Congress Faces More Obstacles in Shaping Farm Aid Bill

Times Staff Writer

As Congress returns from its summer recess to tackle the farm problem once again, the lawmakers’ “mission improbable"--to rein in the soaring cost of federal subsidies while shielding debt-ridden farmers from bankruptcy--has become all the more difficult now that a fresh wagonload of budgetary and political pressures has been unloaded on Capitol Hill.

Those pressures include a newly passed congressional budget resolution requiring major cuts in farm spending, a White House threat to veto budget-busting bills and the forecast of a bumper-crop harvest this fall that could drive farm subsidies even higher.

When those new developments are combined with the fact that continued Republican control of the Senate in 1987 may hinge on the outcome of this year’s farm bill, it becomes clear that farm policy will be one of the toughest issues confronting Congress as it returns this week after a monthlong break.

Farm Deadline Sept. 30

Facing a Sept. 30 deadline for reauthorizing farm programs, lawmakers “will have to vote either to cut programs and income to their farmers--or to bust the budget,” said California Rep. Leon E. Panetta (D-Carmel Valley), a member of the House Agriculture Committee and a Democratic leader on budget issues.

And Panetta added: “I don’t know what the answer is. Right now, a lot of different things are floating past this drowning bill--and we may just wind up grabbing onto anything possible.”


Agreed an aide to the House Agriculture Committee: “It’s a Catch-22 situation. We want to protect farmers’ incomes, be more competitive in world markets and save the government money. But those are mutually exclusive goals.”

Before Congress began its recess, the Senate and House Agriculture committees had nearly completed legislation that makes modest changes in farm programs but generally maintains farmers’ incomes amid the severe economic crisis that is gripping rural America.

Bills Exceed Limit

But now, the committees must face the fact that their differing versions of the measure exceed by at least $10 billion a deficit-reducing budget resolution adopted by Congress on Aug. 1, which called for holding farm spending to $58.2 billion over the next three fiscal years. And White House officials have warned that President Reagan will veto any spending bill--particularly the farm legislation--if it exceeds the budget plan.

“Where we stand now,” Senate Agriculture Committee Chairman Jesse Helms (R-N. C.) conceded, “is a big budget buster that will not . . . survive on the Senate floor--certainly not without some blood on the carpet.”

Nevertheless, some congressional aides said that they believed the Agriculture committees might be able to make the required cuts without tearing up their tentatively approved subsidy formulas.

“There are a number of (nonsubsidy) pet provisions that we may be able to strip away,” one aide said. “Or we could do something we’d probably do next year anyway"--that is, save $4 billion over three years by shifting from direct government loans to federally guaranteed private loans in the Farmers Home Administration program.

Radical Change Seen

However, another aide suggested that pressure is building for a radical change in farm policy.

It almost certainly will not be the “market-oriented” reform proposed last January by Reagan. Under the President’s proposal, price supports would be phased out and the sale of crops would be subject mostly to marketplace forces of supply and demand--thereby likely driving many farmers out of business.

Few lawmakers, especially those running for reelection in the Farm Belt next year, are willing to squeeze already strapped farmers even harder, particularly in light of the Agriculture Department’s Aug. 12 prediction of a record corn harvest, plus increased crops of soybeans, cotton, sorghum, oats and barley.

Instead, many farmers and their congressional allies are pushing what they call a “Populist” reform that would require dramatic reductions in planting acreage while providing steep rises in crop “loan rates,” which serve as federally guaranteed price floors.

Such a program, similar to schemes instituted during the New Deal era, would sharply reduce government subsidies but maintain farmers’ incomes by forcing substantial hikes in food prices.

Critics Cite Blow to Exports

However, critics contend, the higher food prices also would make American farm products even less competitive in world markets, thereby further depressing U.S. exports and leaving farmers in the same fix they face now.

Current farm programs, enacted in 1981, expire Sept. 30, and the four-year cost--originally estimated at $11 billion--will total at least $64 billion. These runaway costs were the fruit of a system of dual subsidies that encouraged farmers to produce more than American consumers needed, made farm products too expensive for foreign buyers to afford--and stuck the government with paying for mountainous surpluses and with supplementing depressed incomes.

A key component of this system involves price supports, which work this way: At harvest, a farmer borrows money from the government to cover bank loans and other debts until he can sell his crops. The government uses the farmer’s crop as collateral for the loan. If market prices do not equal the loan rate, which is computed on a per-bushel measure, the government must take over the crop and let the farmer keep the money.

The process effectively sets a floor on market prices, because most farmers merely default on their loans rather than take a lesser price for their crop.

‘Target Prices’

The second subsidy in the system, designed to prevent income losses from low crop prices, involves “target prices.” Farmers, under this system, are paid up to $50,000 per crop in direct cash subsidies, called deficiency payments, to cover the difference between what their products earn at market and higher target prices set by Congress.

In the 1981 farm bill, Congress arbitrarily set loan rates and target prices in anticipation of rising farm prices. That policy, which assumed a much higher inflation rate than the U.S. economy subsequently experienced, has resulted in prices that are higher in domestic markets than in foreign markets, which U.S. grain farmers in particular have come to rely on for nearly half of their sales.

As farmers have lost sales overseas, they have defaulted on crop loans at a higher-than-expected rate, and forced the government to buy up massive amounts of wheat and corn.

The Senate and House Agriculture committees--trying to make farmers more competitive in world markets while also protecting their incomes--have tentatively agreed to lower loan rates and freeze target prices.

But the problem is that even the four-year freeze of target prices that has been narrowly approved by the House panel would bust the budget. Moreover, the Senate committee is paralyzed by a clash between Republican leaders, who want only a one-year freeze, and a slim, overwhelmingly Democratic majority that is pushing for four years.

GOP Fears Election Issue

In addition, Republicans fear that the farm bill could become a major election issue for Democrats next year, when 22 GOP Senate seats are at stake, including at least seven from states where agriculture is a huge concern.

Besides partisan politics, two other factors complicate farm legislation in the House. One concerns whether the urban and suburban members who dominate the chamber will tolerate continued large subsidies for farmers. And the other concerns whether increasingly restive junior House members will be able to significantly change the farm programs originated by their elders.

“The younger members are more willing to look at a different approach,” said Rep. Timothy J. Penny (D-Minn.), a second-term congressman. “We haven’t done too well with the same old stuff the last few years.”