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Feeder cattle profits, as well as net returns from beef cow herds, will have to be attractive before farmers will forego their final fertilityreserve payment. The soil-bank plan is designed for livestock farms as well as grain farms.
FEED RESERVE FOR EMERGENCY
The increased acres of soil-building crops are more than a fertility reserve they are a forage reserve on each and every farm. In case of drought or other emergency, this reserve can be brought into use if need outweighs incentive payment.
The decision to release much-needed feed to maintain cattle herds when drought, flood, or insect hazards strike, should be left with the farmer. The forage reserve is designed to meet the needs of the individual farm and have a degree of flexibility to protect farm income as well as a food supply for the Nation.
TO HANDLE SURPLUS
How must we handle our Government-held surpluses? We believe we should:
1. Convert a portion of present farm surplus into a well-defined stockpile with provision for periodic replacement.
2. Adjust production below current needs to absorb the balance of the surplus into the market for use as soon as possible, not at half price but at full price. We are in accord with the President's proposal to recommend legislation to permit, under proper safeguards, sales at not less than support levels, plus carrying charges.
3. Instead of taking a substantial loss on the billions of dollars of agricultural commodities held by the Government, use a part of this money for an effective soil-bank program to adjust production below current needs.
Nearly everyone agrees that it is cheaper to pay a farmer an incentive to expand soil-building acres than to overproduce cash crops and have to wonder what to do with it. In addition, the farmer receives extra earning in that he saves the cost of producing the surplus.
I will now take up compliance.
Why does a farmer comply with acreage allotments? The farmers I work with try to determine what the market price will be as compared to support price, and, if the difference between these two prices is great, they seriously consider staying within their acreage allotment.
For several years now, the result has been that many farmers who overplanted their allotments and took market price enjoyed a higher net earning than those folks who reduced their acreage and received
price Many, however, who reduced corn acreage and replaced with soybeans did not seriously lower their net earnings-neither did they adjust production. Farmers who are not in compliance, and who are expanding their grain acres, are the ones most responsible for the failure of our present program to adjust production.
A serious weaknes sof the acreage-reserve program is that it does not reach the farms in noncompliance with allotments.
Lowering support prices and thus decreasing the difference between support price and market price only lessens the motivating force so that fewer farmers will comply with acreage allotments.
It may be difficult to obtain full voluntary compliance in the soil bank or any other plan in the near future. Farmers' participation would be determined largely by their attitude toward past programs as well as present programs. As some farmers might find it advantageous not to cooperate, many farmers may wish to shift beyond their allotted soil-building acreage and receive the unused soil-bank funds available from those who think it would be better to forego payment and not adjust production.
In this way we may have only two-thirds of the farmers participating but acrewise could attain effective compliance. Why not let those farmers, who need it most, adjust production and build fertility! Why not begin paying the farmers who cooperate instead of penalizing them, as in the past?
In addition to the incentive payment inducing farmers to adjust production, we propose offering commodity loans at levels in relation to the compliance with soil-bank acres. Farmer in full compliance should be eligible for full loan value. Farmers planting all cash crops and no soil-building crops would be eligible for only 50-percent loan value. The farmer determines his own loan level by his degree of participation in production adjustment.
The proposed soil-bank plan must be made effective beyond any normal program to protect price levels during the period of moving surplus stocks back into the market for consumption. An accelerated program to accomplish this would involve a vigorous approach for 2 or 3 years and then would be tempered, not ended, to keep agriculture in balance with the rest of the economy.
The money spent for incentive payments to adjust production should not be considered a direct cost to the Government, for these payments would yield returns; first, by raising the price level of Governmentheld stocks in addition to farm prices; and, second, reduce losses now inevitable on the vast holding of commodities deteriorating in value due to loss of quality, as well as save on the million-dollar-a-day stor
The incentive payment is not a direct subsidy or a dole. To receive this payment a farmer needs to forego the income from cash crops making up our present surpluses and, instead, to build fertility to protect the food supply for the consuiners of this Nation and probably of the world. The cost of the program should be borne, not by farmers alone, but by all who benefit.
We would recommend that a soil-bank plan be implemented at an early date to halt the farm-price decline, reduce the cost of storing unwanted surpluses, and move commodities now held, into the market at a much earlier date than would be accomplished in a program involving only 45 million ineffective acres, acres that are already out of crop production.
Our soil-bank plan would be applied as follows:
[In millions) Total acres of cropland in United States----
478 Soil-building base (large part of present acreage in hay, pasture, summer
fallow, temporarily idle, etc.) --Soil-bank acres (acres for which farmers can receive incentive payment to build fertility instead of producing unwanted surplus)
150 It can never be expected that all acreage eligible for payment will be shifted into soil building, but we can expect near 100 million acres of land now producing cash crops at a low yield per acre and returning little or no net profit per acre to some into the soil-bank program.
When surpluses are reduced and production is brought into line with market needs the higher price will automatically shift land back into cash crops thus relieving the Government of providing the incentive payment.
This plan is designed to balance agriculture with the level of the entire economy, protecting the consumer's food supply at reasonable prices; while, on the other hand, protecting the farmer againt the plague of overproduction, unwanted surpluses and drastically low farm earnings.
The program for the American farmer must be organized and implemented just as the individual farmer should manage his farm. We must spend money where it needs to be spent to correct a situation and cease expanding that phase of the business that incurs losses.
I advise my farmers to expand their profitable farm enterprises and curtail or eliminate those that are unprofitable. Our farm program must be operaed in a similar manner. We would like to see soil-bank payments made in 2 parts: A first payment to shift land use from grain to forage on the expected 100 million acres at an average payment of $8 per acre.
This payment would be related to the level of production of the various agricultural regions ranging from $3 to $15 per acre. There should be no restrictions on the use of forage for this first payment.
A second payment would be offered those farmers who forego feeding the forage on these soil-bank acres. This payment, too, would average around $8 per acre with a range similar to the first payment.
A good guess is that we would have at least 70 million acres of the 100 million acres affected by the second incentive payment to place into a fertility reserve the forage grown and not harvested or fed.
How much money will this program cost? If made effective it need not cost too much. Here are our estimates: First payment: 100 million acreas, @ $8-
$800,000,000 Second payment: 75 million acres (forage not fed), @ $8_ 600,000,000 Total incentive (spending—not cost).
1, 400,000,000 By adjusting production beyond current needs, enabling the Government to move the surplus into the market earlier, and thereby saving the cost of deterioration and storage, we should regain $600 million. This is based on a $6 billion storage holding, figuring a 10-percent annual reduction in value.
I think those are the figures-you can correct me if they are notthat they used in the testimony when Secretary Benson appeared before the committee, about 10 percent.
I think I am right, that in wheat, do they not figure that in 8 years the total value of the wheat is used up in deterioration ?
The CHAIRMAN. That is Benson's statement, 8 years.
Mr. GEHLBACH. I have tried to get the most reliable information I could.
The CHAIRMAN. Are those two payments that you speak of there for the same year?
Mr. GEHLBACH. Yes; the same year.
Mr. GEHLBACH. By adjusting production to market needs, we might well halt the farm-price decline and even regain a part of the 25percent decrease already experienced. A 10-percent reduction in production is associated with a 20-percent increase in grain prices and a 25-percent increase in livestock prices. It is quite possible to gain that much in 1 year if present surpluses are properly handled.
A quite conservative estimate of price response to an effective program of production adjustment would be at least 10 percent. If this is applied to only $6 billion of present Government stockpile, the program could earn about $600 million without using the surplus itself.
These 2 factors alone, the gaining of price and the prevention of part of the loss of commodity deterioration and storage costs, would recover $1.2 billion to offset the $1.4 billion of incentive payments proposed.
For the portion of farmers having earnings at levels subject to Federal income tax, the increase in earnings resulting from the program will pay all or at least a substantial part of the cost of administering the program.
The real and substantial returns from the soil-bank plan are not the incentive payments. They are elimination of price-depressing surpluses; increased net earnings and soil fertility; long-term benefits of soil and water conservation.
The President's shift in emphasis from price fixing and rigid controls to a soil-bank approach is certainly a move in the right direction, and is one which we have long advocated. The effectiveness of this program, in easing the farm tension, will depend primarily upon the implementation now to be proposed by you. It must be simple and extensive.
I know that your committee is really busy, and I have tried to outline on the back page in outline form the major features of the original soil-bank plan for American agriculture as we are proposing it.
The CHAIRMAN. We will put it in the record. (The document is as follows:)
MAJOR FEATURES OF THE ORIGINAL SOIL-BANK PLAN FOR AMERICAN AGRICULTURE
(NOT THE ACREAGE-RESERVE OR THE CONSERVATION-RESERVE PLAN) Objectives : Production adjustment, soil and water conservation. Balance net farm incomes to entire economy. Assure food supply at reasonable prices.
Crops involved : All crops are adjusted to market needs. The expansion of soil-building crops adjusts all other crops in oversupply.
Acreage involved: From 20 million to 150 million acres of cropland.
Controls needed : None. Price balances production between crops and incentive payments.
Form of participation: Voluntary planting of soil-building crops over and above a minimum base. Two forces to bring about compliance:
1. Commodity loan level in relation to compliance.
2. Incentive payment to shift to more soil building. Use of soil-bank acres: For soil building and conservation; for emergency feed when need outweighs incentive payment.
Time element: A longtime agricultural program-not operative when market needs meet production; however, immediately effective when production exceeds market needs.
Compensation to farmers: Higher prices, as a result of adjusted production, higher per acre profits from slightly higher yields per acre, and dollar incentive payment to build fertility instead of producing unwanted agricultural surplus. We would not use certificates to confuse the issue.
Fair estimate of cost : About $300 million of net cost. Estimate of payments by Government:
Million Incentive payments for acreage shift.
$800 Incentive payments for fertility reserve_
Total incentive payments.-
Estimate of income to Government:
Price gain on $6 billion Government-held surplus at 10 percent.
absorbed into market earlier (1-year allowance)-
Total earning or loss prevented_
1, 200 The CHAIRMAN. Very well.
The committee will stand in recess until tomorrow morning at 10 o'clock.
(Whereupon, at 4:40 p. m., the committee recessed to reconvene at 10 a. m., Saturday, January 21, 1955.)