A story on farm subsidies in Saturday's Business and Finance section contained a typographical error. The story should have said that a Congressional Budget Office report showed that raising farm subsidies to 90 percent of parity would increase inflation 2 1/4 percentage points by 1981.
The Congressional Budget Office estimated yesterday that increasing farm subsidies to 90 percent of parity as the American Agriculture Movement wants would cost $10.8 billion and add two percentage points to the nation's inflation rate by 1981.
The nonpartisan agency said the higher food prices alone would add almost $500 a year to the grocery bill of the typical urban family of four. It said by the end of 1981, food prices would be 9-1/4 percent higher than they would under current subsidy levels.
The agency's projections came in response to a request by the Senate Budget Committee after two lawmakers, Sen. Edward Zorinsky (D-Neb.) and Rep. Richard Nolan (D-Minn.) introduced legislation that essentially would raise subsidies by the amount AAM wants.
Ironically, the estimates were not made public until protesting farmers who camped here as part of the AAM demonstration had packed up to leave town. CBO officials said the release was delayed by internal problems and was not related to the farmers' depature.
Parity is an artificial standard that pegs current price-support levels to the cost-price ratios of the boom years of 1910-14. Full parity would mean prices high enough to yield farmers the same purchasing power from each busel or bale that they averaged between 1910 and 1914.
The AAM demands would force a steep rise in farm subsidies and prices, which now average about 68 percent of parity. Moreover, agricultural economists say the parity standard is meaningless since both the yield per acre and farm costs have changed so radically since 1910-14.
CBO's analysis argues that raising subsidies to 90 percent of parity, as the AAM wants, would send retail food prices soaring, with an additional indirect impact on related items such as apparel prices, and evntually spur wage demands by prompting workers to seek more pay.
At the same time, the agency said, the increases eventually would backfire on farmers by sending the price of farm land up sharply, crimping many younger farmers who might want to expand their acreage. It said the measure would make overall inflation more difficult to slow.
The $10.8 billion figure was the agency's estimate for only the first year of higher subsidies. CBO did not provide cost estimates for later years, but it said the cost would "grow rapidly" and "have a significant impact" on the budget unless it were offset by higher taxes.
The agency estimated that boosting subsidies to 90 precent of parity would have a dramatic effect in raising farm prices.