the option of selling his harvest as feed for
domestic use. Other farmers didn’t have the same luxuries, he said. While Neibling’s goal was “trade not aid” — a
restoration of export markets instead of government payments — the MFP
provided needed income. “A lot of people were hurting and a lot of people were not going to be able to make it,” Neibling said. “And when they put out the Market Facilitation payment, we were concerned with it, but it was very necessary for us just to be able to help pay for input costs, whether it be for fertilizer, or chemical or diesel fuel to run our tractors.” In January 2020, Sen. Debbie Stabenow, D-MI,
requested that the GAO investigate the MFP, citing the methods used to calculate payments, the lack
of correlation between trade damages and payments made and unequal
distribution of aid. The GAO’s three reports found only a small
portion — 3.6% — of the funds went to “historically underserved farmers”
including applicants who are low-income, racial minorities, veterans and
beginning farmers. The income limit for the MFP was $900,000, but
there were exceptions. If at least 75% of an individual’s income came
from farming, they still could qualify for MFP payments. The limits also
didn’t apply to farm partnerships — business organizations with multiple
members. According to the GAO, the USDA paid more than
$163 million to high-income farms, with much of the aid going to farmers with
adjusted gross incomes of more than $900,000 per year. But the USDA didn’t independently verify
whether an individual’s income came from farming, the GAO found. Instead, the
agency relied solely on documents provided by attorneys or accountants. Verifying income limits wasn’t the only
example of USDA compliance monitoring that didn’t meet GAO standards. The USDA conducted compliance spot-checks of
2018 MFP payments, but the GAO determined these checks were “limited in their
usefulness” because the agency didn’t fully account for risk when deciding
who to check. While the USDA’s sample size was large,
consisting of 35,000 farming operations, the GAO found it wasn’t looking in
the right places — the agency didn’t focus on high-risk groups such as farms
with no history of receiving subsidies, or payments above the established
caps. “The way they set up their oversight didn’t
allow for reliable results,” the GAO’s Morris said. “In some cases, they
oversampled populations and in other cases they undersampled, so it was just
a lack of consistency in how they went about conducting the reviews.” GAO found agency staff also didn’t adequately
track the spot-checking effort — to the point the agency couldn’t even tell
the GAO with confidence how many spot checks were done, making it difficult
for auditors to understand the implications of the spot-check results. Still, the Farm Production and Conservation
Business Center, a section of the USDA that reviews agency programs,
estimated that nearly $800 million in taxpayer funds were improperly paid out
through the MFP, according to GAO’s review of agency financial reports. The payments were deemed to be “improper”
because they were distributed despite lack of evidence to support
applications, because the applications were late or incomplete, or because
they were not approved by the appropriate agency staff — all issues the
USDA’s spot-checking process looks for. After the second round of the MFP, USDA effectively
stopped spot-checking payments, turning its attention towards the Coronavirus
Food Assistance Program, according to the GAO. USDA’s method for determining payments had issues Compliance monitoring wasn’t the only instance
where the 2018 and 2019 versions of the MFP diverged — or that government
watchdogs found to be lacking. USDA changed the way it calculated payments
from the 2018 to the 2019 version of the MFP, but the reworked system led to
more issues. Another GAO report determined
that the method USDA used to set the payment rates for each crop in the
second round of the program resulted in total payments to farmers that were
higher than the estimated trade damages for that particular crop. The issue stemmed from USDA using an inflated
“baseline” value, according to the GAO. To determine trade damages, USDA used an
established economic model to estimate how exports for each agricultural
commodity would be impacted by tariffs. This analysis produced a percentage
decline for each crop; then, USDA multiplied that percentage by the baseline. In the first year of the program, the GAO
concluded the baseline, the value of the goods imported by the retaliating
country in 2017, was justified. For example, in 2017, China imported U.S.
sorghum valued at $956 million — this was the baseline. USDA estimated that
once retaliatory tariffs were imposed, U.S. sorghum exports to China would
drop by approximately $314 million in 2018. USDA then divided the total trade damages by
the total production of sorghum in 2017, resulting in damages of $0.86 per
bushel. But when the USDA altered the program in 2019,
the agency changed the baseline it used. In the second year of the program, the USDA
looked at the previous decade of crop exports and chose the highest trade
value each crop had during that time period. For example, the value of cotton exports to
China varied greatly from 2009 to 2018, from a low of $514 million to a peak
of $3.7 billion in 2012. USDA used the peak value from 2012 to estimate
trade damages for 2019. The baseline value USDA used to estimate the
impact of Chinese and European Union tariffs on corn combined the highest
value of corn exports from those countries from different years. So, $1.65
billion in 2012 from China, and $349 million in 2018 from the EU, for a baseline
value of $2 billion. The GAO determined this methodology
exaggerated trade damage estimates for the vast majority of crops. The USDA
disagreed and claimed its process was based on established economic modeling. The USDA did not publicly explain its
reasoning behind choosing this methodology out of several options provided by
agency economists. “As a result, USDA increased its 2019 trade
damage estimates in a manner that was not transparent to decision makers and
the public,” the GAO report stated. But the baseline trade damage wasn’t the only
departure in methodology between the first and second versions of the
program. For 2019, the USDA made other changes to the
way it disbursed the MFP money, including basing payments not on the crop
produced, but instead on the geographic location of the acres planted. For example, in 2018, every corn farmer in the
nation qualified to receive $0.01 per bushel of corn produced that year. That system drew criticism that it unfairly
benefitted one crop over another. Soybean farmers, for instance, received the
highest payment rate per bushel of all non-specialty crops. The USDA said it
was concerned the program could influence farmers’ planting decisions. The following year, the USDA calculated MFP
payments for farmers based on a rate assigned to the county they farmed in,
rather than the crop they planted. This meant every farmer in a county with a
qualifying crop qualified for the same payment amount per acre. But the new system traded equity across
industries for inequity across regions. Under the new system, Southern and
Midwestern states received higher payment rates on average. In some cases, farmers who grew the same crops
in adjacent counties received vastly different payment rates — meaning all
things held equal, one farmer would receive more money for the same harvest
than his neighbor. “I think for a lot of farmers, it really did
not make a lot of sense to base the payment rate for the Market Facilitation
Program on your county,” said Anne Schechinger, Midwest director and food and
agriculture economist at the Environmental Working Group, a nonprofit
environmental advocacy organization that has criticized the MFP. “A lot of
times, you’re going to have similar yields. You’re gonna be growing similar
crops. So to base the payment rate on a county really didn’t make a whole lot
of sense.” The GAO found “decoupling” the payments from
crops also skewed payments in a way that meant some crops received more aid
than estimated trade damage, while others received less than damage
estimates. In response to the GAO’s findings and
criticism of the structure and baseline of the MFP, the Office of the Chief
Economist for the USDA argued that it was the job of the economist to present
policymakers with a range of options for determining the size and
distribution of payments — not to direct the policymakers in any one
direction. But the GAO noted that some of the options the
chief economist provided — including the methodology that USDA chose for the
second round of the MFP — did not meet the agency’s quality guidelines. Political forces shaped second round of MFP On May 1, 2019, U.S. negotiators met with
Chinese officials in Beijing to work out a trade agreement that would stop the ongoing trade war and stabilize global
markets. By then, the USDA had already distributed
nearly $12 billion in MFP payments to farmers whose crops were directly
impacted by retaliatory tariffs, according to Investigate Midwest and
InvestigateTV analysis of payment data. But on May 3, 2019, Chinese officials backed out of the tentative deal. In response, President Trump announced another
increase in tariffs on more that $200 billion in Chinese goods, sending the
two countries into another period of intense trade disputes. Soon after the deal with China fell through,
former Secretary of Agriculture Sonny Perdue promised farmers more help was
on the way. “This is Market Facilitation Program number
two,” Perdue said in a May 17, 2019 interview with InvestigateTV’s partners
at the Gray Television Washington News Bureau. “We learned a lot last year…
It will build a lot on that, although we’ll look at some of the rough edges
that we had last year, and some of the stakeholder comments, and try to take
those into consideration and have a better, well-rounded program this year
for our farmers.” Agriculture industry associations quickly took
the opportunity to lobby for changes to the MFP that would result in more
payments to their constituents, according to emails obtained by Investigate
Midwest and InvestigateTV. USDA staffers forwarded letters from the
Minnesota Canola Council and the National Alfalfa and Forage Alliance to
Deputy Secretary of Agriculture Stephen Censky. The Almond Alliance and
Rolling Plains Cotton Growers also submitted letters to USDA requesting
relief under the next round of the MFP. “As you know, China’s retaliatory tariffs are
having an effect on all commodities and all farmers,” Minnesota Canola Council
chairman Tony Brateng wrote in a letter. “Though not all commodities have
been retaliated against directly, the overall effect on the market has
occurred across the entire agricultural sector in the form of depressed
prices.” Lobbyists representing the National Barley
Growers Association, U.S. Canola Association, National Sunflower Association,
USA Dry Pea & Lentil Council and U.S. Dry Bean Council — crops not
directly impacted by tariffs — also sent letters from the organizations to
USDA arguing that their farmers should be incorporated into the MFP program. Perdue’s chief of staff, Joby Young, thanked
the organizations for their input and promised to keep them in the loop. John Gordley, head of the lobbying firm
representing the trade organizations for barley, canola, sunflower and dry
legumes, wanted a call with the deputy secretary Censky. That call took place
on May 21, 2019, according to an email in which Gordley thanked a USDA
staffer for setting up the call and continued to advocate for his clients’
inclusion in MFP talks. Ultimately, the second round of the MFP
included payments for the crops that industry groups advocated for through
letters to USDA. Of those crops, only two — cotton and shelled
almonds — had been eligible for payments the previous year. In May 2019, Congress also passed a disaster
relief bill that included a provision to remove the cap on the income limit
of $900,000 per year for the MFP program, as long as at least 75% of an
individual’s income was derived from agriculture. According to notes from the USDA’s Office of
Congressional Relations, removing the income cap “would help utilize unspent
funds for pork, dairy, almond, and cherry producers, primarily.” Funding for the MFP came from an
unusual source To fund the MFP, the Trump administration
bypassed Congressional approval of the program by using the Commodity Credit
Corporation, a “wholly-owned government corporation” housed under the USDA
that was designed to help stabilize the U.S. agriculture industry. CCC has the
authority to borrow up to $30 billion from the Treasury at a time. The
secretary of agriculture has broad, discretionary power over CCC. Using those
powers, former Secretary of Agriculture Perdue initiated the MFP. By law, Congress has to foot the bill,
appropriating the amount of money that the CCC borrowed in the previous year. Before the MFP, the CCC rarely had been used
to fund programs outside of the Farm Bill. But after the MFP, the entity has
been used to fund two more large-scale USDA discretionary programs without
Congressional input, including the Coronavirus Food Assistance program. “Historically, it’s unique in terms of usage
of the Commodity Credit Corporation Charter Act authorities,” said Coppess,
the agricultural economist at the University of Illinois. ”It’s unique in
that it first came about in the middle of a Farm Bill discussion but didn’t
impact the Farm Bill discussion, and it’s unique in the sheer amount of money
that was paid out.” But that may change as Congress approaches the
next Farm Bill. The Congressional Research Service noted in a March report that the size and
administrative differences seen with the MFP may impact consideration of
other safety net programs, since USDA’s spending of billions of dollars on
discretionary programs in recent years influenced the overall agricultural
economy. Congress can choose to amend the CCC Charter
Act to restrict the discretionary spending of the secretary of agriculture,
and it did so from 2012 to 2017 after the Obama administration received
backlash for a $348 million disaster assistance program. “I’m trying to find a word that isn’t
‘unprecedented’ because everybody seems to use ‘unprecedented’ a lot,”
Coppess said. “But this one actually fits very, very squarely within the term
‘unprecedented.’” Data available to public missing key
information In addition to the GAO, both the USDA Office
of Inspector General and the Congressional Research Service have released
reports about the inner workings of the MFP. As government agencies, these
groups have access to the most detailed data available within the USDA. Publicly available data, however, is missing
important items, including details about partnerships — formalized groups of
farm owners. Partnerships are able to largely avoid payment
caps and as a result are some of the highest-grossing recipients of subsidies
like the MFP. An exemption to the Freedom of Information Act
that blocks the disclosure of individuals who make up these partnerships was
added to agriculture legislation in 2008. Schechinger, food and agricultural economist*
at the Environmental Working Group, said her organization has attempted to
determine where exactly the payments went, but the lack of specificity in the
data provided to the public makes it difficult for outside observers to study
the true effect of the payments made in the program. “It’s really important for taxpayers to know
if our taxpayer money is going to these high-income millionaire farmers,”
Schechinger said. “Then, on the other end, it’s just really hard to know
who’s actually getting this money.” A May 2021 InvestigateTV report found
that farm partnerships obscure the identities of members and make it
difficult to determine if those members are “actively engaged” in farming — a
requirement for individuals receiving USDA payments. Farm partnerships allowed groups of farmers to
bypass MFP payment caps because the USDA considers general partnerships to be
a group of individuals or entities, not an entity itself, meaning each member
is able to receive up to the maximum payment. A data analysis by Investigate Midwest and
InvestigateTV found several examples of partnerships receiving millions of dollars,
well above the combined cap on payments, which was $325,000 in 2018 and
$500,000 in 2019. For example, the three partnerships connected
to the DeLine family in Missouri — DeLine Farms Partnership, DeLine Farms
North and DeLine Farms South — received more than $7.9 million combined over
the period of the program. Robert Serio, an attorney representing
hundreds of farm partnerships including the DeLine group, said these
partnerships are following the rules as established. “It’s not taking advantage of the rules,
because the rules are the rules,” Serio said. “It’s just like when I deduct
an expense item off of my business. I do that because I’m allowed to. There’s
a rule that says that. They could take away that rule and I couldn’t do that
anymore. I don’t say that’s ‘taking advantage’ of the rule, I say that’s
‘complying’ with the rule.” MFP already setting precedent for other
aid programs As the trade war was coming to a resolution in
late 2019, another crisis was quickly approaching — the coronavirus pandemic. The pandemic sent global markets into a
tailspin, prompting another wave of emergency aid for farmers who couldn’t
sell their products. While individuals received stimulus checks
from the federal government, so did farms, via the Coronavirus Food Assistance
Program. CFAP not only overlapped with the last year of
the MFP, but also took a page from the program’s playbook by using the CCC to
fund a large-scale aid program without Congressional approval. CFAP paid out nearly $30 billion over two
years. The trend has continued into the new
administration; a recently announced Biden-led program to
promote climate-smart agriculture will use nearly $3 billion in CCC funding. “That’s a third iteration of this Commodity
Credit Corporation money that does not need congressional oversight and is
just sending money from an administration to farmers,” Schechinger said. “The
Market Facilitation Program really was the first instance that set this large
precedent — that future administrations can send money to farmers from the
CCC for whatever reasons they want to send money to farmers.” Other aspects of the MFP also carried over to
CFAP. Compared to previous farm aid programs, the
GAO found the USDA was more lenient with farmers who misrepresented the
number of acres they planted on their MFP applications. Historically, the USDA would consider farmers
who overrepresented the number of acres they planted by 10% or more to be out
of compliance. For MFP, that bar quietly moved to 15%. Instead of reverting back to the 10% level,
the next large-scale hardship program for farmers — CFAP — also used
15%. For example, if the USDA found that a farmer
planted 100 acres of soy but reported planting 115 acres on their MFP
application, that farmer would have to repay the payments received for the
extra 15 acres, but would not face any additional consequences. Individuals who commit fraud by lying on
applications for aid are subject to up to 10 years of imprisonment or a fine
not to exceed $10,000. But the MFP rules didn’t include a clause that
gave the Farm Services Agency, the department of USDA that ran the program,
the authority to enforce the rules, meaning that even those who were found to
be noncompliant with the program requirements, who “showed a lack of
good-faith effort,” did not face penalties, the GAO found. With the current Farm Bill expiring in
September 2023, lawmakers could choose to make changes to aspects of USDA
initiatives or the CCC Charter Act to increase transparency and oversight of
future farm aid programs. “Cracking down on this in the next Farm Bill
would be really great,” Schechinger said, “to make sure that the money is
only going to people who actually farm instead of people who are farming the
system.” Investigate Midwest is an independent,
nonprofit newsroom. Its mission is to serve the public interest by exposing
dangerous and costly practices of influential agricultural corporations and
institutions through in-depth and data-driven investigative journalism. Visit
online at www.investigatemidwest.org InvestigateTV is Gray Television’s national
investigative team and provides innovative, original journalism from a
dedicated investigative team and partners. |
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