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PLAIN ECONOMIC SENSE
For release after Jan. 18, 1999
Column 364
USDA's New Era for Direct Assistance for Hog Producers
By Mark A. Edelman
Extension Public Policy Economist
Iowa State University Extension to Communities
Vice President Al Gore announced on Jan. 8 that the Department of Agriculture (USDA) would make approximately $50 million in direct cash payments to small hog producers to help them weather the current economic crisis. Here are the details of the program, announced by Agriculture Secretary Dan Glickman on Jan. 12.
What Is the Legal Authority for the Payments? The payments will be made under USDA's Section 32 program (Section 32 of the Act of Aug. 24, 1935). USDA typically uses Section 32 to purchase commodities that are in surplus for distribution through federal food assistance programs. Section 32 also permits direct payments to farmers to reestablish their purchasing power. This is the first time in 38 years that payments will be made directly to producers under the Section 32 program. The use of Section 32 funds for direct payments will not reduce the amount of assistance for our food and nutrition programs.
Who Is Eligible For Payments? Producers qualify for the direct cash payments if they (1) marketed fewer than 1,000 hogs during the last six months of 1998, and (2) are still in operation. However, two restrictions apply. First, producers are not eligible for payments on hogs marketed under fixed price or cost plus contracts. Second, any operation whose gross income for 1998 was greater than $2.5 million will not be eligible for payments, as is true for USDA's crop disaster assistance programs.
Eligibility is based on marketings during the last six months of 1998 to avoid distorting current marketings. The six month period also accommodates the marketing practices of small producers who may not market hogs every week or month, but who need help to weather the current economic crisis.
Nationally, How Many Producers Are Eligible? Based on the latest USDA hog inventory reports, nationally an estimated 100,840 operations annually market less than 2,000 head of hogs. This represents 88 percent of the nation's hog farms. However, from a hog supply perspective this 88 percent of hog farms accounts for only 22.5 percent of the hog marketings. Hog operations that market between 2,000 and 5,000 head annually account for 7 percent of the hog farms and 18 percent of the hogs marketed. The largest hog operations that annually market over 5,000 head per year represent 5 percent of the hog farms but market 60 percent of the hogs. The latter two groups are not eligible for the new USDA program.
How Many Iowa Producers Are Eligible? Using the same USDA hog inventory reports, 13,300 Iowa hog farms market less than 2,000 hogs per year. This represents 76 percent of Iowa's hog farms. Iowa's eligible hog farms account for 25 percent of the total hogs marketed by all Iowa hog farms.
How Much Will Producers Be Paid? Producers will be paid up to $5 per slaughterweight hog (or the equivalent for feeder pigs and other swine) multiplied by the number of hogs marketed during the last six months of 1998. The actual payment may be less than $5, given the limited amount of funding available under law. Producers will only be paid on up to 500 market hogs (or an equivalent number of feeder pigs), so the maximum payment that will be paid to any operation is $2,500.
How Much Will Iowa Producers Receive? Iowa possesses only 13 percent of the eligible hog producers. However, Iowa's eligible producers produce more hogs than the eligible producers in other states. Iowa's eligible hogs represent 27.6 percent of the eligible hogs nationally. So, Iowa hog farms may actually receive a little more than 25 percent of the total $50 million available nationally.
What Must Producers Do to Sign Up for Payment? Payments will be made through USDA's Farm Service Agency (FSA) local offices. From Feb. 1 to Feb. 12, FSA will conduct a sign-up for the payment program. During this sign-up period, producers will be required to apply for the program at their local FSA office.
When Will Payments Be Made? Payments will be made about two to three weeks after the end of the sign up period.
What Records Will Producers Need To Apply? Producers will be required to certify that they meet the eligibility requirements of the program. FSA will have an application form that producers will fill out when they sign up for the program. It is expected that the form will require producers to include (1) the name of the operation and a list of persons involved in it, (2) the number of finished and feeder pig marketings in the last six months of 1998 and (3) the buyers of the hogs and pigs.
The form is also expected to include (1) a statement affirming the producer is still in business, (2) a statement affirming the producer did not market his or her hogs under fixed price or cost plus contracts, and (3) a statement affirming that the producer is aware that USDA will be conducting spot checks. For those producers selected for spot checks, additional information may be requested.
Any producer who receives a payment based on erroneous information will be required to repay USDA. And any producer who receives a payment based on a fraudulent application will be required to repay USDA and may face criminal prosecution.
Edelman is a professor of economics and an extension public policy specialist at Iowa State University.
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