I S S U E B R I E F NUMBER I B 8 3 0 2 1
E n v i r o n m e n t and N a t u r a l R e s o u r c e s P o l i c y D i v i s i o n
T H E L I B R A R Y OF C O N G R E S S
CONGRESSIONAL RESEARCH SERVICE
MAJOR I S S U E S S Y S T E M
DATE O R I G I N A T E D 02/22/83
DATE UPDATED 11/09/83
F O R A D D I T I O N A L I N F O R M A T I O N C A L L 287-5700
Despite Federal efforts last year to curb productjon and dispose of
surpluses, record production and continued high carryover stock levels for
most commodities have depressed farm prices and significantly
expectea Federal outlays for agricultural price support programs.
attempt to bring supply in line with demand, President Reagan announced on
January 1 1 , 1 9 8 3 , that the U.S.
Department of Agriculture
implement a payment-in-kind (PIK) program for the 1983 wheat, rice, corn,
sorghum, and upland cotton crops.
Recently, USDA announced a PIK program for
the 1984 wheat crop.
Under P I K , government payments in the form of Commodity Credit Corporation
(CCC)-owned commodities are given to farmers in return for additional
reductions in harvested acreage. At the time of implementation, the PIK
Particular concerns included the
program created a number of issues.
potential short-term price impact of PIK, the more
immediate problem of
ironing out certain technical details, such a s the taxing procedure, and the
longer-term policy implications of initiating and maintaining such a massive
supply control and acreage reduction program.
Concern has been
over the eventual cost of the program and the impact i t will have on retail
fooA prices in 1984. In addition, heavy participation in PIK left the
government short of stocks needed for payments, and the methods
acquiring and distributing PIK commodities has prompted criticism from
farmers and legislators alike.
Furthermore, the program has come under
increasing criticism SeCaUSe of the large payments that have been made to
Some farmers are reported to have received payments valued
in excess of $ 1 million.
A recent legal interpretation by GAO concluded that
payments in excess of $50,000 were a violation of Federal law.
BACKGROUND AND POLICY ANALYSIS
Supply and Demand Conditions Leading to PIK
In 1981, U.S. farmers produced record levels of wheat, corn and soybeans.However, both domestic and foreign demand for these commodities weakened over
the marketing year, causing U.S. stocks for grains and cotton to swell.
an effort to reduce.supplies, the USDA implemented acreage reduction programs
for grains and cotton in 1982. Despite these efforts, U.S. farmers harvested
even larger crops of wheat, corn, and soybeans in 1982 than in 1981.
record production, plus a large carryover, dramatically increased stock
levels of nearly all major commodities.
USDA estimates that a t the end of
the 1982/83 marketing year, the United States holds approximately 73% of' the
world's coarse grain stocks, 43% of its wheat stocks, 28% of global cotton
stocks, and 65% of world soybean stocks.
Demand for agricultural commodities has remained weak, with reduced
domestic usage and declining export levels.
For the first time since 1969,
the value of U.S. farm exports has declined -- from $43.7 billion in 1981 to
with a further drop to $34.5 b.illion in 1983.
$39.1 billion in 1982
Large stock levels in the face of continuing weak demand depressed
commodity prices and lowered farm income.
Net farm income fell to only $22.1
billion in 1982, compared to $30.1 billion in 1981.
Low commodity prices and growing surpluses also boosted Federal outlays
under the commodity price support programs.
Outlays reached a record level
of $11.7 billion in FY82 and will soar this year t o . an estimated 18.9
billion, according to USDA.
This is about $3 billion less than was estimated
at mid-year because more commodity loans are being repaid a s market prices
for some commodities rise.
In this atmosphere of declining demand, eroding
farm income, and rapidly escalating farm program
Administration announced its PIK plan to cut production, stocks, and
Government costs, while halting the decline in farmersf income.
PIK: THE PROGRAM
In addition to the acreage reduction and paid land diversion announced
last summer, the USDA announced in January 1983 that a payment-in-kind
program would be implemented for the 1983 crops of wheat, corn, grain
sorghum, cotton and and rice. A similar program to reduce excess supplies
and the Government's cost of storing surpluses was used for cotton in the
1930s, and for feed grains and cotton in the 1960s. Under the new P I K , the
USDA uses existing grain and cotton stocks to pay farmers to reduce their
production further in 1983. Farmers who take land out of production, in
addition to acreage not planted
to crops under the voluntary and paid
diversion programs, receive a certain amount of the commodity they would have
Farmers are free to use PIK commodities as they wish:
they may store or sell them or, in the case sf grains, use them a s feed.
Commodities received as payment-in-kind, however, are not eligible for entry
into the Federal commodity loan or reserve programs
(an exception to this
it is discussed under the
poiicy was made for certain Texas rice producers
section entitled wShortfalls in CCC Stocks Needed to Meet PIK Commitments").
PIK payments come from CCC-owned stocks, the farmer-owned
crops under regular loans, or from farmers' 1983 crop. Participating farmers
with outstanding regular or reserve loans are forgiven the principal and
interest due and retain their own commodity as payment under PIK.
maturing loans are extended when the purpose is for use as PIK payment.
outstanding loan amount in excess of the PPK payment must be forfeited or
redeemed at maturity.
farmers with no outstanding loans
receive letters of entitlement to CCC stocks a t approved warehouses, or, in
the case of wheat and cotton, must harvest a portion of their 1983 crop for
Producers of 1983 crops had several options to consider in making
planting and harvesting decisions.
They could elect not to participate
any acreage reduction program, thereby foregoing any direct price support
program benefits, They could limit participation
to the unpaid acreage
reduction/paid diversion programs. Or, they could participate in the regular
programs plus PIK. Producers also had several options under PIK. One option
allowed farmers to reduce their acreage by
10-30% above Ehe previously
announced acreage reduction program levels of 20% for food and feed grains,
and 25% for Cotton.
For the grains, this means that a total of 30% to 50%
of the fffarm basew could be withdrawn from production.
For cotton, a total
of 35% to 55% of the farm base could be withdrawn.
Each farm's PIK payment is determined by multiplying the acreage withdrawn
under PIK by the "payment ratew. Payment rates are set at 95%
farm program yield for wheat, and 80%
for all other commodities.
Under a second PIK option, known as the "whole farm option," farmers could
withdraw their entire base acreage.
However, producers were not automatically entitled to the whole farm
option: it was only available on a "bid basis."
To take .their entire base
acreage out of production, farmers had to bid the payment
rate they would
accept in return for diverting all their acreage. This option is COmmOnlY
referred to a s "the whole base bid."
Participating farmers who chose the 10-30% PIK must comply first with the
full unpaid and paid acreage reductions.
Under this option, farmers do not
receive any compensation on the acreage that is considered voluntary
reduction. A farmer whose whole base bid was accepted is compensated for all
of the acreage.
On Mar. 2 2 , 1983, the Secretary of Agriculture reported high
levels in the 1983 regular acreage reduction diversion and PIK programs.
Producers farming 1 8 8 million acres (out of 231 million acres of the eligible
feed grains, wheat, rice, and upland
agreements with USDA to divert 83 million acres out of production.
maqnitude of the acreage diversion under PIK makes it the largest such
program in American agriculture.
USDA estimated at the time that 1983 wheat
and corn production would be reduced by about 25% as a result.
Those farmers who enrolled their acreage under the regular reduced acreage
and paid diversion programs could withdraw from the program without penalty.
Farmers with acreage under PIK faced heavy penalties for non-compliance.
IMPACT OF PIK
According to Secretary of Agriculture Block, in his statement of Jan.
"Reduce production, reduce surplus
1983, PIK has a three-fold objective:
stock holdings, and avoid increased budget outlays that would otherwise be
necessary under the price support programs.1q He added that:
"It is unlikely
0u.r surplus will be substantially reduced any time soon by increased exports.
PIK is aimed a t bringing supply more in line with demand."
Impact on Production, Stock Levels, Farm Income and Farm Suppliers
USDA data of Oct. 25, 1983, shows that PIK in combination with the
summer drought will have the following results:
Corn production in 1983 is expected to decrease by
4 9 % from the record 1982 crop
from 8.40 billion
bushels to 4.26 billion bushels, according to
U S D A q s September crop report.
in 1983 is expected to drop by less than one-fifth from 1982
levels -- from 2.81 billion bushels to 2.41 billion
Rice production in 1983 is projected to drop by
one-third to 102.6 million cwt., down from 154.2 million
cwt. in 1982.
Upland cotton production is forecast
to decrease by more than one-third to 7.5
million bales, down from 12.0 million bales in 1982.
Total ending stocks of wheat in 1983/84
are expected to decrease slightly to 1.47 billion
bushels, compared to 1.52 billion bushels in 1983.
Ending stocks of corn are forecast to fall to only 6 2 5 million
bushels, a tremendous reduction from the 3:43 billion bushels
in 1983. Ending stocks for rice in 1984 are estimated
a t 33.7 million cwt., down from 71.5 million cwt. in
Upland cotton stocks
are expected to decline to 4.4 million bales, from 7.9
million bales in 1983.
Although not eligible for PIK, soybean production is
expected to decline markedly as less soybeans are
double-cropped and as nonparticipating
farmers switch to corn and cotton due to stronger prices for
these two program crops.
In addition, the summer drought
has reduced yields for these three crops and cut
overall production in major growing areas.
Soybean production is expected to decline dramatically from
2.23 billion bushels in 1982 to 1.52 billion bushels in
1983 (33% decline).
Ending stocks for soybeans
are forecast to decrease from 387 million bushels in 1982/83
to 120 million bushels in 1983/84.
Net farm income for 1983 is expected to rise substantially
as a result of the acreage reduction that occurred under PIK
and the production losses caused by the drought.
USDA estimates forecast net
farm income for 1983 at $16 to $20 billion.
was revised upward to 1 8 to 22 billion in the wake of
P I K , and the most recent forecast puts the figure between
$25 and 29 billion.
Most of the increase is attributed to
savings in production expenses rather than increases in cash
receipts. Despite an anticipated strengthening of certain crop
prices, crop cash receipts (according to USDA) are expected
to decline from 1982's $74.4 billion to a n estimated $67.8
billion in 1983, largely due to PIK's impact on marketings,
prices, and loan activity.
PIK's impact on the livestock sector will be in the
form of higher grain prices, which will combine
with already reduced red m e a t . p r i c e s to further
squeeze producer profitability, resulting in lower
red meat production in 1984 and correspondingly
higher retail prices.
PIK is expected to have little impact on food prices in
1983. There will be more effect on retail prices in 1984
due to rising meat prices and expectations that
vegetable oil and sweetner prices will also incrPase
a s a consequence of the small soybean and corn crops.
Both soybeans and corn are important ingredients in
livestock feeds, and both yield oils used in baking and
Also, high fructose corn syrup, which is a
widely used sweetner, is made from corn.
Reduced input purchases by producers participating in
all acreage reduction programs will have a n adverse impact
on those businesses that normally supply them.
agribusiness firms acknowledge that the stock-reducing
effects of the program Will be better for them in the
long run as commodity prices improve, and producers
begin to increase their purchases, many small town
businesses that distribute these inputs are having
a difficult year.
In April USDA estimated that
farmers would spend $4.9 billion less for major
farm inputs this year compared to a scenario where
no PIK program had been announced.
In contrast, the
Small Business Administration estimates farm suppliers
will lose up to $7 billion in business this year.
USDA estimates that f a r m e r s t use of such inputs a s
seed, fertilizer, and pesticides, and farm machinery
repairs would drop 12-15%.
are expected to decline only 2-3%.
This forecast reflects
a n improvement in f a r m e r s t cash
flow as PIK-obtained commodities are sold.
PIK's Impact on Commodity Prices
Heavy enrollment in the PIK program and a severe drought throughout major
crop producing regions are largely responsible for the increasing strength of
corn and sorghum prices.
The farm price received for corn has
$2.36 a bushel in January to $3.30 in October (preliminary).
increased from $4.09 per hundredweight (cwt.) to a n October price of $5.10.
The farm price for cotton rose from 5 6 cents per pound
in January .to 64.7
cents in October.
Average rice prices were $8.21
$8.05 in January.
Wheat prices initially rose from $3.57 a bushel in January
to $3.77 in May, before declining to an average of $3.56 in October, due to a
weak supply-demand outlook, and a n increase in "freen stocks available to the
Though the intent of PIK is to reduce stock levels this year and next,
price gains for PIK commodities were originally anticipated in 1984 and 1985.
In the case of corn, however, PIK, in combination with the drought, has
sharply reduced supplies and carryover, causing prices to move
In a report of Oct. 25, USDA projected the prices of wheat, corn;
and rice for the 1983/84 marketing year to range between
$3.40-3.80/ bushel and $8.50-10.00/cwt.
respectively, an improvement over the
$3.53/bushel1 $2.70/bushel, and $8.18/cwt. that farmers are estimated to have
received in crop year 1982-83.
Budget Savings Associated with PIK
USDA estimated in late May that the PIK program will reduce CCC outlays by
Outlays are defined as the amount of
more than $9 billion through FY86.
money the CCC spends i n any given year to support farm prices' and incomes.
Some outlays, such a s nonrecourse loans, carry repayment obligations.
outlays, such as deficiency payments, are non-recoverable and are counted as
losses to the Government account.
The saving of $ 9 billion is a reduction from what outlays would have been
if current commodity programs had continued without any changes during this
The $ 9 billion in lower CCC outlays reflects savings of more than $3
billion in storage and interest costs, over $3 billion in deficiency
payments, about $ 2 billion in lower land diversion payments, and less than $1
billion in other categories. Most of the savings will occur in F Y 8 4 and
Savings of $2.6 billion in FY84, $4.4 billion in FY85, and $3 billion
in FY86 will be offset by the additional $ 1 billion
i.n outlays in FY83
reflecting increased loan activity associated with 1982 crops.
Costs of PIK
Commodities acquired by the CCC, through either purchase or loan default,
may result i n either gains or losses to the Government account.
PIIZ's effect on reducing CCC outlays through FY86
(by reducing direct
storage, interest expense, and storage and handling
costs), PIK in the long term will increase the level of net losses to the
Government from price support activities.
PIK commodities cost money.
Assuming that the PIR program will be continued a second year for wheat but
not for other commodities, the Government will pay
for most of these
commodities in FY83 and FY84 by forgiving outstanding commodity loans or by
giving its inventory of grain and cotton to participating
So, the loan outlays that are now treated as accounts
receivable, and secured by by
commodities, will become
Consequently, CCC owned stock paid to participating farmers will no longer
appear as assets on the books of the CCC.
Zxperts offer a range of estimates on what the PIK program will eventually
cost the Federal Government in terms of net losses. An
economist with the
American Farm Bureau Federation estimates the direct cost of PIK will be
USDA's estimate is higher a t $10.64
billion, assuming that
PIK is limitea to wheat in 1984, a s seems likely. The department estimates
the cost of running a second year of PIK for feedgrains, cotton, and rice at
The Congressional Budget Office estimates PIK's cost a t $8.3
biliion in FY83 and, assuming a 2-year PIK program on all 5 commodities, an
addltional $2.9 billion in FY84.
The difference in estimated costs revolves
around the question of how to value the commodities that will be turned over
to farmers participating in PIK.
In a Nov. 3 , 1983, statement before the
House subcommittee on select revenue measures, the General Accounting
estimated the cost of PIK a t $10-$11.2 billion.
The USDA's 1 9 8 4 corn program does not include a PIK component, becausecorn stocks have been severely reduced by PIK and the drought, resulting in a
tighter than anticipated supply-demand outlook for corn.
Another year of PIK
for rice is also unlikely according to USDA officials.
another year of PIK for cotton producers is less certain, according to
department officials, because the difficulties involved in administering PIK
for cotton may discourage the department from offering it in 1984, despite an
uncomfortably high level of stocks.
Criticism of PIK
Despite its initial popularity, PIK has come under increasing criticism
from farmers, Members of Congress, consumers, and taxpayers.
the enormous logistical difficulties involved in transferring huge quantities
of Commodities and a shortage of Government-owned stocks needed to make the
in-kind payments have resulted in Government actions, like the "harvest for
PIK" program in cotton, which have not been popular with producers.
PIK will impact negatively on rural businesses supplying production inputs
These firms have been suffering from low sales for two to three
years because of a continuing slide in farm income, and thus purchasing
Also, many farm supply representatives believe that the large acreage
reductions caused by PIK will worsen their situation.
Trade estimates of the
drop in expenditures
(generally higher than Government estimates)
purchased inputs in 1983 a s a result of PIK range from $6.7 billion to $10.5
But many farm supply representatives concede that unless the farm
economy improves, farm supply businesses will suffer more in the future.
Recently, concern has been expressed by
some Members of Congress and
others over the number of large and corporate farms that will receive over
one million dollars worth of PIK commodities.
In a statement of Nov.
1983, to the House subcommittee on select revenue measures, the General
Accounting Office presented the results of its survey, which
payments to individual farms valued at over $ 2 million
have occurred under
In addition, the severe drought in the Midwest combined with
cutback under PIK has cut production of feedgrains more and driven prices
higher than USDA had originally anticipated.
In April, the Department stated
that retail food prices in 1984 could rise 1 percentage point above the 2-4%
increase expected in 1983. An additional 1-1 1/2% rise in food prices is
anticipated by USDA due to the effects of the drought, for a total of about a
4-6 1/2% retail price increase in 1984. However, many private analysts are
forecasting increases of 5-8% in 1984, to be led by gains in meat, vegetable
oil, and sweetner prices.
PROGRAM IMPLEMENTATION AND LEGISLATIVE ACTIVITY
Legality of PIK
Although U S D A 1 s Office of General Counsel expressed the opinion that the
Secretary held sufficient authority to implement a PIK program without
congressional involement, the Secretary did request legislative assistance
1) a waiver of the
regarding two specific provisions in the 1981 Farm Act:
$50,000 limit on payments to individuals for making payments-in-kind, and 2)
an exemption from the restriction on the CCC not to resell any stocks forless than 110% of the current farmer-owned reserve trigger prices.
Before the end of the 97th Congress, the full House, in H.R.
the Senate Agriculture Committee, in S. 3074, approved legislation removing
pcssible legal obstacles to the program.
The full Senate, however, was
prevented from voting on the measure because of procedural
dlthough most Senators agreed with the substance of the legislation.
Despite failure to get specific congressional authorization for the
1 1 , 1983.
program, the Administration announced implementation of PIK on
This action was based on USDA General Counsel's legal opin-ion that the
$50,000 payment limitation and the CCC resale restrictions do not apply to
The USDA General Counsel's opinion, however, has been disputed by GAO.
a Nov. 1 , 1983, letter to Secretary Block, GAO Director Peach stated that its
General Counsel has concluded that the $50,000 payment limitation does
Farm Prices under PIK
Many Members of the 98th Congress originally expressed concern over the
A number of
potential price depressing impact of PIK over the short term.
bills were introduced to guarantee PIK participants a minimum price for the
commodities they receive under the program.
However, this "floor price"
concept has been generally opposed by the Administration a t levels above 75%
of the county loan rate, or about $1.99/bushel for corn and $2.74/bushel
wheat at the 1983 loan rates.
Tax Impact of PIK
The 98t3 Congress earlier addressed the possible tax implications of the
Areas which, without
clarification, could have discouraged
producer participation in PIK were: 1) the question of when taxes would have
to be paid on PIK commodities, 2) the effect of PIK participation
taxes, and 3) the effect of PIK participation
on a farmer cooperative's
special tax status.
clarifying the tax implication of PIK was acted
98-4) on Mar.
1 1 , 1983.
expeditiously and was signed into law (P.L.
allows farmers to defer income tax payments on PIK commodities until they
have been sold, provides that any farm receiving PIK commodities shall remain
eligible for the special use valuation under estate tax l a w , and allows
farmer cooperatives that receive PIK commodities to remain eligible for
special tax treatment afforded cooperatives.
The law also
eligibility for the self-employment income tax, certain income tax credit
provisions and the social security
participating in PIK.
This legislation, however, covers only PIK commodities
harvested or planted during 1983 (1983 crops of corn sorghum, wheat, rice and
cctton, and the 1982 crop of winter wheat).
USDA has announced a 1984 wheat
program containing a PIK component; thus new tax legislation will be needed.
On a separate issue that was handled administratively, USDA extended the
final settlement date for PIK certificates to Jan.
1 6 , 1 9 8 4 , in order to
provide "plant for P I K w participants with the option of marketing
deferring taxes on those commodities into 1984.
Shortfalls in CCC Stocks Needed to Meet PIK Commitments
The larger-than-expected signup for PIK committed USDA to obtain more
commodities than the department had anticipated in order to fulfill their
The agreements, which producers signed with
participate in PIK, contained provisions that gave USDA a number of options
for obtaining additional PIK commodities.
additional in-kind compensation to producers
to forfeit their 1982 crop
If this method failed to secure a sufficient amount, the'^^^, under a
second option, could require that producers take out loans 6n their 1983
crop, which would then be forfeited. The CCC would then give these producers
title to the commodity they had produced to satisfy its PIK commitment.
was called the "plant-for-PIK" option.
Under the first option, USDA acquired sufficient amounts of corn, sorghum,
and rice in order to meet PIK commitments. However, shortfalls in CCC stocks
of wheat and Cotton led the USDA to extend the initial period
to offer part of their 1982 and earlier year crop under loan.
however, did not offer enough wheat, and thus USDA announced in early June
that producers would be required to take out price support loans on part of
their 1983 wheat crop in order to fill a n 8 7 million bushel shortfall in PIK
commitments for that commodity.
For cotton, USDA twice extended the time period
their 1982 loans in return for special compensation.
These extensions did
not result in USDA securing the 700,000 to 900,000 bales still needed to meet
PIK entitlements to producers, because cotton prices had moved
price from the
above the loan rate, leading producers to.expect a better
market than under this forfeit scheme.
Consequently, in mid-June
plant-for-PIK option, which requires producers to take out loans on their
1983 crop and then forfeit the cotton to the CCC at the 1983 loan rate of 55
Subsequently, the CCC would turn over the forfeited cotton to
Cents a pound.
producers to meet its PIK commitments. Growers responded that this would
cause problems, because up to two-thirds of 1983 cotton has already been sold
under forward contracts, and that to require them in effect to sell to the
CCC part of their crop at the loan rate would make it impossible for them to
fulfill these contracts. Subsequently, legislation was passed by the House
and Senate and signed into law (P.L. 98-63) directing the Secretary to offer
to acquire 1980, 1981 and 1982-crop upland cotton on a bid basis from farmers
who had Cotton pledged as collateral for outstanding CCC price support loans.
However, this effort also failed to attract the needed quantity of cotton.
Therefore, USDA has announced plans to require cotton producers without
outstanding commodity loans but with a 1983 crop of cotton to "harvest for
PIK," a t the rate of 40% of their PIK entitlement.
Unlike cotton, rice stocks are sufficient to fulfill PIK commitments.
Xowever, some producers in Mississippi, Louisiana, and Florida will receive
rice from Arkansas, and many Texas producers will receive California rice.
This situation has angered many Texas growers who produce long grain rice,
which sells for a premium over California rice.
In order to resolve the
disparity created by the shortfall of Texas rice, USDA will provide Texas
long grain rice producers with 1 3 0 lbs. of California rice for each 100 lbs.
of PIK entitlement they own.
In addition, the Department will either pay
storage on the California PIK rice until Apr. 30, 1984, or allow producers
eligible for 1983 crop loans to transfer that eligibility to their California
PIK rice. Even so, some growers have criticized the decision, claiming the
price differential between Texas and California rice is not fully reflected
in the Government's plan.
As of early November 1983, the entitlement (or payment)
dates have been
reached (except for cotton, which was extended).
payments made to producers under PIK will amount to 1.75 billion bushels
corn, 550 million bushels of wheat, 175 million bushels of grain sorghum;
million hundredweight of rice, and 4.3 million bales of cotton.
1984 PIK Program for Wheat
Despite PIK, carryover stocks of wheat are expected
to decline only
slightly to 1.47 billion bushels in 1983-84 vs.
1.54 at the end of the
previous marketing year. This situation led Agriculture Secretary Block
announce that a PIK component will be included in the 1 9 8 4 wheat program.
Farmers who participate in the program, which includes a mandatory
non-paid acreage diversion of 30%, will be eligible to idle a n additional
10-20% of their acreage under a PIK scheme that provides
for an in-kind
PIK payments for 1984 crop
payment rate of 75% (compared to 95% in 1983).
wheat will come either from grain already under Government loan or, in the
absence of outstanding loans, producers will agree to "harvest for PIK."
The 1983 payment-in-kind program has reduced the production of grains and
Cotton this year.
In addition, the severe drought conditions that have
prevailed throughout major crop regions this summer are causing extensive
losses to some program crops, most notably corn. The record acreage removed
from production under PIK will result in a more rapid than previously
expected adjustment in stock levels by the end of 1983/84 marketing year for
all commodites except wheat.
These factors have caused prices of the PIK
commodities to strengthen, especially in the case of corn.
More significant, perhaps, are the longer-term policy
During much of the 1970s it seemed as though the perennial problem of surplus
farm commodities had disappeared.
The 1980s, however, have seen the return
of excessive stocks, weak demand and corresponding low farm prices.
this Administration's advocacy of a market oriented farm policy, it has
ncnetheless initiated a massive supply control and acreage reduction program.
I m p l e m e n t a t i ~ n of PIK represents further Government intervention into the
The current problem of farm surpluses, like those of earlier years, is in
part due to the fact that farm productivity has increased more rapidly than
demand for farm products.
Over the past decade, crop yields have increased
by an average of 3.1% annually, while the annual growth in demand averaged
Additionally, some analysts assert that Federal price support programs
have encouraged overproduction.
When supply is increasing more rapidly than demand the choices are simply
produce less or sell more.
farmers to sell more means
increasing export sales, since there is very little potential for growth in
currently less than 1%
domestic markets beyond the increase in population
annually. Presently, the potential for increasing export markets is alsolimited.
Congress has provided the Administration with increased program
authority and earmarked funds to vigorously promote U.S.
farm exports and
additional export promotion legislation is under consideration.
these efforts, the value of U.S. farm exports declined about 11% in FY82, and
is expected to decline an additional 12% this year.
Much of the drop can be
attributed to the worldwide recession and the appreciation of the dollar
making U.S. exports more expensive to foreign purchasers.
export promotion legislation by itself has had little impact on these
Because of weakness in demand, this Administration has chosen to reduce
Substantial production cuts will occur under PIK and the program
will provide a temporary solution to the current problems of overproduction
and burdensome surpluses.
On the other hand, implementation of PIK may over
the longer-term achieve results exactly opposite from its objectives.
analysts believe that for the United States to remain competitive in the
international market as Well as avoid the role of the world's granary,
production controls and price support programs should be
reduced or eliminated.
Farm policy, it can be argued, has been moving
Implementation of PIK seems to represent a reversal of that
trend and may be interpreted as sending a signal to farmers that despite the
rhetoric about having to depend on the market, when times get tough enough
the Government will offer some form of assistance.
emphasizing the temporary nature of the payment-in-kind program, this type of
program will probably continue to receive serious legislative consideration
over the next several years since the fundamental inbalance between
and demand could persist throughout the remainder of the 1980s.
Future congressional debate is likely to occur within the more general
context of trying to develop farm policies and programs that offer the most
effective, yet least costly, method
of reducing supplies.
discussion, the following questions are likely to be raised:
How can P I K , which represents an increase in Government
intervention in the farm sector, be reconciled with the
Administration's explicit free market objectives?
Does PIK represent a shift in direction of Federal farm
policy away from market-oriented farm programs toward
more restrictive and non-market responsive programs
characteristic of the 1950s and 1960s?
Are current accumulations of stocks and difficulties in
disposing of excess stocks a result of inherent weaknesses
in Federal stock management and disposal programs, o r
are they a result of weaknesses in Federal price support
program which tend to encourage overproduction? If the fault
lies in the latter, are current efforts to refine and
improve surplus disposal and stock management programs
sufficient or misdirected?
Rather than pay storage and inventory maintenance costs,
would Federal funds be better spent on disposal programs
such as PIK and export promotion programs?
Are current program authorities adequate to manage and
dispose of surplus stocks of agricultural commodities,
or should greater emphasis be placed on production
Should the U.S. continue its production control efforts
in the face of production increases in other exporting
nations? Does this policy put the U.S. at a comparative
disadvantage in world markets?
Can the current loan rate/target price structure, which
seems to encourage higher yields and greater production,
be adjusted to function sucessfully in a period of large
surpluses and declining demand?
Numerous PIK-related bills were introduced into both Houses this Session
ranging in purpose from guaranteeing participants a minimum value for PIK
payments to compensate victims of grain warehouse insolvencies.
many bills introduced were the following:
Amends the Internal Revenue Code of 1954 with respect to the tax treatment
of agricultural commodities received under the payment-in-kind
Provides that commodities received under PIK be treated as though they had
been produced by the farmer, allowing the farmer to defer payment of taxes on
these commodities until they have been sold.
Also provides that any farm
receiving payments-in-kind shall remain eligible for special use valuation
under current estate tax law and that farmer cooperatives receiving PIK
commodities remain eligible for special tax status afforded cooperatives.
The law also provides continued eligibility for the self-employment
tax, certain income tax credit provisions, and social security benefit
provisions for PIK farmers participating in PIK. The law covers only those
commodities harvested or planted in 1983. H.R. 1296 introduced Feb. 7 , 1983;
referred to Committee on Ways and Means.
Referred to Subcommittee on Select
Revenue Measures on Feb. 1 5 , 1983. Subcommittee hearings and mark-up
and bill reported out Feb.
Full committee consideration and
mark-up held Mar. 1. Measure, as amended, reported to the House Mar.
Bill called up by House under suspension of rules, amended
and passed by a Vote of 401 to 1 (record vote no. 21) Mar.
Senate, amended and passed in lieu of S. 6 9 0 with an amendment by voice vote
on Mar. 8. House agreed to Senate amendments with an amendment by unanimous
consent on Mar. 9. Senate agreed to the House amendment to the Senate
amendment by voice vote Mar. 1 0 and the measure was cleared for the White
Signed into law Mar. 1 1 , 1983.
Makes supplemental appropriations for FY83 and for other purposes.
its many provisions, directs the Secretary of Agriculture
to solicit bids
from cotton producers in order to acquire sufficient cotton for 1983
payment-in-kind stocks. Any limits placed on bids are to be no less than
those placed on earlier feed grain bids (20%).
This provision was added by
House and Senate conferees and is identical to language contained in H.R.
3385 (H.Rept. 98-289), which passed the House July 1 9 , 1983.
Reported to House from Committee on Appropriations, May 1 8 , 1983
Measure called up by special rule; considered and passed House, May
25, 1983. Referred to Senate Committee on Appropriations on the same day;
reported with Senate Committee on Appropriations with instructions, June 1 6 ,
1983. Reported to the Senate from the Committee on Appriations, and passed
the Senate on the same day.
Conference report filed in House July 20, 1983
House agreed to conference report July 2 8 , 1983.
agreed to conference report July 29, 1983.
Signed into law July 3 0 , 1983.
9 2 2 (Glickman)
Provides for non-recourse loans on commodities received as payments
25, 1983; referred to Committee on Agriculture.
Referred to Subcommittee on Cotton, Rice and Sugar and subcornmi-ttee on Wheat,
Soybeans and Feed Grains on Feb. 4. Executive comment requested from USDA
Feb. 8 , 1983.
Requires that in any payment-in-kind program provided on the 1984 crop of
a n agricultural commodity, the Secretary of Agriculture must give the
producers the option to receive their payments in cash.
1983; referred to Committee on Agriculture.
2958 (Evans) /S. 843 (Cochran)
Amends the Agricultural Act of 1949 to authorize the Secretary of
Agriculture to make payments (in cash or in kind) to reimburse producers
the cost of applying approved conservation practices to acreage diverted
under an acreage limitation program for the 1982-85 crops of wheat, feed
grains, upland cotton, rice, and soybeans.
2985 introduced May 1 0 ,
1983. S. 843 introduced Mar. 17. Both bills referred to their respective
Committees on Agriculture.
Authorizes special payment-in-kind program for the 1983 and 1984 crops of
certain agricultural commodities and to provide authority for activities to
develop and expand markets for U.S.
requirement that the Secretary of Agriculture take such actions a s may be
necessary, including making cash payments, to ensure that the value of
commodities received under PIK are not less than 75%
of the basic County
loan rate for the particular commodity.
Introduced Jan. 26, 1983; referred
3 , 1983 before
to Committee on Agriculture.
Hearings held on Feb.
Subcommittee on Agricultural Production.
Grain Storage Compensation Act of 1983.
Provides surplus commodities to
farmers who lost grain stored in certain insolvent warehouses.
Feb. 24, 1983; referred to Committee on Agricclture, Nutrition and Forestry.
Referred to Subcommittee on Agricultural Production, Mar.
Subcommittee hearings held July 28, 1983.
S. 1053 (Bumpers)
Amends the Agricultural
Act of 1949 to require the Secretary
Agriculture to use surplus agricultural commodities to make
payments in-kind to producers who divert acreage from the production
agricultural commodities under a basic payment-in-kind
program and devote
such acreage to long-term conservation uses.
1 4 , 1983;
referred to Committee on Agriculture, Nutrition and Forestry.
S. i439 (Pryor)
~gricultura'lDisaster PIK Act.
Amends the Agricultural Act of 1949 to
the Secretary of Agriculture to use
commodities to make disaster payments for the 1983-85 crops of wheat, feed
grains, cotton, and rice instead of cash.
Introduced June 9 , 1983; referred
to Committee on Agriculture.
House. Committee on Agriculture.
Hearings, 97th Congress, 2d session. Dec. 1 6 , 1982.
Washington, U.S. Govt. Print. Off., 1982. 6 1 p.
Committee on Agriculture.
Wheat, Soybeans, and Feed Grains and Subcommittee on Cotton,
Rice, and Sugar. Review of Payment-in-Kind program.
(hearing record not yet published)
Committee on Government Operations.
The road that led to PIK.
Nov. 1 , 1983.
Washington, U.S. Print. Off., 1983.
2 4 p.
Report no. 98-456)
Committee on Small Business.
Subcommittee on Energy, Environment and Safety Issues Affecting
Impact of Payment-in-Kind program on small
Apr. 28, 1983.
(hearing record not yet published)
Congress. House. Committee on Government Operations.
Subcommittee on Government Information, Justice and
Implementation of USDA's Payment-in-Kind program.
Hearings, 98th Congress, 1st session. Mar. 3 , 1983.
Washington, U.S. Govt. Print. Off., 1983. 76 p.
Committee on Agriculture, Nutrition and
Forestry. Agricultural Act of 1982. Hearings, 97th Congress,
2d session. Dec. 9 , 1982. Washington, U.S. Govt. Print. Off.,
Grain Storage Compensation Act of 1983. Hearings, 98th
Congress, 1st session. July 28, 1983.
(hearing record not
Committee on Agriculture, Nutrition and
Forestry. Subcommittee on Agricultural Production,
Marketing and Stabilization of Prices.
Agriculture Act of
1983. Feb. 3, 1983. Washington, U.S. Govt. Print. Off., 1983.
REPORTS AND CONGRESSIONAL DOCUMENTS
Committee on Agriculture.
Cotton PIK program.
July 1 2 , 1983. Washington, U.S.
(98th Congress, 1st session.
Govt. Print. Off,, 1983.
Report no. 98-289)
House. Committee on Ways and Means.
Tax Treatment Act of 1983. Mar. 2 , 1983. Washington, U.S. Govt.
Print. Off., 1983.
(98th Congress, 1st session.
Report no. 98-14)
Committee on Government Operations.
The Department of Agriculture's Payment-In-Kind program.
House Report No. 98-113, 98th Congress, 1st session.
(98th Congress, 1st session. House. Report no. 98-113)
House. Conference Report.
appropriations for FY83 and other purposes. July 20, 1983.
Washington, U.S. Govt. Print. Off., 1983.
(98th Congress, 1st session. House.
Report no. 98-308)
CHRONOLOGY OF EVENTS
USDA announced 1984-crop wheat program, including
a payment-in-kind component.
The program includes
a 30% acreage reduction component, and a 10-20% PIK
USDA reversed previous policy, by allowing farmers
in drought stricken areas to graze livestock on
Such emergency grazing is to be
approved on a county-by-county basis.
In a written statement delivered before the House subcommittee
on select revenue measures, the General Accounting Office said
a survey it COndUCted showed the average PIK payment to the
708 farms surveyed amounted to $175,000.
Seven of the farms
would receive payments valued a t more than $2 million.
In a letter to Agriculture secretary lock, the General
Accounting Office stated that in the opinion of its General
Counsel, the $50,000 government payment limit does apply to
USDA announced that cotton producers participating
in P I K , who have no outstanding CCC
commodity loans but do have 1983 crop cotton, will
be required to "harvest for PIK."
USDA announced a revised cotton bid program from
Aug. 8-24, to acquire crops of 1980, 1981, 1982
cotton under CCC loan, in order to secure a
sufficient quantity of Cotton to meet its
requirements under the PIK program.
USDA announced that Texas rice producers receiving
lower-class and quality California rice
under PIK would receive additional quantities as
compensation. Furthermore, Texas producers eligible for
1983 crop loans would be allowed to transfer
that eligibility to their California-PIK rice.
USDA issued procedures to extend the period for
obtaining or liquidating a price support loan, a s well
as the date of PIK availability, for payment-in-kind
purposes, until Jan. 16, 1984. The action was taken
in order to facilitate producers' normal
marketing practices under PIK.
USDA announced that it will require cotton producers
to obtain loans o n their 1983 production for use to meet
PIK commitments to them.
USDA announced that wheat producers who do not have sufficient
amounts of wheat pledged as price support loan
collateral to meet their PIK entitlement will be required
to obtain loans on part of their 1983-crop production.
USDA extended its deadline until June 2 to accept offers
of cotton from producers for use in the PIK program.
Secretary John Block outlined what the 1984 wheat
program may be during a markup session conducted by
the House Agriculture Committee on a proposal to freeze
target prices through 1985. The outline includes a 20%
acreage reduction component and a 20% PIK feature.
USDA announced a second extension of its deadline until
June 1 6 to accept offers of cotton under loan from
producers for use in the PIK program.
USDA announced that it would take bids until May 26
to acquire cotton from farmers who have 1982 upland
cotton currently under loan and pledged as loan
USDA took this action to fulfill PIK
commitments after it determined that CCC needed more cotton
to fill PIK program commitments to participating producers.
USDA announced it would accept offers through May 2 7
from wheat producers to make available their 1963 crop
production for PIK purposes because CCC's inventory of wheat
is not sufficient to fulfill all PIK commitments.
USDA released updated enrollment data on the 1983 acreage
reduction, paid land diversion, and PIK programs.
revised figures show that 82!952,056 acres will be idled under
USDA announced that for a two-week period, beginning
Apr. 4, it would offer to acquire corn, sorghum and
wheat from farmers who have these commodities under
Administration announced details of the planned
implementation of the PIK program.
Measure authorizing PIK failed to come to a floor vote in the
Senate. Attempts to raise the measure again for consideration
over the next two days were similarly unsuccessful.
House passed by voice vote H.R. 7439 authorizing a
payment-in-kind program following hearings on
Dec. 1 6 , 1982.
Senate Agriculture Committee unanimously approved S. 3074
authorizing a payment-in-kind program following hearings
held on Dec. 9 , 1982.
USDA began a series of informal briefings with Congressional
Members and staff, and with representatives of farm groups
concerning a proposal to implement a payment-in-kind program.
Secretary of Agriculture Block held informal discussions
with representatives of national farm and commodity groups
t o e x p l o r e a l t e r n a t i v e m e a s u r e s t o i m p r o v e t h e f a r m economy.