THE Obama administration is proposing to cut billions of dollars of farm subsidies and other spending from its ag department budget.

The $23 billion USDA budget proposal - a 3 per cent reduction in USDA spending for the fiscal year that begins October 1 - includes a complete elimination of the controversial direct-payment subsidy program as well as a reduction in crop-insurance subsidies and costly land-conservation programs.

Cutting the subsidies now makes sense because farm revenue is at historical highs, according to the USDA budget proposal that the White House said will reduce the US budget deficit by $32 billion over 10 years.

Net farm income in the US reached $110.9 billion last year, a 28 per cent increase over 2010, according to government data.

The USDA sends out billions of dollars to farmers in direct payments regardless of whether they need it and sometimes even if they aren't actually farming the land that is tied to the subsidies.

The Obama administration has previously proposed shaving the program that pays out roughly $5 billion a year to farmers, but opposition in Congress has remained strong.

In June, Congress struck a provision from the FY 2012 spending bill that would have reduced the number of farmers in the US who could collect farm subsidies by preventing any farmer with an adjusted gross income of more than $250,000 from getting direct payments.

Farmers are now prevented from receiving those payments only if they have an AGI exceeding $750,000.

About one million farmers on 260 million acres of land spread around 364 of 435 congressional districts currently collect direct payments, according to the USDA and the Environmental Working Group, a organisation that wants to eliminate some farm subsidies and use the money to protect natural habitats.

"The direct-payment program provides producers fixed annual income support payments for having historically planted crops that were supported by Government programs, regardless of whether the farmer is currently producing those crops-or producing any crop, for that matter," the administration said in its budget proposal released Monday.

And many of the farmers who get the payments are already profitable, the White House said. More than half of the farmers who get them have an annual income of more than $100,000.

But the White House also aimed reductions at the insurance companies that cover farmers.

It costs the government about $10 billion a year to run a crop-insurance subsidy program that pays out about $7 billion to farmers in premium subsidies.

The remaining $3 billion goes to private insurance companies and that is too much, the Obama administration said.

Subsidised crop-insurance companies collect a return on investment of about 14 per cent, but that should be closer to 12 per cent, according to a government study, and the reduction would cut government spending by $1.2 billion over 10 years.

Another reduction - lowering the cap on administrative expenses that the government pays to insurance companies - would save about $2.9 billion over 10 years.

Another area in USDA spending the White House wants to cut is conservation spending.

There are too many programs that often overlap, it said.

The Obama administration said it is now proposing "to reduce conservation funding by $1.8 billion over 10 years by better targeting conservation funding to the most cost-effective and environmentally-beneficial programs and practices."