Peanut policy is now linked to world trade

Historically, U.S. peanut policy had no impact on world trade and, conversely, world trade policies had no effect on the U.S. peanut industry. That, however, has changed.

“We had a protected, supply/management program, and whatever happened in world trade policy didn't affect us,” says Stanley Fletcher, University of Georgia economist and coordinator for the National Center for Peanut Competitiveness.

Things are different

“However, starting with the GATT negotiations, all of that changed. Whether we like it or not, U.S. peanut policy now is intertwined with world trade policy. You cannot separate them, and they must be considered together,” says Fletcher.

The primary impetus for this change, he says, was the advent of world trade agreements, including NAFTA and GATT. NAFTA was implemented on Jan. 1, 1994, and the Uruguay Round of GATT — now WTO — was implemented on Jan. 1, 1995.

“NAFTA, which affects the United States, Canada and Mexico, really started the ball rolling. It set everything else into play. Now, we have the FTAA or the Free Trade Area of Americas, and it covers from the tip of Argentina and Chile to Canada. This one agreement, which could be completed by 2004 or 2005, could have more of an impact on Southern agriculture and peanut producers than WTO,” notes the economist.

Trade negotiations, explains Fletcher, basically have two sides. “One is that you're able to export your product into the world market, or that you can open up markets so that you can expand your trade. But the trade agreements have not helped U.S. peanuts in the export markets.

Market share down

“In the mid-1980s, the United States was up to about 35 percent of the world peanut market. Now, our share has dropped to the 20-percent range. Meanwhile, the shares of other countries have been increasing,” he says.

The other side of trade negotiations, he adds, is the elimination of barriers to foreign trade. “Section 22 that protected U.S. peanut growers from imported peanuts was eliminated and replaced with an increasing minimum access to our domestic market, plus a declining tariff schedule.

“Based on our research, the original tariff schedules for NAFTA and GATT were significantly increased to afford a longer period of transition to a global marketplace for U.S. peanut producers. Our domestic peanut program had to be changed moderately in 1996 to maintain a longer transition period. However, this transition is coming to an end sooner rather than later.

“The minimum access of foreign peanuts into the United States has allowed countries such as Argentina to capture a larger than normal profit. This profit is being used to upgrade peanut infrastructures and production practices.”

Based on U.S. Department of Commerce data, Argentina shelled peanuts imported into the United States for 2000 were valued at approximately 36.8 cents per pound at U.S. docks, says Fletcher. The value of peanuts from Mexico were between 45 and 46 cents per pound. For a comparable period, U.S. shelled medium runner peanuts were valued at an average of 57.5 cents per pound.

Subsidizing others

“With minimum access, we're subsidizing the peanut industries of these other countries. Argentina is using the extra money they're making from our minimum access to modernize their production and shelling technology. Other countries could come in and do the same.”

Current tariffs are high enough to keep the U.S. peanut market from being flooded by imports, says Fletcher, but this can't be maintained in the future. “Future trade agreements will continue with what they've been doing all along. Minimum access will be increased to give the illusion of free trade, and there will be further reductions in tariff levels.”

U.S. peanut policy must be modified, he says, in anticipation of FTAA, which will cover all of Latin America, including Nicaragua, Argentina and Brazil.

“Prior to the 1980s, when the soybean market moved to South America, Brazil was the largest peanut producer in Latin America, but soybeans were more profitable. However, if Brazil gets the same minimum access benefits as Argentina, you could see a shift. And Brazil won't have to worry about the weather problems that Argentina has experienced in recent years.”

Current debate on the direction of future U.S. peanut policy revolves around two positions, says Fletcher. One is to maintain the current program or attempt to capture components of past programs such as the cost escalator and a beginning support price of $678 to $700 per ton. The other option would be to go to a marketing loan-type program, he says.

Two outlooks

“These two positions also can be viewed as a short-run outlook and a long-term outlook. The latter option could entail a peanut program similar to the cotton, corn and wheat programs. This would enable peanuts to be at the table with the other ag commodities in policy discussions rather than being separate.

“The marketing loan would not be the selling price but would provide downside price protection. This program also would provide an AMTA payment, which is a market transition assistance. Payment limitation also would have to be addressed. Other policy options exist between these positions that may be viable.”

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