A Harvest Too Good to Afford

By WALTER ISAACSON

Farmers face low prices and an assault on their subsidies

Nature was kind this year, perhaps too kind. As the last cuttings of wheat are taken from the plains, the projected bumper harvest of 75 million metric tons (2.8 billion bu.) will smash last year's all-time high. The corn crop, 202 million metric tons, will also set a new record. Total American grain production will hit 322.5 million metric tons, more than 50% greater than the Soviet Union's third poor harvest in a row. But the bounty is bittersweet: farm income has fallen almost 40% since 1979. All that newly harvested grain has sent prices plunging, while farmers' costs, especially interest rates, remain as high as an elephant's eye.

Yet many farmers will be largely protected from financial losses in 1981, as they have been since the Dust Bowl disasters of the 1930s, by an enormously expensive array of federal subsidy and price-stabilization programs. Since wheat prices this year have already fallen 21-c- below the "target price" of $3.81 per bu., farmers can expect some $350 million in "deficiency payments"--literally, Government handouts--to make up the difference. In addition, more than 1 billion bu. of grain are expected to end up in farmer-owned reserves by the end of the year under a program that will lend farmers close to $2.9 billion to keep it off the market. The Agriculture Department is also expected to buy 10% of this year's dairy production, at a cost of $1.9 billion, to keep prices high. The estimated federal outlay in fiscal 1982 for farm subsidies and loans: a staggering $3.9 billion.

The Administration is also engaged in an all-out effort to increase farm exports. Agriculture Secretary John Block leaves on a sales mission to the Far East early next month and another delegation from his department leaves for Moscow in a week. Already 60% of U.S. wheat and one-third of all farm produce ($45 billion worth) are sold overseas, propping up domestic prices to some extent and thus reducing the need for direct subsidies. The Soviets will require 40 million tons of imported grain this year. After being rebuffed by President Carter's embargo last year, Moscow has been cautious in making American purchases. They have contracted for only 6.5 million tons since Reagan lifted the embargo.

Last week, however, the formerly sacrosanct farm subsidies came under a surprising assault in the Senate. Rejecting the increases proposed by its agriculture committee, the chamber trimmed milk price supports, once the most sacred of cows. Protection for peanut planters was also reduced.

The quadrennial farm programs, representing Government intervention in the marketplace in the extreme, are the antithesis of Reaganomics. They also tend to produce budget-busting expenditures. So President Reagan proposed a farm bill that would abolish target prices completely, lower dairy price supports and eliminate acreage allotments for peanuts. Explained Block: "Farmers should look to the free market for their income, not to the Government." Even so, the bill was expected to cost $10 billion over five years.

The Senate Agriculture Committee, however, restored the subsidy and allotment programs, increased dairy price supports and raised the cost of the bill by 40%. The House committee's version was even more generous. But the united front usually exhibited by farm-state legislators, in which each protects the others' commodities, showed signs of weakness. Senate Agriculture Committee Chairman Jesse Helms of North Carolina had his staff draw up a bill that mainly protected tobacco and peanuts, important products of his state. Senator Robert Dole of Kansas quietly worked on his own version, eventually adopted by the committee, which doubled Reagan's proposed subsidies for wheat and corn. Reagan further fractured farm unity by promising Southern Democrats, whose votes he needed for his economic package, that he would not oppose their sugar and peanut supports.

The most important fight last week was over dairy prices. The 1977 farm bill supported milk products at 80% of parity. That means that the price farmers receive for milk products represents 80% of the buying power relative to prices in 1910-14, which were golden years for farmers. The Senate Agriculture Committee's bill would have set milk price supports at 75% of parity, at a cost of $4.5 billion over five years. But the Senate, by a vote of 51 to 42, approved an amendment by Iowa Republican Roger Jepsen substituting the Administration's original proposal. The new version would effectively allow the support price of milk to fall to as low as 65% of parity by fiscal 1983 before pegging it at 70%, at a projected five-year saving of $1 billion.

Helms was among those voting to trim the milk price supports. The next day, when peanut programs came up for a vote, he found milk-state Senators and others lining up against him. Agriculture Committee Member Richard Lugar, a Republican and former mayor of Indianapolis, came close to defeating both the committee's proposal to raise peanut price supports from $435 to $596 a ton and the system of allotments, which are Government franchises that limit the acreage on which peanuts can be planted. Helms was finally able to save the price support increase, but not the allotment program.

Sugar and tobacco interests fared better. After three years of doing fine without Government subsidy, sugar will now be supported at 180 per Ib. for no good reason other than the clout that sugar interests wield. But the Senate did cut back on the increase in grain target prices recommended by the agriculture committee and farm lobbyists. The committee bill would provide subsidies when wheat prices fall below $4.10 per bu. The full Senate lowered that target to $4.

Any changes that the House and Senate finally agree to make in the new farm bill will undoubtedly be relatively minor compared with other domestic cuts. But the heated debate on the Senate floor last week indicates a growing discontent with the favored status farmers enjoy in receiving protection from the vagaries of the marketplace. Despite the hardship amid plenty that plagues farmers this year, simply continuing-and further bloating-the bewildering array of support programs will do little in the long run to assure that future supplies are geared to demand. Meanwhile, every good harvest will be bad news for taxpayers. --By Walter Isaacson. Reported by Gisela Bolte and Johanna McGeary/Washington

With reporting by Gisela Bolte, Joanna McGeary/Washington

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