NYT, February 6, 2005

Bush Is Said to Seek Sharp Cuts in Subsidy Payments to Farmers

By ROBERT PEAR
 

 

WASHINGTON, Feb. 5 - President Bush will seek deep cuts in farm and commodity programs in his new budget and in a major policy shift will propose overall limits on subsidy payments to farmers, administration officials said Saturday.

Such limits would help reduce the federal budget deficit and would inject market forces into the farm economy, the officials said.

The proposal puts Mr. Bush at odds with some of his most ardent supporters in the rural South, including cotton and rice growers in Alabama, Arkansas, Georgia, Louisiana and Mississippi.

The new chairman of the Senate Appropriations Committee, Thad Cochran of Mississippi, and more than 100 farm groups are gearing up to fight the White House proposal. The administration's willingness to push the proposal, despite such protests, suggests how tight the new budget will be.

Most of the subsidies are paid to large farm operators growing cotton and rice and, to a lesser degree, corn, soybeans and wheat.

Mr. Bush would set a firm overall limit of $250,000 on subsidies that can now exceed $1 million in some cases.

The proposal comes as the administration is seeking significant changes in other programs long considered sacrosanct, including a proposed revamping of Social Security to allow personal investment accounts and a move to shake up the Civil Service system.

Mr. Bush's farm proposal found support from some people who frequently criticize his policies.

Kenneth Cook, president of the Environmental Working Group, a research and advocacy group, said the proposal would reduce payments to big agribusiness operations. The savings, he said, would ease pressure on Congress to cut conservation programs financed in the same legislation.

"This proposal is a very big deal," Mr. Cook said. "I am stunned and impressed. The Bush administration is opening the door to reform on the most contested issue in agriculture policy today. Taxpayers will no longer have to subsidize every bushel of grain or bale of cotton. They will no longer have to subsidize the demise of the family farm."

In the past, when Congress considered limits on payments, Mr. Cook said, the administration took no position. The Senate approved a $275,000 limit in 2002 but dropped it in negotiations with the House.

Agriculture Department officials said Mr. Bush's proposals would cut federal payments to farmers by $587 million, or about 5 percent, next year and would save $5.7 billion in the coming decade. The officials spoke on condition of anonymity because they did not want to upstage the release of the president's budget, scheduled for Monday.

The budget includes other proposals intended to produce large savings in farm programs, the officials said, but they refused to give details.

In theory, the maximum payment to a farmer, through multiple entities, is now $360,000 a year. But Keith J. Collins, chief economist at the Agriculture Department, said that growers had found many legal ways to get around the limit and that some growers received several times that amount. One type of aid, which involves marketing assistance loans, is not subject to any limit, he said.

In setting a firm overall limit of $250,000, the president's plan would tighten requirements for the recipients of such payments to be "actively engaged" in agriculture, and it would generally prevent farmers from claiming additional payments through multiple entities.

Farm subsidies have been a major issue in global trade talks, as poor farmers in the developing world demand that the United States and other wealthy countries cut back subsidies for their domestic producers.

Efforts to cap farm payments have produced odd alliances. Fiscal conservatives like the Heritage Foundation have joined some environmental groups and family farmers in the Midwest in supporting stricter limits. Opponents include the American Farm Bureau Federation, the nation's largest farm organization, as well as many commodity groups and politicians of both parties from rice and cotton states.

Mr. Cochran, the former chairman of the Senate Agriculture Committee, said he would "work as hard as I can to oppose any changes" in current payment limits, set by Congress three years ago.

Speaking this week to the National Cotton Council, a trade group, Mr. Cochran said he knew that some people wanted to reduce farm program payments.

"We always know there is a threat to lower levels of payments to producers from some in the Congress," he said. But, he added, the payments are economically important to rural communities, and "the risk caused by changing payment limits far outweighs the benefits."

In a letter to Mike Johanns, the new secretary of agriculture, a coalition of more than 100 farm groups said they too would resist such cuts.

"With prices for many major commodities falling sharply from last year, reductions to farm programs would come at precisely the time that these supports are most needed in rural America," the coalition said.

The White House proposal is a vindication of sorts for Senator Charles E. Grassley, Republican of Iowa, who has advocated "reasonable payment limits" for three decades.

"When 10 percent of the nation's farmers receive 60 percent of the payments, it erodes public confidence in federal farm programs," said Mr. Grassley, who describes himself as the only family farmer in the Senate. "Unlimited farm payments have placed upward pressure on land prices and contributed to overproduction and lower commodity prices, driving many family farmers off the farm."

Mr. Collins, the Agriculture Department economist, said, "When the government subsidizes every bushel and every acre, it encourages large farm operations to grow larger."

The issue did not figure prominently in last year's presidential campaign. Senator John Kerry, Democrat of Massachusetts, voted with supporters of stricter payment limits when the question was before the Senate in 2002. President Bush signed the 2002 farm bill, which significantly increased payments to farmers, reversing six years of Republican efforts to limit subsidies.

Subsidy payments take several forms and are computed according to complex formulas . In some cases, the government makes direct payments to farmers. In others, it lends money to farmers and assures them, in effect, that they can receive more than the market price for their crops, if that price declines.

In a report last year, the Government Accountability Office, an investigative arm of Congress, said farmers used many "schemes or devices" to circumvent existing payment limits. Under federal law, payments are supposed to go only to people who are "actively engaged in farming," but, the report said, many people not involved in farm operations have received large subsidies.

Moreover, it said, individuals who on their own could receive no more than $180,000 for a farming operation sometimes set up a partnership of three partners, each receiving $180,000 in subsidies, thus tripling the total amount of payments to the farming operation.

An exhaustive study by the Agriculture Department found that "government payments increase with farm size and sales," so "payments tend to be concentrated among the larger farms." In 2001, it said, "59 percent of government payments went to producers on farms with a net worth of $600,000 or more."

Senator Blanche Lincoln, Democrat of Arkansas, said payment limits would be particularly unfair to rice and cotton farmers because production costs were higher for those crops than for others. Mrs. Lincoln, the daughter of a rice farmer, said some farmers would have difficulty surviving under stringent payment limits.

But Brian M. Riedl, an economist at the Heritage Foundation, said stricter payment limits were needed because farm subsidies had become "America's largest corporate welfare program."