Magic on the Farm
Bringing the magic of the marketplace to the farms of the United States, the goal of President Reagan’s new farm bill, will not be easy. In principle the proposal is sound and enjoys widespread support. But there is a long leap from principle to practice.
John R. Block, the secretary of agriculture, has outlined a five-year transition from the present costly program of subsidies and supports to bare-bones income protection based on actual market experience rather than estimates of production costs. An important task for Congress will be to determine if that transition is long enough to avoid widespread farm chaos. The Department of Agriculture puts the cost of this new program at about $30 billion over the next four years, compared with $58 billion under existing programs. By 1989, according to the reckoning, the annual cost would be one-third that of continuing existing programs.
Estimates are risky. When the 1981 bill was drafted, sponsors estimated that the cost over the next four years would be $9.8 billion. In fact, it was $52.8 billion, a record high. And even at that price the law did not buy farm prosperity. Clearly, something new is needed.
The search for a new program is complicated by factors that make it difficult to find any workable formula, including that of the marketplace. There is a loss of competitiveness for American farmers in world markets. And there are restraints on world trade that distort competition.
Furthermore, the American farm is changing as the small family farm has yielded to larger units. Huge corporate farms make up about 5% of the total, are not growing, and probably would decline if tax incentives that now encourage them were withdrawn. What count most, and what should be at the center of congressional concern in developing the farm bill, are the 680,000 commercial farms with gross annual income of $50,000 to $500,000. These are still for the most part family run.
About 25% of commercial farms are in trouble with a ratio of debt to assets of more than 40%, including 30,000 farms that already are technically insolvent. The accumulated farm debt is more than $200 billion, with debt service taking 20% of operating costs. Assets have fallen $100 billion since 1981 as farmland prices have dropped.
At the heart of the Reagan Administration’s policy is a return of American farms to world competition. The policy has the further advantage of protecting consumers from prices inflated above the world market by subsidies and protection. But it can work only if negotiations free global trade.
Not everything that needs to be done can be done by the farmer. Improved productivity alone will not turn around the farm recession. But if the dollar returns to a lower valuation, interest rates fall, farmland prices settle at a realistic level and subsidies no longer distort prices, there would at least be a chance that American wheat, soybean and corn producers would be able to meet the prices of Argentina, Brazil and China.
There is another consideration that must not be ignored in writing the 1985 act. The world surplus of today could, in a single season, become a world shortage if grain security were not provided. A failed monsoon in Asia, weather vagaries in the Ukraine and the plains of Canada and the United States, a drought in Argentina would have quick and dangerous effects that no program based solely on market demand could remedy. The proposed legislation would maintain the PL 480 foreign food aid programs as well as wheat and feed-grain reserves for humanitarian purposes, but would abandon other emergency reserves. More, not less, is needed.
There are experts who see the American family farm falling victim to the same world competitive forces that have overwhelmed some industries. That need not be the case. But that is why the new farm bill is so important.
