C4—Lancaster Farming, Saturday, May 19,1984
Farm policy
(Continued from Page C 2)
market and the Secretary’s
authority to use acreage set-asides
as a short-term supply
management tool.
This was the situation less than 3
years ago, and essentially no one
was prepared for the combination
of events that began unfolding in
1981.
After the steady climb in U.S.
exports throughout the 1970’5, it’s
not surprising that analysts failed
to forecast declining exports.
Exports fall
Most of the root causes of the
reversals experienced in the ex
port market over the last 24
months were unexpected: the
worst worldwide recession since
1929; a surge in interest rates and
the value of the dollar; near
bankruptcy in several debt-ridden
middle income countries; the
lingering effects of the Soviet grain
embargo; and greater competition
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from the other exporters who
refused to reduce their production
and, in some cases, employed
quekionable trade practices to
increase their market shares at
our expense.
These weren’t the only shocks.
Domestically, a number of less
dramatic but no less important
developments are taking place.
Inflation was reduced faster and
more significantly than expected.
Even oil prices weakened, and
increases in farm production costs
dropped off precipitously.
For many large, efficient
producers, the combination of
relatively stable production costs
and legislated raises in loan rates
and target prices provided a strong
production stimulus strong
enough to overshadow weakening
market prices. Despite 1982’s set
aside and diversion programs,
both com and wheat production
topped 1961’s records.
Bumper harvests
These 2 years of bumper har
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supplies to new highs. With sup
plies climbing and demand
stagnating, farm price supports
held U.S. prices well above
marketclearing levels in both
domestic and export markets.
High and raising price supports,
in effect, indexed us out of world
markets at the same time that they
worked through changing ex
change rates to boost foreign
producers’ production incentives
and their returns from trading in
dollar-denominated markets. As a
result, the world’s excess supplies
of most farm products were
concentrated in the United States.
By the end of 1962, it appeared
likely that U.S. grain stocks would
reach 150 million metric tons at the
end of the 1983/84 marketing year
roughly 60 percent of the world
total and more than twice the
stocks needed to meet normal
carryover needs. The 1982 acreage
reduction programs had not
worked, and another approach was
noosed.
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The alternative appeared to be
allowing commodity prices to
weaken further, farm incomes to
continue slipping, and government
payment* to the sector to continue
at a $lO-Jl5 billion level for the 3-4
years likely until the market
turned around.
Yet the price, even for this
stopgap measure, has been very
high. During the 1970’5, the cost of
farm programs typically ranged
between $3 and $4 billion a year.
They reached $6 billion in 1981 and
$l2 billion last year. For the 1983
fiscal year, which ended on Sept.
30, federal outlays probably ex
ceeded $2O billion.
Together, the drought and the
1983 acreage reductions have
taken us a long way toward
reducing current stocks and
government liabilities over the
next 3-4 years. However, this will
not solve the longer term problem.
The evidence suggests that U.S.
agriculture’s capacity to produce
could well be more than adequate
to meet the increased demand that
will come with economic recovery
here and abroad. This raises
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questions that should take us
beyond present conditions of
drought-caused price runups. Will
the marketplace, without the help
of drought, be able to generate the
prices that were envisioned when
lawmakers set loan rates and
target prices in the 1981 Act?
Volatile years
Moreover, there appears to be
little likelihood that the next
several years will be any less
volatile than the last 4 years. If so,
the market setting could well shift
as dramatically between short and
surplus supplies as it shifted in the
last few years.
If lawmakers are to improve on
the record of the last several
years, they will have to recognize
that sudden and dramatic swings
in market conditions cannot be
ruled out. Weather is only one of a
number of uncertainties that in
clude economic developments here
and abroad and foreign farm and
trade policies.
To avoid or soften continuing
(Turn to Page C 5)
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