Monumental change: Senate vote ends peanut quota system

The U.S. Senate's passage of a farm bill effectively ends the nearly 70-year-old federal quota system for peanuts. Just as in the House version of the farm bill, the Senate proposal replaces the quota system of production and price controls with a more market-oriented approach.

The Senate bill also provides money for peanut quota-holders during a five-year transition period. “For the first time in recent memory, urban and rural senators have agreed on how we must proceed in the peanut industry,” said Sen. Zell Miller (D-Ga.). “This is a rare occurrence, and it did not come without pain in Georgia and in the Southeast.”

“We are pleased by the decision of the Senate to approve the farm bill,” says Armond Morris, chairman of the Georgia Peanut Commission. “The version of the farm bill approved by the Senate is a monumental change for peanut farmers and a new chapter in terms of peanut policy.”

Georgia is the Number One peanut-producing state, with about 40 percent of the crop.

Peanut producers in the Virginia-Carolina region like the numbers in the Senate version of the new peanut program better than the ones in the House version but are “very concerned about the payment limitations of the Senate version,” says Bob Sutter, CEO of the North Carolina Peanut Growers Association.

“We're hopeful that some compromise can be worked out in the conference committee,” Sutter says.

Under the Senate's version of the farm bill, peanut farmers will receive counter-cyclical payments for peanuts when crop prices fall below the target price, set at $520 per ton. In addition, the Secretary of Agriculture also will make direct payments equal to 18 cents per pound.

A marketing loan rate will be established at $400 per ton.

The legislation also provides quota holders 11 cents per pound per year for the five years of the bill.

The differences between the House and Senate versions of the farm bill will be worked out in conference committee and then forwarded to the President for his signature. Farm groups want the new program to take effect this year, so lawmakers hope to reach agreement by Easter on a compromise that President Bush will sign.

Miller vowed to work to keep the 11 cents per-pound buyout for quota holders, compared to the 10 cents per-pound contained in the House bill. “We must keep the higher 11-cent payout to help our quota holders make this tough transition to the new peanut program,” he said.

Miller also plans to fight for a change in the Senate bill's provision lowering the annual cap on federal crop payments to farmers to $275,000 to $460,000.

“Our farmers in Georgia and the Southeast are struggling with skyrocketing production costs and low commodity prices, and we must not hurt them more with these payment caps,” said the senator.

The absence of a new peanut program to replace the old quota system has left the U.S. peanut industry in limbo, says Nathan Smith, University of Georgia Extension economist.

The continuing negotiations over a new farm bill have encouraged buyers to minimize inventory in order to take advantage of lower prices in the event a new peanut program is implemented for the 2002 crop year, says Smith.

“Under the new peanut program being proposed, quota would be eliminated, thereby lowering the price of farmer stock peanuts. Rather than carry $610 per-ton peanuts into the 2002 marketing season, shellers cut back on 2001 quota purchases, leading to about 20 percent of the national quota going into the CCC loan,” he says.

A third of the quota in the Southeast, or about 243,500 tons, is in the GFA quota loan pool, says Smith. “This much quota in the loan creates almost a certain loss for Southeast producers. The loss could range between $140 and $180 per ton depending on the level of purchases from the quota and additional loan pools this marketing season.”

The no-net cost provision in the current peanut program — established by the 1996 farm bill — requires the losses to be made up through marketing assessments on quota the following crop season.

“Unfortunately, the 1999 loss in the Southeast has not been totally paid,” says Smith.

“The marketing assessments from 2001 and 2002 were to go towards paying off the earlier loss. Without a new farm bill in 2002, peanut growers would operate under the current quota system and face a potential marketing assessment that would virtually eliminate any return to quota.”

Growers, bankers, landowners and quota holders have been struggling with how to prepare for this coming season, says the economist. “All in all, the peanut industry is in limbo as it faces unprecedented change and uncertainty. Quite a change for a commodity program that has been regarded as stable and effective for nearly 70 years.”

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