President Obama’s proposal to place limits on federal subsidies to large, profitable farm operations — a pledge that dates to his earliest campaigning in Iowa two years ago — isn’t shaping up into the sort of change that agricultural interests, or their powerful advocates in Congress, are likely to believe in. That is not particularly surprising, given the longstanding entrenchment of high-end farm subsidies on Capitol Hill. But backers of subsidy caps to larger farm operations still hope they can harness Obama’s popularity and transfer mounting populist anger over corporate bonuses from the boardroom to the feedlot to produce renewed traction for the plan in Congress.

That strategy won’t be easy. The administration’s plan was to use the fiscal 2010 budget process as the vehicle to revamp the subsidies program. But in adopting their budget resolutions last week, both the House and Senate rejected a key feature of the plan — a proposal to cap subsidies to individual farmers at $250,000. Another proposal to phase out subsidies to farmers with gross annual retail sales of $500,000 or more was turned down as well, with North Dakota Democrat Kent Conrad , who chairs the Senate Budget Committee, calling it “just a mistake,” and Minnesota Democrat Collin C. Peterson , who chairs the House Agriculture Committee, deriding it as simply “stupid.”

SUBSIDY HEAVEN? A tractor pulls a corn planter on a farm near Luxemburg, Iowa. (GETTY IMAGES / MARK HIRSCH)

But the White House isn’t throwing in the towel yet — even though Obama’s predecessor, George W. Bush , vetoed last year’s sprawling farm bill to try and advance subsidy caps, and still came up empty-handed. Office of Management and Budget (OMB) Director Peter Orszag said in a recent conference call addressing the farm proposal that reports of its death were premature. He said the White House expects to collaborate with Peterson and Conrad to “reduce agricultural subsidies, especially for large corporate . . . farms, while protecting small family farms. There are lots of ways of getting at this issue.”

Sizing Up the Family Farm

Appealing to the image of the family farm is a common staple of efforts to cap subsidies. A month before winning the first caucuses of the Democratic nominating contest, Obama struck the same note by promising an Iowa audience his “world farm agenda” would institute caps to subsidies “because too many of them are going to agribusiness.” The idea is to choke off payments to more well-heeled farm operators, while shoring up supports for smaller farms that seek protection from market disruptions and weather disasters. But detractors of the idea to cut off subsidies for farms grossing more than $500,000 in annual retail sales say that the proposal ignores steep input costs for farmers, and could jeopardize marginal profits for modest farm operations. What’s more, they suggest, regardless of their impact on larger farms, the limits wouldn’t revive small-scale farming, since the inherent market logic of modern farming makes for bigger farms.

Indeed, the increasing scale of the average farm operation is a big reason the Obama target caps on subsidies aren’t winning broader support — in today’s agricultural market, many operations qualifying for subsidy caps could also be counted as family farms. The OMB estimates the phaseout would save $9.8 billion over 10 years — and calculates an additional $5.9 billion in savings by instituting the $250,000 cap, revamping the federal crop insurance program and eliminating federal payments for cotton storage. This fiscal tug of war has the powerful farm lobby jittery. In a letter to the chairmen of the House and Senate Agriculture and Budget committees, 40 major farm organizations said the Obama plan would weaken farm safety programs that “are the very front-line defenses against today’s high volatility in prices and production costs.”

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Tom Dobbs, an emeritus professor of economics at South Dakota State University, calculates the president’s plan would cut direct payments by about 23 percent. He describes the proposed ceiling for farm payments as a “chink in the armor” of the farm lobby, but also contends that the measure would lead toward more moderately sized farms by helping to reduce land values — a stubborn barrier to entry for both prospective new farmers and established small farmers looking to increase their capital resources.

One reason the backers of the Obama plan have already run into stiff resistance is that the farm lobby is made up of more than just farmers. Department of Agriculture figures show that as average farm size increased, the number of farms in the United States shrank to 2.2 million last year, from 6.3 million in 1940. But those numbers don’t reflect the broader reach of agriculture interests in rural America’s business establishment, including small-town bankers, insurance agents, farm equipment dealers, rural land speculators, and seed and fertilizer merchants.

Then there is the concentrated power of the House and Senate Agriculture committees themselves. A study by the liberal Environmental Working Group found that 43 percent of all farm payments between 1995 and 2006 went to the congressional districts with representation on the House committee. States with seats on the Senate panel accounted for 58 percent of the total.

“It is no surprise that the large bulk of agriculture subsidies go to just 30 congressional districts in the entire nation, and they are well represented on the Ag committee,” said Rep. Ron Kind , a Democrat from Wisconsin dairy country who has broken ranks with the milk lobby in the past over retooling farm subsidies. “They are going to try to protect the status quo and protect the programs as they exist. That’s why I don’t think you’ll get real ideas of reform and change and a new direction for agriculture policy coming from the Agriculture Committee.”

Taxpayers provide about $16 billion a year to farmers for crop subsidies, conservation payments and disaster relief. Kind and other critics of current subsidies want to redirect more of that money to small and moderately sized farm operations and away from the large, well-capitalized farms that produce much of the country’s food and fiber.