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While significant, CFAP aid doesn’t resolve dairy demand destruction

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Lindsey Knewstub

On Friday, U.S. Secretary of Agriculture Sonny Perdue announced the Coronavirus Food Assistance Program (CFAP) which includes $16 billion in direct payments to farmers and ranchers. In addition, the U.S. Department of Agriculture (USDA) will use $3 billion to purchase fresh produce, dairy, and meat products to be distributed to Americans in need.

Cornell University agricultural economist Andrew Novakovic says while it’s helpful the CFAP will provide assistance for farmers, massive demand destruction still remains as an underlying problem.

Andrew Novakovic

E. V. Baker Professor of Agricultural Economics Emeritus

“Cash payments will only partially compensate farms for the difference between the revenues they would likely have received in 2020 and what they actually received, but the amounts will still be significant. Smaller scale farmers will receive proportionately larger subsidies than large producers. The payments will provide short term assistance to replace lost revenue, but they don’t address the underlying problem, which primarily is massive demand destruction.

“The second component of the CFAP is to support the purchase of dairy products for food donations. The Secretary indicated that USDA will target ‘market supply chains [that] have been impacted.’ This may mean targeting those dairy foods that have experienced the largest reductions in sales, again driven primarily by shutdowns in food service and institutional use. For example, certain cheeses and butter have been severely impacted but fluid milk has had increased sales. Thus, we might have a program that emphasizes buying and distributing cheese.

“Creating a demand for farm milk, even if it is an artificial one, should strengthen milk prices. That may mean hardening the floor we are already on. I think more likely it means breathing a little bit of life back into prices, although I wouldn’t raise that expectation very high. In any case, it would be a good thing.”

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