Subsidy reform is touchy subject for farm law

WASHINGTON (Reuters) - Farm bill negotiators are trying to wrap up language to deny subsidies to farmers with large off-farm income, a touchy issue for months, said the Senate Agriculture Committee chairman on Monday.

“It is a dicey subject. I believe we can reach an accord,” said Chairman Tom Harkin, Iowa Democrat. The matter was believed to be one of the final issues for the legislation.

Subsidy rules became the test of reform following the collapse of proposals for a radical farm-program overhaul last year. The Bush administration says the wealthiest Americans should not qualify for crop subsidies.

Farm bill negotiators were scheduled to meet on Tuesday to begin the final phase of writing a House-Senate compromise bill. As it stands, the bill would cost $610 billion over 10 years, two-thirds of it for public nutrition.

“The farm bill proposal currently being discussed by conferees lacks important reforms the president has repeatedly called for,” said White House spokesman Scott Stanzel.

Stanzel said the bill included budget gimmicks to disguise its cost and could increase farm subsidy spending. The bill calls for small increases in subsidy rates for some crops and for a $3.8 billion disaster fund for agriculture.

“Now is the time to modernize our agricultural policies for the future, but members of Congress have not risen to the challenge,” said Stanzel when asked the White House view.

The Bush administration says it would accept $500,000 in adjusted gross income as the cut-off point for eligibility for crop subsidies. It initially proposed a ceiling of $200,000 in average AGI. The limit now is $2.5 million AGI unless at least 75 percent of income is from farming and ranching.

Lawmakers prefer a different approach. They would bar subsidies to people with high off-farm income but set no income cut-off if the money comes from agricultural sources.

For example, House negotiators suggested in early April a $500,000 AGI cap on nonfarm income. It would affect about 23,000 people. Senators voted last year for a $750,000 ceiling on off-farm income.

Land owners could circumvent an AGI limit easily, said small-farm advocate Ferd Hoefner -- “They’re all going to switch to cash rent” rather than share the risk with a tenant by taking part of the crop as payment.

Harkin said the AGI provision was the last item to be decided on crop subsidy rules. He said senior negotiators agreed to a limit of $40,000 a year in “direct” payments, the same as now, and $60,000 a year in counter-cyclical payments released when prices are low, down $5,000.

Because spouses are eligible for subsidies, the effective limit would be $200,000. There would be no limit on revenue from price supports. The subsidy limit now is $365,000 but it includes $150,000 from price supports.

The House and Senate agree with the administration on two reforms. They are a requirement to attribute subsidy payments to an individual and to end the practice of allowing farmers to collect subsidies indirectly through two affiliated operations.

New Englanders want a revision in the Milk Income Loss Contract subsidy to take into account rising feed costs. MILC pays a subsidy to dairy farmers when market prices are below $16.94 per 100 lbs of milk. Livestock producers also have complained of record-high farmgate grain prices.

Editing by Christian Wiessner