In a press release from Washington, DC, on April 17, 2020, US Secretary of Agriculture Sonny Perdue announced the existence of the Coronavirus Food Assistance Program (CFAP). This new US Department of Agriculture (USDA) program will take a number of actions to render direct aid to American farmers, ranchers, and consumers in response to the COVID-19 pandemic. President Trump directed the USDA to craft this immediate relief program to provide critical support to US farmers and ranchers, to maintain the integrity of the food supply chain, and to ensure Americans continue to have access to the food they need. The CFAP will receive $19 billion in funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act (FFCRA), as well as from other USDA-related entities such as the Commodity Credit Corporation (CCC) and the Farm Service Agency (FSA).
Using the funds appropriated, the USDA will take two primary measures as part of the CFAP:
- Direct Payments to Farmers and Ranchers: The program will provide $16 billion in direct support based on actual losses for agricultural producers where prices and market supply chains have been impacted, and will assist producers with additional adjustment and marketing costs resulting from lost demand and short-term oversupply caused by COVID-19 for the 2020 marketing year.
- Food Product Purchase and Distribution: The USDA will partner with regional and local distributors, whose workforce has been significantly impacted by the closure of restaurants, hotels, and other food service entities, to purchase $3 billion in fresh produce, dairy, and meat.
Direct Payments to Farmers and Ranchers
The direct payments will financially assist farmers and ranchers with additional adjustment and marketing costs resulting from lost demand due to COVID-19. The payments will be tied to actual production and based on actual losses experienced in response to price declines and supply chain disruptions (i.e., sales of commodities impacted by COVID-19). The payment amounts will be determined using two calculations: (1) 85% of the price loss that occurred from January 1 through approximately April 15–17 (the USDA has not yet confirmed the final date) and (2) up to 30% of losses from April 15–17 through the next two quarters, for which producers will be compensated for their expected losses.
It has been reported by many sources (but not confirmed or verified by the USDA) that of the approximately $16 billion earmarked for direct payments, $9.6 billion is for the livestock industry (e.g., beef cattle, dairy cows, swine); $3.9 billion is for farmers of row crops, such as cotton; $2.1 billion is for specialty crop producers; and $500 million is for other sectors, including poultry, sheep, hemp, and other niche sectors. It is important to remember that the USDA has yet to confirm this distribution of funding. Additionally, while these “baskets” of money are speculations on current USDA estimates of what may be needed for each industry, if one basket needs less, the USDA can move money between baskets to ensure the funds go where they are needed.
It is still unclear what price series will be used for each commodity in the calculation of payments. The USDA has indicated that it will utilize the most reflective price series for each commodity. Unfortunately, not all products have a usable price series for the USDA to use. A process will be specified in rulemaking for specialty categories to demonstrate losses to the Agricultural Marketing Service or the FSA.
There is also concern over the extent of support for domestic aquaculture production. While the US Department of Commerce has allocated $300 million to support seafood and aquaculture, it is unclear whether this will cover domestic aquaculture as opposed to international fishing and, if it is covered, to what extent. The USDA has indicated its desire to see domestic aquaculture producers receive funds.
Since the duration of enforced social distancing measures remains to be seen, there will undoubtedly be self-certification of losses, so producers are encouraged to save records and paperwork to demonstrate losses. This is particularly true for producers who are being forced to destroy their product (e.g., dumping milk, plowing under specialty crops), as CFAP payments are expected to help partially offset these losses.
It is not expected that producers will be compensated for the full value of their losses, but the product that is produced and destroyed will still be eligible for the payment rate that it receives under the direct payment program. It should also be noted that CFAP funds will not be used to pay for depopulated livestock. Additionally, the funds are intended to cover producers who own the commodity or product, so animals raised under contract (e.g., poultry grown under contract for an integrator) are not expected to be covered.
The USDA has set a goal to distribute payments sometime in May. Payment limits apply and are set at $125,000 per commodity, with an overall limit of $250,000 per individual or entity. Additionally, the USDA has indicated that the CFAP may take into consideration other farm program benefits received by a producer to prevent farmers from being paid more across multiple farm programs. However, participation in other farm aid programs, such as Agriculture Risk Coverage, Price Loss Coverage, Dairy Margin Coverage, and Dairy Revenue Protection, is complementary to the CFAP and will not lower a recipient’s CFAP payments. Additionally, the Small Business Administration has restricted access to its Economic Injury Disaster Loans (EIDL) to farmers and ranchers, who can apply for loans with a $10,000 advance payment. It is unclear how the USDA will treat a producer who has received an EIDL (https://www.fb.org/market-intel/CFAP).
Food Product Purchase and Distribution
The USDA will partner with regional and local food distributors in areas where the workforce has been significantly impacted by the closure of restaurants, hotels, and other food service entities to purchase $3 billion in fresh produce, dairy, and meat. The USDA will start by buying an estimated $100 million per month in fresh fruits and vegetables, $100 million per month in a variety of dairy products, and $100 million per month in meat products.
The distributors and wholesalers will then provide a USDA-preapproved box of fresh produce, dairy, and meat products to food banks, community and faith-based organizations, and other nonprofits serving Americans in need. The USDA hosted a webinar on April 21 outlining how interested parties can submit proposals to help the department purchase and distribute these agricultural products. The USDA indicated it will be accepting proposals in the next two weeks.
On top of this targeted food product purchase and distribution program, the USDA will utilize other available funding sources to purchase and distribute food to those in need.
- The USDA has an additional $873.3 million available in Section 32 funding to purchase a variety of agricultural products for distribution to food banks. (Section 32 is a permanent appropriation that since 1935 has set aside the equivalent of 30% of annual customs receipts to purchase commodities and support the American farmer.) The use of these funds will be determined by industry requests, USDA agricultural market analysis, and food bank needs.
- The FFCRA and the CARES Act provided $850 million for food banks, at least $600 million of which must go toward food purchases. The remaining monies may be used for food bank administrative costs. The use of these funds will be determined by food bank need and product availability.
Further details regarding eligibility, rates, and other implementation will be released at a later date.
Application Process and Payment Status
Secretary Perdue has said that the USDA will most likely use existing infrastructure, such as the FSA or the CCC (an agency dating back to the New Deal), to distribute checks to producers. “I’m hoping we can get checks by the end of May,” said the secretary. “It’s an arduous process.”
However, Senate Agriculture Appropriations Subcommittee Chairman John Hoeven, R-N.D., said the USDA’s proposed rule for the $16 billion in direct payments to farmers, ranchers, and other producers has been sent to the Office of Management and Budget (OMB). USDA and OMB staffers have been working on the rule, and once it is approved and cleared by the OMB, the rule will be published in the Federal Register. This rule will establish the necessary application processes and guidelines for the CFAP. However, the $14 billion will not be available until after the USDA submits a report at the end of June on CCC spending.
Until the USDA rule is published, we remain in the dark as to many CFAP details, such as when farmers and ranchers will be able to apply for aid; what information they will be required to submit, including verification of losses; and how the aid will be distributed. In the meantime, producers should keep detailed records of all losses moving forward, including records of milk dumped; crops plowed under (not just cotton and rice but also cucumbers, asparagus, hemp, and anything else); and herd depopulation (just to be safe — we never know what the next legislation will include). The Texas Southwestern Cattle Raisers Association has published a helpful list of links that will help producers stay on top of what is happening in Washington, DC, and other places around the country. Likewise, attorneys at Jones Walker are available to assist when needed.
Additional USDA Emergency Measures
The following USDA emergency measures are in addition to the establishment of the CFAP:
- USDA Rural Development lenders may offer 180-day loan payment deferrals without prior agency approval for Business and Industry Loan Guarantees, Rural Energy for America Program Loan Guarantees, Community Facilities Loan Guarantees, and Water and Waste Disposal Loan Guarantees.
- The USDA announced farm loan flexibilities, deferrals, and maturity extensions.
- The USDA released The COVID-19 Federal Rural Resource Guide, a first-of-its-kind resource for rural leaders looking for federal funding and partnership opportunities to help address the economic consequences of this pandemic.
- The USDA opened a second application window (April 14, 2020, to July 13, 2020) for $72 million of funding under the Distance Learning and Telemedicine grant program.
- The USDA is partnering with the Baylor Collaborative on Hunger and Poverty, McLane Global, PepsiCo, and others to deliver more than one million meals a week to students in a limited number of rural schools closed due to COVID-19.
- The USDA expanded an innovative Supplemental Nutrition Assistance Program online grocery purchase pilot program in Arizona, California, Florida, Idaho, North Carolina, and Washington, DC, similar to those in Alabama, Iowa, Nebraska, New York, Oregon, and Washington.
- The USDA announced flexibilities to ensure food distribution for certain food products, such as dairy and eggs, reaches retail settings.
- The USDA expanded flexibilities and waivers in all 50 states and all territories to ensure kids and families who need food can get it during this national emergency.
- The USDA will use the $100 million provided for the ReConnect Program within the CARES Act to invest in qualified 100% grant projects.