The Reagan administration is now encouraging farmers to grow wheat that it can give back to them as payment for not growing wheat this year.
The problem is that the Department of Agriculture does not have all the wheat it needs to compensate farmers who have signed up to idle part of their land under the administration's new payment-in-kind (PIK) program.
The idea of the program was to give farmers surplus crops from past years if they would agree to plant less this time around; the surpluses are hurting both farmers and the Treasury, depressing prices and driving up farm price support costs.
But experts at Agriculture are calculating that the department will need upwards of 80 million more bushels of wheat than it has on hand to compensate farmers participating in the crop-swap program.
"We've said all along that we wouldn't have enough wheat to meet the needs of the PIK program," one official said yesterday, "but now the question is, where do we get the wheat that we are going to need?"
The wheat shortfall came about even after three successive bumper harvests, for several reasons. One was the unexpectedly heavy signup in the PIK program; 82 million acres of wheat, corn, feed grain, rice and cotton land are to be idled. Another, possibly more critical, was the administration's decision earlier this year to subsidize a huge wheat sale to Egypt.
As part of its program of pressuring the European Economic Community to lower its farm subsidies, the administration committed about 1.5 million tons or about 44 million bushels of surplus U.S. wheat to a cut-rate flour sale to Egypt, in a move that knocked EEC suppliers out of the market.
That reduced U.S. supplies, however, and now, to avoid going into the market and spending up to $325 million on grain for PIK, the department apparently has decided on this approach:
PIK participants will be required to put part of their crop this year into the Agriculture Department's price-support loan program. Then the farmers will forfeit their $3.65 per-bushel loans. That will put the grain formally in Uncle Sam's hands. The farmers will keep the loan money and then they will be given, at no cost, a portion of the crop they have just turned over to the government.
This latest twist in the crop-reduction program has touched off new uneasiness in the administration over the apparently mounting--and unforeseen--costs of PIK.
The issue was discussed at yesterday's daily White House senior staff meeting and top Reagan aides decided to seek further explanation from Secretary of Agriculture John R. Block.
One official said concern was generated by an "urgent request" from Agriculture for additional spending authority of up to $325 million to cover the loan costs that would be incurred by the Commodity Credit Corp. to make up the wheat shortfall. "The way it was originally designed," this official said, "PIK would have saved money. It's turned into a monster."
The Agriculture Department and the administration have downplayed potential costs of PIK, but independent estimates of a final price tag have ranged as high as $20 billion.
Everett G. Rank, head of the Agricultural Stabilization and Conservation Service, which is administering the payment-in-kind program, would not confirm details, but he indicated the loan-forfeit approach likely will be used to meet the shortfall. He said details will be announced this week.
Under the program, producers are scheduled to be given some 548.6 million bushels of wheat. Roughly 40 percent of that would come from grain currently pledged as collateral on support loans and the remainder from CCC stocks.
But earlier this spring, when it appeared supplies of corn and wheat would be insufficient to meet the department's needs for PIK, farmers were asked to voluntarily forfeit more loans on those commodities already in government hands.
The voluntary response on corn met the need, but wheat growers reportedly volunteered to provide only about 35 million bushels of the amount needed by Agriculture to make PIK work. The approach now under consideration would require PIK participants to put part of their crop on loan to the government.