Once again, American taxpayers find themselves in the familiar position of paying farmers to restrict production so as to raise prices to consumers. Only this time the bill is a staggering $22 billion in fiscal year 1983 alone, up from less than $4 billion in the Carter years.
The steps taken so far to stem the mounting tide of surpluses have proved inadequate. Dairy products are being bought up by the government at the rate of $2.5 billion a year despite the freezing of support prices. This year's massive "payment in kind" program will reduce grain and cotton production by one-fourth, but there will be no lasting effect in redressing the balance between demand and supply.
All agree that U.S. farm policy is at a crossroads, but there is no agreement on the route to take. The more hard-nosed farm groups call for continued price supports buttressed by tighter production controls. But mandatory controls, which would avoid heavy budget costs, have been rejected time and again. Twenty years of experience with voluntary supply control have shown this approach to be ineffective or exorbitantly expensive or both. Furthermore, any kind of unilateral supply management by the United States makes it that much easier for our foreign competitors to undercut our prices and to steal our markets.
An alternative approach--billed as "self-financing" of surplus disposal by the farmers--would introduce a dual price system that restricts supplies and raises prices to domestic consumers while surpluses are dumped abroad at whatever price they will bring. Experience with sugar in the European Community and tobacco in the United States has shown that this approach does not solve the problem of surplus production; it merely shifts the costs of surplus disposal from the budget to the domestic consumer. It continues to protect inefficient producers and to delay structural change. And it is no more compatible with GATT than are export subsidies financed by the taxpayer.
Export subsidies, no matter how financed, are no solution because they will be matched by our competitors. And while a case can be made for subsidizing exports to poor countries and to developing countries in temporary financial difficulties, the principal beneficiaries of any generalized export subsidy contest will be the communist countries and already affluent countries in the Middle and Far East.
Since the United States has a competitive advantage in most farm products, its organizations accept this proposition in the abstract, but that has not prevented most commodity groups from seeking to preserve various forms of protection, subsidization and cartelization. It has taken a major explosion of farm support costs to put these vested interests on the defensive.
The Reagan administration, with the support of at least one major farm organization, favors the phasing out of those aspects of the existing commodity programs that support producers' returns above long-term market-clearing levels. This includes not only loan rates (price guarantees) but also the target prices that are the basis for deficiency payments as well as other incentives that are proving excessive in the less buoyant markets of the 1980s.
An opportunity for basic reform will present itself when the comprehensive farm legislation comes up for renewal in 1985. The new legislation should recognize that massive income transfers to the farm sector--which in any event benefit mainly the large farmers who need them least-- are no longer justified.
We should retain only those elements of our farm programs that protect farmers against extreme short-term instability. This includes federal crop insurance and the Farmers' Home Administration as a lender of last resort. Loan rates should serve as a safety net, but at levels no higher than the variable costs of production. Because of the difficulty of getting agreement on relevant costs, it would probably be best to link the loan rates to a moving average of market prices.
The farmer-owned grain reserve should be managed to serve stabilization purposes only. It could be made more cost- effective than the present program, which gives farmers the benefit of any rise in prices while the government bears virtually all the storage and interest costs. To avoid being placed in the position of the residual supplier in periods of worldwide glut, the United States should resume negotiations to get its fellow exporters, including the European Community, to share with it the burden of market stabilization, by means of a coordinated reserve policy.
Legislation along these lines would serve the public interest and still provide adequately for the economic security of the American farmer.