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Most of All, Farmers Must Shed Illusions

January 16, 1986|ROBERT J. SAMUELSON | Robert J. Samuelson writes on economic affairs from Washington.

In the 1970s there was a glow over American farming. Other countries were improving their diets. As they increased meat and dairy production, they would need more animal feed. And the United States was the biggest supplier. Though American farmers might have their ups and downs, a continuing export boom seemed to assure long-term prosperity.

But between 1981 and 1985 America's farm exports dropped from $44 billion to $31 billion.

The export collapse lies at the center of the farm crisis. American grain farmers are constantly improving their efficiency; corn yields (bushels per acre) are now 20% higher than a decade ago. With stagnant domestic markets, only exports can absorb the growth. If exports don't revive, either farm prices will fall sharply--bankrupting more farmers--or government subsidies will have to increase.

In theory the recently passed 1985 farm bill is supposed to relieve the crisis. By somewhat lower support prices (what the government pays farmers for their crops) and production cutbacks, it's supposed to revive exports, ease the grain glut and ultimately reduce subsidies. But this may be wishful thinking. Despite costs of up to $52 billion through 1988, the new program may not improve exports or farmers' incomes.

Although departing Secretary John R. Block is often blamed for this mess, the fault is not his. Being the agriculture secretary is a thankless job. The secretary is expected to assure prosperity for farmers, stable food prices and low subsidies--all simultaneously. Success is virtually impossible, and the secretary has little free will. Farm policy remains hostage to unpredictable economic and weather conditions, as well as to unrealistic political pressures.

Consider the export collapse as an object lesson. No one anticipated the severity of the 1981-82 global recession or its enduring effects on world trade. Countries didn't have the export earnings to buy more grain. Developing countries that had borrowed to import could no longer afford new loans. And the appropriation of the U.S. dollar made grain imports (priced in dollars) more expensive in local currencies.

Consequently, worldwide grain and soybean exports, which had expanded rapidly for two decades, have stagnated. Other countries have relied more on their own farmers. In the 1980s world grain exports have grown more slowly than total world consumption. For example, world corn consumption climbed 36% in the 1970s, while trade grew 71%; in 1986 total corn exports are expected to be 4% lower than in 1981, while world consumption drops to 10%.

Another mistake is that developing countries' ability to raise their own food production was underestimated. A world constantly crying for American food implied that developing countries couldn't keep pace with rising populations. In fact, they usually have done better. Between 1972 and 1982 per-capita food production rose 16% in South America and 10% in Asia. The tragic famines in Africa are the exception, not the rule.

Misguided U.S. policies made matters worse. Written in an inflationary period, the 1981 farm program set support prices at excessively high levels. Farmers sold to the government's grain reserves, propping up world prices. Other countries--Argentina, Australia, Brazil, Canada--took advantage and raised their share of global exports. U.S. wheat exports have fallen from 44% to 36% of the world total.

There is a broader lesson here. American farmers' growing dependence on world markets limits the effectiveness of government programs. Farm subsidies have traditionally been justified as a cushion to the natural instability of agricultural markets. But they may now be aggravating instability. Since 1981 U.S. farm programs have encouraged overproduction and high prices both here and abroad. Farmers' incomes were temporarily raised, but the ultimate adjustment may now be more traumatic.

To survive, farmers in the United States must adjust to the world rather than persisting in the illusion that the world will adjust to America. Probably the best that the government can do now is to create a strategic grain reserve to guard against famines, while also encouraging soil conservation (the 1985 farm legislation makes a good start on conservation). Otherwise, farmers ought to be left on their own; they can react more quickly to changing market conditions than the government can.

The idea that U.S. exports have reached a plateau is probably as silly as the 1970s' notion that they would grow effortlessly. Diets around the world have vast room for improvement. Lower grain prices and higher economic growth could revive world consumption. U.S. farming is not uncompetitive, but if being competitive means lower prices, then many of today's farmers--especially those overburdened by debts--may not survive. They may be replaced by more efficient farmers or those who did not buy land at inflated prices.

Harsh as this sounds, government cannot prevent it. Government simply cannot overrule changes in the economics or technology of farming. Even with the new farm program, Block's successor will be lucky if things get better before they get worse.

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