The idea behind the 1990 Farm Act was simple: to force-feed a bit of free-market economics to America's farmers. Once the government cut by 15% the farm acreage on crop-support programs, the market would work its magic. Farmers would diversify into a cornucopia of new crops such as sunflowers and sorghum. Meanwhile, perennial surpluses of traditional mainstays--corn and soybeans--would wither. Farmers would enjoy more flexibility in their planting choices, and Uncle Sam's bill for price supports would be cut by as much as 20%--a savings of $13.8 billion during the law's five-year span.
In its first year, though, the revolution is more mirage than miracle. In pre-planting reports to the U. S. Agriculture Dept., farmers are sticking to their old standbys (chart). Most plan to sow corn, soybeans, and wheat on acres not covered by price supports, rather than the fancy new crops policymakers envisioned. "To heck with flexibility," says farmer Roger Asendorf, taking a breather from planting his 2,700 acres near St. James, Minn. "Just give me some profit." Asendorf's crop mix: 60% corn, 40% beans--same as last year.
BULGING BARNS. If farmers keep balking, the government's tab for farm subsidies will fall by far less than expected--if at all. "I'm a lot less confident of any savings than I was three months ago," says Neil E. Harl, an Iowa State University economist. That's because, barring drought or disaster, each bushel of corn, soybeans, or wheat planted on the flexible 15% is likely to add to surpluses--which are already at their highest level since the early 1980s. The higher production, the lower the price. And if prices fall, the government must shell out more for price supports on acres still eligible for payments.
The government contends conservative farmers eventually will try new crops as they get accustomed to the idea. "We believe we're still on target to meet our budget numbers," says Bruce R. Weber, director of the commodity-analysis division of the Agricultural Stabilization & Conservation Service. And, indeed, the program hasn't been totally ineffective. Cotton production has surged. And there's been a rise in plantings of alternative crops, including sunflower and canola, an oilseed used as cooking oil and in animal feed.
The increase has not been nearly as much as officials hoped, however, and slowness in shifting crops can be attributed to a lot of factors. A farmer who knows corn often doesn't want to monkey with canola. That's because new crops require different planting patterns, and farmers are bothered by uncertainties about their yields and prices. Besides, most county grain elevators don't like the investment in new storage and the bother of handling minor crops.
Diversifying can also be expensive. Farmers must buy new equipment and experiment with new fertilizers. Yet there are few incentives in the new program to offset the added investment. And bankers are reluctant to lend for nontraditional crops. Concludes Elden Gould, a farmer in Kane County, Ill.: "There's nothing as good as corn, and the second best is soybeans."
If they want to shift to new crops, most farmers have plenty of money to invest. Drought-ridden California aside, economic life on the farm is pretty good these days. The new law is expected to cut farmers' cash income this year by about 10%. But that is down from last year's record $59 billion. And farm debt, which hit a peak of $193 billion in 1983, has fallen to $132 billion. Land values have climbed steadily since 1987--to an average of $682 an acre in the lower 48, just 20% less than the boom era record of $823 an acre in 1982.
MILK SHAKEOUT. Such prosperity may not last for long, however. The dairy industry could lose $3 billion this year alone, despite a projected $665 million in government support. That could force a shakeout of all but the strongest dairy farmers. Another worry: The USDA expects U. S. grain exports--which bolster prices--to drop by nearly 22% this year, to 83 million metric tons. The culprits? Domestic political turmoil that has reduced Soviet purchases, and the bumper crops that most of the world's producers brought in last year.
The danger now is that these strains in the farm economy will be exacerbated by the new farm program's slow start. Prices are already low--soybeans are selling for $5.90 a bushel, vs. $8.50 a bushel in July, 1988, the high for the past decade. If a grain glut develops--a real possibility if farmers don't buy into the farm program's goals--it could send prices plunging and help spur another farm bust. If that happens, the price of the 1990 Farm Act will indeed be higher than expected.