Aug. 26 (Bloomberg) -- Former Iowa Governor Tom Vilsack knows that Farm Belt protocol requires paying respect to the Butter Cow. During a visit to the Iowa State Fair on Aug. 17, he made the pilgrimage to the 600-pound bovine sculpture carved from pure creamery butter. Now that he is U.S. Agriculture secretary, Vilsack wants to take a chunk out of another sacred cow: $15.4 billion in farm subsidies.
Record federal deficits and changing priorities are spurring President Barack Obama’s administration to redirect who gets rural aid. The government is shifting payments to broadband providers, land-conservation efforts and nutrition programs, Bloomberg Businessweek reports in its Aug. 30 issue.
To many farmers, the changes seem designed to satisfy organic-food devotees, first lady Michelle Obama’s anti-obesity cause, weekend duck hunters, and small-town Internet users -- everyone, that is, except traditional farmers. Kris Luoma, 55, a cattle rancher and crop-insurance salesman visiting the Iowa fair from Arcadia, Nebraska, blames the ignorance of Washington policy makers.
“A lot of them,” he said, “don’t know where their food comes from.”
Vilsack’s USDA in July trimmed $6 billion in payments to crop insurers such as San Francisco-based Wells Fargo & Co. for the next decade. Now he’s looking at cuts of as much as $5 billion a year from an automatic payments program that compensates farmers even if they grow nothing. Vilsack is the chief messenger of this makeover, a turnabout for farmers who have known him as one of their staunchest advocates.
The timing makes growers especially uneasy. Agriculture, like the rest of the economy, is experiencing a fragile recovery. Corn, soybean and wheat prices are at least 39 percent below 2008 records. Farm profits fell 35 percent last year to their lowest level since 2002, according to the USDA; the agency predicted in February that they will increase 12 percent in 2010.
Agriculture payments have withstood challenges before. The last real attempt to cut subsidies, in 1996, led to a backlash -- and bailout checks for farmers after export declines and heat waves persuaded lawmakers to abandon cost-cutting. This time, the $1.3 trillion annual federal deficit will make changes stick, said House Agriculture Committee Chairman Collin Peterson, the Minnesota Democrat whose district’s $243 million in 2009 subsidy payments ranked it No. 6 out of 435.
Revamping Rural Aid
Vilsack calls the deficit an incentive to revamp farm support and allocate funds to alternative energy and broadband projects, benefiting telecommunications companies such as New York-based Verizon Communications Inc. and ethanol producers, including Poet LLC of Sioux Falls, South Dakota.
With more farmers relying on small-town jobs to make ends meet, and even then with incomes trailing those in urban areas by 29 percent, rural economies need to diversify, Vilsack said. Done right, government programs will benefit everyone, he added, including crop growers and ranchers who need thriving communities nearby.
“If you prime the pump properly, you get a better return on investment,” he said.
While as much as $5 billion in automatic payments to farmers would go to the administration’s new rural initiatives instead, Vilsack said he’s hopeful that deficit-cutting demands will be satisfied by the reductions in crop insurance and that the “safety net” farmers use to manage risk will be maintained.
“I think you still need to recognize the inherent risk associated with farming,” he said. “This is not about trying to figure out ways in which we provide less of a safety net or reduce risk-management tools.”
Still, some growers and lawmakers worry that the White House will force further cuts in automatic payments, which farmers use to finance bank loans. And they’re concerned about unintended consequences from dramatic shifts in land use.
“I’m trying to raise cows, and the government spends money to take land out of production for pheasant hunters,” said Glenn Johnson, 37, a rancher from Pipestone, Minnesota. “You close up the programs, and it’ll be the 1980s all over again,” when record foreclosures reduced the number of U.S. farms by 11 percent, to 2.17 million.
Budget realities will clash directly with political calculations as farm spending becomes an important issue in states such as Wisconsin, Minnesota, Missouri and Iowa, whose voters will help determine the outcome of the 2012 presidential campaign.
Iowa narrowly favored George W. Bush in 2004 and jump-started Obama’s presidential campaign in 2008 before picking him over John McCain that fall. Both Obama and Vilsack are less popular in the state than they were then, according to polls taken before Vilsack gained unwanted attention for quickly firing Shirley Sherrod, a black USDA employee whose remarks on race later were shown to have been taken out of context.
Frank Lucas, an Oklahoma Republican who will take over the chairmanship of Peterson’s Agriculture Committee if Republicans in November gain the 39 seats they need to control the House, calls Vilsack a “nice guy” drowning in bad ideas. He listens too much to environmentalists and “foodies” who care more about how crops are produced than whether farmers can make a living, Lucas said. Vilsack disagreed.
“I might have a slightly different emphasis,” he said as he ended his fair tour near an exhibit on expanding broadband. “But you can’t say I’m not trying.”
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