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Whole-Herd Buyout Brought Temporary Leveling In Milk Production

June 8, 1988

WASHINGTON (AP) _ More than $1 billion in federal payments to farmers aimed at reducing milk surpluses merely caused a temporary leveling off of production, according to a report from the General Accounting Office.

″While the program contracted to remove almost 9 percent from annual milk production, nonparticipating dairy farmers continued to increase their production,″ says the report from the congressional investigative agency.

It said that in 1986, the first year of the dairy termination program, or whole-herd buyout as it is sometimes called, production actually increased by 234 pounds or a fraction of one percent of the 1985 level.

Under the program, farmers agreed to slaughter or export their entire herds and get out of dairying for at least five years in return for payments from the Agriculture Department. The plan was incorporated into the 1985 legislation approved in response to painful stagnation that afflicted the farm economy at that time.

Production dropped below the 1985 level by about half of one percent in 1987, according to the GAO report, which was produced at the request of two members of the Senate Agriculture Committee, Sens. Jesse Helms, R-N.C., and Pete Wilson, R-Calif.

The leveling off came at a time of increasing demand for dairy products and thus lowered surplus levels.

The report said federal purchases of surplus dairy products decreased from 13.2 billion pounds in 1985 to 10.6 billion pounds in 1986. They dropped to 6.7 billion pounds last year, according to the report.

Some $1.8 billion was paid out by the government for the program. But $677 million of that was defrayed by farmers through assessments.

Pressure to cut federal purchases of surplus dairy products had been building because of increasing costs. The price tag for taxpayers climbed from about $247 million in fiscal 1979 to a high of $2.7 billion in fiscal 1983.

In the mid-1980s, the government experimented with a milk diversion program that also was designed to reduce federal purchases of surplus milk. Under it, USDA paid 38,000 of the nation’s 200,000 commercial milk producers to cut back sales by 5 percent to 30 percent. The results were not successful.

In the first year of the diversion, 1984, U.S. production was 135 billion pounds, of which the government bought 8 billion pounds. In 1985, production was 143 billion pounds and the government purchased 13 billion pounds.

In key dairy states, milk production rose sharply during the course of the program. In California, production increased 2.8 percent in 1986 and 6.9 percent in 1987. In Texas, it was 3.0 percent in 1986 and 8.4 percent in 1987.

The GAO said that it sent out questionnaires to 650 dairy farmers who sought to participate in the program and were not able to do so and 545 of those whose bids were successful.

About half said they were greatly prompted to get into the program because doing so would prove more profitable than continuing dairy operations, the GAO said. It said half reported they were ″somewhat to very greatly influenced by the need to get out of debt.″

Of those who did participate and received the payments, 48 percent reported they are now crop producers, 44 percent maintain livestock operations, 2 percent work for dairy farmers, 15 percent do other farm-related work, 28 percent do non-farm related work, 5 percent are unemployed but seeking work and 9 percent jobless and not seeking work.

About 26 percent of the participants in the program said that they either definitely would return to dairying after five years, probably would do so or were just as likely as not to do so.

″Twenty-six percent of the program’s participants indicated that they probably would have quit dairying without the program,″ the GAO said. ″About 40 percent of th farmers who bid on the program believe it will have little or no effect on milk production at the end of 5 years.″

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WASHINGTON (AP) - Legislation that would block further Farmers Home Administration loans to farmers who have defaulted on earlier ones is being promised by Rep. Joe DioGuardi, R-N.Y.

″Everyone knows you don’t lend money to someone who failed to pay you back for an earlier loan,″ DioGuardi said in a statement issued Monday. ″Everyone but the federal government that is.″

He cited a Farmers Home Administration estimate that it would be forced to write off $8.8 billion in defaulted loans under legislation that was approved by Congress last year. He said, however, that could mean borrowers would immediately become eligible for new loans.

″To open up the credit window to these same debtors who cost us the $9 billion in the first place makes absolutely no sense,″ the Westchester County lawmaker said. ″In addition, allowing farmers to write off their debts with impunity destroys the incentive to be a good farmer.″

Several lawmakers, notably Sen. Kent Conrad, D-N.Y., have been hotly protesting both FmHA’s statement that it may have to write off $8.8 billion and news media accounts that accept that statement uncritically. They note that last year’s legislation calls for writing off such debts only in cases in which that way would be the least costly to the taxpayers.

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