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AG ECONOMIC INSIGHTS: DIRECT PAYMENTS TO FARMERS MAY TOP $20 BILLION, HIGHEST IN TWO DECADES
Source: blog by David Widmar, Agricultural Economic Insights

While producers wait for the USDA to release meaningful information about how MFP 2.0 might impact their farm's financial projections, we thought it would be helpful to provide context about all forms of direct payments in 2019. Specifically, this week's post reviews direct farm payment and how the latest round of trade aid will send direct farm payments significantly higher in 2019.

Data and Assumptions
A few comments about the data. First, the USDA's net farm income projection from March 2019 - the latest data- were used as the baseline for 2019 direct payments and farm income. From this, MFP 2.0 payments for 2019 were assumed to be 2/3 of the total estimate of $14.5 billion, or $9.7. The 3rd round of payments would be paid in early 2020. Of course, the 2nd and 3rd MFP payments are not a guarantee.

The $9.7 billion in MFP 2.0 payments were added to the March 2019 projection of income and direct payments.

Direct Payments

The USDA's initial projection was for $11.5 billion in direct payments. Readers will remember we noted this was part of an optimistic farm income projection that included higher income with lower direct payments and production expenses. These payments include carryover payment from MFP 1.0 ($3.5b), conservation ($4b), and ARC/PLC payments ($1.7b). With an additional $9.7 billion in MFP 2.0 payments paid in 2019, this would push total 2019 direct payments to $21 billion. Many have emailed and asked if this would be a record for payments.

Figure 1. U.S. Direct Farm Payments, 1933-2019. Data Source: USDA ERS and aei.ag Calculations.


Figure 1 shows annual direct payments since 1933. These data are in nominal terms -not adjusted for inflation. From 2009 to 2018 - the last 10 years- direct payments have averaged $11.5 billion. Furthermore, payments during this period were highest in 2018 at $13.8 billion. This recent history is why the expectation of more than $20 billion in payment in 2019 has been such an eye-popping number.

That said, 2019 is not likely to set a record. In the late 1990s and early 2000 direct payments were exceeded $20 billion 4 times (1999, 2000, 2001 and 2005). In 2005, direct payments reached $24 billion.

Given the long time series, it's helpful to consider direct payment data in real - or inflation-adjusted - terms (Figure 2). These data show that direct government spending in the past has exceeded $30 billion in 2019 dollars five times; well above current levels. On the other hand, 2019's estimate of $21 billion in direct payments has only been exceeded 9 times over the last 87 years. This is to say current levels are historically high but remains below record-high levels.

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