Roots of farm crisis are pushing up under finance sector

The American farm crisis is spreading. The financial crunch has already hit thousands like Darrell Ringer, whose insolvent farm in northwest Kansas was put on the auction block this week.

But according to dramatic new evidence released Tuesday, the crunch has gone beyond farming.

``It's moved beyond the farm into the credit system,'' says Abner Womack, codirector of the Food and Agricultural Policy Research Institute, which released the preliminary report. ``Now, it's a question of how the financial institutions will deal with this.''

The study is important. It is the first effort to find out how the farm crisis could affect the rest of the economy. Its findings: Quick, specific action is needed to shore up agriculture's financial problems. ``We can't tinker with the loan rate and target price to deal with this problem,'' Dr. Womack says. These mechanisms are the price and income supports for major commodities, which have traditionally served as the mainstay of government support of agriculture.''

If Congress, in the midst of debating a farm bill, does nothing beyond maintaining these traditional measures, the study predicts that:

Farm loans not repaid through 1987 could total $20 billion to $25 billion -- roughly equivalent to a $100 tax on every woman, man, and child in the United States.

Americans might pay that ``tax'' through: higher interest rates on loans (a three-fourths to 11/4 percentage-point boost in rates); fewer jobs (175,000 to 275,000 lost by 1989); and a larger federal debt (the crisis could add between $13.7 billion and $21.5 billion by 1993).

Many economists applaud efforts on Capitol Hill to lower farm supports in order to bring them more in line with world prices. But these must be done gradually, according to the study. Six months of work, more than $200,000, and some 35 experts from Iowa State University, the University of Missouri at Columbia, Farm Journal magazine, and Wharton Econometric Forecasting Associates were involved in the project.

These forecasts, made using Wharton's long-term model of the economy, are very tentative, of course. ``A bunch of garbage,'' said one agricultural economist, on hearing the specificity of the results. And yet, that farm economist and many others agree with the burden of the report: Net farm income is not likely to increase significantly during the next four years. But unless it does, the farm sector will be unable to repay the swelling debts it built up during the last decade.

The implications of this shortfall are significant.

For farmers, it means more farm sales and foreclosures.

``It's kind of grim in some ways,'' says Mr. Ringer, who saw his 320-acre farm in Quinter, Kan., put up for auction Monday by the Federal Land Bank. It is the only land he owns. And unless the bank lets him rent the land, he may not be farming.

But Ringer is not pessimistic. Other farmers in the area are in the same boat, he says. And through increasingly effective rallies, troubled farmers are beginning to alert the public and Congress that something needs to be done.

Congress, however, may be stirred more by the latest study showing that agriculture's problems could send tremors through the financial community.

The situation is not unlike the middle and late 1920s, when a prolonged agricultural depression helped undermine the economy and send the country tumbling into the Great Depression. So far, at least, the current farm crisis is less severe, farm economists say. And even if it did worsen, the agricultural sector is no longer important enough to drag down the entire economy into a deep recession.

Still, Womack says, ``it can make an optimistic situation very pessimistic.'' More failures of rural farm banks are expected, concentrated in the center of the country. And one large New York bank was concerned enough about the impact on larger banks to request a study. ``From the standpoint of spread in the industry, it really isn't significant,'' says the banker who conducted the study. Commercial banks hold only a quarter of the farm debt.

Of more concern is the stability of the Farm Credit System (FCS), which holds about one-third of the farm debt. Some economists speculate that the farmer-owned cooperative system, set up by the government to provide agricultural loans, can no longer be supported by the weak farm economy. After a $150 million bailout last month of the Spokane Federal Intermediate Credit Bank, a bailout more than twice as large is being considered for the federal bank in Omaha, Neb.

To farmers, these signs of trouble in the FCS system should be goading Congress into doing something.

``What are they doing up there?'' exclaims Dan Ruf, whose northwest Iowa hog farm barely averted insolvency last winter. ``We've got a disaster situation. Why doesn't someone stir the pot?''

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