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

By , Staff correspondent of The Christian Science Monitor

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

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.

Recommended: Default

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.''

* ''You can't store them forever because in about seven years the cost of storage eats up the value of the product.''

One reason for such a realpolitik reaction from specialists, and for the polite rather than boisterous response from the farm belt, is that details of the plan are still undecided. Grant Buntrock, the USDA's cotton, grain, and rice price-support division director, explains that since ''half a dozen different options are under consideration,'' it will be ''some time after the first of the year before the final details are worked out.''

Mr. Buntrock says that the only across-the-board agreement so far is that surplus stocks are far too high. In the case of corn, he points out that ''we are projecting going into 1983 with a carry-over of between 2.5 billion and 3 billion bushels, or close to 1 billion bushels more than we need for an ideal supply-demand balance.''

The theory behind PIK, says Buntrock, is that the government as well as the farm sector will benefit ''if we can get 100 bushels out of production for every 80 bushels we pay in kind by compensating the farmer with 80 bushels every time he cuts back an acre with a 100-bushel expected yield.''

Along with most other farm organizations, the powerful American Farm Bureau Federation is supporting the PIK concept while withholding full endorsement until the specifics are made public.

Bruce Hawley, the assistant director of the Farm Bureau's Washington office, explains that he is ''pushing the administration to give us more details.'' Currently, he says, the PIK options include:

* Payment in kind for farmers participating in current acreage reduction programs who agree to an additional 10 to 30 percent reduction in planted acres.

* Allowing individual farmers, on a bid basis, to put their entire farms in the program, with USDA oversight to prevent excessive participation.

* A bonus export commodity program, which is the federal government's version of a rebate program, so that if a buying country agreed to buy 10 million tons of grain, it would receive an additional quantity of surplus grain thrown in for good measure.

Farm Bureau officials argue that any PIK program must be tied to far more aggressive measures to export US farm products. Otherwise, they insist, cutting back production will simply allow other producers to capture a larger share of world markets.

Another concern among farm groups is that the administration may be proposing PIK as a way to reduce the government's cash outlays on farm price supports quickly, without considering the long-term consequences.

One key congressional expert predicts that Congress will reject any PIK legislation if Agriculture Secretary John Block insists on tying the program to the shelving of traditional price-support mechanisms. Congressmen, he says, ''are not in any mood to further weaken the safety net for the American farmer in return for a program they don't know will be successful.'' He adds that Congress is looking for long-term solutions in such areas as supply management and soil conservation. Without an overall restructuring of farm policy, he says , ''if PIK succeeds in reducing the supply and improving prices, then farmers will simply rush back in to increase production once again.''

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...