Farm policy tries to dig out from grain surplus. New program's effect will be felt by other food-exporting nations
Chicago — The nation's mounting grain surplus has finally forced the Reagan administration into action. It has announced measures that will probably control, but not significantly reduce, the surplus. In so doing, the administration is trying to strike a precarious balance, farm policy analysts say.
At home, the goal is to assure angry farmers that something is being done about the mountain of excess grain. Abroad, the administration is letting its competitors know that that something won't be enough to solve the problem.
``We're going to balance things up until we see what happens,'' says John Marten, economist with Farm Journal, a trade publication. The action is a clear signal that the United States is not backing down in its attempt to make its farmers more globally competitive, he adds.
The important announcement came last week, when the US Department of Agriculture said it would take actions to control the nation's runaway surpluses of corn and other feed grains. As it did this year, the program will force participating producers to idle one-fifth of their land normally planted to these crops.
The new twist is that producers will receive direct payments if they take an additional 15 percent of land out of production. At $2 a bushel for corn, that may not sound like much. But for an Illinois farmer with 400 acres of corn, it could mean $15,000 or more for doing virtually nothing.
``I think it will be greeted fairly well by producers,'' says Mark Drabenstott, a research officer with the Federal Reserve Bank of Kansas City. For one thing, farmers would get the money within the next few months, instead of after the harvest.
The idea of paying farmers not to produce does not sit well with this administration, but a compromise seemed inevitable. ``I don't think the administration had many options,'' Mr. Drabenstott says.
The administration was facing increasing farmer anger over the surpluses, which might show itself not only in next week's elections, but also in increased support for mandatory supply controls. These controls, supported by Sen. Tom Harkin (D) of Iowa and others, would force farmers to cut production. US Agriculture Secretary Richard Lyng, preferring a free-market approach, took a much less drastic measure.
``This really isn't designed to cut the carryover [the surplus],'' Dr. Marten says. But by taking a small step, Mr. Lyng ``has defused easily that shift of the middle to the Harkin-type supply control.''
If the appearance of doing something is important at home, the real impact of the new program will be felt by other food-exporting nations.
``To the Australians and the Canadians, this is bad news indeed,'' Marten says. They will be forced to cut back production or hike subsidies to farmers. The new program also continues budget pressure on the European Community to reduce its agricultural subsidies.
Historically, the US has played the role of food-supply adjuster by allowing its farmers to sell unwanted grain to the government. These government surpluses were acceptable in the '50s and '60s, when the international food trade was relatively small, and in the '70s, when everyone was producing more food for a seemingly insatiable third world.
But when demand slipped in the '80s, the US-held stocks quickly swelled. And foreign countries undercut US prices, often by subsidizing the price. The result: At the end of harvest next fall, it's estimated the US surplus of coarse grains will have quadrupled in just three years.
Now, the US appears unwilling to cut production to bring supply back in line with demand. The new program is one more signal of the administration's commitment to move US agriculture from adjuster to world competitor, analysts suggest.
Why? For one thing, the US is no longer as dominant in the world food trade, economists say. ``It's almost like Saudi Arabia trying to influence the price of oil, except that we're not as important as Saudi Arabia,'' says Edward Schuh, director of agriculture and rural development at the World Bank.
For another, the Reagan administration seems ideologically committed to recapturing at least some of its world markets. Besides the new control measures, the feed-grains program will cut the support price on corn by another 10 cents to make it more competitive.
These efforts buy time, Drabenstott says. ``But the fact of the matter is that sooner or later we'll have to do something about the demand side of the equation.''