Distribution of Market Facilitation Program Payments and their Financial Impact for Illinois, Kansas, and Minnesota Farms

Abstract

The recent infusion of cash into production agriculture due to damages from retaliatory trade actions has been large. Up to $28 billion has been authorized through the Trade Mitigation Program in 2018 and 2019, accounting for a significant share of farm income and providing liquidity in an extended period of low prices. Using farm-level data from Illinois, Kansas, and Minnesota, this research examines the importance of market facilitation program payments in supporting incomes and reducing credit default risk. Results illustrate the additional liquidity provided for farms, and the distributional effects across states and among farms within each state.

Are Farmers Made Whole by Trade Aid?

“…While the trade war has resulted in substantial economic losses to agriculture, several other factors have also contributed to the sharp crop price declines from the relatively high prices in 2010–2014. Trade aid has provided a large infusion of cash to bolster farm balance sheets (Paulson, Featherstone, and Hadrich ), but not necessarily large enough to restore financial conditions to pre‐2018 levels. If the US and China implement a trade deal and MFP is discontinued, then farm financial conditions could worsen since the MFP payment rates appear to be larger than the impact of the trade war on commodity prices.…”

“…To examine these disparities we use farm‐level data from the Kansas Farm Management Association (KFMA). For those farms in the KFMA database, the average payment for MFP1 was about $37,000 per farm and for MFP2 was about $58,000 per farm (Paulson, Featherstone, and Hadrich ) . The 90 th percentile for MFP1 payments was about $90,000 and for MFP2 was about $130,000 (Paulson, Featherstone, and Hadrich ).…”

“…This number differs from Paulson, Featherstone, and Hadrich () who find that payments did not increase for 13.8% of Kansas farms because some farms had no change in MFP payments and we only consider those farms with more than 400 crop acres.…”

“…Our analysis seeks to place the magnitude of the payments into perspective. Paulson, Featherstone, and Hadrich () use farm‐level data to better understand how much worse farm financial conditions would be without the payments.…”

The impact of policy design on payment concentration in Ad-hoc disaster Relief: Lessons from the Market Facilitation and Coronavirus food Assistance programs

“…Two recent studies have evaluated the impact of the 2018 and 2019 MFPs on the financial situation at the level of the farm. Paulson, Featherstone, and Hadrich (2020) , using farm management association data from Minnesota, Illinois, and Kansas, reported that payments from the 2018 MFP accounted for between 40-60% of average net farm income. These payments were found to substantially improve the financial standing of farms in terms of liquidity, solvency, and debt repayment.…”