The USDA has long provided support to farmers and ranchers through various programs and initiatives aimed at increasing access to credit. Throughout the last several decades, however, more and more information has emerged suggesting that access to USDA funding has disproportionately benefitted white producers at the expense of socially disadvantaged (SD) farmers and ranchers, a catch-all term used by the USDA to indicate farmers of Black/African American, American Indian, Alaskan native, Hispanic/Latino, Asian, or Pacific Islander descent. Last month, in an effort to redress a history marred by accusations of racial discrimination, the USDA announced plans to provide debt relief to qualifying SD producers under Section 1005 of the American Rescue Plan Act (ARPA), a $1.9-trillion package aimed primarily at combating the effects of the Covid-19 pandemic.
What exactly does Section 1005 of the ARPA do? Under the program, qualifying farmers and ranchers with direct loans from USDA or loans guaranteed by USDA (i.e., where the USDA serves as a backstop against loan default) are eligible to have their loan balances paid off in full, including full reimbursement for any payments made since January 1, 2021. USDA will also be providing up to an additional 20% of the loan balance to cover costs of early loan termination, such as tax liabilities and fees. Debt relief through the program is only available to producers falling in the SD producer category outlined above. Most USDA-related loans, besides Marketing Assistance and Rural Development Loans, fall under the scope of the program. Eligible producers with direct loans will be the first to receive letters detailing the loan balances to be paid out, with letters for guaranteed loan borrowers expected to be sent out by the end of summer. In addition to agricultural debt relief under Section 1005, Section 1006 of the ARPA dedicates $1 billion to other forms of assistance for SD producers.
Although this appeared to be a swift, if imperfect, way to partly address past racial discrimination in farm lending, the program has recently ground to a halt after a federal court decision in Wisconsin put a temporary stop on the distribution of Section 1005 funds. The decision responds to a complaint filed on behalf of 12 white farmers, from various states, who argue that the program discriminates against them because of their race. The district court judge in the case further claimed that even if the program was not discriminatory, USDA did not sufficiently identify any specific acts of discrimination the program would remedy. While the program is in flux, USDA is encouraging producers to continue to sign and submit the letters they receive to enable a swift distribution of payments when, and if, the temporary restraining order is lifted.
Overall, it is estimated that roughly 17,000 producers will be eligible for debt relief under the program, most of which are members of American Indian Tribes. Although most of Montana’s farmers and ranchers are white, a non-trivial fraction of the state’s producers may be eligible for loan forgiveness. According to data from the 2017 Census of Agriculture, 5% (2,315) of all producers in Montana are non-white, and participate in 4% (1,230) of the state’s farm and ranch operations representing 7% (4.1 million) of total operated acres. Since not all of these producers may have loans that qualify for the program, these figures should be considered an upper bound on the number of eligible Montana producers. Producers of American Indian descent account for the largest share (76%) of Montana’s non-white producers, with Hispanic producers, at 20%, representing most of the remainder.
In many circles, the program was viewed as a well-intentioned, but less than ideal, way to address historical discriminatory lending practices in agriculture. One obvious shortfall, which has no clear solution, is that the program does nothing to address the fact that, due to discrimination in lending, many SD producers were simply unable to obtain the sort of lifeline loans provided by USDA, causing them to leave the farm sector entirely, and potentially lose their land in the process. In addition, the banking industry has emerged as a staunch opponent of the program due to the loss of interest income it may cause through a sudden infusion of full loan repayments. A potential solution here would have been to make direct payments to eligible producers and allow them to spend the money as they see fit, which development economists have shown, in other contexts, to be a more effective way of distributing aid. This form of distribution would have also avoided disruptions to the bank sector and the perception that SD producers need someone else to mind their bank accounts, but it likely would have proved more difficult to get through Congress. Some have also said that the program was destined for failure given its lack of any clear and specific evidence of discrimination in its language.
At this point, the fate of the program is unclear as USDA attempts to push it through the court system. What is clear, though, is how challenging it can be to design and implement policy that addresses some of the uglier aspects of U.S. agricultural history.