A DECISION to cut subsidies for farmers affected by drought will have no impact on the budget, farmers say.

The Federal Government announced yesterday Australia would be officially drought-free for the first time in more than a decade from Monday.

The announcement coincides with the drought-hit areas of Bundarra and Eurobodalla in NSW, being lifted out of exceptional circumstances support next week.

That leaves no part of the country officially in drought - a huge turnaround from the 84 areas covering 56.8 per cent of Australia's agricultural land that received the exceptional circumstances interest rate subsidy in October 2007.

EC declarations allowed drought-affected farmers and small businesses to receive interest rate subsidies and income support payments of $400-$600 per fortnight.

The funding will be phased out by June 30.

Farmers believe it is too soon to cut the payments, arguing the subsidies should only be phased out once a suitable alternative has been put in place.

That alternative was being worked out with Agricultural Minister Joe Ludwig, National Farmers' Federation chief executive Matt Linnegar told ABC television today.

"We had a program in front of us for the next nine to 12 months... so the question we are asking the Government is, why end what you've got in place already, until you have that suitable alternative developed?"

He did not believe it was necessary for the Government to cut the funding to help it achieve a budget surplus next month.

"The budget is under pressure under all areas, but there wouldn't have been any risk to the Government to continue with that program until we developed the alternative," he said.

"I think we could have easily continued it until that time."

While it was good news that much of Australia had recovered from the drought, and that there had been a steadying of some commodity prices, "lets not forget we've still got some lower commodity prices in (some) sectors across the country," Mr Linnegar added.