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UPDATE 3-Obama wants to end wealthy farmers' crop subsidies

* Income eligible for subsidies would drop by $250,000

* Roughly 30,000 people affected by lower ceiling on income

* “No one is interested in making cuts” - House ag chairman

* Senate ag chair Lincoln says she opposes farm cuts

* Obama plan may not mean a doubling of farm exports

(Adds USDA says no link in farm cuts, nutrition growth; new throughout)

By Charles Abbott

WASHINGTON, Feb 1 (Reuters) - President Barack Obama asked Congress on Monday to slash crop subsidies to “wealthy farmers” and to pare federal support for crop insurance, moves estimated to save $10 billion over 10 years.

Obama targeted those areas for large cuts last year without success. Another fight is likely this year. Agriculture Secretary Tom Vilsack offered to work with Congress to concoct a palatable package.

In his proposed budget for fiscal 2011, Obama suggested a sharply lower cut-off in income that qualifies for crop supports, implemented over a three-year period. It would save $2.26 billion over 10 years.

The administration plan would end crop subsidies to people with more than $250,000 adjusted gross income (AGI) from off-farm sources or more than $500,000 on-farm AGI. The caps now are $500,000 off-farm AGI and $750,000 on-farm AGI.

AGI is calculated by subtracting expenses from income.

But the cuts will be a tough sell for Congress with mid-term elections looming. Senate Agriculture Committee chairman Blanche Lincoln, Arkansas Democrat, said she will oppose “cuts that will harm farmers, ranchers and rural communities.”

“It is Congress’s job to write the annual budget, and based on my conversations with House Leadership, no one is interested in making cuts to the Farm Bill after the battle we just fought to pass it a year and a half ago,” said House Agriculture Committee chairman Collin Peterson, Minnesota Democrat.

Roughly 30,000 people would be affected by the lower AGI ceiling, equal to 2 percent of the 1.4 million recipients of crop subsidies, said an Agriculture Department spokesman.

Some $8 billion would be saved over 10 years by reforming administration of the federally subsidized crop insurance system to end “huge windfall profits.” USDA is negotiating a new master agreement with insurers to reduce overhead payments.

Vilsack told reporters it would be “an improper conclusion” to link the $10 billion in farm subsidies and crop insurance to a proposed $10 billion increase in school lunch and other child nutrition programs. The budget is filled with cuts and increases at the line-item level, he said.

The USDA budget would increase spending on export promotion and technical help for exporters. [ID:nN01206235]

While Obama has set a goal to double U.S. exports in five years, he “wasn’t suggesting, by referring to agriculture, that there was going to be doubling of ag exports,” said Vilsack.

The White House was expected to release details of the export initiative later this week.

Obama suggested crop subsidy cuts as Congress nears an overhaul of the farm program. Last year, lawmakers said any change in subsidy rules should wait until the 2012 farm bill.

A lower AGI ceiling would aim crop supports at smaller-scale farmers while retaining a safety net against from low prices and natural disasters, said the administration. There are 2.2 million U.S. farms, mostly small operations.

The administration also would cap the direct-payment subsidy at $30,000 a year, down from the current $40,000.

“It’s just loopholes waiting to happen,” said Ferd Hoefner of the National Sustainable Agriculture Coalition, referring to the AGI proposal. The coalition, a small-farm group, said USDA should write a stricter definition of who is a farmer so investors and “paper” farmers do not collect subsidies. (Reporting by Charles Abbott and Roberta Rampton; Editing by Marguerita Choy)