WHEN POLITICIANS talk about the fiscal peril posed by burgeoning entitlements, they are usually referring to Social Security, Medicare or government pensions. Yet in terms of fast growth, none of these compares with the bumper crop of farm subsidies that has been harvested in recent years.
When the Reagan administration came into office, farm subsidies were costing around $3.5 billion a year, about the average level for the 1970s. This year--after two years of sagging farm prices and enormous surpluses--they are expected to top $21 billion, an amount roughly equal to total net farm income. This staggering expenditure has forced even farmers to recognize that something is seriously wrong with U.S. agriculture policy.
Reworking farm policy won't be easy. For one thing, it can be argued that, despite its high cost, the policy has been successful in producing an agricultural sector that is the envy of the world. But even if you recognize that a return to more competitive markets is necessary, it's hard to know where to start. The government is so thoroughly mired in direct and indirect agricultural subsidies that any single reform is likely to produce an unanticipated eruption in the costs of another program.
Consider the plight of the Reagan administration. It set out to curb inflation and, perhaps to its own surprise, it succeeded. But it also signed on to a farm bill in 1981 that set target prices for farm products on the assumption that inflation would continue. When farm prices slumped, the government found itself obliged to assume gigantic surpluses of grain, cotton and dairy products as well as to make cash payments to farmers to compensate them for lower private market prices. To get rid of the expensive surpluses, the government set up the payment-in-kind or PIK program that is now transferring $12 billion worth of surplus products back to farmers to reward them for idling their land.
The PIK program has drawn particular attention because of the million-dollar windfalls provided to farm conglomerates, including one in which the program's administrator, Everett Rank, has a hefty share. And for all its high cost and nightmarish administrative hassles, it hasn't cut production as much as expected because farmers, predictably, idled their poorest land and farmed their remaining land more intensively. Meanwhile, the government continues to encourage surplus production by providing expensive irrigation subsidies for desert land and by extending grain subsidies to marginal grasslands.
The administration now proposes to freeze--and even reduce--price support levels to curb future subsidy costs somewhat. The new U.S.-Soviet long- term grain agreement should also give a needed boost to exports and help firm farm prices. But there is a growing belief both within and without the world of agriculture that the only way to get the farm sector off the welfare rolls is to scrap the whole system and start over.