By Philip Brasher

AP Farm Writer

WASHINGTON (AP)--Agriculture Secretary Dan Glickman says the administration's proposals for $11.5 billion in new farm spending will "lay the groundwork" for developing a new agricultural policy that is better for the environment and targets money to small-scale producers.

At the top of the administration's wish list is a new system of "supplemental income" payments targeted to small and medium-size farms and estimated to cost $5.6 billion through 2002, when the 1996 farm law is set to expire.

The administration wants to spend an additional $2.7 billion for conservation programs, including $1.2 billion in direct payments to farmers who take steps to curb runoff of pesticides and fertilizers from their land. An additional $1.3 billion would go toward expanding the federally subsidized crop insurance program and providing discounts to farmers on the premiums.

To Glickman and some farmers, the "supplemental income" program would correct they see as a flaw in the Republican-authored 1996 farm law, which scaled back on crop subsidies, ended controls on planting and gave farmers a series of fixed annual payments. Critics say the fixed payments were insufficient when commodity prices fell sharply in 1998.

Congress has passed $15 billion in emergency assistance over the last year to compensate farmers for the low prices as well as weather-related crop losses and is expected to consider another big aid package this year.

The administration's plan is intended to substitute for additional emergency bills that many lawmakers and administration officials think are inevitable otherwise.

"Two years of plunging commodity prices, natural disasters and nearly $15 billion in emergency relief was a tacit admission that the 1996 farm bill was not satisfactory," Glickman said at a news conference Feb. 2. "We cannot ask farmers to wait any longer."

The supplemental income plan already is coming under criticism from farm groups and in Congress, largely because of the administration's proposed $30,000 cap on payments. The fixed "market transition" payments that farmers get under the 1996 farm bill would count toward the $30,000 limit.

"The administration's paltry plan for farmers is out of touch with the economic crisis in rural America," said Sen. Charles Grassley, R-IA.

The chairman of the Senate Agriculture Committee, Indiana Republican Richard Lugar, predicted earlier this week that farmers would reject the plan as inadequate.

The new program also runs the danger of driving commodity prices down further by encouraging small farms to grow more crops that are already in surplus, said Bruce Gardner, an agricultural economist at the University of Maryland. The 1996 farm bill was designed to do just the opposite.

"We're getting into the 21st century. To say you're going to use commodity policy to prop up these marginal farms..is not a sustainable, long-term path for agriculture," Gardner said. "I can't believe we're going to try to keep these small operations in business. USDA officials say they don't believe the supplemental income payments would have any significant impact on production.

Most of the spending in the administration's proposals would be in the government's 2001 and 2002 budgets. The ideas include:

--$500 million in low-interest loans to finance construction of grain bins on farms so producers can hold commodities off the market.

--$300 million in dairy subsidies.

--A freeze in rates for government crop subsidies, which would otherwise fall this year because they are tied to recent averages in commodity prices. The freeze would cost taxpayers an estimated $530 million through 2002.

--$400 million to develop a bioenergy program for turning crops into fuel.

--$130 million to assist livestock producers in forming cooperatives for processing meat.

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