USAID cuts hit agricultural research

Summary

Marketplace Morning Report: USAID Cuts Hit Agricultural Research

Release Date: February 21, 2025

In this episode of Marketplace Morning Report, hosted by Sabree Benishore, listeners are updated on critical developments affecting the U.S. economy and global markets. The episode delves into the impact of USAID funding cuts on agricultural research, market responses to recent policy changes, and a resurgence in the U.S. manufacturing sector. The discussion is enriched with expert insights, notable quotes, and timely analysis to provide a comprehensive understanding of these pressing issues.

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1. USAID Funding Cuts Impact Agricultural Research

Sabree Benishore opens the episode by highlighting significant budgetary constraints facing the U.S. Agency for International Development (USAID). The Trump administration's efforts to reorganize USAID have led to a freeze in funding for agricultural research across 17 university laboratories in the United States. This financial impasse has forced these labs to lay off workers and pause essential research projects.

Key Highlights:

• David Hughes, director of the USAID Innovation Lab at Penn State, received a stop-work order from USAID at the end of January (00:01). His lab was pivotal in assisting African farmers combat the devastating effects of the "very hungry caterpillar," a pest that can reduce corn yields by 10-40% annually (00:29).

• The lab had secured a substantial grant of up to $39 million from USAID to develop and deploy a biological control method using parasitic wasps to eliminate the caterpillars (00:55). However, the freezing of funds has halted these initiatives, leading to layoffs of 40 to 50 staff members and suspending projects in five African countries.

• David Hughes expressed his concerns, emphasizing the importance of continued research funding. "I think too much money is spent on consultants, but he doesn't want research funds cut. He says more money should go towards science which can help American farmers" (00:55). He advocates for a robust investment in scientific endeavors to support both international and domestic agricultural needs.

• Nancy Marshall Genser underscores the necessity of a global surveillance system to preempt agricultural issues before they impact the U.S. market. "We need a global surveillance system for problems that could come here because they always come here and then respond to them effectively based upon the training we've done in places like Kenya or DRC, etc." (01:32).

• A State Department spokesperson clarified that the review aims to restructure assistance to better align with U.S. interests, ensuring the continuation of programs that serve these interests while discontinuing those that do not (01:45).

This segment sheds light on the broader implications of reducing funding for agricultural research, emphasizing the potential long-term effects on both global food security and U.S. agricultural resilience.

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2. Market Reactions to Policy Changes and Federal Regulations

Transitioning from agricultural concerns, Sabree Benishore engages in a dialogue with Christopher Lowe, Chief Economist at FHN Financial in New York, to dissect how recent policy shifts are influencing market dynamics.

Key Highlights:

• Policy Momentum and Federal Reserve Outlook:

  • Christopher Lowe notes a sense of exhaustion among markets due to ongoing changes. The release of the Federal Reserve's minutes in December had anticipated further rate cuts, hinting at possible adjustments by the March meeting. However, the Fed has maintained a steady stance, indicating that "policy is in an appropriate place and they think that, well, they're in no big hurry to change that" (02:31).

  • This unexpected hold from the Fed has added a layer of uncertainty, contrasting earlier forecasts of rate adjustments.

• Executive Order on Federal Regulations:

  • The President issued an executive order mandating a comprehensive review of all federal regulations within 60 days, with the directive to eliminate the majority of these regulations (03:44).

  • Christopher Lowe interprets the market's response as anticipatory of reduced regulatory burdens. "My sense is that we know big change is coming. We may not know how big, but at least we know the direction of the change" (04:42). This clarity in the direction, despite uncertainties in specifics, appears to stabilize market sentiments.

• Market Adaptation:

  • Markets are adjusting by factoring in the likelihood of deregulation, positioning themselves for a future with potentially lower operational constraints. This strategic positioning reflects a resilience and adaptability to the evolving policy landscape.

The discussion highlights the intricate balance between policy announcements and market stability, illustrating how regulatory changes can significantly influence economic forecasts and investment strategies.

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3. Resurgence in the U.S. Manufacturing Sector

In a positive turn, the episode reports an improvement in the U.S. manufacturing sector, marking the second consecutive month of growth as per the S&P Global Manufacturing Purchasing Managers Index (PMI).

Key Highlights:

• Justin Ho from Marketplace explains that after more than two years of contraction, the manufacturing sector is experiencing a rebound, evidenced by increasing orders for manufactured goods (05:09).

• Tim Fiore from the Institute for Supply Management attributes this uptick to several factors:

  • A slight decline in interest rates has alleviated some financial pressures on manufacturers (05:42).

  • Companies are beginning to replace outdated equipment and consumable goods, reflecting a need to update capital assets that were invested in during the early stages of the pandemic (05:51).

• Justin Ho adds a note of caution, referencing Justina Zabinska Lamonika from the Conference Board, who cautions that the current rise might not indicate a sustained long-term trend. There is a possibility that companies are making temporary or "one-off" orders in anticipation of new tariffs, aiming to secure goods before potential price increases (06:05).

  • Justina Zabinska Lamonika remarks, "Making sure that I'm going to get the goods before the prices go up, before the tariffs go up" (06:19).

• Nevertheless, Justin Ho emphasizes that an increase in new orders typically translates to future spending on production and potential hiring, signaling positive economic momentum (06:25).

This segment paints an optimistic picture of the manufacturing sector's recovery, while also acknowledging external factors that could influence its trajectory.

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Conclusion

The Marketplace Morning Report delivers a multifaceted analysis of current economic challenges and opportunities. From the adverse effects of reduced USAID funding on agricultural research to the nuanced market responses to sweeping regulatory changes, and the promising signs of manufacturing sector recovery, the episode provides listeners with a well-rounded perspective on the factors shaping the U.S. and global economies. Expert insights and direct quotes enhance the narrative, offering depth and clarity to the complex interplay of policies and market behaviors.

For listeners seeking to stay informed on the latest economic developments, this episode serves as a valuable resource, encapsulating critical updates and expert evaluations in an engaging and informative manner.

Transcript

[Sabree Benishore]

Cuts to USAID are hitting agricultural research. From Marketplace, I'm Sabree Benishore in for David Brancaccio. There's another casualty from the Trump administration's dismantling of the US Agency for International Development. Funding for agricultural research at 17 labs at US universities is now frozen. The labs are laying off workers and some research is on hold. Marketplace's Nancy Marshall Genser reports David Hughes.

[David Hughes]

Got the stop work order from USAID at the end of January. Hughes is director of the USAID Innovation Lab on current and emerging threats to crops at Penn State. He was helping farmers in Africa fight a very hungry caterpillar that eats corn.

[Nancy Marshall Genser]

And that can cause damages and losses to yield between 10 and 40% per year. It depends. And we had scaled up an incredibly successful tool.

[David Hughes]

The tool a type of small parasitic wasp that eats the caterpillars. Hughes lab got a grant of up to $39 million from USAID and used part of the money to mass produce and release the caterpillar killing wasps. But that money was frozen. As part of a 90 day review period, Hughes's lab had to stop work in five African countries and lay off 40 to 50 staffers. Hughes says it is good to try to root out waste at usaid. He thinks too much money is spent on consultants, but he doesn't want research fund cut. He says more money should go towards science which can help American farmers.

[Nancy Marshall Genser]

We need a global surveillance system for problems that could come here because they always come here and then respond to them effectively based upon the training we've done in places like Kenya or DRC, etc.

[David Hughes]

In an emailed statement to Marketplace, a State Department spokesperson said the review is aimed at restructuring assistance to serve U.S. interests. Programs that serve those interests will continue. Those that don't, those will not. I'm Nancy Marshall Genser for Marketplace Economic Data.

[Sabree Benishore]

We had not a whole lot of it this week. Policy that affects the economy. Oh yeah, a ton. From firing tens of thousands of government workers to announcing a government wide deregulation campaign. Let's see how markets are digesting all of that with Christopher Lowe, chief economist at FHN Financial in New York. Good morning.

[Christopher Lowe]

Good morning, Sabri.

[Sabree Benishore]

So out of everything that has happened this week coming out of Washington, what do you think markets are picking? Picking up on most?

[Christopher Lowe]

Well, aside from just being exhausted by the momentum of change, this week we had very little economic news. We did get minutes from the Federal Reserve on Wednesday. What has changed is the outlook for policy. In December, the Fed was talking about anticipated further rate cuts this year. And the implication was they would sort of continue, if not at the same pace than a modestly slower pace, which implied that we'd probably see a rate cut by the March meeting in the January minutes. The Fed has effectively gone on hold. They think policy is in an appropriate place and they think that, well, they're in no big hurry to change that.

[Sabree Benishore]

You mentioned policy uncertainty is sort of the big issue right now. One of the executive orders issued by the president this week was to significantly reduce, at least review federal regulations. What do markets think of that?

[Christopher Lowe]

It's striking, first off, yes, a sweeping order from the president ordering a review of every federal regulation in the next 60 days and further giving instruction to remove the vast majority of federal regulation. What the markets think that whatever the outcome, there will be at least some reduction in the regulatory burden. And my sense is that we know big change is coming. We may not know how big, but at least we know the direction of the change. And so despite uncertainty about the details, the markets seem to be settling onto a course that at least they know the direction of change.

[Sabree Benishore]

Christopher Lowe, chief economist at FHN Financial in New York, thank you so much.

[Christopher Lowe]

Thank you, Sabri.

[Sabree Benishore]

The health of the manufacturing sector in the US Improved for the second month in a row, according to the S P Global Manufacturing Purchasing Managers Index out just a few minutes ago, is kind of a relief. Manufacturing in the US has suffered the past few years, hammered by high interest rates and weak demand. Marketplace's Justin Ho has more on why manufacturing has been picking up a bit recently.

[Justin Ho]

Up until last month, the manufacturing sector had been contracting for more than two years, according to the Institute for Supply Management. But in the last few months, orders of manufactured goods have been growing.

[Tim Fiore]

What appears to be happening is that our conservatism on investing in capital and long life durable goods is easing a little bit.

[Justin Ho]

That's ISM's Tim Fiore. He says it helps that interest rates have come down some and the equipment and other goods companies bought early in the pandemic might be getting old.

[Tim Fiore]

People need to replace capital. People need to replace consumable goods.

[Justin Ho]

It's still too early to tell whether the recent uptick in manufacturing activity is a long term trend, says Justina Zabinska Lamonika at the conference board. For instance, some companies might be making one off orders because they're worried about new tariffs.

[Justina Zabinska Lamonika]

Making sure that I'm going to get the goods before the prices go up, before the tariffs go up.

[Justin Ho]

Either way, she says, an uptick in new orders today means more spending on production and hiring in the future. I'm Justin Hubb for Marketplace.

[Sabree Benishore]

And in New York, I'm Sabri Benishore with the Marketplace morning report from 8pM American Public Media.