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WASHINGTON (Reuters) - The new U.S. farm law would reduce the tax credit for corn-based ethanol while giving nutrition programs such as food stamps a $10.4 billion increase, House and Senate negotiators said on Friday.
"A significant increase in nutrition is really required by what is happening in the market," said Senate Budget Committee Chairman Kent Conrad, one of the negotiators. "It is ... a reflection of reality."
Sen. Tom Harkin, an Iowa Democrat, who oversees the negotiations, said a tentative agreement on the omnibus $600 billion bill was within reach now that revenues were identified to pay for a $10 billion spending increase.
Food prices are forecast to rise by 4 percent this year, the same as in 2007. High food price inflation is forecast for two more years. Antihunger groups say food stamp benefits have lost 5 percent of their purchasing power since last summer.
In talks this week, negotiators added nearly $900 million to nutrition programs from an earlier agreement for a $9.5 billion increase over 10 years. Land stewardship programs would gain $4 billion, specialty crops $1.35 billion and biofuel development $900 million.
House Speaker Nancy Pelosi and New York Democrat Charles Rangel, chairman of the House tax committee, insisted on more nutrition funding to offset the $361 million cost of tax breaks to timber companies and owners of racehorses.
The 51-cent-a-gallon tax credit for corn-based ethanol would drop to 45 cents, House Agriculture Committee Chairman Collin Peterson, said in describing the ongoing discussions. The Minnesota Democrat said a tax credit would be created for ethanol derived from cellulose, found in grasses, woody plants and crop debris.
"This is what the country wants," Peterson said, referring to development of cellulosic ethanol. Livestock groups say rapid growth of the corn-based ethanol industry is driving up feed costs and rippling through to higher grocery prices.
A Senate Finance Committee proposal called for a production tax credit of up to $1.01 a gallon for cellulosic ethanol, ending on December 31, 2012. The infant industry is moving toward commercial-scale plants.
A proposal to extend biodiesel credits through 2009 was dropped from the farm bill, two negotiators said. Instead, it would become part of an "extender" tax bill later this year.
With approval of the timber and racehorse tax breaks, negotiators will have to cut about $1 billion from commodity supports, up from the earlier goal of $730 million.
Still to be decided were tighter rules on crop subsidies and whether to increase crop subsidy rates for wheat and soybeans.
A small cut might be made in the so-called direct payments that guarantee $5.2 billion a year to grain, cotton and soybean growers, a small-farm advocate said.
Also on Friday, President George W. Bush signed a bill that effectively gives Congress until May 2 to complete work on the farm law.
Meeting privately, negotiators agreed on Thursday to rely on customs user fees -- funds collected on imported goods -- to pay for the farm bill spending increase. That resolved a major objection from the White House on how to pay for the bill.
Editing by Walter Bagley