Clash of two traditions: family farm vs. free-market economics

A group of farmers came to this city last week. They came in cars adorned with American flags. Some carried signs. And most of all, the farmers from the American Agriculture Movement carried a message:

''The people who are setting our prices have no regard for our costs of production,'' says Wayne Cryts, a Missouri farmer and spokesman. ''The only solution is a fair price.''

The setting - outside the Chicago Board of Trade - was perfect.

While farmers outside protested low prices, commodity traders inside were setting them. In a dramatic way, the juxtaposition illustrated the quandary of American agricultural policymakers. Should they heed the lessons of the market economics inside? Or the pleas of farmers outside?

''We've come crying out to the American people that something is wrong,'' said Missouri farmer John Gott, looking down at the frenzied activity on one of the commodity trading floors. ''I pray that America will hear us.''

If it listens, America will hear that agriculture is in trouble. In the 1970s , buoyed by a booming export market, many farmers borrowed money to start up or expand their operations. Mounting debts were cushioned by rapid inflation, which eased the burden of the interest payments. But in the 1980s, the inflationary cushion popped, export markets soured, and land prices plummeted. Suddenly, heavily indebted farmers found it very difficult to stay afloat. Some didn't make it.

''I'm just about to the end of my rope,'' says Illinois farmer Reed England, standing at an entrance of the Board of Trade. Last year, Mr. England paid $35, 000 in interest alone to keep his 600-acre grain and soybean farm in operation.

Across the country, the call to ''save the family farm'' is being heard. Even Hollywood has picked up on the theme. On Monday, the movie ''Country,'' a story about a farm family facing foreclosure, premiered in Washington.

The dilemma for policymakers is what to do about it. Their answer will depend on how they balance the sanctity of the free market vs. the sanctity of the family farm.

For its part, the free-market-oriented Reagan administration sees farming as a business. The Farmers Home Administration, for example, has cracked down on loans to farmers who are clearly over their heads. Its program to temporarily help stretch out debt payments for troubled farmers, announced last month, is targeted only to those operators the agency believes have a reasonable chance of survival. Many observers call the program a bandaid.

But to others, primarily farmers, the family farm is more than just a business. It represents the economic underpinnings of America.

''Agriculture is not a problem,'' says Mr. Cryts. ''It's a solution to the economic problems of this country....

''If the American farmer were getting a fair price, there wouldn't be enough people to fill the jobs.''

For some, the family farm is a moral and even religious necessity.

''God gave me a talent to produce,'' Mr. Gott says. ''And not everyone has that talent.''

From these very different philosophies spring radically different solutions.

Cryts, who led the farm delegation to talk with Board of Trade officials, urged the exchange to boost prices by setting a floor price of 90 percent of parity.

(Parity is an index keyed to prices received and paid by farmers in the 1910- 14 period.)

That would be a big boost to Mr. England, who says he needs to get $6.80 for every bushel of soybeans he produces. The November futures price at the Board of Trade closed Monday at only $5.893/4.

The problem, many economists counter, is that there is no longer an ''average'' farmer. Circumstances vary widely.

For example, the debt squeeze has likely been a real blow to one-third of all midsize and large farm operations, which have large very large debts in relation to their assets, according to Emanuel Melichar, senior economist with the Federal Reserve Board. But another third, with little or no debt, has hardly been touched at all.

''The crisis is very much related to (the) debt situation,'' says Luther Tweeten, agricultural economist at Oklahoma State University. Many farmers with low debt burdens ''are really getting by very well.''

Other individual factors complicate the picture, he says, such as the operator's ability and the amount of income earned outside of the farm. Small farmers earning most of their income from off-farm jobs often don't worry about turning a profit.

The best solution is not to raise prices, but to control fiscal policy and reduce interest rates, Mr. Tweeten adds. American farmers are already producing 5 percent too much food and fiber at current prices. Boosting the price another 50 percent to reach roughly 90 percent of parity, he estimates, would increase output another 5 percent.

The challenge for policymakers, agricultural experts say, is to decide what goals the 1985 farm bill should pursue - whether they will be purely economic, purely social, or some careful mix of the two.