Tuesday, December 15, 2020

Jump in net farm income driven by government payments, at a level that is unsustainable, agricultural economists write

The Agriculture Department's final 2020 Farm Sector Income Forecast predicted an increase in net farm income from $83.6 billion in 2019 to $119.6 billion in 2020. That's the good news. The bad news: that increase "did not come from the market. Instead, it took a $24.0 billion increase in federal- government direct farm-program payments to achieve this result," Harwood D. Schaffer and Daryll E. Ray of the University of Tennessee write in their latest "Policy Pennings" column.

The payments came mainly from pandemic relief programs (the Coronavirus Food Assistance Programs and the Paycheck Protection Program) as well as Market Facilitation Program payments meant to help farmers hurt by the trade war with China. "In this context, what is important is the near certainty that ad-hoc and disaster-assistance payments of this magnitude ($32.4 billion) will not continue very far into the future. It is also important to note that despite these large payments, 2020 farm debt increased by $16.6 billion (4.0 percent) between 2019 and 2020," Schaffer and Ray write. "This represents the continued increase in farm debt totaling $119.8 billion since 2013 and is relatively unrelated to the coronavirus."

It's noteworthy that farm debt is rising. "In 2013 the farm debt-to-equity ratio was 12.86 percent reaching a forecast 16.20% in 2020. Similarly, the debt-to-asset ratio increased from 11.39% to 13.95% over the same period," Schaffer and Ray write. "While this level of debt is not catastrophic for any given farm operation, it is not the farm at the average that is of critical concern, but rather the farm on the upper end of the debt spectrum where an event like the coronavirus and a spouse’s resulting loss of an off-farm income and health insurance could be enough to push a farm family into bankruptcy."

American farming families will be at risk until the government adopts policies that help farmers prosper without so much direct aid, Schaffer and Ray write.

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