Obama reignites fight over U.S. farm subsidies

WASHINGTON Wed Feb 25, 2009 4:42pm EST

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WASHINGTON (Reuters) - President Barack Obama's pledge to cut subsidies to big farm businesses in his first budget reopens a long-simmering fight about whether -- and if so, how -- the United States should reform its traditional farm supports.

Obama signaled in a speech to Congress on Tuesday he wants to cut direct payments as part of a broad effort to trim government spending and curb the soaring federal deficit.

Farmers say they count on the $5.2 billion in payments as a way to provide stability amid volatile commodity prices, high costs for fertilizer and other inputs, and the vagaries of weather.

"The goal of farm programs is not to make farmers rich," said John Thaemert, a Kansas wheat farmer and a past president of the National Association of Wheat Growers. "The goal of farm programs is to make sure our country has access to an abundant, affordable, convenient and safe supply of food."

Critics say the money shouldn't go to farmers when they don't need it, and competitors have targeted the payments at world trade talks.

"Why should we be sending millions of dollars to the largest corporate farms in the country? That's not what a safety net is for," said Senator Byron Dorgan, North Dakota Democrat, who has long championed a cap on payments.

The issue pits corporate farms against small operations, and farmers and lawmakers from the corn and soybean Midwest against those in the south who rely on cotton and rice. And it may pry open the 2008 Farm Bill for revisions.

"I think it's a rehash of an existing debate that gets settled every four or five years," said Ross Korves, a 30-year veteran of farm policy debates.

There were few details about the cuts. "It is certainly something that makes good rhetoric to say we're going to cut direct payments to agribusiness. But I'm not sure what it really means at this point," said Rick Tolman, chief executive of the National Corn Growers Association.

Analysts were watching for clues on Thursday from Obama's budget and from speeches by Agriculture Secretary Vilsack and Obama's top economic advisor Larry Summers at a U.S. Agriculture Department conference.

Summers "is quite obviously there to 'sell' the budget plans to the agriculture community, and it will be interesting to see if he provides more details on the depth of the cuts," said Robert Moskow, an analyst with Credit Suisse, in a research note.

Some groups think Obama wants to cap direct payments received by farmers at $40,000 a year, half the current limit.

A preliminary analysis of 2005 USDA data by Environmental Working Group showed the cap on direct payments would have affected 6,315 individuals and saved $91.6 million, or 1.8 percent of the $5.2 billion spent on direct payments that year.

"It is certainly something that makes good rhetoric to say we're going to cut direct payments to agribusiness. But I'm not sure what it really means at this point," said Rick Tolman, chief executive of the National Corn Growers Association.

U.S. farm programs have been blamed for helping distort trade and farm prices.

Total U.S. crop and dairy subsidies are estimated to tally only about $7.5 billion this year due to relatively strong crop prices. In 2005, when prices were lower, farmers racked up subsidies of more than $16.4 billion. The World Trade Organization limit is around $48 billion.

Canada's farm minister Gerry Ritz said Obama's pledge to cut the subsidies was a "good right step" to reviving the Doha round of world trade talks, which are in their eighth year.

But some analysts said Obama would do more to help the U.S. case at the WTO by cutting other types of farm programs that support prices or revenues.

"A cut in direct payments would do little or nothing for the talks," said Dan Sumner, an economist at University of California-Davis who specializes in farm and trade policy.

(Additional reporting by Charles Abbott, Carey Gillam, Louise Egan, Karl Plume, Christine Stebbins and Lisa Shumaker; editing by Jim Marshall)

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