Obama reiterates call for farm subsidy cuts

A staff assistant holds a copy of President Obama's FY2013 budget upon its arrival at the Senate Budget Committee room on Capitol Hill in Washington February 13, 2012.

WASHINGTON (Reuters) - President Barack Obama proposed slashing subsidies to the booming agriculture sector by $32 billion over the next decade, just as Congress begins the lengthy process of overhauling the expiring U.S. farm law.

For the third year running, Obama proposed sweeping cuts to the U.S. Department of Agriculture in his annual budget. Congress, however, has yet to come to an agreement on how to reform the massive subsidies to the sector.

Obama's plan includes eliminating the $5 billion a year in direct payment to farmers that is disbursed regardless of need, an idea that has some support among U.S. lawmakers.

"In a period of severe fiscal restraint, the payments are no longer defensible," said the administration, referring to the direct payments.

The plan to cut some $32 billion over 10 years for farm support is far larger than the $23 billion agreed by Agriculture Committee leaders in Congress last fall during deficit-reduction talks.

Last year, Obama made a similar call for cuts, saying payments to the wealthiest farmers should be eliminated along with reductions in direct payments.

Budget cuts have squeezed the Agriculture Department's reporting of crop production over the past couple of years but the White House proposed steady funding, $109 million, for its forecasting arm in the coming fiscal year.

Obama said USDA should cut some 2 million acres from the long-term Conservation Reserve, which holds farmland out of production. Crop insurance subsidies would be cut by $7.6 billion through 2022. A disaster-relief fund, scheduled to expire this year, would remain.

Farm groups are divided on the shape of the new farm law. The Senate Agriculture Committee opens the farm bill process with a hearing on Wednesday. Analysts say there is a 50-50 chance, at best, that Congress will enact a farm law this year, given election-year and deficit-reduction pressures.

The White House won little support among farm groups and lawmakers when it proposed a similar package of cuts last fall. Two farm lobbyists said the new package would be ignored too. Agriculture Committee leaders seem set on $23 billion in farm subsidy cuts.

There is broad agreement the direct payment will not be renewed. It is paid to landowners based on historical production of grain, cotton and soybeans. Farm income hit a record high in 2011, making the payments harder to justify.

While the White House suggested a cap of 30 million acres for the Conservation Reserve, some proposals call for a ceiling of 25 million or 26 million acres.

(Reporting by Charles Abbott; editing by Jim Marshall and Dale Hudson)