Analysis: Looming political fight puts farmers on battlefield

WASHINGTON Tue Mar 13, 2012 4:50pm EDT

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WASHINGTON (Reuters) - U.S. lawmakers are short on time and money to make the biggest cuts in agriculture in a generation and failure risks unintentionally driving up food prices and adding to an already onerous deficit.

Just as Congress took the country to the brink of an unprecedented debt default by haggling over whether to raise the debt ceiling, fractious Republicans and Democrats may wait this year until the last minute to agree to significant cuts to farm supports amid historically high crop prices.

The U.S. farm law, mammoth legislation that covers everything from food stamps to soil erosion, expires September 30.

Without a new law or an extension, a 1949 law -- the bogeyman of farm bill showdowns -- would automatically go into effect. It would limit plantings and have the government pay farmers up to twice what crops would sell for on the open market. Farm subsidies would rise by tens of billions of dollars and consumer grocery bills would rise while the economy is still struggling to recover from the recession.

There are fiscal and policy obstacles to a new farm law.

"The budget is going to be tough. The fiscal condition of this country is not in good shape," said Bob Stallman, president of the largest U.S. farm group, the American Farm Bureau Federation. "The public generally is rejecting these annual income payments."

The outcome could be a factor in the fall elections. Iowa, the No. 1 corn, soybean and hog state, is one of the toss-up states where the fight between President Barack Obama and the eventual Republican nominee will be the fiercest. Ohio and Wisconsin, also agricultural powers, are toss-ups.

The Senate is expected to move first on the new farm law. Agriculture Committee chairwoman Debbie Stabenow, a Michigan Democrat, plans a final information-gathering hearing, on crop subsidies, on Wednesday before bill-drafting begins. She has vowed a bill in the spring.

Meanwhile, the House Agriculture Committee, which is chaired by Oklahoma Republican Frank Lucas, is holding four hearings around the country, ending on April 20, with hearings in Washington as its final preparation for the farm bill.

Two changes are all but certain in the new farm bill -- an end to the $5 billion a year "direct payment" subsidy that is paid regardless of need and the return of millions of acres of idle farmland to crop production.

Both would flow from likely cuts of 15 percent or more in crop subsidies and conservation funding. Direct payments are a top-line target of reformers, who say the payments are wasteful amid an agricultural boom.

Odds are long that the bill can get done because of the legislative gridlock expected by mid-year due to election-year politics and budget pressures. Congress usually needs a year or more to enact a farm law.

Analyst Mark McMinimy of consultants Guggenheim Partners says "this is about as dysfunctional a Congress as you can remember." But his "low-confidence assumption" is a bill will be enacted this year "because the budget situation is going to be worse next year."

In the past, when time ran out Congress passed temporary farm laws rather than revert to the 1949 act. While that could happen again such an extension would increase farm program costs at a time when Congress is working to cut government spending.

"A lot of the underlying arguments are still there," said Pat Westhoff of Food and Agricultural Policy Research Institute, a University of Missouri think tank. "Until people believe deadlines are real, why make any compromises?"

Farm policy experts and half a dozen major U.S. farm groups are calling for a new insurance system that would protect revenue against disastrous drop in incomes while allowing the government to save money on a five-year farm law.

A sizable number of growers, however, particularly rice and peanut farmers, are skeptical revenue protection will be a good deal for them. They prefer the decades-old system, with a dose of higher support prices. There is strong sentiment in farm country a strong crop insurance program should be top priority, even if other farm supports wither.

As a result, Congress is on track for a farm law that lets farmers choose the approach they want, rather than the usual single system for all. Stabenow and Lucas say a "one-size fits all" plan may be impossible this time.

They wrote a draft in private that offers three subsidy plans. It lets grain and soybean growers choose between revenue protection or higher supports while cotton growers get a separate plan built around loan rates and revenue insurance.

Farm-state lawmakers say a federal safety net is vital for the inevitable downturn ahead. In hard times, the subsidies help growers survive. For instance, in 2000, when grain prices were low, farm subsidies amounted to half of net farm income.

Stabenow and Lucas aim for $23 billion in cuts in farm bill programs over 10 years but that could be only the starting point for negotiations. President Obama, for instance, has proposed $32 billion in cuts. House Republicans may seek vast cuts.

The 2012 law could bring the largest cuts in a generation, since the 1990 law that was the first step toward deregulation of U.S. agriculture. Passed during a government-wide fiscal retrenchment, that law cut crop subsidies by $13.6 billion over five years, or 18 percent more than the cuts suggested by Lucas and Stabenow.

Critics say the Stabenow-Lucas draft creates a muddled farm program, cuts too much from conservation programs and goes easy on the federally subsidized crop insurance program, now the biggest part of the farm safety net. The government pays 60 percent of the cost of premiums.

Kansas Senator Pat Roberts, the Republican leader on the Senate Agriculture Committee, said one option to pass the farm bill was to attach it to another piece of legislation.

"That idea is out there," he told soybean growers on Tuesday, later telling reporters, "We don't want an extension."

(Editing by Russell Blinch, Robert Burgdorfer and Lisa Shumaker)

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