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JAMES FLANIGAN

Baker Plan: As Good for Iowa as for Nigeria

July 08, 1986

Is U.S. agriculture, once a world beater, in permanent decline? Farm exports at $29 billion last year are off one-third from the $43.3-billion peak of 1981. Meanwhile, farm price supports are running at well over $20 billion a year. Are our farmers hopelessly uncompetitive? And, if not, can anything be done to help them get back in the game?

The answers to those questions are no, no and yes. We're not in decline, U.S. agriculture is definitely not uncompetitive in world markets, and yes, something is being done right now to recapture those export markets.

The new farm bill, the Food Security Act of 1985, basically shifts the emphasis from price supports to export subsidies. Where government supports in the 1981 farm bill raised U.S. commodity prices above world levels, the new five-year program gradually reduces the government's guarantee to the farmer in order to bring U.S. prices in line with world markets.

If you want a numerical indicator of how vast is the difference between those price levels, and between the emphasis of the old and new farm programs, take a look at something as obscure as the July and October futures contracts for cotton.

Cushion the Transition

Cotton for July delivery, a contract that expires seven trading days before the end of this month, is around 68 cents a pound, reflecting a government price support. Cotton for October delivery is closer to 30 cents, reflecting the world price. The government is making cash payments to cushion the transition for farmers and giving inducements to commodity brokers to move the goods into export--and away from government warehouses, which are bulging with past crop surpluses. Similar programs aim to bring wheat, corn and soybean prices in line with world markets.

But if world commodity prices are low because of crop surpluses in almost every producing country, won't we only depress the markets further? The hope is that an aroused exporting United States will drive competitors from the field, reducing surpluses and allowing prices eventually to rise. Is that a realistic hope? Will the Argentines and Australians, Brazilians and Canadians, to say nothing of the Europeans, now cease their aggressive exporting of farm commodities and even dismantle their barriers to importing U.S. grain?

Umbrella Over World Markets

Not totally, but there is some basis for the hope that they'll cut back. Like a golfer playing with a handicap, the United States through price supports and its strong dollar has been holding an umbrella over world markets in recent years. Competitors have stepped in and taken business, a process that culminated last year in the spectacle of Cargill Inc., the Minneapolis grain trader, suggesting that it would fill some orders by importing Argentine wheat. But now, with the dollar already down, take away the handicap and American exporters can sell with the best of them.

Sell to whom? To the developing countries, where improving diet creates markets for U.S. corn as feed grain and U.S. soybeans as protein supplement and even U.S. wheat and rice. The developing countries? The hungry urchins at the world's overflowing table?

Challenge and response. The problem of the developing countries is not how to get them food but how to get them money to buy food. Enter Treasury Secretary James A. Baker III with his plans to revive the world's economies--both developed economies, as in his economic cooperation agreements of last September with five major nations, and developing economies, as in his plan for growth introduced last October in Seoul, South Korea. For Ames, Iowa, to prosper, in other words, it is essential that the world economy be active enough to channel money to Kaduna, Nigeria.

All very neat. Are there no obstacles to this seamless plan? Plenty. For one thing, if the Agriculture Department is subsidizing exports to compete with nations such as Brazil and Argentina, it is working at cross-purposes with the commercial banks and State and Treasury departments, to say nothing of the Federal Reserve, which want those debtor nations to earn export dollars. True enough, but in the inevitable Washington infighting, the need for exports to rescue the Farm Belt, and for a cutback in price supports to help reduce the government deficit, will help the farm program's cause.

But that's talking bureaucratic fiddling while farmers struggle and nations starve. What the renewed health of U.S. agriculture obviously comes down to is not this price or that, support or subsidy, but the importance of Secretary Baker's efforts to get the world's economies moving. That's the program we really need to support.

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