Deficit cuts “a must” for ag economy, expert says
ITHACA, NY - “Too much is
being made about President
Reagan’s veto of the emergency
farm credit legislation,” says a
Cornell University agricultural
finance expert. “That measure
was only stopgap, anyway.”
•What we need immediately is
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Congress that will attack the root
causes of agriculture’s problems.
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The battle could be won now; it
need not take years,” says John
Brake, the William I. Myers
professor of agricultural finance in
the New York State College of
Agriculture and Life Sciences at
Cornell.
The legislation vetoed by the
President would have provided
additional short-term credit to
financially distressed farmers. In
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many cases, the legislation would
only have traded government
credit for debt that already cannot
be repaid by farmers.
Brake suggests two parallel
courses of action to revive
agriculture.
“The first step is to bring the
budget deficit down sub
stantially,” Brake says. “A near
zero deficit is possible within only
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a few weeks if the Congresss and
the President would seriously
address the problem. That would
immediately drop the interest rate
several points. Interest on far
mers’ debt should then drop to
more reasonable rates.”
Brake argues that bringing
interest rates down sharply and
quickly is not impossible.
“If President Reagan and
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Lancaster Farming, Saturday, April 6,1985-E3
Congress would agree on spending
cuts of $6O billion to $BO billion (the
President has already proposed
cuts of $5O billion), and if they
could then agree to $lOO billion to
$l2O billion in tax increases, the
expected deficit could drop to near
zerp by April first,” Brake
predicts.
Before the ink dries on any such
legislation, Brake says that “in
terest rates would plummet.” He
claims that current high interest
rates hurt farmers much more
than they affect other businesses
“Agriculture is a capital
intensive industry,” Brake ex
plains, “and compared to other
industries, it requires more dollars
invested per worker. Farmers
have to borrow to buy land,
equipment, and supplies, among
other inputs.”
The second step in Brake’s
proposal is to initiate a govern
ment plan for agriculture that
would put a safety net under
farmers without spending the huge
sums of money the present price
support system now requires.
In addition, Brake calls for
immediate government aid to help
relocate and retrain farmers who
are being forced out of business.
During tiie next few years, Brake
believes that up to one-fourth of the
nation’s farmers may leave far
ming.
Borrowing by farmers takes two
forms. First, farmers borrow
periodically - perhaps every few
years for major investments such
as land or equipment. Second,
many farmers borrow every
spring for the sprmg planting.
They then carry that debt until the
fall or winter when income from
the sale of crops pays off the debt.
“If you or I buy a house or a
business, we borrow only oc
casionally, and often at a fixed
rate. We have jobs; we know our
income and our payments” Brake
explains. “Farmers, on the other
hand, must borrow repeatedly just
to stay in business. They have no
control over the interest rates.
Inieed, for many farmers, all of
the money they owe, including past
debt, is tied to variable interest
rates; the rate goes up or down as
outside economic conditions
dictate.”
Tracing much of the staggering
$212 billion farm debt to the period
from 1977 to 1981, when interest
rates climbed sharply from eight
to 18 percent, Brake says that it
was during this time that the total
interest farmers paid on their debt
began outpacing income.
As for the government’s role in
agriculture, Brake says that the
government should focus on a
stable, long-range plan that far
mers can rely on over many years.
Such a plan would include disaster
relief assistance for farm income
maintenance, and short-term aid
measures to help displaced farm
families.
“Government should formulate
an overall plan which would in
clude price supports much lower in
cost than today’s - so low that they
would bail out farmers only in
years of drought or other
disastrous events,” Brake says.
Calling such a price-support
program disaster income main
tenance, Brake says: “The goal
would be to keep good farmers
farming in disaster years.”
“No one in agricultural circles
wants to talk about it, but gover
nment cannot shrink from its
responsibility to help farmers
adjust to life after farming,”
Brake points out. “Perhaps we do
have too many farmers and
perhaps we may not need all of
them to produce the food we eat.”
Farmers forced out of farming,
however, are not like other people
who simply lose their jobs. Often,
these farm families lose their
homes as well as their means of
livelihood, Brake points out.
“Our government must step, in
with unemployment benefits,
relocation, and retraining
programs for farmers displaced in
this way,” he stresses.