Food and Agriculture in the HEROES Act

As the COVID-19 pandemic continues to tear through the U.S. economy, the U.S. House of Representatives has released the text of the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES) Act). Similar to previous stimulus packages, i.e., UPDATE: What’s in USDA’s New Coronavirus Food Assistance Program?, Reviewing USDA’s COVID-19 Food Purchase and Distribution Plans, and What’s in the CARES Act for Food and Agriculture, the HEROES Act includes support for various sectors of the economy, from additional relief for workers, to health care and retirement. It also includes a specific subsection for agricultural producers and additional matters relating to agriculture.

Today’s article reviews some, but not all, of the agricultural provisions in the HEROES Act. However, these are only proposals. Senators, who have yet to release a fourth stimulus bill, will likely have many changes.

Livestock Provisions

There are several provisions within the bill specific to the livestock industry, which has been particularly impacted by COVID-19-related supply chain disruptions.

Assistance for Market-Ready Livestock and Poultry Losses

The livestock supply chain has been significantly disrupted, especially at processing facilities, where labor shortages and worker protection measures are slowing throughput at plants around the country and even causing some facilities to shut down. As a result, some producers have been forced into the heart-wrenching position of having to euthanize their animals. This is a last resort, as farmers do everything they can to avoid this outcome, but in such a tightly coupled delivery system they are threatened with going out of business having raised animals they can no longer sell. Figure 1 shows the estimated back up of animals in the hog sector. Not all of these animals will have to be euthanized, but many producers may not have a choice.

There is no way to know for sure the exact number of animals backing up, but one can estimate the difference between a forecast of what slaughter would have been without COVID-19 impacts and actual slaughter. Each week slaughter numbers decline, the greater the backup becomes.

The HEROES Act provides critical relief for producers who have been forced to make these difficult decisions. The bill directs the Agriculture secretary to make payments to covered producers to offset losses related to the intentional depopulation of market-ready livestock and poultry due to insufficient regional processing access. For the first month following an initial date set by the secretary, the payment rate will reimburse a producer for 85% of the losses determined by the secretary. For each subsequent 30-day period, the payment rate will decline by 10% of the value of the losses.

Dealer Statutory Trust

The bill ensures that livestock producers are paid for their animals by requiring dealer trusts. In the current system, dealers frequently buy and resell livestock, often grouping them together to meet volume and type needs of their customers. Dealers are allowed to take possession of livestock and pay for them later, and dealers do not maintain a trust account to guarantee payment.

If a livestock dealer were to purchase livestock from a producer, and then go out of business before making payment, the producer often has no legal ability to reclaim livestock and others have priority over the unpaid producer when recovering funds. The Dealer Statutory Trust would give unpaid producers first priority in livestock and related proceeds prior to other creditors.

Animal Health Surveillance

The bill would provide $300 million to support improved animal health surveillance and laboratories, some of which are performing COVID-19 tests.

Dairy Provisions

Direct Dairy Donation Program

To help streamline the donation of distressed milk through finished-dairy product donations to food banks and feeding programs, the bill establishes a direct dairy donation program – a significant expansion of the 2018 farm bill’s milk donation program. Under this program, the bill directs the Agriculture secretary to reimburse participating organizations at the higher rate of Class I milk price for the volume of milk it took to produce the dairy products that were donated.

One particular concern is the price paid for milk products that are donated. The bill proposes to use the Class I milk price, which is often the highest milk price, to compensate for dairy products that are donated such as lower-valued cheese, butters or milk powders in this donation program. This potentially creates a financial windfall for non-beverage milk products in the donation program.

Already donated beverage milk products would be eligible for a retroactive payment equal to the Class IV milk price plus 5% of the Class I milk price – a substantial expansion of the 2018 farm bill’s authority that reimbursed only the difference between the Class I value and the Class IV price. Up to $500 million would be available to pay for donated milk and dairy products.

Supplemental Dairy Margin Coverage

The bill would provide necessary cash flow assistance to small and midsized dairies by establishing supplemental dairy margin coverage based on the difference between recent actual production (based on 2019 marketings) and the established production history currently used by DMC. Program payments under this supplemental program would be based on the additional 2019 production and the elected DMC coverage level.

Many small and midsize dairies have grown their operations since their production history was established and locked in in previous farm bills (based on 2011 through 2013 milk marketings). This legislation would allow those operations to qualify for additional coverage for any increases in milk production up to 5 million pounds. This bill would not reopen registration for DMC for 2020, but producers who sign up for DMC in subsequent years would also be allowed this option for higher milk production coverage.

DMC Premium Discount for 3-Year Signup

Producers who elect into DMC with a one-time three-year sign up for 2021-2023 will be eligible for a 15% discount on their premiums for their elected coverage. This reduces the cost of participating in DMC and would help to incentivize producers to participate in critical risk management programs in the future.

USDA Dairy Recourse Loan Program

Under this provision, USDA would provide up to $500 million in much-needed recourse loans to be made to qualified applicants. The loan amounts would use the dairy products in inventory as collateral and would be up to a term of 24 months.

Renewable Fuel Reimbursement Program

The bill includes direct assistance to the biofuels industry through the Renewable Fuel Reimbursement Program. Any entity or facility that produced renewable fuel or advanced biofuel in 2019, including corn starch ethanol, is qualified to receive a direct payment of $0.45 per gallon of fuel produced between January 1, 2020 – May 1, 2020. If the facility idled production during this period, they are eligible to receive $0.225 per gallon for the amount produced during the same time period in 2019.

This equates to an estimated $2.5 billion in direct assistance for ethanol producers. This much-needed support ensures the survival and continuity of the renewable fuels industry, a critical demand-driver for corn, grain sorghum and other feedstocks.

Emergency Assistance for Textile Mills

A direct payment is made available to domestic users of upland cotton and extra-long staple cotton, regardless of the origin of the crop, for 10 months beginning on March 1, 2020, through Dec. 31, 2020. The payment can only be used for operating expenses.

The direct payment is calculated by multiplying the domestic user’s historical monthly average consumption by $0.06 per pound consumed, then multiplying by a factor of 10 – effectively 60 cents per pound. The historical monthly average consumption variable is derived from the average consumption of each month from Jan. 1, 2017, through Dec. 31, 2019.

Direct Payments to Agricultural Producers

As a result of COVID-19, prices for many agricultural products have cratered, Figure 2. Through the CARES Act, there is $16.5 billion available for direct payments to producers through the end of the year for losses incurred in specialty crops, livestock, and other commodities during the first quarter of 2020. Producers who are eligible to receive direct payments under the Coronavirus Food Assistance Program can receive a payment equal to 85% of their second quarter’s actual commodity losses as estimated by the Agriculture secretary.

For those producers who were not originally covered under CFAP, those producers who incurred losses during this time may receive a payment equal to 85% of actual losses as estimated by the secretary for both the first and second quarter of 2020 for each commodity.

Differences in prices will be accounted for based on location, specialized varieties and farming practices, e.g., certified organic. Payments will be calculated using differentiated prices as determined by the Risk Management Agency for federal crop insurance when available, and other data from USDA, as well as universities, to determine estimated prices.

Commodity Credit Corporation

The bill addresses the Commodity Credit Corporation by amending the CCC’s original charter to allow coverage for the removal and disposal of surplus livestock and poultry due to significant supply chain interruption during an emergency period. The bill also adds language to the CCC’s charter to aid agricultural processing plants to ensure supply chain continuity during an emergency period.

Language included in the bill requires the USDA secretary to notify both the House and Senate Agriculture committees at least 90 days in advance of an obligation or an expenditure made from the CCC.

The secretary is also able to move forward with CCC authority without a 90-day notice if at least three of the following individuals provide written approval: the chair of the House Agriculture Committee ; the ranking member of the House Agriculture Committee; the chair of the Senate Agriculture Committee; and the ranking member of the Senate Agriculture Committee. This is a significant change in the notification and oversight of spending of the CCC, which has historically been up to the sole discretion of the secretary.

Expanded Conservation Reserve Program

The conservation title of the bill includes an emergency soil health and income protection pilot program to effectively idle up to 5 million acres of cropland, with an average rental rate of $70 per acre for 3 years. Land would be eligible to be enrolled up to Dec. 31, 2020. The secretary would be authorized to make an advanced payment for the length of the contract and would also be authorized to make additional cover crop cost-share payments of up to $30 per acre. Combined up to an estimated 5 million acres would be eligible for a one-time advance payment of $300 per acre under the bill’s provisions. Importantly, current Farm Bureau policy opposes an expansion of the CRP acreage cap.

Additional Provisions

Specialty Crops

The bill makes $100 million available to eligible states for block grants to alleviate the impacts related to COVID-19 in the specialty crop industry, specific to supply chain issues at the state level. Monies will be distributed through the Specialty Crop Block Grant Program and the matching requirements are waived for the additional funds requested.

Local Agriculture Markets

In addition to supply chain assistance, an additional $50 million is provided for local farmers, farmers’ markets, and other local food outlets that are impacted by COVID-19 market disruptions. The matching fund requirements are waived for recipients.

Summary

With the effects of COVID-19 reverberating through the U.S. agriculture sector, Congress has responded with a variety of proposals designed to help farmers, ranchers and agribusinesses bridge the gap. While Farm Bureau recognizes the need for some of these assistance packages, further analysis is needed. In addition, some of the provisions in the HEROES Act do not align with current Farm Bureau grassroots-approved policies.

The next step for the HEROES Act is consideration and potential modification in the Senate. The HEROES package in total is a $3 trillion stimulus package that follows a $2 trillion stimulus package passed earlier this year. It’s likely to be several weeks until the Senate considers additional aid packages given the desire to measure the effectiveness of previous stimulus efforts as states begin to re-open their economies. In addition, any action in the Senate will require bipartisan support. As a result, it is very likely that provisions in this bill could be changed or eliminated in the coming weeks.