Special Message to the Congress on Agriculture.

To the Congress of the United States:

Proper management of our resources of food and fiber is a key factor in the economic future of the Nation. Both fiscal necessity and economic common sense require us to go beyond the gains we have made in the last two years. Our capacity to produce still outruns the growth of both domestic and foreign demand for food and fiber. Our abundance must still be harnessed in such a way as to bring supply and demand more nearly into balance. And the benefits of our agricultural progress still need to be translated into improved income to farm families, lower prices to consumers for food and fiber, expanded exports, and reduced expenditures for price support programs.

Nevertheless, the past two years have seen substantial improvement in farm income, a substantial decrease in government holdings of agricultural products, and a substantial reduction in costs to the taxpayer for carrying farm surpluses, without increasing the consumer's burden.

--Net farm income at the end of 1962 was $1.8 billion a year more than it was in 1960. Gross farm income is $3.5 billion higher.

--Average net income per farm has risen 21 percent, from $3,044 to $3,690, the highest level in our history.

--The increase in farm income has generated added business for rural industries and farm communities, putting millions of dollars into Main Street cash registers and adding at least 200,000 jobs to the national economy.

--At the same time, Government stockpiles of surplus grain have been reduced by 929 million bushels from their 1961 peak.

--And, finally, over this same two-year period, the proportion of consumer income required to purchase food has declined to the lowest ratio in history--19 percent of take-home pay.

These successes have been made possible by a series of Congressional and Executive actions undertaken in the last two years. The principles underlying these actions are further pursued in the recommendations contained in this message.

The success of those principles also calls for an affirmative vote in the forthcoming wheat referendum, to be held under the permanent legislation enacted by the Congress last year. If two-thirds of the wheat producers vote this Spring to approve the bushel marketing program authorized by that law, the present income of our wheat farms will be protected and the overhanging surpluses of wheat will be further reduced. Failure to approve the wheat program will leave the wheat farmer without either supply management or effective price supports--at the mercy of unlimited production and unprotected prices. I do not believe that anyone who clearly understands the choice would prefer a return to the depression conditions that preceded the initiation of price supports a generation ago. New legislation for wheat is neither necessary nor feasible this year.

Exports of farm commodities reached a record $5.1 billion in the fiscal year 1962. Dollar markets abroad for the products of our farms have been expanded to a total of $3.5 billion, and thus constitute a significant factor in our balance of payments.

The American farmer is one of our best foreign exchange earners. It is our firm policy to maintain and expand these exports. We do, however, have a special problem of maintaining access to the European Common Market for some of our important agricultural commodities. This Government intends to take every step necessary to protect the full rights due American agricultural exports. We have impressed on our trading partners the vital necessity of a fair agreement as an essential first part of the broad scale negotiations to be undertaken under the Trade Expansion Act of 1962.

The areas of agriculture policy which require action by the Congress this year include the following:

I. FEED GRAINS

The emergency and temporary feed grain legislation of 1961 and 1962--which covers this crop year as well--has been successful. It has earned wide bipartisan support. Savings already assured by two years of surplus reduction will amount ultimately to nearly $1 billion. The stocks of corn and grain sorghums, totaling 85 million tons two years ago, and costing nearly $500 million a year for handling and storing charges alone, will be reduced to 57 million tons by the end of this marketing year. They should be further reduced to 45 to 50 million tons by the end of the 1963 crop year. At the same time, this program has contributed significantly to the improvement in farm income.

If new legislation is not enacted this year to consolidate the gains thus far achieved, the feed grain program for 1964, under existing law, would automatically revert to unlimited, excessive production and disastrously low prices. Corn price supports, which will be $1.25 a bushel for 1963, would go down to 80 cents; and even at that level, unrestrained production might well lead to new accumulations of surplus stocks. Prices for hogs, cattle, poultry, dairy and other commodities would fall. It is imperative that action be taken by the Congress this year to avoid these consequences.

The new legislation should take advantage of the knowledge and experience gained under the 1961-62 and 1963 programs. It should: (1) be a voluntary program, (2) be flexible enough to meet varying conditions and needs, and (3) be based upon the same basic principles which have proven successful in the last two years.

These objectives can be achieved by authorizing the Secretary of Agriculture to adjust the feed grain program, in the light of the supply and utilization outlook, to obtain the needed reduction in production at the lowest cost consistent with the protection of farm family income. He may select either the 1962 or the 1963 type of feed grain program. Payments will be made to feed grain producers who reduce production below their established base acreage. These payments may be made either in kind or in cash. Their size and the required acreage reduction will be determined on the basis of the outlook just before the crops are planted.

Such feed grain legislation should provide for necessary adaptations to meet changes in weather, new international crises, sudden opportunities or strictures in the European Common Market and other areas of trade, and developments in the economy of the United States as a whole. It would enable farmers to make full use of the permanent wheat program by permitting wheat growers to produce wheat in lieu of feed grains on feed grain bases. The continued and successful operation of voluntary feed grain programs, in conjunction with the new wheat program, should resolve two of our most difficult commodity problems.

II. COTTON

A healthy, growing cotton industry is vital to the strength and prosperity of our Nation. Over a million persons are engaged in producing our cotton crop. Another million and a half are employed in converting the raw cotton into consumer items. Additional millions supply goods and services to this industry. Cotton exports contribute significantly to our balance of payments position.

Our cotton industry--both producers and mills--is confronted with many problems which it alone cannot resolve. Because domestic prices are much higher than those of foreign producers, our cotton mills must pay substantially more for cotton than their offshore competitors. Domestic cotton textile products are being displaced not only by substitute fibers in consumer products but also by increased cotton imports. Cotton exports are sharply lower.

Loss of markets for United States cotton increases surplus stocks held by the CCC, causes higher and higher government costs, and reduces the cotton farmer's income.

The time has come for us to fashion a sound and enduring national policy for cotton, to enable it to make its maximum contribution to our Nation's growth at a minimum of governmental expense. At present, the domestic support level is 31.88 cents a pound. An 81/2 cent export subsidy enables domestic cotton to compete with foreign cotton selling at 24 cents or less. This imposes a substantial handicap upon the domestic mill which must buy American cotton at the support price level, while competing with foreign mills which buy it at the subsidized level.

This handicap could, of course, be overcome by either eliminating the export subsidy or by reducing the support level. But elimination of the subsidy would also eliminate American cotton from the world markets and give impetus to expanding foreign production. The effect such a move would have upon the American cotton farmer, our balance of payments, and our economy prevents this from being an acceptable line of action. Allowing domestic cotton prices to fall low enough to compete with foreign cotton is similarly unacceptable. For the average American farmer cannot, as yet, produce cotton profitably at world prices.

We can best meet these problems by the adoption of a new law which will both meet immediate needs and provide the experience from which a future long-range solution can be developed. Such a measure should meet four tests to the maximum extent possible: (1) eliminate the disadvantage which the present two-price system for cotton imposes on the United States textile industry; (2) strengthen the income of individual cotton farmers by enabling them to sell additional output at the world price in a combination best suited to their individual situations; (3) promote sustained and expanding markets for United States cotton; and (4) accomplish these objectives at a minimum cost to the taxpayer.

I urge that the Congress give early consideration to cotton legislation that will make this important fiber more competitive and help it recapture its markets. Ideally it should be signed into law before the end of February and made applicable to the planting of the 1963 crop. I recommend that the new law include the following:

--(I) Authorization, on a two-year trial basis, for the Secretary of Agriculture to make payments which will reduce the cost of the cotton to domestic mills by an amount sufficient to eliminate the inequity of the present two-price system, taking into account any differences in transportation costs between foreign and domestic mills and other relevant factors. This will both cure the existing inequity and help assure ample supplies of cotton textiles of good quality at fair prices to American consumers.

--(2) Within limits consistent with the need for an orderly reduction in the existing carryover, producers should be permitted to grow cotton above their basic acreage allotments for the export market at the world price. In 1963, the extra planting for export markets might be permitted up to 20 percent above the present statutory minimum allotment. Such provisions would recognize the greatly diverse conditions that prevail in different cotton producing areas, and provide fair opportunities for producers in each area. In addition, the bill could also authorize direct payments to producers, thus providing an efficient means of maintaining producer income without supporting prices at too high a level.

Research to reduce the cost of producing cotton in the United States will also strengthen the industry. For example, elimination of the boll weevil damage in the cotton crop could result in reduction in production costs of 5 cents a pound in areas of infestation. Such research will pay for itself many times over. I am therefore asking that a special effort be made to make certain that the research resources available to the Federal Government are focused on this problem. The Office of Science and Technology will review the progress and make recommendations. As actual cotton production costs fall, cotton price supports can be reduced under the stimulus of continuing research and the application of modern technology.

III. DAIRYING

The accomplishments of the American dairy industry, from processor to distributor, have been far too little recognized. Any American family can depend upon the availability of pure, nutritious milk and dairy products anywhere in the United States. This accomplishment is the product of hard work, skill and know-how and heavy capital investment.

New dairy legislation is urgently required for the benefit of both the farmer and the taxpayer. Last year I recommended to the Congress the passage of legislation to reduce the severe drain of budgetary expenditures for the dairy price support program and at the same time increase the income of dairy farmers. Failure to pass this legislation, I pointed out, would result in government costs of over $440 million a year for supporting the price of dairy products. No legislation was enacted--with the result that costs have recently been running at a rate in excess of $500 million a year, and the income of the dairy farmer has fallen by over $100 million a year. There is little prospect of any improvement in dairy farmers' income or substantial reduction in government costs unless new legislation is enacted. Under the present law surplus stocks of dairy products, especially butter, continue to pile up in government warehouses in shocking quantity. We have over 300 million pounds of butter in storage, enough to provide a year's supply of all the fats consumed by the people of Korea. Recipients of surplus foods are using twice as much butter per person as other consumers. Even with maximum use of dairy products in our food distribution programs, stocks continue to climb.

It is imperative therefore that the Congress apply the same successful principles of voluntary supply management to the dairy industry, and enact a program under which only producers who cooperate by reducing their marketings would receive, through market prices and payments, a return on their marketings substantially greater than the non-cooperators who choose not to join the program. Such a program would not only improve the income of cooperating farmers but also reduce government costs.

The legislation should permit producers in Federal milk marketing orders to fully participate in the voluntary adjustment program. This may be achieved through the use of marketing bases within order markets which permit a producer to reduce his production of surplus milk without reducing his share of the Class I market. This latter provision should be extended to order markets whether or not a national adjustment program is in operation. Such a program should also make it possible to drop the price of butter and butterfat and thereby increase their consumption.

IV. EXPANDED UTILIZATION OF OUR FARM ABUNDANCE

A. Domestic Food Distribution--Food Stamps

More food in greater variety is now available to the needy than ever before in our history. The number of persons on public assistance receiving food under direct distribution programs rose to a peak of 7,400,000 in 1962. More than 2 billion pounds of food, valued at nearly $365 million, were distributed to needy persons, school lunch programs and charitable institutions in every state in the Nation.

In addition, the pilot operation launched in 1961, with funds available under Section 32 of Public Law 320, 74th Congress, to enable the needy to purchase additional food through regular commercial channels by the use of food stamps, has proved eminently successful. In view of its widespread and enthusiastic acceptance and its beneficial results, I recommend that enabling legislation be enacted to permit the progressive expansion of the Food Stamp program into all areas of the Nation where conditions warrant its establishment.

The operating provisions of the expanded program should be essentially the same as for the pilot program. Food stamps are issued to the needy and used by them for purchases at the local stores. The costs of this program in the affected areas will be substantially offset by resulting reductions in the cost of the direct food distribution program.

B. Food and Fiber for Needy People Abroad--Food for Peace

An increasingly important tool of American foreign policy--and of particular significance to our mutual assistance and development effort, including the Alliance for Progress-is the Food for Peace program. It is now being expanded to assume a larger share of the cost of mutual assistance. We make a grave mistake if we regard Food for Peace as merely a program for disposal of surplus commodities instead of an opportunity to utilize our agricultural capacity to encourage the economic development of new and developing nations. In the past year Food for Peace exports of wheat and flour alone filled an average of three 10,000 ton cargoes moving overseas daily. We are reaching more needy overseas than ever before--92 million people a day, including 35 million school children and 2 million pre-school children. During the past 6 months we have undertaken to supply food as part payment for wages to 2.4 million people working on self-help projects for economic development in 7 countries. I am recommending in the 1964 Budget $r.9 billion for a continuation of the Food for Peace program.

V. RURAL AREA DEVELOPMENT AND RURAL ELECTRIFICATION

--Housing. The quality of housing in rural areas has not kept pace with housing in cities. A million and a half homes on farms and in our small towns are in such a dilapidated condition they endanger the health and safety of the families living in them. Another two million rural homes need major repairs. The current housing loan program of the Farmers Home Administration has made a good start toward helping rural families, who cannot otherwise obtain credit, to improve their housing. But it falls far short of what should and could be done. The need is greatest among families in the lower income levels who have neither the resources nor the credit to make any major repairs or improvements. To remedy this situation, I recommend that federally insured loans be provided for rural housing. This will broaden the opportunity of more rural families to improve their housing, and at the same time, through the substitution of private for public credit, will reduce the demands upon the federal budget.

--Training. One-third of our farm families earn only a subsistence income. Because they earn so little, they are unable to finance adequate educational and vocational training of family members; and this leads progressively to the concentration of still more poverty in rural areas. Vocational and other educational training should be made available to rural citizens who are unable to finance this training through other means. Such assistance is essential if large numbers of rural people, particularly youth and young adults, are to acquire the kinds of skills that will enable them to take advantage of new and better opportunities in an expanding economy. The alternative for many of them is a lifetime of poverty; the alternative for the whole nation is a continued waste of human resources.

--Water. Legislation is also needed to increase substantially the capacity for floodwater detention in small reservoirs in order to permit the full development, under the Watershed Protection and Flood Prevention Act, of available sites for multi-purpose use. Such action this year will supplement and strengthen the provisions of the Food and Agriculture Act of 1962 to strengthen the rural economy through more adequate development of available water and related land resources for multiple use.

--Land Use Adjustment. It is also necessary to make provision for the lands upon which conservation reserve contracts will expire in the next few years. Some of these lands would revert to crop production; this must not happen if we are to prevent our various crop programs from being undermined. The existing $10 million limitations on authorized appropriations for land use adjustment under Section 101 of the Food and Agriculture Act of 1962 should be raised to permit such conservation reserve lands to be treated, where appropriate, as part of an expanded land use adjustment program. The cost will be substantially lower than it is under existing contracts.

--Electricity. Rural electrification and rural telephone loans have made enormous contributions to the well-being and economic development of rural America. Over 5 million rural customers--approximately 20 million men, women, and children--receive central station electric service through over 1,000 local organizations financed by the Rural Electrification Administration. Under the rural telephone loan program, local telephone companies and cooperatives have borrowed funds to finance modern dial telephone service for approximately 2 million rural subscribers. The credit record of REA borrowers is excellent; foreclosures have amounted to less than one one-thousandth of 1 percent; delinquencies on repayment schedules are equally small.

The Rural Electrification Administration borrowers have provided service to rural areas at a very low net cost to the Government. However, the cost of the program has been exaggerated because receipts from loan repayments are covered into the miscellaneous receipts of the Treasury and are in no way credited against the loans which were counted as federal expenditures when made.

To correctly reflect loan repayments in future appropriation and budget documents, I recommend that legislation be enacted to establish a "Rural Electrification Administration Loan Account" which will reflect the true net cost of the loan programs, showing the excess of the aggregate of the loans made over the current receipts from repayments on loans previously made. This will permit the account to be budgeted on a net expenditure basis. Funds in the loan account would not be available to the Secretary of Agriculture for loans without current prior authorization of the Congress in appropriation Acts. Loan funds already authorized would remain available until expended as in existing law.

These recommendations will, I believe, accelerate progress toward our goals in agriculture while assisting in our efforts to hold down budget expenditures. With the benefit of new action in these areas, we can continue to narrow the gap between farm income and incomes in other segments of our economy, until the day is reached when efficient farm operators may be more certain of the opportunity to earn incomes equivalent to those in comparable non-farm occupations. We will also continue to reduce the excess stocks of farm commodities and to lighten the burden they impose upon the taxpayer. We will develop further our programs to conserve our resources of land and water, and to redirect their use in order to supply our most essential needs--whether these be for food, timber or recreation.

We will intensify our campaign against rural poverty and our drive to build a thriving diversified rural economy. We will continue to encourage the advance of efficiency in agriculture, insuring the continued production of food and fiber at reasonable prices and in sufficient quantities to meet the needs of all Americans, and advancing the cause of economic development and security throughout the free world. A balanced and stable farm economy is essential if we are to meet both domestic and world challenges in the coming years--this program is designed to achieve that kind of farm economy.

JOHN F. KENNEDY