WASHINGTON - The deficit reduction plan President Obama introduced Monday will kill a farm subsidy that paid nearly $10 billion to Minnesota farmers from 1995 to 2010. In addition, the president's plan shrinks federal contributions to crop insurance programs and a land conservation program in the state by tens of millions of dollars per year.
"We reform agricultural subsidies, subsidies that a lot of times pay large farms for crops they don't grow," Obama said.
The president was referring to so-called "direct payments" that go to farmers based on crops they planted in past years. The payments are automatic and don't depend on commodity prices or demand. Critics call the subsidies money for nothing.
"In a period of severe fiscal restraint, these payments are no longer defensible," a report from the White House said.
Advocates for Minnesota's farmers worry that the president is trying to poke a hole in a critical safety net.
"Farmers need a way to take on the risk of farming," said Stacy Stout, associate director of public policy for the Minnesota Farm Bureau. "We're willing to take our share of cuts, but we don't want it to be disproportionate."
The idea of agricultural cuts is not new, but the political atmosphere has changed. Funding that benefits various special interests is more vulnerable as lawmakers wrestle with the stronger mandate to reduce the deficit. Obama has proposed a total of $3 trillion in deficit reduction with roughly $2 trillion coming from cuts and $1 trillion from revenue increases. The president has asked the Congressional supercommittee charged with deficit reduction to add his $3 trillion goal on top of the $1.2 trillion the committee was already supposed to cut.
The supercommittee, which was formed as a compromise during the debt ceiling debate, must come up with cuts and revenue increases by Thanksgiving, and Congress must approve them by year's end. Otherwise, automatic cuts to domestic and defense programs would take effect.
Fourth in subsidies
Minnesota ranks fourth in the country in farm subsidies, according to the Environmental Working Group (EWG). The advocacy group, which stresses conservation and pollution control, maintains a national database of farm subsidies. Direct payments accounted for $9.85 billion of the $15.2 billion in agricultural subsidies Minnesota farmers received from 1995 to 2010.
"Direct payments are the sitting ducks [to be cut]," said legislative analyst David DeGennaro for EWG.
Officials at two of Minnesota's largest recipients of direct payments -- Molitor Brothers Farm in Cannon Falls and Hector Farms Partnership II in Hector -- declined to comment Monday.
Nationally, Obama estimates $3 billion a year in savings by killing direct payments to farmers. Also likely to be reduced by $200 million per year is a program to conserve agricultural land from cultivation. The White House says reductions in government support for crop insurance can save another $830 million a year.
"The agriculture piece is certainly larger than people expected," said Sam Willett, public policy director of the National Corn Growers Association. But what distinguishes Obama's proposal from earlier calls to end farm subsidies is the "compressed period of time" in which big decisions must be made, Willett said.
Rep. Collin Peterson, a Democrat who represents Minnesota's farm-rich Seventh Congressional District, said farmers are being asked to do more than their share. Peterson predicts that companies will stop offering crop insurance policies if the cuts go through.
"I'm very opposed to cutting more from crop insurance," he said. "We took $12 billion out of it already [in the 2008 farm bill]."
Still, Peterson said he understands the president's proposal to eliminate direct payments. "I've been telling people for years that they are not defensible," he said.
Farm income up
The White House said more than 50 percent of direct payments go to farmers with more than $100,000 per year in income, and noted that net farm income, adjusted for inflation, was higher than it has been in 35 years.
Crop insurance companies enjoy an annual return on investment of roughly 14 percent because of taxpayer subsidies, the White House said. Obama's plan cuts that return to 12 percent per year. It also requires farmers to pay higher crop insurance premiums if the government now pays more than 50 percent of their premiums. Nationally, the White House says the average U.S. farmer pays only 40 percent of his or her crop insurance premiums, with taxpayers picking up the balance.
While all that may be true, Peterson said the president's proposal puts farmers in a strange predicament: They would suffer fewer program losses if the supercommittee gridlocked and the automatic cuts took effect.
Jim Spencer • 1-202-408-2752