Farm sector is expected to rebound, over the long term

`Do you think that the taxpayers are going to pay farmers both very high prices for their product and pay them generous prices for setting aside acres? I think not.' The troubled farmers have traveled to suburban Chicago and plunked down $175 apiece to hear financial experts talk of farms saved and investment opportunities.

``I hear so much doom and gloom,'' says one speaker, ``I'm almost beginning to believe it. But inside, I'm jumping up and down.'' He and other experts here are excited about the long-run opportunities in farming.

At the encouraging words, Illinois farm wife Iris Hawn looks at her husband, Donald, who just shakes his head. ``One day you're a millionaire and the next day you're broke,'' he says later. His 2,000-acre corn and soybean farm in western Illinois is in financial trouble, he says.

These are the black-and-white pictures of United States agriculture today. Looking beyond the worst farm crisis since the 1930s, many economists see a fairly bright future for the industry. But for an increasing number of farmers, just surviving the transition will be a trick.

``If things don't change, I aim to be farming,'' Mr. Hawn says. ``But it may be quite a change.'' So far, his bank has not lent him the money to plant this spring.

It now appears that a gloom is settling over agricultural America. The foreclosures are multiplying. Some banks are getting tougher. For some, solutions seem very far away.

Answers exist, thoughtful observers say, which will require careful thinking on the part of policymakers and farmers and which won't always be pleasant. Answers came, says one Iowa farmer, who eventually was forced to quit farming, ``but probably not what I wanted'' to hear.

In Washington, the current crisis has brought various proposals into focus.

One is the market-oriented plan of Agriculture Secretary John R. Block. He proposes to lower support prices and phase out over time the deficiency payments that supplement farmers' income.

With federal budget concerns the overriding factor this year in Congress, sources say, there is considerable appeal in such a solution. The cuts would trim commodity program costs, projected at $12 billion to $14 billion a year under current policies. And they would begin to pull US prices back into line with the world market. Many agriculture-related industries, still smarting from sales lost because of the 1983 payment-in-kind program, support this tack.

At the other end of the spectrum are various plans, such as the one proposed by the Nebraska Wheat Growers Association, that would raise support prices through mandatory production controls.

This thrust seems to be gaining popularity among grain farmers, particularly, who are stuck with burdensome supplies.

``I'd much rather grow a third less and get a third more,'' says Doug Wildin, of Hutchinson, Kan. ``We've got to cooperate with the other [world] producers and get off the stupidity of competition.''

Which choice will Congress make? Probably neither, many Capitol Hill observers say. Both extremes have drawbacks.

The short-term implications of the administration's proposal could devastate the sector, says Dr. John Marten, staff economist of the widely read Farm Journal.

``At that point, we're talking dominoes,'' he says. Commodity prices would fall, depressed land prices would slide another 30 percent, and a new batch of moderately indebted farmers would be dragged into serious trouble.

The long-term implications of mandatory supply controls are also negative, says Marvin Duncan, vice-president and economist at the Federal Reserve Bank of Kansas City.

Foreign competition would slice into US exports, he says. More and more American farmland would have to be idled to keep domestic prices up, and, eventually, import barriers might be needed. The cost burden would be shifted off of taxpayers and onto consumers, who last year spent a low 15.2 percent of their disposable income on food, according to the US Department of Agriculture.

``Do you think that the taxpayers are going to pay farmers both very high prices for their product and pay them generous prices for setting aside acres?'' he asks. ``I think not.''

The mandatory supply control plan appears to have limited appeal in Congress, Democratic and Republican sources say.

With concern over its own spending the overriding issue, Congress's steps in farm policy are apt to be small, congressional sources say. But a number of observers see an emerging consensus to lower somewhat current price and income supports, and eventually make agriculture react to signals from the market instead of government policies.

``The market itself probably does a better job of reflecting demand and supply than we can through government programs,'' says Kenneth Farrell of Resources for the Future. But ``you've got to find mechanisms to gradually adjust'' from current policies. ``You're also going to have to spend some more money while you're making these kinds of adjustments.''

``There's a general thread in the thinking -- and this isn't just right now, it has been evolving over the past number of years -- that stabilization of the industry is the most appropriate role of the federal government,'' says Lynn M. Daft, vice-president of Abel, Daft & Earley, a Washington-based economic consulting firm.

This free-market tack contains some very sticky foreign trade problems, he says, but ``it's probably the only reasonable route to go and it's a slow process. And that really does not satisfy a farmer out in Iowa very much.''

It certainly doesn't satisfy Cy Carpenter, president of the National Farmers Union, who says he believes the farmers' problems stem from economic exploitation from agribusiness. ``Farmers, almost in every commodity, would vote for that mandatory control'' in commodity prices, he says.

Both men agree, however, that the US must work more cooperatively with other food-exporting countries.

Tax policies affecting agriculture -- such as investment tax credits, cash accounting, and accelerated depreciation -- will also have to be addressed, says Marty Strange, codirector of the Center for Rural Affairs, a nonprofit research group. Tax shelters are moving agriculture toward fewer and larger farms, he adds.

``We've got to have a new way of looking at efficiency,'' says Mark Schulz, a Hartley, Iowa, farm-animal veterinarian, who advocates taxing spending rather than income. Tax shelters ``help the guy who buys [the farm], keeps it for seven years, sells it, takes capital gains, goes on and buys the next place. . . . But we're discriminating against the little guy who doesn't want to do that.''

Government solutions for farmers' immediate problems revolve around debt-relief, congressional sources say. Last week, the administration broadened its credit package somewhat.

If the situation continues to deteriorate, a temporary agriculture credit corporation to stretch out debt repayments could be formed, suggests Neil Harl, agricultural economist at Iowa State University.

In the private sector -- here in the conference rooms of an Oak Brook hotel, the banker's and the farmer's office -- the adjustment already is beginning.

Lenders are forgiving interest; farm wives are taking full-time jobs; operations are being trimmed and trimmed again.

``I probably made more money sitting in the office last week than I made last year,'' says Bill Frieden, a western Illinois farmer, keeping a sharper eye on expenses.

There is a danger of overreaction, Mr. Farrell says. ``We tend to see the world ahead of us in terms of what we're experiencing today.'' In the '70s, that meant unending boom; today, continuing gloom.

But the margin between food scarcity and abundance is very thin, he says. And in the long run, food production will have to increase dramatically to feed a hungry world.

During the next 20 years, the world is expected to add 87 million people to its population each year. By the year 2000, Farrell projects, an additional 650 million metric tons of cereal grains will be needed -- more than twice what the US produced in 1980.

Still, not all farmers will make it, says Mr. Duncan of the Federal Reserve Bank. Those who get out in time ``have not failed at all. They are winners'' because they made the right decision and avoided bankruptcy, despite a rural culture that brands losing the farm as the ultimate failure. -- 30 --

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