Economic Report of the President

unlikely to happen in the future in part because of energy. In 1975,when data first became available, energy-intensive inputs (excludingfertilizer) accounted for 23 percent of the variable cost of producingan acre of corn. Those same inputs accounted for 31 percent of thevariable cost in 1980. Higher real prices for these inputs will be adisincentive to their use and intensify the pressure to use additionalland and water resources. These resources are also more limited. In1972, for example, more than 16 percent of the cropland base wasbeing withheld from production by government policies. None isbeing withheld today. To raise production further, land will have tobe diverted from other uses and developed for crop production. Thecost of doing so will be reflected in higher agricultural prices.Changes in policy, however, could help to ameliorate future increasesin food prices. Certain land-use patterns remain fixed byacreage allotments. Fruit and vegetable growers sometimes restrictoutput or otherwise control marketing to enhance prices and thenseek restrictive trade policies to protect those higher prices. Certainregulatory procedures now impose economic penalties on the use oftechnologies that would raise productivity in the food system. Suchpolicies deny both producers and consumers the benefits of technologicalchange. Finally, certain price support decisions continue to bestatutorily dependent on movements in an outdated parity index thathas little relation to product-specific costs of production. The dairyprice support program is perhaps the best known example here. Suchpolicies enhance the economic position of some farmers, while theyperpetuate existing—but not necessarily efficient—patterns of resourceuse. Such inefficiency is particularly costly in a period of relativeresource scarcity and limits agriculture's potential contribution toeconomic growth.POLICY DIRECTIONS FOR THE 1980sSignificant progress has been made over the past 30 years in adjustingU.S. agricultural policies to a changing world. More importancehas been placed on the allocative function that can be performedby prices, and there is significantly less direct government interferencewith producer decisionmaking.This Administration's farm policies have contributed to the evolutionaryprocess. The implementation of a farmer-owned grain reserveprogram stands out because of its flexibility and its success in moderatingprice fluctuations stemming from changes in production andconsumption levels. Additionally, the recent formation of a government-ownedfood reserve increases the likelihood that food will beavailable to foreign nations during emergency situations, even whenworld prices are high and commercial supplies are limited. The 1980passage of a statute permitting the creation of a partially subsidized,122