Replacing the direct payments seems inevitable. Critics have singled them out and even farm groups now say they are politically indefensible. But critics of the new income insurance subsidy say it could create new problems for taxpayers and farmers alike.
"The only rationale for a new federal revenue guarantee program on top of existing revenue insurance programs is that it seems politically easier to defend than direct payments," said Bruce Babcock, an agricultural economist at Iowa State University. Babcock released a report last week calling revenue insurance a "boondoggle." The report was commissioned by the Environmental Working Group, an advocacy group that has long opposed federal farm subsidies.
Agriculture committee leaders argue that the revenue insurance plan makes sense because farmers would receive payments when prices fall or their crops are destroyed, unlike direct payments which are paid in good times and bad.
"We've got to move away from paying people when they don't need it," Peterson said amidst negotiations last week. "In this fiscal climate you can't justify it."
He said negotiators are still working on some of the problems raised by critics, including the potential that the revenue insurance could overpay farmers in good times. He said the lawmakers may end up proposing different programs for different crops.
Peterson maintains that subsidies are still needed to manage risks.
"We are hoping to keep stability in agriculture so their food prices don't double," he said. "We're trying to make sure the United States produces the cheapest food."
The "shallow loss" insurance programs could begin paying out once a farmer's revenue falls by as little as 5 or 10 percent. Federally subsidized crop insurance, for which farmers pay premiums, would kick in with deeper losses.
Agricultural economist Babcock and the Farm Bureau both say insurance should only kick in when a farmer has major losses.
Wisconsin Rep. Ron Kind, a Democrat who unsuccessfully led efforts to reduce farm subsidies during debate over the last farm bill four years ago, said he is concerned that those who want to see subsidies scaled back will be shut out of the process.
Copyright 2011 The Associated Press.