Obama says subsidies wasteful to large U.S. farms

WASHINGTON Tue Feb 24, 2009 8:57pm EST

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WASHINGTON (Reuters) - President Barack Obama, in his first speech to Congress, called on Tuesday for an end to "direct payments to large agribusinesses that don't need them," an apparent attack on subsidies costing $5.2 billion a year.

The proposal echoed a leading point from his presidential campaign, although the idea was not certain of success. President George W. Bush, for example, fruitlessly backed a $250,000 annual cap on payments per farmer.

While running for president, Obama said in campaign documents that farm subsidies should go to farmers who need them and "not millionaire farmers who rely on American taxpayers to protect their multimillion dollar profits."

In remarks prepared for Congress, Obama said the White House has identified $2 trillion in wasteful and ineffective spending, including unneeded direct payments to large farms.

"In this budget, we will ... end direct payments to large agribusinesses that don't need them," he said. He did not say how much money would be saved by the step or how it would be structured.

Two farm-group spokesmen said the president apparently meant a farm subsidy known as direct payments that was created in 2002 and is made regardless of crop prices or farm profits.

But they noted "direct payments" also is a term meaning all types of federal support made in cash.

"It's funny wording," said Ferd Hoefner of the National Sustainable Agriculture Coalition. His belief was Obama would back a $40,000-a-year limit on direct payments, half of the amount now allowed.

Eleven farm groups wrote Agriculture Secretary Tom Vilsack last week to argue against any cuts in farm supports and particularly direct payments. They said direct payments "are the only component of the farm safety net currently helping every farmer" deal with rising costs of production and a slump in crop prices since record highs last year.

Direct payments were an area of dispute when Congress wrote the 2008 farm law. The Bush administration wanted to expand them and de-emphasize other supports. But groups like the National Farmers Union said direct payments were indefensible in good times and insufficient aid when markets slump.

Because they are "decoupled" from farm output, direct payments are viewed as the least susceptible among U.S. farm supports to a world trade challenge. But price supports and counter-cyclical payments are more popular among farm groups.

Adam Sarhan, analyst at Globalmacroresearch.com, said he doubted reforms in direct payments would directly affect commodity markets. "What will help commodity markets will be his pledge to restore confidence in markets," said Sarhan.

Vilsack has reopened a review of farm payment rules that were written by the Bush administration to implement the 2008 farm law. That law has the first-ever bar on payments to the wealthiest Americans and it eliminated some farm subsidy loopholes.

(Reporting by Charles Abbott; Editing by Chris Wilson)

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