USDA to Aid Critical Food Supply Chains

OMAHA (DTN) -- USDA will spend more than $4 billion to focus on diversifying "critical supply chains" after examining lessons learned from the coronavirus pandemic and will tie at least part of the funding to transforming livestock markets.

The USDA announcement comes as the White House released a 100-day examination of supply chains across key parts of the country's economy. The White House sees the focus on supply chain resilience as a way to "reimagine and rebuild a new American economy, not go back to the way things used to be." The report highlights the president's focus to pass a large, encompassing infrastructure bill to help position infrastructure to help U.S. companies compete globally.

The initiative looks to leverage billions more in investments by the private sector to "transform critical parts of the U.S. food system" and shift away from heavy reliance on a small number of large processors. USDA stated it will use its supply chain spending to "increase transparency and competition" in the livestock markets and the meat processing sector that "have resulted in thinly-traded markets and unfair treatment of some farmers, ranchers and small processors."

On a press call Tuesday, U.S. Agriculture Secretary Tom Vilsack said USDA will conduct "a very thorough analysis" of where additional processing capacity could create more competition and better income for producers. Ideally, the secretary said, states, local governments and private companies would find ways to leverage federal money to construct or retrofit facilities or expand smaller ones. The secretary didn't specifically say USDA would exclude large packers from participating, but he stressed the importance of developing more diversity in the size of processing operations and ownership. He also suggested farmer cooperatives could play a role.

"My hope is that maybe there are some unique partnerships between those who represent the workers that are in those facilities and plants and those who benefit from selling their products or their livestock to these plants," he said.

Certain investments from USDA through grants, loans and loan guarantees "will specifically address the shortage of small meat-processing facilities across the country" as well as focus more attention on local and regional food systems to support them, USDA stated.

Vilsack said the $4 billion will be "allocated, invested and identified" within a short time, and ideally most of the funds will be distributed to different sectors within the next year. Vilsack said the funds will be used through a variety of USDA programs.

"Once governors and states who are concerned about this lack of processing capacity are aware of this opportunity to partner, I suspect that will generate a great deal of interest," he said.

The secretary noted in a news release that the pandemic "led to massive disruption for growers and food workers. It exposed a food system that was rigid, consolidated and fragile. Meanwhile, those growing, processing and preparing our food are earning less each year in a system that rewards size over all else."

The goal of the supply chain investment will be to help the food system better absorb market shocks and provide more value to both farmers and workers, with more attention on sourcing food grown and processed more locally and regionally. Additional processing capacity would also create more platforms and data to increase price discovery for livestock producers.

This comes as groups and lawmakers continue to request the results of investigations into livestock markets and seek changes to overhaul packer price-reporting requirements.

Vilsack said USDA needs to look at enforcement of the Packers and Stockyards Act, as well as several pending rules that were proposed under the last two administrations that were never finalized.

"At the end of the day, this is about making sure producers have a fair shake in the market," Vilsack said. "And to have that fair shake, there has to be competition, there has to be oversight."

For crop producers, Vilsack noted a way to increase value is to become an organic producer, but that takes a three-year transition period. To counter that, Vilsack said USDA is looking at using "several hundred million dollars" to create a pilot project to learn how best to provide transition assistance for farmers converting to organic production.

"That would allow folks to be able to make that transition without necessarily sacrificing the capacity or the ability to keep the farm and stay on the land," Vilsack said, reiterating the need to help more farmers generate a majority of their income from their operations.

SEMICONDUCTORS TOP SUPPLY CHAIN CHALLENGE

Beyond the food-system details from USDA, a key component to Biden's economic plan highlighted in the supply chain review focuses on domestic semiconductor manufacturing, research and development. Semiconductors were the top supply chain challenge highlighted by the administration. Along with that comes the realization the U.S. relies heavily on China for the minerals needed to make more chips.

"These tiny chips are vital to virtually every sector of the economy -- including energy, healthcare, agriculture, consumer electronics, manufacturing, defense and transportation," the White House stated.

With most pieces of industrial and consumer equipment requiring more semiconductors, the global shortage of chips has affected nearly every industry. Within agriculture, major machinery retailers have reported delays getting equipment and informed customers to plan ahead for combines, tractors, planters and other equipment.

In an email to DTN, Kip Eideberg, senior vice president of government affairs and industry relations for the Association of Equipment Manufacturers (AEM), said the group is working with the Biden administration on ways to increase chipmaking capacity domestically but said policies are also needed to strengthen global supply chains.

"From tractors and combines, to pavers and excavators, semiconductors are ubiquitous in equipment manufacturing. The disruption to the semiconductor supply chain is being felt across our industry, and it has highlighted how one small piece of the global supply chain can have ripple effects for both equipment manufacturers and their customers," Eideberg stated.

Increasingly, the U.S. also is getting more chips overseas, especially from Taiwan, which now produces as much as 92% of the world's most advanced logic chips.

The White House wants Congress to spend $50 billion specifically directed toward boosting semiconductor production and development.

"We must build resilient and competitive semiconductor supply chains for the long term," the White House stated. "Our strategy must include taking defensive actions to protect our technological advantages. But we must also proactively invest in domestic production and R&D."

The Department of Energy also should use its authorities to support domestic production of electric battery cells, the White House stated.

Vilsack, Commerce Secretary Gina Raimondo and Transportation Secretary Pete Buttigieg also will be part of a new long-term Supply Chain Disruptions Task Force.

The administration also pointed to the importance of an ongoing review of supply chains and trade policy toward China. The White House report notes China has taken over the global market for several critical minerals. The White House stated China used "state-led, non-market interventions" to capture a large part of the value chain of rare earth minerals and refining capacity for those minerals.

Also tied to exports, the Biden administration will examine the U.S. Export-Import Bank authorities to finance new U.S. manufacturing facilities and infrastructure projects that would expand exports.

While the Biden administration resists increased mining for fossil fuels, the government also will work to develop standards for extracting minerals such as lithium, cobalt, nickel, copper, rare earth elements and other materials. The administration also will use financial tools to help boost the manufacturing and mining of minerals and rare earth elements globally.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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