The 1985 farm bill proposed by the Reagan administration would mean three increasingly gloomy years for the nation's farmers, according to projections in a report issued Tuesday by agricultural economists at Iowa State University . Specifically, the study showed the program would:
Lower commodity prices significantly. The study does not predict prices, but shows that grain and livestock prices would weaken significantly if farm price supports would be allowed to fall.
Lower farm income. Even though lower grain prices would help sell more abroad, the increase in sales would not make up for the prices during the next three years.
Net farm income would fall from $19.6 billion in 1986 to $13.4 billion in 1988, recovering to $16.3 billion in 1990. If current policies were continued, farm income would be $25.6 billion in 1986, fall to $20 billion in 1988, and recover to $25.7 billion in 1990.
Slash the cost of farm programs. According to the Reagan scenario, in which income supports to farmers would be phased out, nonrecoverable government costs would fall from $8.1 billion in the 1986-87 crop year to $0.8 billion in 1989-90. These figures only include grains and cotton. On the other hand, if current policies were extended by Congress, nonrecoverable government costs would fall from $7.3 billion to $4.7 billion during the same period.
The Reagan program ``would be devastating for farmers,'' says Stanley R. Johnson, a professor of economics at Iowa State. Nor is the impact limited to them, he says. The study found that the amount of farm debt that could not be repaid would rise from the current $8.9 billion to almost twice that if the Reagan program were adopted.
``It's obvious that there are some very important implications for banking,'' Dr. Johnson says. It ``is enough to really shake'' the banking industry, but it also bodes ill for lots of agribusiness companies such as farm equipment manufacturers and dealers.
Although many in Congress do not believe the Reagan proposals can be passed, they are seen as signaling the direction that the Senate Republican leadership would like to go. So the findings, while not a prediction of what will happen, may point to the direction of the farm economy during the next few years if Congress decides to adopt a more market-oriented farm policy.
The findings are the result of an econometric analysis done by the Food and Agricultural Policy Research Institute -- a joint research effort by economists at Iowa State and the University of Missouri. The analysis, which Johnson says is relatively consistent with US Department of Agriculture price estimates, is the first such econometric study to pin numbers onto various options for the omnibus farm bill, the four-year federal legislation that, in effect, sets minimum prices for farm commodities. That legislation expires this fall.
``If all this is true, the economic realities suggest there has to be an adjustment,'' says Terry Francl, director of market analysis for Cargill Investor Services Inc. Government policies may attempt to cushion the blow, but ``in the end, the economic realities always come through,'' he adds.