COVID-19 subsidies could mean high income levels for farmers

SIOUX FALLS, S.D. (AP) - South Dakota farmers could have what many would consider a successful bottom line for 2020, a fact that’s, ironically, thanks to COVID-19.

Net farm income is expected to reach just shy of $120 billion in the U.S., its highest point since 2013 and a more than 43% increase from 2019, according to data from the United States Department of Agriculture (USDA). However, a substantial amount of that increase is attributed to subsidies.

Direct government payments for farmers more than doubled from 2019 to 2020, increasing from $22.4 billion to a forecasted $46.5 billion, according to the USDA.

All in all, that $46.5 billion makes up nearly 40% of forecasted net farm income.

In 2019, about 39% of South Dakota farmers’ net income was funded by direct payments. Farm income data is not yet available on a state-by-state basis for 2020, the Sioux Falls Argus Leader reported.

While direct farm payments were common from the late ’90s until about 2009, federal institutions have largely switched to crop insurance programs to support farmers in a more sustainable fashion, Evert Van der Sluis, a professor of agricultural economics at South Dakota State University, said.

“There’s a widespread expectation that these payments are not sustainable, either financially, economically or politically,” Van der Sluis said.“It’s highly likely they’re not going to last. But, nobody can see into the future.”

Where did the direct payments come from?

By far, the largest increase in these subsidies stems from supplemental and ad hoc disaster assistance, which includes payments from the first two rounds of Coronavirus Food Assistance Programs (CFAP 1 and CFAP 2) and loans from the Small Business Administration’s Paycheck Protection Program (PPP).

CFAP was implemented to help offset COVID-19-related losses and included an estimated $10 billion in round one and $14 billion in round two. The most recent $900 billion Coronavirus relief package includes $13 billion for farmers that will be distributed in a third round.

So far, South Dakota has received about $551 million in CFAP payments, according to data from the USDA. Cattle and corn producers received the majority of those funds, at a combined $356 million, but soybean and pig farmers also received substantial amounts of direct payments.

Iowa farmers have received the highest amount of direct payments at total of about $1.14 billion.

Why do farmers need these payments?

According to Van der Sluis, crop and livestock farmers were both facing financial difficulties, but for different reasons as COVID-19 spread through the U.S.

Crop producers were already facing a slump in grain prices, partially because of trade wars that began prior to COVID-19. Livestock farmers - particularly swine and poultry producers - were occasionally forced to euthanize their animals because of disruptions in the supply chain. This included both meat processing plants stalling production and people eating more often at home than at restaurants.

“Consumers were shifting their purchases,” Van der Sluis said. “The supply system wasn’t set up to make that instant switch.”

Net income data for South Dakota farmers is currently being collected, according to Erik Gerlach, a state statistician with South Dakota’s USDA’s National Agricultural Statisitcs Service field office.