The News-Gazette / March 19, 2001, Monday / By Anne Cook
COVINGTON, Ind.--A Purdue University economist has a prescription to cure farm economy ills. Return to the set-aside policies of the 1980s, said Allan Gray, a panelist last week at the WILL Agricultural Outlook Meeting at Covington in a discussion about upcoming farm bill options.
"When we (the government) spend $ 8.4 billion to cover losses from the market, we don't correct anything," said Gray of federal costs last year. "Set-aside, for all that we don't like it, corrects a problem, and it doesn't cost a lot."
He said there's no silver bullet to correct a situation, related to a change in 1990 and 1996 to market-oriented policies, that's made farmers dependent on the federal government for about 40 percent of their income.
"But I'm continually concerned about whether export-oriented policy is the way to do it here," Gray said. "We're in a system where we have to have a drought to have a spike in prices."
He said he wonders if it might be necessary to control the volume of crops U.S. farmers produce by returning to the complicated 1980s set-aside system. That system set target prices and based loan rates on them in exchange for farmers agreeing to take a certain percent of their corn acreage out of production.
"If we can keep spending $ 24 billion a year, fine, but it's not likely," he said, citing total federal farm program costs last year.
Gray said key questions include:
-- Can we continue to spend $ 24 billion a year to keep the farm economy viable?
-- How competitive are U.S. farmers on the world market?
"The price of soybeans has dropped 40 percent since '96, and Brazil's acreage is up 56 percent," Gray said. "The way we're competing now in the world is selling soybeans for $ 4 and subsidizing farmers for $ 24 billion."
-- Is export-oriented policy going to work in the current market?
"We sold the '96 farm bill as if exports will save us," Gray said. "They haven't performed. Since '85, we've lost market share in corn and soybeans. We backed off set-aside policies saying competitors are going to take the market away from us.
"They're doing that anyway."
He said any reintroduction of set-aside policies would probably take a completely different form.
"Consider a flexible fallow proposal," Gray said. "Set-aside would be voluntary, and the rest of the corn a farmer produces would be eligible for a market loan rate. The more land out of production, the higher the loan rate.
"Farmers have a tendency anyway to take the fringe areas out."
Ivesdale farmer Luke Feeney, one of about 200 farmers attending the meeting, said Gray gave him something to think about.
"I'm definitely in favor of this flexible fallow idea," Feeney said. "It makes sense to me."
Panelist Anne Keller, agricultural adviser for U.S. Rep. Baron Hill, D-Ind., said the mood in Washington is quickly turning against emergency bailouts.
"We want to raise the baseline so farmers can transition to long-term planning," Keller said.
She said there's more talk about "green payments," giving farmers money for making environmentally correct decisions about their land.
Keller said President Bush's current push for major tax cuts isn't compatible with continued supports for the farm community.
"You can't have big tax cuts and big spending for farmers too," she said.
Keller said the House Agriculture Committee is listening to testimony from farmers' interest groups to determine some direction for its policy proposals.
"Several things are emerging," she said. "Everyone agrees with a countercyclical safety net, with payments up when prices are down, and with expanding the Conservation Reserve Program and other green payments."
About 200 farmers attended the all-day meeting, and several of them asked panelists, who also included Lafayette farmer Allan Kemper, why the government doesn't show more support for taking corn off farmers' hands by making it into ethanol fuel.
Gray said the fuel additive is still expensive to make and it can't realistically compete in the cutthroat market.
"The government would have to subsidize it long-term, and if ethanol's competitive, what's OPEC going to do?" he said, referring to the Organization of Petroleum Exporting Countries. "They'll lower gas prices."
A related issue, he said, is the formation of farmer-owned cooperatives to produce ethanol.
"If it can be produced profitably, ADM's in a better position to do it," Gray said, referring to Archer Daniels Midland. "Are we willing to subsidize ADM?"
Copyright 2001 Knight Ridder/Tribune Business News
Copyright 2001 The News-Gazette:
