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In President Barack Obama's first speech to Congress, he said that the administration found $2 trillion of savings in budget cuts over the next decade. "Ending direct payments to agribusinesses that don't need them" was one of them.
Obama's proposed budget phases out direct payments over three years to farmers with sales revenue of more than $500,000 annually. The Administration seeks to re-direct the savings from the cuts to other USDA priorities, such as boosting increases in the fruits, vegetables, and nuts for school nutrition, Secretary of Agriculture Vilsack said.
Vilsack made a speech recently to a joint meeting of the National Association of Wheat Growers and the U.S. Wheat Associates Boards advising farmers that they should be thinking about developing other sources of income rather than direct payments.
The President's $3.5 trillion budget plan also calls for the elimination of cotton storage payments, a reduction in subsidies for crop insurance, and a funding cut for the Market Access Program that promotes
Congress was lukewarm to the idea. Although Obama presents his budget, Congress still will write the final legislation.
Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, welcomed Obama's engagement in reforming large commodity program payments and direct payments, both issues he has sought reforms for in the past.
Harkin was skeptical of other proposals. "The savings from crop insurance appear large based on all the analysis and work during the farm bill debate on the crop insurance program's budget, premium subsidies to farmers, and compensation to companies and local agents."
Even Sen. Chuck Grassley, R-Iowa, one of the strongest proponents of tighter payment limits, warned the "sales revenue" approach does not ensure farm payments go to those who need it most since gross income or sales revenue does not reflect a farmer's ability to pay. "Just because I sell a lot of corn, doesn't mean that my input costs to grow that corn weren't even higher," he said.
Grassley also pointed out that direct payments are non-trade distorting in the World Trade Organization, and if money can be saved in agriculture, it should be tackled by capping programs like countercyclical payments or LDPs.
House Agriculture Committee ranking member Frank Lucas said direct payments allow farmers to show bankers and Farm Credit that they have the income to repay their loans. And, direct payments provide producers with the flexibility to respond to market signals when choosing crops.
"At a time when the USDA recently reported that
Sen. Saxby Chamblis, ranking member of the Senate Agriculture Committee, expressed concern over the proposals. "I believe it is unwise to completely alter the makeup of this farm safety net before we have the opportunity to assess the effects of the reforms included in the 2008 farm bill," he said.
Commodity groups also voiced their concerns with changing the farm safety net established in the 2008 Farm Bill.
In a joint statement from leaders of the national wheat, corn, soybean and sorghum associations representing 90% of the nation's crop area planted, said the 2008 Farm Bill includes many reforms that will assist farmers in becoming more financially sound.
"Production agriculture is a volatile business, and a workable farm safety net is vital to the security of our industry," the groups said. "The purpose of a five-year farm bill is to provide stability to producers, agricultural operations and the food system. The 2008 Bill should not be reopened before it expires in 2012."