Farmers back Senate plan to cut direct subsidies

WASHINGTON — Minnesota’s commercial farmers are set to lose an average of $13,000 in federal subsidies under a bill currently on the Senate floor,  but members of the state’s agriculture industry are just fine with that.

The “farm bill,” as it’s colloquially called, is a nearly $1 trillion package that provides five years worth of funding to farm, conservation and nutritional programs. More than $760 billion of it is earmarked for programs like food stamps, but nearly two-thirds of the bill’s total $23.6 billion spending cuts come from eliminating a direct subsidy program to farmers.

Under current law, Minnesota’s commercial farmers took in an average of $13,000 in direct payments each year, according to an analysis from University of Minnesota professor Kent Olson. On average, that amounts to about 7-to-10 percent of a farm’s annual net income, he said. If the Senate’s farm bill is enacted, those would disappear.

Though the bill would end those direct and open-ended subsidies, it would boost federal support for crop insurance, a program that provides subsidies for farmers to buy insurance to stave off losses associated with poor crop yields or sudden price declines. The Senate bill would spend about $94 billion on crop insurance over the next 10 years, a $5 billion boost over current levels.

Congress instituted the current direct-payment system in 1996 as a way to slowly reduce and eventually wean farmers off subsidies entirely, Olson said. But over time, especially during a downturn in the price of crops in the late 1990s and early 2000s, farmers grew dependent on the payments and they stuck around. Today, the subsidies cost about $5 billion a year, and though Congress has often considered ending them in the past,  they never really committed to doing so until this session, Olson said.

Industry booming

With the agriculture industry booming (total farm income in 2011 is projected to have topped $98.1 billion, up $19 billion from 2010 and its highest level in at least four years) and Congress increasingly under pressure to cut spending, direct payments were a top target during farm bill deliberations, and the industry knew it was coming.

“We’re not surprised that it’s coming across this way,” said Lance Peterson, a board member of the Minnesota Soybean Growers Association. “We are willing to carry our share of cuts to help with the federal deficit.”

By cutting the subsidies, the government will save $15 billion, according to the Senate Agriculture Committee. The White House has backed the Senate bill, citing first and foremost the end of the direct payment system, and 90 senators voted in favor of the bill during a procedural vote last week, including both Minnesotans.

The direct payments-for-crop insurance trade-off is one Olson said farmers are willing to make.

“Those [direct payments] are small, but certainly significant. I wouldn’t want to just give up 10 percent of my net income,” he said, but, “in this Senate bill, farmers would be getting a better safety net.”

Outside groups unhappy

The uptick in crop insurance has bolstered farmers’ support for the bill, but it’s brought complaints from the likes of environmental groups, small government advocates and lawmakers looking to defend the nutritional program that makes up the majority of the farm bill legislation.

The Environmental Working Group has urged Congress to reduce crop insurance for some farmers, including wealthy farmers that the group says unfairly benefit from the premium subsidies. The government provided $1.5 billion in insurance premiums in 2002; that figure jumped to $7.4 billion in 2011.

David DeGennaro, an EWG legislative analyst, said the group wants to see caps on the amount of insurance subsidies farmers can receive, similar to those imposed on direct payments. The group published a study earlier this year that found 26 instances of farmers receiving more than $1 million in insurance subsidies from the government, including three in Minnesota. All told, 1,452 Minnesota farms received at least $60,000 to pay for insurance in 2011.

The group supports a few of the hundreds of amendments offered in the Senate: one would cut the crop insurance fund and direct the savings to the food stamp provisions in the bill (the bill cuts the food stamps program by $4.5 billion over 10 years, which would leave about 500,000 beneficiaries with about $90 less per month); another would limit insurance subsidies to farmers who make less than $40,000 a year.

“It’s important that we introduce some sort of limits to this program,” DeGennaro said. “The spending that we’re seeing is really eye-opening.”

EWG isn’t alone. The right-leaning American Enterprise Institute warns that crop insurance meant to compensate for a sudden drop in commodity prices could end up costing the government more than current projections, thanks to an increasing price at which the reimbursements kick in.

But Minnesota farmers say an increased commitment to crop insurance will help soften the blow of losing direct payments.

Peterson, of the Soybean Growers, sits on a national soybean association that made increased crop insurance a top legislative priority this session.

John Mages, the president of the Minnesota Corn Growers Association, said corn farmers are happy with the current level of federal support for crop insurance, but an increase in insurance subsidies is welcome news, given the end of direct payments.  

“It’s one of the main safety nets of the corn grower,” Mages said. 

Devin Henry can be reached at dhenry@minnpost.com. Follow him on Twitter: @dhenry