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A closer look at Reagan's payment-in-grain idea

By Jonathan HarschStaff correspondent of The Christian Science Monitor / December 13, 1982


President Reagan's Christmas present for the troubled farm sector is raising both hopes . . . and eyebrows.

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In dealing with grain silos rather than MX silos, the President has found more solid support on Capitol Hill.

Farmers and their congressmen generally welcome his enthusiastic support for the latest US Department of Agriculture (USDA) plan to boost depressed farm incomes. This time, the plan is to use government-owned surplus grain, cotton, and rice to compensate farmers who agree to additional reductions in their planted acreage next spring.

This ''payment in kind'' (PIK) proposal for dealing with surpluses was discussed first in 1933 and used with mixed results in 1961. The aim is to cut government spending on farm programs down from the current $12 billion-plus annual level, while at the same time brightening the farm-income picture.

If all goes well, farmers will soon be able to sign up for PIK compensation. First, however, they'll have to agree to idle up to 30 percent more of their land on top of the 20 percent already covered by existing acreage reduction programs. If PIK is effective in encouraging more farmers to reduce planting, the results could include a smaller US harvest next autumn, shrinking US surpluses, and reduced government costs for storage and interest payments on surplus stocks.

But some agriculture specialists outside government are cautious about such neat assumptions. University of Chicago economist D. Gale Johnson has reservations about the PIK program. He notes that one selling point is that PIK may, as William Lesher, assistant secretary of agriculture for economics, argues , reduce federal spending by $3 billion to $5 billion over the next three years. But Professor Johnson notes that any government grain stocks used to compensate farmers represent ''anticipated revenue'' foregone. He says that farm-belt congressmen may support PIK as a way because ''it permits a level of spending in effect well beyond what could be done if the money had to be appropriated directly.''

One respected former USDA official agrees with Johnson that Congress may endorse the PIK plan with the aim of pumping support to farmers without boosting the federal deficit. But this expert warns that ''there is a lot of slippage in any program to reduce farm production, so that you may pay for a 100-bushel reduction and get only 50 bushels because the wrong people come in, they give you their poorest acres, and then intensify on the rest.'' He warns that the result could be an overall increase in supplies. This, he says, would depress prices further and push price- support payments higher.

Despite warning that PIK could backfire and increase the federal deficit, the former USDA official says Congress and the Reagan administration may be left with no politically acceptable alternative. Huge surpluses simply may require a PIK solution no matter how costly, he says, because:

* ''You can't move these stocks into export markets with subsidies without setting off retaliation.''

* ''You can't shove them into the domestic market without driving down the price and lowering farm income.''

* ''You can't dump them without incurring public displeasure.''