Time to Plant a New Farm Policy

By William R. Doerner

FARMERS in the U.S. have long stood in the anomalous position of being gradually and benevolently subsidized out of existence. For the overall American economy to become ever larger, a smaller and smaller segment of its work force has had to take over the job of growing the nation's food, thus allowing the rest to use their energies in other industries. The U.S. was able to urbanize as rapidly as it did in large part because the Government helped those who chose to stay on the land to become steadily more productive. It built land-grant colleges for their sons, provided constant and up-to-the-minute weather information, paid for agricultural research, and, most important, adopted a whole series of policies that made the U.S. farmer a privileged denizen of the land.

The result is that within only a few generations, the American soil has bloomed as almost no one believed it could. Even though the U.S. farm population has continued to shrink from one out of every seven job holders to one in only 25 just since World War II--U.S. farmers are still able to produce a harvest out of all proportion to the nation's food needs. Whenever such surpluses hit the market, they obviously caused prices to shoot downward, often to the point of cruel losses to the men who grew the food. To this almost unique problem of enormous overproductivity on the farms, the Government eventually was forced to find a solution. Exactly 40 years ago from this year's spring planting season, Washington began paying many of the nation's farmers not to use part of their land for crops. The aim was to keep farm supplies down to roughly the current level of demand, and thus keep prices up to roughly what farmers thought to be a fair rate of return on their time and money.

That plan has long since become a kind of monster. In fiscal year 1972, the Government pumped out some $4 billion in farm subsidies, v. $3.8 billion in 1967. Many U.S. farmers along with their local tractor dealer, seed salesman and mail-order supplier--have come to count on Washington's annual check for part of their income, whether or not they actually need it. The maze of rules surrounding federal farm policy has turned farming into a kind of beat-the-Government-at-its-own-game business, encouraging some farmers to collect subsidies that rightfully they should not get.

Most important, the subsidies have not been doing their job of late. Current farm supplies are substantially below demand--an imbalance that is forcing up food prices at their fastest rate in a quarter century. Wholesale prices of meat, produce and other farm goods rose a disturbing 2.9% in January, having already vaulted by more than 5% in December. The total increase for both months topped a 26-year record for food inflation in so short a period. These increases soon will be passed on to the consumer.

Every President since Truman has despaired of federal farm policy and tried to change it. Some have succeeded in making adjustments; the level of price supports, a plan under which the Government guarantees that commodity prices will not fall below a certain set amount, was lowered slightly in the Johnson Administration, for example. In the face of a powerful farm bloc in Congress, however, no President has dared to seek major changes in agricultural policy. But Richard Nixon, faced with growing consumer outrage at food prices and with no need to seek reelection, last week unveiled a daring plan that would, over perhaps three years, abolish federal farm subsidies, marketing controls and acreage allotments that limit farm supplies.

His goal, the President said, is to reduce the farmer's dependence on Government payments for part of his income, give him more freedom in planting decisions, and pave the way for increased crop exports. If the plan passes Congress --and that is anything but certain--the Administration would retain some residual authority to pay farmers to keep part of their land idle. But White House economists believe that such powers will not have to be used in the foreseeable future. "The Government is going to get out of the agriculture business," exults one economist who frequently advises Nixon. "They are sneaking out and they cannot fully admit it, but they are trying to do it." The effort is bound to touch off an acrimonious debate from the barnyard to the halls of Congress over just how the U.S. should change its farm policy, or whether it should be changed at all.

As some of the best-fed, not to say most overfed, people in the world, Americans obviously have much to be grateful for in the farm program. Moreover, the U.S. is hardly the only nation that subsidizes its farmers; many foreign countries have even more elaborate arrangements--and higher food prices. But like any other set of rules that artificially tether free markets for a long time, Washington's agricultural policy has promoted distortions. Western farmers, for example, have been paid by the Government to irrigate formerly unusable land that the very next year was placed in a soil conservation program and thus, for still a further price, was held out of production. Subsidies to milk producers are paid on the basis of the butterfat content in their cows' milk, which naturally has encouraged dairy farmers to produce, through the breeding and feeding of cattle, ever richer milk. Consumer tastes, of course, have gone precisely the other way --to large quantities of fat-free milk.

The system forces the U.S. consumer to pay two sets of hidden food costs. First, he pays more at the cash register than he would under completely free markets because the Government does not let the price on many basic commodities fall below a certain level. Then there is a second bill in the form of tax moneys that the Government spends on subsidies. Economist Charles Schultze, former U.S. budget director, estimates that consumers would pay a total of $4.5 billion less for food each year if all Government farm programs were abolished.

During his first term, Nixon showed no more zeal than his predecessors in bucking the congressional farm bloc, which often professes to oppose handouts, but clearly wants any substitute policy to guarantee just as good a deal for farmers. Indeed, the President went after the farm vote in 1972 armed with an extra helping of dessert for almost anyone who owned a tractor. He named Earl Butz, an exceptionally outspoken and effective farm advocate, as Agriculture Secretary; he allowed a higher than usual 60 million acres to be taken out of production. Needless to say, farmers did their duty at the polls.

Other forces were at work to hold down farm supplies and prop up food prices last year. For one thing, meat production is subject to normal supply cycles, which rise and fall as farmers respond to current prices by breeding more animals when prices are high and by cutting back when they are low. By unhappy coincidence, the cycles for both cattle and hogs reached their low points in unison during the last few months. Moreover, the economy as a whole shifted into high gear at the same time, and meat prices jumped. Demand from foreign buyers also jumped. The Soviets, whose harvest was a disaster, ordered $1.2 billion worth of American grain. As a result, prices surged; wheat prices, for example, jumped almost 45% between July and October.

By the first of this year, the nation's storehouses had been drastically emptied of grain stockpiles and fattening animals -- a fact that was driven home to White House policymakers by the spurt in wholesale farm prices. Suddenly it was clear that the "increased supplies route" long advocated as a counter to high food prices would have to be nudged into motion at once. Treasury Secretary George Shultz planted the seeds of the new policy in the Administration's announcement of Phase III last month.

The Phase III rules reduced the so-called wheat set-aside, or acreage taken out of production, from about 15 million in 1972 to zero in 1973, thus encouraging farmers to plant a much bigger crop. In addition, set-aside acreage for other crops can be used this year for grazing, a provision that should goad farmers into building up their livestock herds. To make certain that domestic grain requirements get first priority, the President eliminated export subsidies for the next twelve months and ordered the Government's Commodity Credit Corporation to unload most of its remaining stockpiles on the home market as soon as possible.

But not even the long overdue retreat from subsidies proposed by Nixon will get the Government completely out of agriculture -- nor should it. The job of providing an orderly, dependable supply of food from field to table is such an elementary social necessity that public policy must indeed be involved in it. But the Administration can still do much to extricate itself from needless details, to encourage unfettered markets, and to keep down the cost of basic foods. The U.S. would do well to adopt these farm policies:

> Increase supplies. The overall objective of any U.S. agriculture program should be to increase farm output substantially. When the supply of foods that are now scarce catches up with demand, the price that consumers pay for them will begin to fall, or at least to level off. However, farmers should stop worrying so much about price-deflating oversupplies of beef and other meats. As long as the U.S. economy remains strong, the American demand for more and better meat products seems almost insatiable. As for grains, supplies should grow because of a major increase in foreign demand, brought on by new prosperity and new political realities. If Soviet leaders are serious about their promise to produce more meat, the Russians will almost certainly become long-term grain customers for American farmers. China has started buying U.S. cotton for the first time in 20 years. The Europeans, and especially the Japanese, show signs of enjoying a large part of their higher paychecks on their plates, making them promising customers as well.

> Abolish parity. Probably no concept in modern government is more meaningless than parity, which is the relationship between the price that farmers collect for their crops and livestock, and what they pay for the goods and services that they use. Parity harks back to Washington's Depression-era effort to raise farm prices to their level in 1910-14, which farmers then remembered as "good times." The optimum parity is 100, the theoretical level that prevailed in pre-World War I days. Today, parity is running at a relatively high mark of 80. Considering that farm productivity has changed drastically in six decades, the notion of fixing farm prices to achieve a certain parity point is about as sensible as an attempt to set the defense budget on the basis of musket prices. The Administration wisely hopes to abandon parity in setting new price floors.

> Guarantee income rather than prices. Secretary Butz has repeatedly argued that the justification for high food prices is the farmer's understandable desire to earn an adequate income. Government subsidies and price supports, however, line the pockets of big, rich farmers far more than lower-income people on the land. Thus Washington should stop interfering with the free movement of agricultural prices and attack the periodic problem of low farm income directly --by supplementing what the marginally efficient farmer gets at market with outright Government payments. Under this plan, the Government would determine just how high the market prices for major crops should be in order for farm families to live adequately. If prices fell below that level, the Government would make up the difference by a direct income grant. Huge agribusiness firms and other large-scale farmers would not often qualify because their diversified operations would keep market fluctuations in any one crop from having a huge effect on total income.

> Make it easier for young farmers to get started. Despite an overabundance of farmers in general, the U.S. has a shortage of young farmers. Many young men brought up on farms who would like to stay are forced to find jobs elsewhere because their parents' operation is too small or inefficient to offer a future. Yet the capital required to get into production on even a modest farm has shot up to at least $40,000 -- a sum that few farmers starting out could obtain. Just as the Government now offers special aid to "small" businesses grossing several million dollars annually, it should do more to encourage the flow of young blood into productive farming by helping qualified ag school graduates obtain credit. Such a plan would offer a fighting chance to families who are passionately attached to farming as a lifestyle.

More and more statesmen, and even some farm leaders, want to turn Washington's agricultural effort away from a wasteful and expensive campaign to limit production, and toward the goal of allowing the nation to realize its full bounty. They have been rebuffed and delayed largely by politics, both at home and abroad. The time finally seems to have arrived when the bulk of American farmers are well enough off financially to make the change without having to endure undue jolts, and when foreign customers are eager to buy more of America's agricultural wealth than ever before. The Administration's willingness to seize that opportunity, says Economist Walter Heller, "represents its best opportunity to go down in history on the economic front as a constructive leadership." The President would be opening a front at a point that most economists, both liberal and conservative, believe is ripe for a Nixonian counterrevolution.

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