Reagan administration's `new' farm policy mostly more of same. One strategy is to set aside large amount of cropland
Chicago — Surplus grain poses a mountain of a problem for the United States. New farm legislation amounts to a big shovel. It may do the job, but it will take several years before the nation digs its way out of the problem.
That is the consensus view of several analysts after examining the latest details of the Reagan administration's farm programs for this year.
Though holding surplus grain isn't bad in theory, the huge oversupply now in storage depresses prices and makes it difficult for farmers to earn a profit.
To combat this problem, the Reagan administration is capitalizing on Congress's two-fisted approach -- instituting one new concept and continuing an old one.
Can this approach work?
``Right away, no,'' says Terry Francl, market analysis director for Cargill Investor Services in Chicago. But in the long run, ``there's a better chance of balancing supply and demand than in the past.''
``It's probably going to work better compared with past farm bills,'' adds Allen Shiau, director of US and Canadian agricultural planning services for Chase Econometrics, in Bala-Cynwood, Pa. But ``it will take a couple of years to draw down stocks.''
The new idea in the farm legislation -- actually an aggressive reintroduction of cuts in the '50s and '60s -- is reducing government price supports. After several years of maintaining or raising these supports, Congress changed course, cutting support rates and giving the secretary of agriculture discretion to reduce them even more. John R. Block, agricultural secretary in the Reagan Cabinet from 1981 until his resignation last month, took full advantage of this mechanism, counting on lower prices to help sell American farm products abroad.
The old idea continued in this farm legislation is supply control. Although voluntary, the whole idea of paying farmers not to grow something goes against the grain of the administration's free-market philosophy. Nevertheless, what seems to be emerging is a long-term, full-scale program to limit how much farmers grow and how much surplus grain the government will hold.
This year the Agriculture Department is preparing programs that will idle a substantial number of acres -- probably the second most extensive setting aside of cropland since the early 1970s, analysts say.
It is estimated that between 30 million to 43 million acres will be taken out of production through these programs, plus another 5 million acres expected to be enrolled in the conservation reserve, a new program aimed at taking highly erodible cropland out of production permanently.
Mr. Shiau predicts political pressures will increase in 1987 for even larger acreage-idling programs.
For 50 years, the federal government has relied on various acreage-idling programs to keep crop surpluses from bursting out of control.
Although mandatory controls were common in the 1930s and '40s, the US has moved to voluntary supply controls more recently for almost all major crops. The idea: maintain farmers' income by guaranteeing them a minimum price but limit those guarantees to farmers who agree to idle a share of their cropland.
The record for idling cropland was set in 1983, when the Agriculture Department took 78 million acres out of production through a process known as payment-in-kind. Under PIK, the department pays farmers to take some acreage out of production, thus limiting new surpluses.
Meanwhile, the government pays participating farmers partly in cash, partly in surplus grain, which helps reduce government-held stocks.
This year, PIK will be used extensively again -- guaranteeing wheat farmers, for example, a total $4.38 a bushel from market returns and government payments if they idle a quarter of their wheat acreage. Corn farmers would get $3.03 a bushel if they took a fifth of their acreage out of production.
Because these guarantees are markedly higher than expected market prices, several agricultural experts are predicting massive farmer enrollment in the programs.
The higher guarantees will make it ``very expensive to be out of the program,'' says Richard Pottorff, manager of the agriculture service for Data Resources Inc., in Lexington, Mass. ``It's very likely we could see record participation.''
Will these supply-control measures work?
``Acreage-reduction programs in general have a very spotty record,'' Mr. Francl says. Even the extensive PIK program in '83 had less impact than a major drought that year, he adds.
``Acreage-reduction programs have not solved the fundamental problems of agriculture,'' Shiau cautions.
But both Francl and Shiau are heartened that these supply-control programs will operate along with the general move toward lower price supports and a more market-oriented policy.