DESPERATE over the soaring costs of farm price supports, the Reagan administration has organized a truly extraordinary drop in this year's grain crops. Taking advantage of an unexpectedly strong response from farmers, the Agriculture Department will cut production fully one-fourth below last year's. That swing carries with it real dangers. While another bumper crop would have pushed the country's grain reserves too high, this drastic remedy will leave them too low for safety.
The administration is being driven by the enormous increases in the expense of the price support system. A year ago, the White House expected the cost to have fallen below $2 billion a year by this time. Instead, it is running over $18 billion. The Agriculture Department's response is the PIK--payment in kind --program, under which it will use grain from present stocks to pay farmers to reduce their plantings this spring. Many farmers have taken their whole farms out of production, signing up for a year of government-paid vacation. But since it will be paid in grain, it won't fall on the federal budget.
PIK is a fast fix, good for one year only. Because stocks will be drastically reduced by this time next year, the administration won't be able to repeat it. Now is the time for both Secretary John Block and the congressional agriculture committees to consider what to do next. The basic reality is that they have got the support prices too high. They have the whole gigantic mechanism set to produce more wheat and corn than the country, or the world, will buy.
The present support prices assumed that inflation would be higher than it has turned out to be. They also assumed that foreign demand for American grain would continue to rise rapidly as it did throuh most of the last decade. Instead, it has gone flat and even dropped a little. That's why the reserves have piled up so fast and at such cost to the federal budget.
PIK isn't supposed to raise prices. The grain that isn't grown this summer will presumably be replaced out of last year's crop in the bins. But prices have been moving up visibly in recent weeks in anticipation of a tighter and less stable market. The higher they go, the greater the threat to inflation here and to export sales abroad.
Farm policy is always a bargain between the producer and the consumer, attempting to provide a reasonable assurance of income to the first and a reasonable assurance of supply to the second. The present policy has slid badly out of balance. But PIK, at best, only buys the administration a little time to work toward something better.