It Could Be a Catastrophe

Congressional leaders and Agriculture Secretary Richard E. Lyng have adopted a cautious response to the drought. Caution is the appropriate response at this time--all the more welcome because of the pressure for overreaction in an election year.

“There’s no question about the seriousness of the drought,” Lyng told 10 farm-state governors Thursday in Chicago. It is clear, however, that the dimensions of the disaster are not yet known, and will not be known before July. Furthermore, the direct effect on consumers will be softened by the stocks that remain from previous harvests.

The best estimates for the moment are that (1) the crop loss will be less than 25% of affected crops like wheat, corn, soybeans and other grains, (2) the actual effect on farm prices will not exceed 5%, and (3) global supplies are adequate to meet world needs.

But, as a farm official in Montana commented, “A drought just really impacts everyone.” The effect on the incomes of many farmers, most of them still recovering from the recession of recent years, could be devastating. Rising prices will not have a major effect on American consumers but will almost certainly force developing nations, struggling with food deficits, to curtail imports.

Lyng has chosen to respond with emergency regulations and supplies to ensure feed for live-stock and to discourage panic slaughtering of animals. That is an appropriate first step. For others in agriculture, the effect is mixed and varied. As prices soar, some farmers will have greatly improved profits and the government will have enormous savings in subsidies that it would other-wise have to pay. Wheat is an interesting example. About 85% of U.S. wheat comes in the winter crop, and it is a bumper harvest this year, with the drought affecting only the smaller spring wheat crop. There are huge discrepancies among regions, and even from one portion of a state to another. Half the spring wheat of the Northern Plains may have been lost, and one-third of Midwest corn is affected. But rain in the next two weeks could rescue much of the endangered corn and soybeans.

Unfortunately, only about 10% of the eligible farmers took out federal crop insurance this year. Those unable to plant their corn and wheat because of conditions beyond their control will be eligible for deficiency payments. There are no general income compensation measures for the others, however. There will be increasing pressure to help them as their crop losses become clear. And there will be pressure to help farmers with crops that are not under federal programs but who also face critical losses because of the drought, like Michigan’s cherry growers.

Global grain supplies are at the lowest point in 14 years, but they are substantially higher than in the supply crisis of 1972 to 1975. Canada, the No. 2 exporter after the United States, is sharing the same drought problems that have affected the Northern Plains. The European Community is reporting a good harvest. The largest exporters of the Southern Hemisphere, Argentina and Australia, which are now planting, have good prospects for expanded crops. There is an expectation of somewhat reduced demand from the two largest grain importers, the Soviet Union and China, because they have had fairly good crops.

There remains a possibility for reducing losses in the U.S. drought. “The situation can turn around,” according to the Department of Agriculture. But prospects for the kind of substantial rain needed to reverse the situation are poor, according to a special drought alert issued by meteorologists on Thursday for the north-central area of the United States. If those rains do not materialize, then there will be a “major catastrophe,” the Department of Agriculture said. That will be the time for Washington to take broad emergency measures.