US grain traders and ethanol producers – among them Archer Daniels Midland (ADM), Bunge and Cargill – have expressed concern over a provision embedded in the new US tax code that they say is giving cooperatives an unfair tax advantage.
Provision 199A gave farmers such a massive tax deduction when selling their crops to cooperatives that large private firms now feared their supplies would run dry, Reuters wrote on 10 January.
Added only in the final stages of the tax law’s rushed passage in December, it allowed farmers and ranchers to claim a 20% tax deduction on all products sales – including soya, corn and wheat – to cooperatives, which did not apply to private or investor-held firms.
Previously, both cooperatives and private companies were on level ground when it came to applying tax deductions.
“It is going to put us out of business as a private if something is not changed right off the bat,” Doug Bell, president and general manager of Illinois-based grain handler Bell Enterprises, told Reuters.
“There is just no reason whatsoever why a farmer would do business with anyone other than a co-op,” Bell lamented.
The provision was, according to World Grain, most likely a last-minute addition to the new tax bill to appease farm groups and cooperatives, which had been facing significant pass-through benefit losses after the removal of the original Section 199 provision, which provided similar tax benefits.
Some farmers had already begun calling up private grain elevators to transfer their crops to cooperatives instead, according to Bell Enterprises.
Section 199A was set to expire naturally in 2025, but work to fix the legislation had already been started, wrote World Grain.
The US National Grain and Feed Association (NGFA), which has both co-op and private members, said in an email on 11 January that it was working to “address the unintended consequences of Section 199A in a way that replicates the tax treatment previously available to co-op farmer members under the previous Section 199, but does so in a way that restores a level playing field and does not provide a tax-based incentive that influences farmers’ marketing decisions”.
The NGFA said that following meetings on 8 and 11 January, it had on 12 January begun working with the National Council of Farmer Cooperatives and other organisations on finding a solution.