Dec. 17 (Bloomberg) -- U.S. farm subsidies in 2005 rose 68 percent to the highest level since 2001, according to a watchdog group that wants Congress to reduce crop support payments in agriculture legislation that lawmakers will debate next year.

Hurricanes in the Gulf Coast region and low commodity prices pushed subsidies to $21.1 billion, up from $12.5 billion in 2004, the Environmental Working Group said. The payments helped raise total farm income for the year to a near record $73.8 billion, according to the U.S. Department of Agriculture.

The report is being released as U.S. lawmakers begin to debate legislation that will determine farm programs beyond 2010. Subsidies, which encourage lower prices, benefit commodity- buyers such as Archer Daniels Midland Co., Bunge Ltd. and ConAgra Foods Inc. The Environmental Working Group says the payments distort trade, harm economic development in poorer nations and benefit large agribusinesses instead of small farms.

``You can see how much some crops are dependent on price- distorting payments,'' Ken Cook, the president of the D.C.-based group, said in an interview last week. ``You have to ask yourself how much good this is doing'' for small farmers and rural communities.

Government subsidies to corn and cotton farmers, as well as payments linked to natural disasters and conservation programs, reached all-time highs last year, according to the report, which is based on government data the group compiles through public records and federal Freedom of Information Act requests.

Hurricane Damage

The payments, which included $9.4 billion to corn farmers and $3.3 billion to cotton growers, reflect disruptions connected to hurricanes Katrina and Rita, according to John Doggett, a lobbyist with the National Corn Growers Association.

The hurricanes hit during the corn harvest, destroying transportation networks. Unable to ship overseas, farmers sold what was then the second-largest corn crop ever on local markets at prices that reached a three-year low in November 2005. They then relied on subsidies to make up losses.

``They took their government payments, and away they went,'' Doggett said. Corn payments in 2005 were more than double those in 2004, and 22 percent higher than in 2000, the previous record.

Three of the 10 largest subsidy recipients were Florida citrus growers who had never before received such payments yet qualified after the hurricanes ``leveled'' the state's citrus industry, said Mike Sparks, chief executive officer of Florida Citrus Mutual, a growers cooperative. Damage to groves is partly to blame for an orange crop that will be the smallest in 15 years, once the harvest is finished in June, the USDA says.

Wheat, Soybeans

Katrina and Rita affected other crops less severely. When Katrina hit at the end of August 2005, the wheat harvest was already over. Payments to wheat farmers were the lowest since 2002. Soybean prices were propped up by lower production in South America. Payments to growers of the oilseed fell to the lowest level since 1998.

The largest single recipients of subsidies continue to be rice-grower cooperatives, led by Stuttgart, Arkansas-based Riceland Foods Inc. Riceland, which says it has 9,000 members, received $15.8 million in support last year. Rice subsidies overall fell to their lowest levels since 1997. Rice prices have jumped 25 percent in the past year.

Total U.S. subsidies are expected to decline this year. Corn prices are up 71 percent this year, wheat has climbed 46 percent and soybeans have gained 9.6 percent, according to Bloomberg data. Cotton is also up, just 1.4 percent.

Less Aid in 2006

Expanded ethanol demand within the U.S. and greater grain demand abroad prompted the USDA last month to forecast that government payments will end up being 32 percent lower this year, at $16.5 billion, down from its estimate of $24.3 billion for 2005. The government figures include land conservation and tobacco program payments not included in Environmental Working Group's number.

Cook said he hopes the near-record number will increase pressure to change U.S. farm bill, the multi-year reauthorization of U.S. agricultural programs that's heavily lobbied by farm business groups and historically difficult to restructure.

His group supports payments tied to conservation practices rather than subsidies tied to prices, which he said will get more money to small farms and have less effect on trade. Concerns from Brazil and third-world nations that global development is being hurt by trade-distorting U.S. farm supports should also make some U.S. lawmakers listen, he said.

Renewable Energy

Many U.S. farm groups and the Democratic lawmakers who will take over Congress next year are touting renewable energy as a way to lessen dependence on subsidies, which Cook said he considers encouraging.

``Energy actually may be the engine that pulls this farm bill, or pushes it,'' said Senator Tom Harkin, who is set to take over the Senate's agriculture committee in 2007, in a news conference with Agriculture Secretary Mike Johanns last week.

The Bush administration also supports ethanol and is stressing subsidies' impact on world trade and the U.S. budget deficit as reasons for reduction. Johanns has promised more detailed farm bill proposals in January.

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net.

Last Updated: December 17, 2006 00:03 EST