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Corn, Soybeans and Manufacturing

March 20, 2020
Small- to medium-sized manufacturers should be granted government aid in the form of actual cash grants, not SBA loans.

In 2019 the United States imposed import tariffs on a multitude of Chinese goods. In a tit-for-tat response China imposed its own import tariffs on a similar amount of U.S. goods, including corn and soybeans. Thus, China’s tariffs positioned producers in other countries with a competitive price advantage. Pre-tariff, China was the biggest customer of our country’s corn and soybean production. The result had the potential to inflict significant damage on America’s producers of these two grains.  in other words, we were in the middle of a financial crisis in one of our country’s important industries.

The administration sought to make our corn and soybean producers “whole” by infusing money into that industry through cash grants directly to producers.  The first $16 billion was paid in May 2019 and the second $28 billion was paid in December 2019. Among other reasons that were cited in support of these payments was the need to support family farms. I have roots in the Midwest and worked 30 years for the world’s largest producer of agricultural machinery. Through my contacts I heard that most of the money went to corporate—not family—farms, i.e., the small guys. But that’s a topic for another article.

Due to the coronavirus crisis, this country is now in a manufacturing crisis. Large corporations in some industries—such as travel and hospitality—are already suffering significant negative financial impacts.  In fact, the airlines industry has requested a $60 billion bailout.  I don’t see a problem with this as long as the assistance is given in the form of loans, as was the case in the 2008 automotive industry bailout. Loans, by the way, that were paid back (with interest) within two years.

In response to the current crisis, the administration has loosened the Small Business Administration’s criteria for granting loans to small- and medium-sized manufacturers.  There is a disparity here between what is being offered to “small guy” manufacturers and the financial support that was targeted for family farm producers of corn and soybeans. My point here is that I believe small- and medium-sized manufacturers should be granted the same type of governmental aid as was given corn and soybean farmers. In other words, not SBA loans but actual cash grants.  I’ll also point out that manufacturing “small guys” are typically family-owned and -operated businesses as opposed to the agricultural corporations that received the bulk of the cash from the corn and soybean bailout.

Manufacturing is as important to the United States as agriculture. On the one hand, I believe that in the face of a crisis the government should offer financial support to corporate farming and manufacturing in the form of loans. Why? Because, like the automobile manufacturers in 2008, the “bigger guys” are better positioned for recovery. And for that matter, they were recent recipients of a large governmental cash infusion in the form of tax reduction.

On the other hand, the “small guys”—be they family farms or small- or medium-sized family-based manufacturer firms—usually don’t have the financial wherewithal that corporations do. And the corporate knee-jerk reaction to an industry crisis to push for piece-price reductions from their supplier/manufacturers doesn’t help the situation. In fact, many people may not realize it, but without a cash infusion many of our ”small guy” manufacturers will be shutting down in a matter of weeks and—if the crisis goes on for a couple of months —- become insolvent, I.e go away forever.

I would hope that our elected representatives will keep this in mind as they decide what to put in their trillion-dollar financial stimulus package.  If you agree with some of the points from this column, consider forwarding it to those who represent you.

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