Thirty-nine weeks and two days. That’s the length of time that passed between the President signing the CARES Act back in March and signing the “CARES Act extension” bill yesterday. That extreme length of time was no accident. At 5,593 pages, the Consolidated Appropriations Act, 2021 (H.R. 133) is the longest bill that has ever passed Congress, and it happened during a global health pandemic, a Presidential election year, and finally coalesced during a lame-duck session with large bipartisan majorities.
The $900 billion COVID-19 stimulus package portion will provide much-needed financial relief for agricultural producers, funding for food assistance programs, enhancements to the Paycheck Protection Program, and funding for enhanced broadband access, as well as additional financial resources for agricultural research and farmer stress assistance programs, among others.
Today’s article will give a high-level overview of each key agricultural provision and wrap up with notes on tax-related provisions that may be of interest. It’s a lengthy article, so I have put each commodity/sector under its own paragraph so you can skim to what’s important to your operation.
Agricultural Sector Overview
Of the $900 billion in the recently passed COVID relief package, $13 billion was allocated to agricultural programs, representing approximately 1.4% of total spending in the bill. Of the $13 billion, $11.2 billion is allocated to the Office of the Agriculture Secretary, approximately $870 million is allocated for a supplemental Dairy Margin Coverage program as well as a dairy donation program, $300 million is provided to the Commerce Department to assist fisheries, and $20 million per year, or $200 million over 10 years, is to be used to address gaps in nutrition research. Specialty crop block grant programs and Local Agriculture Market programs are allocated $100 million each, farming opportunities training and outreach and the Gus Schumacher nutrition program receive $75 million each. Interstate shipment grants were allotted $60 million, and $28 million was allocated for farm stress programs.
Commodity & Specialty Crop Assistance
Producers of Price Trigger & Flat-Rate Crops
The bill provides approximately $11.2 billion of direct financial assistance to commodity producers. Producers of 2020 price trigger crops and flat-rate crops are eligible to receive a payment of $20 per eligible acre of the crop. Price trigger commodities, as defined in the second Coronavirus Food Assistance Program, are major commodities that meet a minimum 5% price decline over a specified period. These crops include barley, corn, sorghum, soybeans, sunflowers, upland cotton, and all classes of wheat. For example, with 91 million acres of corn planted in 2020, and based on a $20 per acre payment, corn producers would be expected to receive $1.8 billion in financial support. Across these seven crops alone, 240 million acres were planted, representing $4.8 billion in COVID-19 stimulus. Additionally, the bill allows the Agriculture Secretary to extend the term of marketing loans by three months, providing producers additional time to repay.
Flat-rate crops, as described in CFAP2, either do not meet the 5% price decline trigger or do not have data available to calculate a price change. Flat-rate crops include alfalfa, amaranth grain, buckwheat, canola, extra-long staple (ELS) cotton, crambe (colewort), einkorn, emmer, flax, guar, hemp, indigo, industrial rice, kenaf, khorasan, millet, mustard, oats, peanuts, quinoa, rapeseed, rice, sweet rice, wild rice, rye, safflower, sesame, speltz, sugar beets, sugarcane, teff, and triticale. These commodities will also receive a payment of $20 per acre.
The bill includes a provision allowing for the adjustment of direct support payments to account for price differentiation among commodities. This may include specialized varieties, local markets and farm practices such as certified organic.
For specialty crop producers, the bill modified the sales-based rules from CFAP2 to allow specialty crop producers to include crop insurance indemnities and disaster payments in their 2019 sales, which was the basis for determining the amount of support under CFAP2, or by substituting 2018 sales. Additionally, the bill makes available an additional $100 million in Specialty Crop Block Grants that are administered through each state’s Department of Agriculture and an additional $100 million available for the Local Agriculture Market Program.
Assistance for Agricultural Processors
The bill requires that a portion of the appropriated money to be used to make payments to domestic users of upland cotton and extra-long staple cotton between Mar. 1, 2020, and Dec. 31, 2020. The payment rate is calculated by multiplying 6 cents per pound by the average monthly consumption of the domestic user from Jan. 1, 2017, through Dec. 31, 2019, then multiplying it by 10, e.g., cotton payment = $0.60 x (avg. monthly consumption Jan. 1, 2017-Dec. 31, 2019).
One of the consequences of COVID-19 precautions and stay-at-home orders was a significant decrease in fuel consumption, and along with it was a slash to biofuel demand. Since the beginning of the year and through mid-December, the cumulative decline in ethanol production is nearly 2 billion gallons. The bill allows for payments to producers of advanced biofuel, biomass-based diesel, cellulosic biofuel, conventional biofuel, or renewable fuel due to unexpected market losses because of COVID-19.
Aquaculture, Seafood, and Fisheries Disaster Assistance
For offshore aquaculture producers, there is an additional $300 million in Fisheries Disaster Assistance available until Sept. 30, 2021, for the Sec. 12005 CARES Act assistance program. In the CARES Act, an initial $300 million in direct assistance was provided to fisheries that were negatively impacted by COVID-19, including commercial fishing businesses, charter/for-hire fishing businesses, qualified aquaculture operations, processors and other fishery-related businesses. The provisions for distributing the money among eligible states are specifically outlined in Sec. 12005 of the CARES Act and are updated by the Commerce Department’s National Oceanic and Atmospheric Administration; Virginia received roughly $4.5M in funding. This additional money will be appropriated to eligible states, tribes or territories and limits the amount each government entity can receive based on the total annual average revenue generated to the state from commercial fishing operations, aquaculture farms, the seafood supply chain and charter fishing businesses.
Timber Harvesting and Hauling
For timber harvesting and timber hauling businesses, $200 million is allocated for relief to those that experienced a loss of at least 10% of gross revenue between Jan. 1, 2020, through Dec. 1, 2020, compared to the gross revenue earned in the same period in 2019.
Livestock and Dairy Provisions
Support to Contract Growers of Livestock and Poultry
In Virginia, like many states, poultry was left out of the CARES Act, largely due to the structure of the industry and how the relationship between the farmer and integrator historically has operated. Under the CARES Act, to be eligible for assistance, the farmer had to directly own the commodity. This worked well for MOST cattle and hog producers, but not for broiler farmers. Typically, a broiler farmer raises and cares for the birds but does not directly own the birds; the integrator maintains ownership of the animals. However, these producers saw their income significantly reduced as many of their barns (which they financed the construction of and still were required to service the debt) remained empty due to supply chain disruptions earlier in the pandemic. The new bill addresses losses faced by many in the poultry industry (and other livestock sectors as well) by providing $1 billion for contract growers of livestock and poultry to cover up to 80% of losses.
Support for Losses Due to Depopulation of Animals
Due to supply chain disruptions, some producers were forced into the heartbreaking position of having to euthanize their animals. This is the last resort, as farmers do everything they can to avoid this outcome, but in such a tightly coupled delivery system, they were threatened with going out of business having raised animals they could no longer sell. This bill directs the Agriculture Secretary to make payments to producers for losses incurred due to the depopulation of livestock and poultry due to insufficient processing access. These payments will be up to 80% of the fair market value of the depopulated animals and for the costs of depopulation.
Livestock 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 to meet the volume and type needs of their customers. Dealers can take possession of livestock and pay for them later, and dealers do not maintain a trust account to guarantee payment.
Miscellaneous Livestock Provisions
This bill included a one-year authorization to livestock mandatory reporting, extending the law that requires buyers and sellers of meat and livestock to report the price and volume of certain commodities. The bill also aims to assist meat and poultry processing facilities in making improvements to allow for interstate shipment. While doing this, it would require a study on programs for meat and poultry processing and slaughtering facilities. This bill also includes additional inventory-based direct payments for cattle producers based on the difference between the CARES Act inventory payment rate, the Commodity Credit Corporation payment rate, and the CFAP 2 payment rate multiplied by a percentage factor. For example, fed cattle had a CARES Act inventory payment rate of $214 per head, and the CCC payment rate and the CFAP 2 payment rate were $33 per head and $55 per head, respectively. When subtracting the CCC and CFAP 2 payment rates and then multiplying by 50%, the plus-up payment for fed cattle is $63 per head.
Supplemental Coverage for Dairy Margin Coverage Program
The bill would provide necessary cash flow assistance to small and midsized dairies by establishing supplemental dairy margin coverage based on 75% of 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 midsized 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 75% of 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. Given that DMC triggered in April, May, and September at the $9.50 per hundredweight coverage level, the supplement DMC will provide additional financial assistance to dairy farmers.
Dairy Donation Program and Food and Agricultural Product Purchase Program
Following up on USDA’s Farmers to Families Food Box program, the bill includes two donation-style programs. The first is a dairy donation program that will pay milk processors the full value of milk used to produce and donate dairy products into food assistance channels. The $400 million dairy donation program is also retroactive, meaning milk processors may be eligible to receive financial payments for milk previously processed and donated during 2020.
In addition to the dairy-only donation program, the bill would provide $1.5 billion for the Agriculture Secretary to purchase food and agricultural products and distribute these products through nonprofit organizations. This support would include fresh dairy, produce, meat, and seafood products. It would also provide grants and loans to small and midsized food processors and distributors, seafood processing facilities and processing vessels, farmers markets, producers, and other organizations to respond to COVID-19 and protect their workers.
Additional Tax Provisions in the Consolidated Appropriations Act
Multiple Farm Bureau supported tax incentives that had been set to expire at the end of the year were extended in the omnibus relief legislation, under the “Taxpayer Certainty and Disaster Tax Relief Act of 2020.” The incentives do the following:
- Railroad track maintenance credit. This tax credit for 50 percent of track maintenance expenses is allowed for short-line railroads that provide first and last-mile service to rural areas.
- Reduced excise taxes paid by small producers of beer, wine and distilled spirits. This tax advantage benefits on-farm breweries, wineries, and distilleries and creates alternative markets for agricultural products.
- Medical expense deduction for expenses more than 7.5 percent of adjusted gross income. Farm Bureau supports a full deduction for medical expenses. This deduction was set to expire at the end of 2020.
Extended through Dec. 31, 2021:
- Tax credits for electricity produced from renewable sources, including wind and solar energy.
- Second generation biofuel producer tax credit. Sometimes referred to as advanced biofuels, second generation biofuels are fuels that can be manufactured from non-food biomass like switch grass and woodchips.
- Excise credits relating to alternative fuels. Alternative fuels include E-85 and diesel fuel with more than 20 percent biodiesel.
- Credit for alternative fuel vehicle refueling property.
This second round of COVID-19 economic relief is welcomed by the agriculture industry. It will help farmers continue to operate and put food on America’s tables during this health and economic crisis. The long deliberation process for this bill allowed legislators to analyze and learn from the results and shortcomings of the first CARES Act, and improve the efficiency and targeting of the new agricultural provisions. Time will only tell if another multi-trillion-dollar package will be needed later in 2021, but what’s for certain is that farmers will continue to produce the food, feed, and fiber that keeps this country running, no matter what.