Time for "smarter, fairer" farm subsidy: senator

WASHINGTON (Reuters) - Congress should scale down the $5.2 billion paid annually to U.S. grain, cotton and soybean farmers so that crop subsidies flow when they are needed, the Senate Agriculture Committee chairman said on Tuesday.

Along with reducing the so-called direct payments, Tom Harkin, an Iowa Democrat, said land no longer producing crops should be ineligible for subsidies and that crop acreage "bases" should be updated, a step that could save millions of dollars.

There has been no overall update in decades of the "bases" that qualify a grower for crop supports. Pat Westoff, an analyst at a University of Missouri think tank, said most crops have larger acreage bases than actual plantings.

"I'm 99 percent sure you would have a savings," said Westoff, because an update would result in less land being eligible for high support rates.

Wheat, barley, cotton and rice have larger "bases" than plantings. Cotton and rice have comparatively high subsidy rates. Soybeans, which have a lower support rate, have larger plantings than the crop's historic base. Corn (maize) plantings and base acreage are roughly equal, said Westoff.

"Why shouldn't we update bases?" Harkin asked during a telephone news conference. "That will enable us to save some money" to use elsewhere in the farm bill.

Some $200 million a year could be saved by refusing to make direct payments on land no longer in crops, according to Harkin's figures. He said direct payments, now set at $5.2 billion a year, could be put "on a pathway" for reduction.

"They were never intended to be a permanent part of our agricultural programs," said Harkin. Direct payments were created by the 1996 "Freedom to Farm" law that ended most federal controls on what farmers grow.

Instead, Harkin said he favored "a smarter, fairer counter-cyclical system that places a strong focus on paying farmers when they need the help." Direct payments are made every year regardless of market or crop conditions.

The two other components of crop subsidies are support prices, which effectively set a minimum price for grains, cotton and soybeans, and counter-cyclical payments, released when returns are below targets set by law.

An improved counter-cyclical system, Harkin said, would be a combination of supports that protect farm income from low yields and poor prices, crop insurance and an "overlay" of compensation for disasters.

Harkin said his staff was examining systems built on state-level or nationwide revenues for crops. A county-level trigger would be too costly, he indicated.

"I don't see a whole lot of change in the dairy program," said Harkin. He said the Milk Income Loss Contract subsidy for fresh milk probably would be retained in the new farm bill.

The milk program buys surplus dairy products with the goal of assuring a minimum prices of $9.90 per 100 lbs of milk. A House Agriculture subcommittee has voted to adopt a new program that would be based on the price of butter, cheese and nonfat dry milk.