agricultural and food policy center texas a&m university ...initial covid-19 response for...

AFPC

Initial COVID-19 Response for Agricultural Producers

Agricultural and Food Policy CenterTexas A&M University

April 16, 2020

Department of Agricultural EconomicsTexas A&M AgriLife ResearchTexas A&M AgriLife Extension ServiceTexas A&M University

College Station, Texas 77843-2124Telephone: (979) 845-5913

Fax: (979) 845-3140http://www.afpc.tamu.edu | @AFPCTAMU

© 2020 by the Agricultural and Food Policy Center

Briefing Paper 20-03

Cover photo © jcsullivan24 used under Creative Commons license Attribution-NonCommercial 4.0 International. Photo available from https://www.flickr.com/photos/jcsullivan24/

Department of Agricultural Economics2124 TAMUCollege Station, TX 77843-2124Web site: www.afpc.tamu.eduTwitter: @AFPCTAMU

Initial COVID-19 Response for Agricultural Producers 1

Bart L. FischerJoe L. Outlaw

Agricultural & Food Policy CenterDepartment of Agricultural Economics

Texas A&M AgriLife ResearchTexas A&M AgriLife Extension Service

Texas A&M University

Briefing Paper 20-03

April 16, 2020

College Station, Texas 77843-2124Telephone: 979.845.5913

Fax: 979.845.3140Web site: http://www.afpc.tamu.edu/

Twitter: @AFPCTAMU

Initial COVID-19 Response for Agricultural Producers

AFPCAgricultural and Food Policy Center

The Texas A&M University System

Initial COVID-19 Response for Agricultural Producers2

General Overview

OnJanuary20,2020,theCentersforDiseaseControlandPrevention(CDC)confirmedthefirstcaseofnovelcoronavirus(COVID-19)intheUnitedStates.AsofApril15,2020,thenumberofcasesintheUnitedStateshasballoonedtomorethan605,000,andmorethan24,500peoplehavelosttheirlives.Inresponse,Congresshaspassedthreeseparateaidpackageswhicharebrieflysummarizedbelow.Thepurposeofthisbriefingpaperistoidentifytheprovisionsinthosebillsthataremostdirectlyapplicabletoagriculturalproduc-ers.

- Phase 1.OnMarch4,2020,CongresspassedH.R.6074,theCoronavirus Preparedness and Response Supplemental Appropriations Act of 2020.Theact“provided$8.3billioninemergencyfundingforfederalagenciestorespondtothecoronavirusoutbreakrelatedtodevelopingavaccine,medicalsupplies,grantsforpublichealthagencies,smallbusinessloans,andassistanceforhealthsystemsinothercoun-tries.TheactallowedfortemporarilywaivingMedicarerestrictionsandrequirementsregardingtele-health services.”

- Phase 2.TwoweekslateronMarch18,2020,CongresspassedH.R.6201,theFamilies First Coronavirus Response Act which“guaranteedfreecoronavirustesting,establishedpaidleave,enhancedunemploy-mentinsurance,expandedfoodsecurityinitiatives,andincreasedfederalMedicaidfunding.”

- Phase3.AlittleoveraweeklateronMarch27,2020,CongresspassedH.R.748,theCoronavirus Aid, Relief, and Economic Security Act (CARES Act),a“$2trillioncoronavirusreliefbill,whichwillsend$1,200toeachAmericanmaking$75,000ayearorless,adds$600/weektounemploymentbenefitsforfourmonths,gives$100billiontohospitalsandhealthproviders,makes$500billionofloansorinvestmentstobusinesses,statesandmunicipalities,and$32billioningrantstotheairlineindustry,andmore.”1

Funding for Agricultural Producers

WhiletheCARESActinfusedanestimated$2trillionintotheU.S.economy,theapproachforagriculturewasverytargeted.Theactprovided$9.5billion“toprevent,preparefor,andrespondtocoronavirusbyprovid-ingsupportforagriculturalproducersimpactedbycoronavirus,includingproducersofspecialtycrops,produc-ersthatsupplylocalfoodsystems,includingfarmersmarkets,restaurants,andschools,andlivestockproducers,includingdairyproducers.”ThisfundingwasprovidedindependentoftheCommodityCreditCorporation(CCC),thetraditionalfundingarmoftheU.S.DepartmentofAgriculture(USDA).Whiletheauthorityappliesbroadlyto“agriculturalproducers,”mostexpectthefundingtobeusedprimarilyforbeef,pork,dairy,andspe-cialty crop producers.

1 https://www.govtrack.us/covid-19


Authorities available to the Secretary under Section 5 of the CCC Charter Act: (a)supportingthepricesofagriculturalcommodities(otherthantobacco)throughloans,purchases,pay-

ments,andotheroperations;(b)makingavailablematerialsandfacilitiesrequiredinconnectionwiththeproductionandmarketingof

agriculturalcommodities(otherthantobacco);(c)procuringagriculturalcommodities(otherthantobacco)forsaletootherGovernmentagencies,for-

eigngovernments,anddomestic,foreign,orinternationalrelieforrehabilitationagencies,andtomeetdomesticrequirements;

(d)removinganddisposeoforaidintheremovalordispositionofsurplusagriculturalcommodities(otherthantobacco);

(e)increasingthedomesticconsumptionofagriculturalcommodities(otherthantobacco)byexpandingoraidingintheexpansionofdomesticmarketsorbydevelopingoraidinginthedevelopmentofnewand

additionalmarkets,marketingfacilities,andusesforsuchcommodities;(f)exportingorcausingtobeexported,oraidinthedevelopmentofforeignmarketsfor,agriculturalcom-

modities(otherthantobacco)(includingfishandfishproducts,withoutregardtowhethersuchfishareharvestedinaquaculturaloperations);

(g)carryingoutconservationorenvironmentalprogramsauthorizedbylaw;and(h)carryingoutsuchotheroperationsastheCongressmayspecificallyauthorizeorprovidefor.

Commodity Credit Corporation (CCC) Funding

TheactalsoprovidedadditionalfundingfortheCCC.DespiteeffortstoincreaseborrowingauthorityfortheCCCto$50billion(fromthecurrentlevelof$30billion),theactsimplyreplenishedtheexistingborrow-ingauthorityby$14billionrelativetotheJune2020auditreport.2 Under the CCC, the Secretary can draw on anumberofauthoritiesunderSection5oftheCCCCharterAct(highlightedabove)toprovideassistancetoagriculturalproducers.Forexample,theSecretaryinvokedSection5(e)incraftingboththeCottonGinningCostShare(CGCS)programandtheMarketFacilitationProgram(MFP).

Section 32

WhiletheCARESActdidnotaddressSection32,itisneverthelessapopulartoolwhenrespondingtoun-expectedevents.Section32(specifically,Section32oftheAgriculturalAdjustmentActof1935(PublicLaw74-320,7U.S.C.612c,asamended))isapermanentappropriationthatsetsaside30%ofannualcustomsreceiptstosupportthefarmsectorthrough(1)encouragingtheexportoffarmproductsthroughproducerpayments2TheCCCisthefundingmechanismformostfarm-relatedprogramsatUSDA,includingUSDAloansandfarmprogramassistancethatdoesnotrequirerepayment.TheborrowinglimitforCCChasbeensetat$30billionsince1987.TheCCCwillperiodicallyestimatenetrealizedlosses(outlaysminusinlays)andtheappropriatorswill“replenish”theCCCuptoitsstatutoryborrowinglimit.Thisistypicallydoneasaroutinematter,althoughevenreplenishmenthasbecomelessroutineasevidencedbythedebateoverthecontinuing resolution in Fall 2019.


orothermeans;(2)encouragingthedomesticconsumptionoffarmproductsbydivertingsurplusesfromnor-malchannelsorincreasingtheirusebylow-incomegroups;and(3)reestablishingfarmers’purchasingpowerbymakingpaymentsinconnectionwiththenormalproductionofanyagriculturalcommodityfordomesticcon-sumption.ThevastmajorityoftheappropriationgoestoUSDA’schildnutritionprogramsandtheDepartmentofCommerce’sfisheriesactivities,withtheremainingamounttobeusedatthediscretionoftheSecretaryforthepurposesoutlinedabove.The2008FarmBillpermanentlycappedtheamountUSDAispermittedtospendfordiscretionaryactivitiesat$1.33billioninFY2017(thereafterindexedtoinflation).Inaddition,theFY2020FurtherConsolidatedAppropriationsAct(P.L.116-94)prohibitedtheSecretaryfromusingclause(3)above—withtheexceptionofusingupto$350millionincarryoverbalances.Forallpracticalpurposes,discretionaryuseofSection32primarilyhasbeenlimitedtocommoditypurchases.

Other Authority

BeyondCCCandSection32,Section1101(g)ofPhaseII(H.R.6201)stipulatesthat“duringfiscalyear2020,theSecretaryofAgriculturemaypurchasecommoditiesforemergencydistributioninanyareaoftheUnitedStatesduringapublichealthemergencydesignation.”Theactgoesontoprovide“suchsumsasarenecessary”tocarryabouttheprovision.WhileSection32istraditionallyusedfordiscretionarycommoditypurchases,itappearsasthoughthisprovisionprovidesanopen-endedauthorizationforcommoditypurchasesinresponseto COVID-19.

USDAisintheprocessofassemblinganaidpackageusingalloftheauthoritiesattheirdisposal.Wewillprovideanoverviewofthedetailsoncetheyarepubliclyavailable.

Other Changes to Agricultural Programs

Marketing Loans

TheCARESActalsonotablyextendedthematuritydateformarketingloans.Toourknowledge,thisistheonlyfarmbill-relatedagriculturalprovisionamendedbytheCARESAct.AsnotedbySecretaryPerdueonApril9,2020,“Producersofeligiblecommoditiesnowhaveupto12months[ratherthanthetraditional9months]torepaytheircommodityloans.Thematurityextensionappliestononrecourseloansforcropyears2018,2019and2020.EligibleopenloansmustbeingoodstandingwithamaturitydateofMarch31,2020,orlaterornewcropyear(2019or2020)loansrequestedbySeptember30,2020.AllnewloansrequestedbySeptem-ber30,2020,willhaveamaturitydate12monthsfollowingthedateofapproval.Eligiblecommoditiesincludebarley,chickpeas(smallandlarge),corn,cotton(uplandandextra-longstaple),drypeas,grainsorghum,honey,lentils,mohair,oats,peanuts,rice(longandmediumgrain),soybeans,unshornpelts,wheat,wool(gradedand


nongraded);andotheroilseeds,includingcanola,crambe,flaxseed,mustardseed,rapeseed,safflower,sunflowerseed,andsesameseed.”3

Lending Provisions for Agricultural Producers

WhileproducerseagerlyawaitdetailsfromUSDAabouttheupcomingaidpackage,theCARESActinclud-edotherauthoritiesforwhichfarmersandranchersmaynowbeeligible,primarilySmallBusinessAdministra-tion(SBA)lendingprograms.

Paycheck Protection Program (PPP)

Section1102oftheCARESActtemporarilyaddedanewproduct—thePaycheckProtectionProgram(PPP)—toSBA’s7(a)LoanProgram.ThePPP’smainaimistokeepworkerspaidandemployed.Theactpro-vided$349billionfortheprogramwhichoperatesonafirst-come-first-servedbasis.SBAbegantakingapplica-tionsonApril3,2020(April10,2020,forsoleproprietorsandindependentcontractors).AsofApril13,2020,SBAhadguaranteedover1millionloansunderPPPtotaling$247.5billion,with$2.97billionfor“agriculture,forestry,fishing,andhunting.”Importantly,despitealotofconfusiontothecontrary,farmersandranchersare eligibleforPPP.

TobeeligibleforPPP,borrowersmusthave500orfeweremployees(whoseprincipalplaceofresidenceisintheUnitedStates)ormeetcertainsize-basedrestrictionsforthatparticularindustry.Borrowersmustcertifythatcurrenteconomicuncertaintymakestheloannecessarytosupportongoingoperations.

Generally,PPPloansarebasedon2.5timesmonthlypayrollcostsoverthepast12months.SBAhasout-linedalistofcoststhatqualifyas“payrollcosts,”includingcompensationpaidtoemployeesintheformofsal-

ary,wages,andcommissionsand,inthecaseofsoleproprietors,wages,commissions,income,ornetearningsfromself-employmentorsimilarcompensation.Importantly,incalculatingpayrollcosts,anycompensationpaidtoanemployeeoranyamountspaidtoasoleproprietorinexcessof$100,000areexcluded.PPPloansmustbeusedforveryspecificpurposesdefinedbySBA(e.g.payrollcosts,mortgageinterestpayments,rentpay-ments,utilitypayments,etc).

Interestaccruesatarateof1%,andtheloanmaturesintwoyears.Paymentsontheloanwillnothavetobemadeforsixmonthsfollowingthedisbursementdateoftheloan,butinterestwillcontinuetoaccrue.ThemostcompellingfeatureofPPPloansisthefactthattheentireprincipalandinterestareforgivableaslongascertainconditionsaremet.AccordingtotheinterimfinalruleissuedbySBAonApril3,2020,“theactualamountofloanforgivenesswilldepend,inpart:

3 https://www.fsa.usda.gov/news-room/news-releases/2020/usda-announces-loan-maturity-for-marketing-assistance-loans-now-extended-to-12-months


- onthetotalamountofpayrollcosts,- paymentsofinterestonmortgageobligationsincurredbeforeFebruary15,2020,- rentpaymentsonleasesdatedbeforeFebruary15,2020,- andutilitypaymentsunderserviceagreementsdatedbeforeFebruary15,2020,

over the eight-week period following the date of the loan.”Inaddition,therulerequiresthat“notmorethan25%oftheloanforgivenessamountmaybeattributabletonon-payrollcosts,”anditrequiresborrowerstocertifythat“fundswillbeusedtoretainworkersandmaintainpayroll.”Inotherwords,aslongasyouspendtheentireloanamountonauthorizedexpensesovertheeightweeksfollowingloandisbursementandatleast75%isspentonpayroll,theentireloan(includinginterest)willbeforgiven.

InasecondinterimfinalruleissuedonApril14,2020,SBAprovidedadditionaldetailsforsoleproprietorsandpartnerships(includingLLCsfilingtaxesaspartnerships).Forsoleproprietors,payrollcostsincludenetprofitfrom2019IRSForm1040ScheduleCLine31(inadditiontocompensationpaidtoemployeesnotedabove).SBAfurtherclarifiedthatpartnersinapartnership“maynotsubmitaseparatePPPloanapplicationforyourselfasaself-employedindividual”andlimited“apartnershipanditspartners(andanLLCfilingtaxesasapartnership)toonePPPloan.”Regardingloanforgivenessforself-employedindividuals,SBAclarifiedthat“ownercompensationreplacement”wasanauthorizedexpense,withforgivenessofthatparticularexpenselimitedtoeightweeks(8/52)of2019netprofit.

Example:Whatifyouareasoleproprietorwithnoemployees?

- Assumeyourfarmhasnoemployeesandthatyournetprofitin2019was$60,000.Yournetprofitwaslessthan$100,000,sotheentire$60,000qualifies.

- Yourqualifyingmonthlypayrollis$5,000($60,000/12).

- YourPPPloanamountis$12,500($5,000x2.5).- Becausethefarmhadnoemployees,thepayrollcostseligibleforforgivenessarelimitedto“owner

compensationreplacement”of$9,230.77($60,000x8/52).Whileanadditionalamountcouldbefor-givenbasedonotherauthorizedexpenses,75%oftheamountforgivenmustbeattributabletopayrollcosts.Asaresult,inthisexample,$12,307.69($9,230.77/75%)isthemostthatcouldbeforgiven.

Example:Whatifyouareasoleproprietorwithfewemployees?

- Assumeyourfarmhasoneemployeewithanannualsalaryof$45,000.Furtherassumethatyournetprofitin2019was$51,000.Yourtotal“payrollcosts”are$96,000($45,000+$51,000).Youremployeeclearlymakeslessthan$100,000,andyournetprofitwaslessthan$100,000,sotheentire$96,000qualifies.

- Yourqualifyingmonthlypayrollis$8,000($96,000/12).


- YourPPPloanamountis$20,000($8,000x2.5).- Aslongasyouspend$15,000($20,000x75%)onpayrollcostsovertheeightweeksfollowingdis-

bursementoftheloan(withtheremainingamountspentonotherauthorizedexpenses),theentire$15,000loanbalance(andanyaccruedinterest)wouldbeeligibleforforgivenessaslongasallotherconditionsaremet.Inthisexample,forgivenessfor“ownercompensationreplacement”—asacompo-nentofpayrollcosts—wouldbelimitedto$7,846.15($51,000x8/52).

Example:Whatifyouhavealargeoperationwithmanyemployees?

- Assumeyourfarmhas20employeeswithanannualpayrollof$1,100,000;noneoftheemployeesmakemorethan$100,000,sotheentire$1,100,000qualifies.Further,assumeyouhad$200,000innetprofitin2019;youarelimitedto$100,000inqualifyingnetprofit.Asaresult,your“payrollcosts”are$1,200,000($1,100,000+$100,000).

- Yourqualifyingmonthlypayrollis$100,000($1,200,000/12).- YourPPPloanamountis$250,000($100,000x2.5).- Aslongasyouspend$187,500($250,000x75%)onpayrollcostsovertheeightweeksfollowing

disbursementoftheloan(withtheremainingamountspentonotherauthorizedexpenses),theentire$250,000loanbalance(andanyaccruedinterest)wouldbeeligibleforforgivenessaslongasallotherconditionsaremet.Inthisexample,forgivenessfor“ownercompensationreplacement”—asacompo-nentofpayrollcosts—wouldbelimitedto$15,384.62($100,000x8/52).

ThereareavarietyofoutstandingissueswhereSBAisexpectedtoofferadditionalguidance.Forexample,wagespaidtoH-2Aworkerscurrentlydonotcountaseligible“payrollcosts.”ThisnaturallyplacesaburdenonthosesegmentsofagriculturewhorelyheavilyonH-2Aemployees.OnApril9,2020,RepublicanMembersoftheHouseAgricultureCommitteesentalettertoSBAAdministratorCarranzaarguingthat“[m]anyU.S.

producersarefullyreliantonH-2Aworkers,andthusemployersoughttobeabletoincludetheirwageswhencalculatingemployereligiblepayrollcostsunderthePPP.”Congressisalsocurrentlydebatingaddingadditionalfunding to PPP.

We’vereceivedalitanyofquestionsfromfarmersandranchersandagriculturallenders,andwe’veattempt-edtoaddressafewoftheminAppendixA.And,whiletherearealotofresourcesavailableonline,nothingsubstitutesforsimplycontactingaPPP-approvedlenderanddiscussingyourspecificcircumstanceswiththem.

Economic Injury Disaster Loan (EIDL) Program

TheCARESActalsoprovided$10billionfortheEconomicInjuryDisasterLoan(EIDL)program.AnEIDLcanbeupto$2millionandmustbeusedforworkingcapitalneeds(e.g.payroll).Historically,farmshavebeenineligiblefortheEIDLprogram,andasofthedateofpublication,SBAstilldoesnotallowfarmstoqualify(ex-


ceptforaquacultureenterprises,agriculturalcooperatives,andnurseries).AnumberofleadersonCapitolHillarechallengingSBA’sdecision.Forexample,onApril3,2020,SenatorsPatRobertsandDebbieStabenowsentalettertoSBAAdministratorCarranzaarguingtheCARESAct“createsnewrequirementsforan[EIDL]pro-gramforCOVID-19foralimitedtime”and“Congressintendedfarmerstoqualifyprovidedtheyfitwithinoneofthespecificcriteriaforeligibility.”Intheletternotedabove,RepublicanMembersoftheHouseAgricultureCommitteesimilarlyurgedAdministratorCarranzato“clarifythismattersofarmersandranchersmayapplyforthisassistanceinatimelyfashion.”

Conclusion

CongresshassteppedinonthreeoccasionstorespondtotheCOVID-19outbreak.TheCARESActinparticularprovidedsignificantresourcesforUSDAtorespondtocurrentneedsduetoCOVID-19.USDAisintheprocessofdetermininghowtodeploythoseresources.Theactalsoprovidedadditionalflexibilityformarketingloans,extendingthematuritydatebythreemonthsforloancommodities.Perhapsmostnotably,theactprovided$349billionforthePaycheckProtectionProgram(PPP),anewlendingprogramunderSBA’s7(a)programforwhichfarmersandranchersareeligible.Despitebeingeligible,therehavebeenanumberofgrowingpainsthroughwhichSBAcontinuestowork.Wewillprovideadditionaldetailsastheybecomeavail-able.


Appendix A: Paycheck Protection Program (PPP) Frequently Asked Questions

1. Are farms and ranches eligible for SBA’s PPP?

Yes.Thereareavarietyofcriteriathathavetobemet(e.g.500orfeweremployees,etc)butfarm-ersandranchersareeligible.

2. Doesn’t USDA already do this?

USDAoffersavarietyofloans,includingemergencyloans,butPPPloansareforgivableaslongascertainconditionsaremet.

3. What will farmers/rancher qualify for? What is the maximum amount of the loan?

Generallyspeaking,applicantsareeligiblefor2.5timestheaveragemonthlypayrolloverthepast12months.Thetotalamountoftheloancannotexceed$10million.

4. Do I go to SBA, Commercial bank, or Farm Credit?

Borrowersapplythroughaparticipatinglender.AllSBA7(a)lendersareautomaticallyapprovedandtheCARESActmadeotherseligible,includingFarmCreditinstitutions.

5. Will the loans be forgiven? What are the qualifications?

Yes,thePPPloanswillbeforgivenaslongascertaincriteriaaremet.Mostimportantly,non-payrollcostsarelimitedto25percentoftheforgivenamount.

6. Are sole proprietors eligible for PPP? If so, does your salary (income) count in a sole pro-prietorship? If so, what documentation is needed?

Yes,soleproprietorsareeligibleiftheywereinoperationasofFebruary15,2020(andSBAisexpectedtoprovideadditionaldetailsforthosewhowerenotinoperationin2019butwhowerebyFebruary15,2020,andwhowillfileaForm1040ScheduleCfor2020).SBAbegantakingapplicationsforsoleproprietorsandindependentcontractorsonApril10,2020.Accordingtothesecondinterimfinalrule,“ownercompensationreplacement”isaforgivableexpenseandwillbelimitedtoeightweeks(8/52)of2019netprofit(from2019IRSForm1040ScheduleCLine31).


7. How is contract labor counted (other than machine hire) counted? For example, day la-bor?

Itdepends.IndependentcontractorshavetheabilitytoapplyforaPPPloanontheirown,sotheydonotcountforpurposesofaborrower’sPPPloanforgiveness.

Additionalquestionsandanswersareavailableat:https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf


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