Economic Report of the President

past. The growing importance of exports makes it more likely thatthe benefits of U.S. grain reserves will accrue disproportionately toforeign customers. Together, these observations suggest two things:first, that grain sold from the reserve should be priced high enoughto cover not only the cost of grain production but, if possible, programcosts as well; and second, that the incentives to place grain inreserve should be no greater than necessary to meet our objective ofprice stabilization. Present policy, including administrative proceduresand legal authority, does not serve either of these objectives aswell as it might.Current law, for example, requires waiver of the interest thatwould normally be paid by farmers on CCC loans and taxpayer paymentof the storage costs. Thus, if the grain is sold at a lower pricethan would be required to cover these carrying costs, export customersbenefit because American taxpayers subsidize the storage ofgrain. But if grain from the reserve is sold at prices high enough tocover these costs, farmers receive a windfall profit that may be unnecessaryto assure the accumulation of reserves that will accomplishthe price stabilization objective.By requiring farmers to pay the storage costs and the interest onthe loans, the beneficiaries of the reserve (both U.S. and foreign customers)would be paying for the system's operation. Requiring farmersto pay such costs would, however, probably result in reserves toosmall to accomplish the price stabilization objective. To attract thedesired stocks, farmers might be offered higher loans for grain enteringthe reserve. The most efficient way to acquire a reserve of agiven size would be to require farmers to bid for the right to placegrain into the reserve. Under such a plan, farmers offering to placegrain in reserve at the lowest loan rates would be authorized entry.The flexibility granted by the Agricultural Act of 1980, which authorizeshigher-than-normal loan rates for grain entering the reserve,might be used to implement such a plan. Legislative changes would,however, be required to allow the farmer to pay storage and interestcosts.In addition to subsidizing the grain reserve, the Federal Governmenthas subsidized the use of key agricultural inputs. Programsunder which the Federal Government has shared with farmers thecosts of soil conservation, land development, pest control, and thelike, have been commonplace. As farm exports grow, so will theextent to which such subsidies transfer national wealth to export customers.To avoid unintended transfers, the resources committed toagriculture must be properly priced. This means, for example, thatthe price of exported grain should reflect the full costs of transportingit. Similarly, the Nation's limited natural resources, such as un-120