Farm subsidies face top-to-bottom review

A worker shows a sample of biodiesel made from castor beans (L) at a biodiesel refinery in Iraquara, 310 miles (500 km) west of the Bahia state capital, Salvador March 31, 2008.

WASHINGTON (Reuters) - The long march to a new farm bill begins this week in what promises to be a contentious process that could have a big impact on what farmers grow and how they are paid.

While the language is arcane, farm bills can affect commodity trading as the legislation may set minimum prices for field crops, idle cropland and encourage planting of one crop over another.

Farm bills govern tens of billions of dollars in spending when land stewardship, public nutrition, biofuel, export and agricultural research programs are included.

The $289 billion farm law was enacted over two vetoes in 2008 and is due for renewal before expiring in fall 2012.

"I've told people we should put everything on the table," said Agriculture Committee chairman Collin Peterson. "My interest is in providing the best, most rational, safety net for the average commercial farmer in this country."

With a two-year lead time, the House Agriculture Committee chairman is opening a review on Wednesday of the U.S. farm subsidies that date from the Depression era and are subject to myriad calls for reform -- or total replacement.

A number of political headaches from farm supports to trade issues, should be treated in the new bill.

Cotton subsidies must be revised to settle a trade dispute with Brazil. Dairy farmers say milk supports failed to stop a ruinous price plunge. Crop insurance costs are exploding. The Obama administration wants to cut subsidies to big farms.

To get there, Peterson invited a debate whether crop supports should be remolded, perhaps into a system that assures overall revenue for a farm. Supports now are paid mostly on the basis of past production of subsidized crops and whether farm-gate prices for them are below targets set by Congress.

Nutrition got two-thirds of funding in the 2008 farm law.

While the next farm bill is due in fall 2012, it is unclear how much appetite for change there is among lawmakers and farm groups. Farm-state lawmakers, from both sides of the aisle, are a powerful voting bloc and are not known for radical reform.

But when the time is right, Congress will embrace dramatic change, like the 1996 "Freedom to Farm" law that ended most planting controls. Some advocates say another wholesale change is needed.

"Lawmakers must take a hard look at the maze of agriculture subsidy programs and decide which programs should be kept and which should be eliminated," said Craig Cox of the Environment Working Group, which criticized crop subsidies and supports more money for land stewardship.

Cox said it is time for "a single, defensible safety net" for farmers that also assures money for stewardship. Crop and stewardship programs now cost $11 billion a year.

Agricultural economist Pat Westhoff said lawmakers face questions that include, "Is it better to tinker with current programs or invent something new?" Westhoff, co-director of a farm-policy think tank, listed six types of farm-income supports including crop insurance and an equal number of land stewardship programs.

Revenue assurance is viewed as possible new path for U.S. farm supports in an era of high market prices and production costs. It could be costly if prices slump, skeptics say.

Congress took a step toward revenue assurance in 2008 by creating the optional Average Crop Revenue Election, the first federal program to protect against poor yields as well as low prices. Traditional subsidies are triggered by price levels. Growers have enrolled 13 percent of grain, cotton and soybean land in ACRE.

Revenue protection also is offered by crop insurers.

"With federal funding for crop insurance exceeding projections for spending on commodity programs, there may well be heightened attention to revenue protection options or alternatives," said Ferd Hoefner of the National Sustainable Agriculture Coalition, a small-farmer advocate.

For decades, the farm program, created as an antidote to crop surpluses of the Depression, offered price and income supports to farmers who agreed to limit plantings. The 1996 "Freedom to Farm" law allowed farmers to switch crops in pursuit of profit while maintaining the farm safety net.

Soybean plantings zoomed by 24 percent and corn by 14 percent since 1996, said a recent University of Illinois study. Wheat area is down by 19 percent. Cotton area shrank too.

Agricultural economists say farm supports are capitalized into land prices. The Conservation Reserve, which pays landowners to idle fragile land for 10 years or longer, holds 31.2 million acres at latest count, or nearly 10 percent of U.S. cropland, an indirect limit on output.

(Editing by Russell Blinch and Alden Bentley)