How We Gonna Keep ‘em Down on the Farm?

WASHINGTON — A few months back there were howls when President Reagan, as a favor to farm-state Republicans, announced a transfer of subsidized wheat to the Soviet Union. Knowing what we know now, perhaps we should be grateful Reagan didn’t ship the Soviets anti-tank weapons in exchange for journalist Nicholas S. Daniloff. But in the hubbub over the dizzying notion of U.S. taxpayers bailing out Kremlin agronomists, the why went unnoticed. Weren’t Soviets almost pleading for U.S. grain just a few years ago?

They were, but no more. The key to understanding current agricultural economics is: The United States is no longer the only country awash in excess food. Almost every country that exports food has more than anyone knows what to do with. And though there is still not as much food as the hungry of the Third World need, supply far exceeds demand for the countries that can afford to buy.

Unfortunately, the legislation Congress will consider next year in yet another attempt to resolve the seemingly endless “farm crisis”--and to contain federal farm spending, which in fiscal 1986 hit $25.6 billion, more than 10 times the 1980 level--focuses mainly on domestic agriculture, leaving the world situation for somebody else to figure out.

How overstocked is the world market? Before their bequest from Reagan, the Soviets were buying ample grain at low cost from Canada and Australia--which protested stoutly when our subsidy undercut their subsidies. Several developing nations, such as Brazil and Argentina, have become important agricultural exporters. The European Economic Community countries, once enthusiastic buyers, now produce more than they consume. Some EEC members resisted the recent admission of Spain and Portugal, because the Iberian nations are looking to unload farm products, too.

Even China has started exporting farm goods. Although modern farming techniques and limited forms of capitalism are just being introduced, China might rival the United States as dominant farm producer of the next century, given the country’s land expanse, agricultural tradition and innumerous citizens accustomed to hard work for minimal wages.

Much of this international surplus is the unanticipated product of U.S. aid programs. As a nation we should take pride in having freely shared agricultural technology with the developing world and for underwriting foreign agriculture projects. Our influence on other nations wasn’t purely altruistic, however. During the 1960s and ‘70s, when U.S. domestic programs set most world food prices, the fact that we kept prices relatively high encouraged other nations to jump into agricultural production. U.S. domestic prices were propped up mainly to allow U.S. farmers to live well--a wrinkle most conveniently overlook when listing their many grievances against Washington.

The significance of all this is that the United States can no longer manage its agricultural sector by tinkering with U.S. domestic programs. Trade agreements have become just as important.

For example, newspaper reports tend to portray as a “mystery” the fact that the U.S. agricultural balance of trade is falling even as the Reagan Administration replaced the policies that propped up the price of U.S. exports with a new subsidy program to keep export prices down.

This isn’t mysterious if one takes into account the increasing volume of farm products being imported into the United States--even though U.S. farmers produce far more than their countrymen need. Foreign supplies are economically attractive when they cost less, which they sometimes do given other countries’ lower labor costs and subsidies even higher than ours. Meanwhile, total world food trade has fallen in dollar value, because of lower prices caused by international oversupply and because fewer countries are buying.

World food oversupply stems from several factors, including increasing subsidy levels in our nation and many others that encourage continued production increases in defiance of economic logic; declining population growth in consumer nations, and the fact that businessmen in the West and government planners elsewhere expanded agricultural production during the go-go 1970s, hoping for profits. Many of those Western businessmen were family farmers, who borrowed to the hilt to increase output. Now, many demand protection from the very economic forces they helped set in motion.

Two basic approaches are available for restraining oversupply: reducing subsidies or controlling production. When the Reagan Administration took office it endorsed the former, planning a substantial cut. Instead, Reagan knuckled under to farm lobbyists, signing legislation that led to this year’s phenomenal increase in spending. By last summer, with the election approaching and many Republican Senate seats at issue in farm states, Reagan had become such a convert to the throw-money approach that he not only backed the Soviet subsidy, he announced a new program extending commodity supports to grain that wasn’t even stored, merely piled on the ground.

Two leading lights of the Democratic Party, Sen. Tom Harkin of Iowa and Rep. Richard A. Gephardt of Missouri, are now pressing for the alternative strategy: production controls. The Harkin-Gephardt measure, modestly called the Save the Family Farm Act (just once could we see a piece of legislation titled the Sweetheart Deals for My Constituents Act?), is expected to be a major item on the Democratic agenda next session.

All manner of policy arguments are already swirling around the Harkin-Gephardt proposal. Some of them:

Is it actually a “national food tax,” as some opponents claim? In a sense, controls would decrease supply, causing food prices to rise an estimated 5%. But Harkin-Gephardt would simultaneously cut subsidies, which Reagan has been unwilling to do. U.S. retail food prices are low compared with the rest of the world, in part because the true cost of agricultural production is disguised in the federal deficit. Surely bringing the true cost out into the open makes sense and would foster clearer thinking on the subject.

Are family farmers really as poorly off as their champions profess? No, the per capita disposable income of farm residents is only slightly under that of U.S. citizens on a whole; this spring Kansas, Nebraska, Iowa, Montana and the Dakotas led the United States in personal income increases as farm subsidies soared.

Will federal production controls put some farmers out of business? Probably. It’s hard to imagine any legislative action beyond perpetual subsidy increases that would not result in some farmers shutting down. This is sad but economically unavoidable. And why should farmers be kept in clover forever at public expense, when every day other small businessmen fail and other workers lose jobs? Farmers aren’t the only ones with families.

Should the Democrats manage to cut U.S. agricultural production, the gesture may prove futile unless something is done through trade negotiation to persuade our allies to cut production. Otherwise we will simply be making room for more world surplus to flow into the U.S. market.

This is the kind of complication nearly everyone would rather avoid. Congress can’t control the actions of foreign agriculture agencies as it can the U.S. Department of Agriculture; Reagan has shown little interest in the type of complex, painfully constructed agreements that would have to be arrived at to restrain worldwide overproduction.

Already most of the world’s food producers respond to internal surpluses by hiding behind tariff barriers. The EEC, for example, imposes an artificial price floor of about $182 under a metric ton of corn. U.S. farmers can deliver a metric ton of corn to an EEC port for about $127. Then the EEC slaps on a duty of $55, making the foreign corn cost $182 too. (Oops. It’s not a duty. It’s a “variable levy.” The EEC would never impose “duties,” which are forbidden by a U.S.-EEC trade agreement.) In turn the United States imposes tariffs on sugar and beef from countries that produce them more cheaply.

Everyone remembers the flap over Reagan’s visit last year to the German cemetery at Bitburg. But who remembers what took the President to Europe in the first place?--a summit conference with EEC leaders on multilateral reductions in agricultural overproduction. This was lost in the Bitburg mania. Many EEC nations, especially highly protectionist France, delighted in the distraction. The summit not only ended without agreement, France refused even to say when it would discuss the subject again. Since then there’s been no serious Administration effort to rationalize world agricultural production. This won’t be easy; but until such time it’s hard to imagine any domestic commodity program working.