Food prices are expected to drop in response to the changes in the federal income tax system being discussed in Washington between Senate and House conferees, according to former U.S. Secretary of Agriculture John R. Block.
Block based his prediction on his belief that competitive pressures will force food companies to pass along to consumers the substantial savings realized if the corporate tax rate is lowered as anticipated under whatever plan emerges from Congress.
Block was in Los Angeles last week in his new position as president of the National-American Wholesale Grocers' Assn., a trade group. He resigned his post as the senior USDA official in February after five years as a Cabinet member in the Reagan Administration. In an interview with The Times, the former secretary commented on a number of issues, including the impact of tax reform.
"The food industry is (assessed) an exceptionally high tax rate when compared with the manufacturing sectors of the economy such as those for steel and automobiles," he said. "For instance, food wholesalers are now paying 42% of their corporate income in taxes and this rate will be reduced to about 33% under the new plan.
"Initially, the food company executive will want to keep this savings, but his competition won't let him. So, they'll eventually pass along the gain in the form of lower prices."
Block made his remarks at Community Food Resources Inc., a nonprofit organization that distributes surplus food donated by manufacturers, wholesalers and retailers to more than 350 local outlets that serve the needy. His stop was meant to lend support for the 15-year-old operation and to encourage area food wholesalers to double contributions to the group, which feeds about 450,000 poverty-stricken Southern Californians each month.
However, there is some concern that corporate cooperation with area food banks may lessen if tax reform is implemented.
"There is talk," he said, "that charitable contributions might decline under the proposed tax reform plan because there is not as much of a benefit to the donor (as under the present system). Nevertheless, look at all the food that can be given away--the underweight, blemished or damaged items--and companies will realize what they cannot write off (the edible, but unsaleable food) they throw away or discard. But they can deduct the damaged food if they donate it."
A survey conducted by Second Harvest, a national network of food banks, recently estimated that wholesalers and retailers together accounted for 50% of the $231 million that was contributed to the coalition in 1985. Even so, this number pales in comparison to the amount given away in recent years by Block's former agency. In fiscal year 1985, for instance, the USDA distributed more than $1 billion in surplus food.
Despite the federal government's efforts, an enormous stockpile of dairy products and other commodities remain in storage as a result of price support and/or guarantee programs for farmers. Asked why the USDA doesn't simply distribute the bulk, if not all, of the surplus food to needy Americans and the hungry overseas, Block said that such a move would create havoc in some economic sectors.
"(The USDA) is giving away a lot of food, but they can't just open the flood gates because that would hurt commercial sales of a number of products," he said. "I personally know of situations when government surplus food wound up in the homes of middle-income families.
"For instance, a grandmother is given a five-pound block of cheese from a church or whatever. She can't eat all that cheese and then she gives it to other family members or neighbors who are not needy. Those people then stop buying cheese (and that hurts the dairy industry)."
Unleashing unrestricted amounts of the vast U. S. food surplus in those Third World nations plagued with hunger might also set off an unintended chain reaction, Block said.
"If we give our entire surplus to developing countries around the world then that would impact farmers in surrounding areas, drive them out of business and thus ruin that region's remaining agricultural sector," he said.
Ken Waters, an official of World Vision, a Pasadena-based group involved in hunger relief efforts, in a separate interview agreed with Block's statement and said that "if U.S. aid was liberally distributed in a developing country then that would have a negative effect on the local economy."
On the topic of assisting those countries wracked with starvation, Block said that the suffering continues despite infusions of aid from the United States and Europe. In particular, the former USDA secretary was critical of the Ethiopia's Marxist government.
"I know for a fact that the Ethiopians only have distributed donated food to their friends and not to their (political) enemies within that country. They just don't want to distribute food, in some cases, for political reasons," he said. "(International) charitable organizations are making food available to those areas (in Ethiopia and elsewhere) suffering from famine. It's just a matter of whether it's delivered to the right people."
Kevin Danaher, an analyst with the San Francisco's Institute for Food and Development Policy, said the Ethiopian government has been known to misappropriate food aid for strategic reasons, but that the end result is to only further injure famine victims.
Block contends that there is no such thing as a worldwide food shortage today and that hunger is mostly a problem of ineffective distribution, which currently plagues regions in Sub-Saharan Africa.
"Not only is there no shortage of food, but there is also a reserve of food-producing capacity. In this country alone, 30% of our wheat acreage, 30% of our rice acreage and 20% of our corn acreage is idle," he said. "We have capacity that is not being used and that's because there is not enough demand. That's why American agriculture is suffering today--not enough demand. . . . Things like Farm Aid call attention to the plight of farmers, but in terms of actual dollars, they do not generate enough to put a dent in the problem."
After five years at the highest level of the federal government, often as the target of criticism as the architect of Reagan Administration food policies, Block has apparently been well prepared for his current position as leader and chief lobbyist for food wholesalers. He was readily prepared to answer a question about the often-heard complaint from farmers and supermarket executives alike that "middlemen" are to blame whenever food prices rise sharply.
"The image of the middleman has been exploited," he said. "It's easy to point the finger at the other guy, but food wholesalers take about 1% profit from their gross sales. In my current position in the middleman chair,I'm going to work to bring about better understanding of this business. But I guess I have my work cut out for me."