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When small US farms fell into disaster, Trump's commerce support flowed to companies

The Indiana farmer unloads the fresh crop of soybeans from his combine in Brownsburg, Indiana on September 21, 2018.

Michael Conroy | AP

U.S. trade aid mostly benefited large farms in its final round, undermining a key promise made by the Trump administration, and leaving family producers at risk of collapsing as the economy plunged into recession.

President Donald Trump said the bailout program he launched in 2018 would help family businesses weather their trade war with China, mainly through direct government payments. However, around two thirds of these payments went to the top 10% of recipients at the beginning of the year. This emerges from an analysis of the U.S. Department of Agriculture records that CNBC received under the Freedom of Information Act.

The top half of the recipients raised 95% of total payments under the $ 28 billion Market Facilitation program, which resulted in a sharp drop in demand for U.S. agriculture following retaliation against the Trump administration. The average payment for the top 10th recipients was $ 164,813, in stark contrast to the average payment of $ 2,469.49 for the bottom half of the recipients. The data included payments made in February and March when the last tranche debited bank accounts.

Wisconsin farmer Michael Slattery said the small-scale producer trade program fell short, putting them at a disadvantage against agricultural giants who dominate the industry. On his 200 acre farm in Manitowoc County, the latest round of subsidy payments accounted for roughly half the income he lost to tariffs on soybeans and other vital crops.

"It doesn't cover your losses," said Slattery, who is also an economist with the Wisconsin Farmers Union. "We have an increasing concentration of industry."

The Trump administration separately announced support for farms in response to the coronavirus pandemic, which caused the economy to contract at the fastest pace ever, by $ 10 billion in the second quarter. According to the University of Missouri's Food and Agriculture Research Center, that would bring total government payments to farmers to a record $ 33 billion this year, although net income would still fall.

Bankruptcy on the rise

Despite the comprehensive programs, family businesses are increasingly afraid of financial ruin. Small and medium business bankruptcy filings rose 20% in 2019, a rate that has slowed but remains high. With many restaurants and schools closed because of the pandemic, nearly a third of self-proclaimed small farms in a survey in May said they could go bankrupt by December.

The deepening crisis for small farms has fueled control over trade aid, which in its early stages sent millions to farm companies including a Brazilian meat processor. During the USDA The single payment limit has been increased from $ 125,000 in the previous year to $ 250,000 in 2019. Companies have easily exceeded the even larger limit. The top 1% of the program's beneficiaries raised 17% of total trade relief over the two-month period, as CNBC found in its analysis, with an average payment of around $ 455,600.

Known for its real estate and farming empire in Fresno, California, Assemi Group received at least $ 1.1 million through nearly two dozen payments to its subsidiaries, according to USDA records.

"Our company participated in the Market Facilitation Program and has met all federal requirements in full," said Danielle Filipponi of Maricopa Orchards, an assembling company, in a statement. "We are grateful for the help that is helping to keep jobs, but we and all farmers want fair and open trade."

Another farm in the state, Primex International Trading, received eight checks for more than $ 650,000 at its Los Angeles office. Primex did not respond to requests for comment.

The USDA revised parts of the program after its initial implementation and changed the payment system in 2019 to avoid bias. In the new formulas, payment installments were assigned for each county, depending on internal estimates of the commercial damage there.

For the soybean farmer Tyler Stafslien from North Dakota, whose harvest cuts through three counties, this means several different payment rates on one farm with the same operating costs across the board. At $ 15-25 an acre, he said the rates weren't high enough to regain more than a third of the income he'd lost to tariffs.

"We don't think it was proportionate here," said Stafslien. "We felt like we hit the short end of the deal, even though we were probably hurt the worst."

In other regions of the United States, some counties made up to $ 150 an acre. Missouri farmer Chad Fullerton said the triple-digit payment rate assigned to his county is necessary for the profitability of the crops he grows, such as cotton, corn and soybeans.

"I think last year's rules were fair," said Fullerton.

Winner and Loser

Trump critics have escalated the backlash against Aid for Trade in recent months for alleging mismanagement and bias of the Trump administration. The president has repeatedly boasted of the billions of dollars the program has made available to farmers, a key constituency for the Trump campaign ahead of the November election.

Democrats claimed in a Senate report last year that affluent farmers and those in southern states were overcompensated by the subsidy payments. Although the Midwest and Northern Plains were badly affected by tariffs, farms in those regions were assigned lower payments per acre. In February, the US Government Accountability Office opened an investigation into the program at the request of Senator Debbie Stabenow of Michigan.

"From day one, I was concerned that the Trump administration's trade aid program was picking winners and losers and leaving smaller farms behind," said Stabenow, the senior democrat on the Agriculture Committee, in an interview. "USDA needs to stop playing favorites."

Concerns about the program have also been voiced across the aisle, underscoring the administrative and oversight challenges that the White House and Congress could face as agricultural programs swell. Republican Senator Chuck Grassley, chairman of the finance committee, said a loophole has allowed farms to cross the boundaries by making payments to extended family members and others not directly involved.

"If people are not actively involved in the day-to-day running of a farm, they shouldn't be getting government aid," said Grassley, who has applied for trade aid for a farm in Iowa, in an email. "It's not fair to the real family farmers out there that we see people taking advantage of the system."

The White House referred CNBC requests for comment to the USDA, which was defending the farm rescue program, saying it was designed to provide help to the farms in need most. A spokesman pointed to the established range for payment installments and an income cap of $ 900,000 for eligible participants, but acknowledged that "the effects of these limits will vary depending on the organizational structure of a business."

New tensions have erupted between the US and China in recent weeks, raising questions about a partial trade deal the two sides reached in January. Trade officials last month reiterated their commitment to the terms of this deal, but most of the punitive tariffs have persisted between major economies. China also lagged behind the import hikes pledged under that deal, which added to the pain farmers felt from the economic downturn caused by the coronavirus.

"I would say the biggest impact the pandemic had on my farm was the diversion from the trade war," said Stafslien. "We are still badly affected. Most of us hope that there will be another round of MFPs. If it doesn't, there will be more bankruptcies and family business losses."

– Data visualizations by Nate Rattner from CNBC.

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