Prevented planting seems to be on everyone’s mind as the days wind down to plant any crop and have it insured. Producers have to make decisions on whether to try to plant and must take into consideration the prevented planting payment versus a Market Facilitation Program (MFP) payment. Last month, immediately upon China reneging on commitments made during the trade talks, President Trump committed USDA to provide up to $16 billion to support farmers as they absorb some of the negative impact of unjustified retaliation and trade disruption. One of the questions raised was whether MFP payments would be available on prevented planting acreage. USDA responded that “USDA does not have the legal authority to make MFP payments to producers for acreage that is not planted. To qualify for a 2019 MFP payment, you must have planted a 2019 MFP-eligible crop.” https://americanagnetwork.com/2019/06/secretary-perdue-statement-on-disaster-and-trade-related-assistance/.
This means to receive a MFP payment, producers must plant an MFP eligible crop. Many are questioning why MFP cannot be used for prevented planting acreage and the devil’s in the details. The propose of the MFP payment are to compensate producers for additional costs of adjusting to disrupted markets, dealing with surplus commodities, and expanding and developing new markets at home and abroad. These additional costs are only incurred for planted crops that have to be marketed or stored. If there is no crop, there are no additional costs for marketing or storage.
If USDA were to make MFP payments available for crop losses such as prevented planting, it could adversely affect crop insurance payments. Crop insurance covers losses due to natural disasters. MFP covers additional costs associated with China and the trade issues – a man-made loss. Man-made losses are considered uninsured causes of loss and are not considered when calculating an indemnity.
To offer MFP on acreage that is not affected by the additional costs covered by MFP could suggest that MFP covers crop losses too. This could lead to disarray in the crop insurance program because it would call into question whether some of the current and past crop losses, especially reductions in price, were due to the trade issues, which would not be covered by crop insurance. For example, in 2018, the price of soybeans was significantly reduced after the trade issues began. MFP offered $1.65 per bushel for each bushel harvested. If that $1.65 were considered compensation for that reduction in price, then that amount of loss would be considered due to man-made causes and the crop insurance indemnities would have been reduced by that $1.65 per bushel payment. However, USDA stated that producers could receive both a full crop insurance indemnity and an MFP on harvested acreage because MFP did not cover any decline in price, only additional costs. This argument would be lost if MFP were provided for prevented planting acreage and indemnities could be affected.
While certainly a disappointment for producers affected by prevented planting, the program implications would have been much more severe had USDA allows MFP on prevented planting acreage.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.