Farm boom undercuts push for new subsidy package

On a warm July afternoon, with the Illinois sun glinting off a field of lush green corn, Joel Gerlt steps between the rows and disappears.

"This is really exceptional," he says, standing among stalks that tower above him and are not done growing. "I've never seen it this high at this time of year."

For Mr. Gerlt and many other Midwestern farmers, these are exceptional times indeed. Prices are high. The national appetite for corn seems insatiable. At the same time, farmers' good fortune has thrust them into the center of a fierce debate in Washington over how much help they deserve from US taxpayers.

As Congress enters the late stages of crafting a new farm bill, high prices for many commodities have made it harder than ever to defend crop subsidies that pay farmers billions of dollars a year, even in good years. At the same time, a growing chorus of voices is calling for a shift to other priorities, including rural development, aid to fruit and vegetable growers, food stamps, biofuel programs, and especially conservation.

Under those twin pressures, the House Agriculture Committee last week approved a five-year measure eliminating subsidies for farmers with $1 million or more in adjusted gross income. But it also increased supports for some crops and introduced new ones for others. The full House could take up the bill this week.

Agriculture groups "are strong enough now, but smart people among the commodity groups say all the time that they know it's a rear-guard battle and that we have to change something," says Ferd Hoefner, policy director for the Sustainable Agriculture Coalition, an umbrella organization in Washington, D.C. "Production subsidies are losing public support."

Conservation is a likely beneficiary of change. For example, the House committee bill boosts land-conservation programs and wetlands protection.

US farm policy has already been tilting toward conservation for two decades. Earlier programs focused on removing marginal land from cultivation. But the last farm bill, passed in 2002, made an unprecedented commitment to farmers who use or wish to adopt environmentally friendly practices on their land.

Conservation programs are popular in farm country, where farmers are applying to carry out projects in far greater numbers than there's money to fund them. Proponents say the programs should be expanded to meet the demand. They also say that the expansion of corn acreage – up 19 percent to 95 million acres, the highest since 1944 – has made conservation more critical than ever. Corn requires massive quantities of fertilizer and other farm chemicals and is blamed for widespread soil degradation and water pollution.

Proponents also point out that "green payments," which are unrelated to production, are permissible under international trade rules. Current crop subsidies have been repeatedly challenged by the World Trade Organization.

In theory, few groups oppose spending more on conservation. But their support often hinges on where the funding will come from. One of the most obvious places is crop payments, which, after food stamps, consume the largest share of farm bill spending, and which many critics say is money wasted.

"A lot of people think that farm programs encourage production, lower food costs, and are saviors of agriculture," says Bruce Babcock, an economist and director of the Center for Agriculture and Rural Development at Iowa State University. "The facts are far different." Mr. Babcock says his research into corn, soybean, and wheat production from 2002 to 2005 suggests that crop payments have little effect on how much farmers grow. Only 43 percent of producers receive farm-program payments, the US Department of Agriculture (USDA) says, and most of them receive less than $10,000 a year.

Others argue that crop subsidies hurt rural communities by driving up land prices, discouraging new farmers, and promoting the consolidation of farms into ever larger operations.

But crop subsidies are popular in farm country, especially among farmers in the corn-producing states of the Midwest, who receive a greater share of farm payments than producers in any other region. In 2005 they received 42 percent of total crop payments and 31 percent of conservation payments, the USDA says. One type of subsidy – direct payments – puts money in farmers' pockets no matter how much they grow or what price their crop fetches. Others pay farmers when prices fall below a certain level. Farmers are loath to give these up, especially the subsidies that tide them over in bad years.

"Farmers need a safety net for economics beyond their control," says Tom Buis, president of the National Farmers Union, the country's second-largest farmer organization. "They don't need a safety net in years with high prices."

For the most part, Mr. Gerlt agrees. Between 1996 and 2005, his 1,000-acre operation received corn and soybean subsidies ranging from $16,700 to $87,600 a year. Some of the money came in the form of direct payments that the government paid in years when high prices meant he hardly needed them.

Last year, he also began earning a modest conservation payment – about $20,000 – under a new federal program that rewards farmers and ranchers for using methods that protect the water and soil and encourage wildlife. Gerlt also took advantage of financial incentives to make additional improvements this season, such as planting strips of native grass to attract upland game birds and switching to a less virulent weed killer.

While Gerlt acknowledges that crop subsidies in good years are "hard to understand," he can't imagine giving them up altogether. In years when crop prices fall below what it costs to grow the crop, the math doesn't work out without government help, he says. "I don't know how we can survive without it."

There's no dearth of proposals in Washington. The House Agriculture Committee has assembled a bill that would slightly increase conservation spending but leaves crop subsidies intact. Rep. Ron Kind (D) of Wisconsin champions an alternative that would gradually replace crop subsidies with "risk management accounts" – funds held in a tax-exempt account like an IRA that farmers could draw on during bad years. Other groups favor more modest changes, such as stricter limits on subsidies.

At the moment, the moderate approach seems to be gaining momentum. Farm policy is notoriously difficult to change, in part because of resistance from powerful farm and commodity interests. Democrats, who cling to a narrow majority, will tread carefully for fear of losing seats in farming areas. But reformers say a broader coalition of interests is on their side this year.

"Market conditions are ripe for reform," Mr. Kind says.