Peanut growers consider three policy options

EDITOR'S NOTE — The following article was compiled by Cecil Yancy, Paul L. Hollis and Ron Smith of the Farm Press Editorial Staff.

The National Peanut Growers Group (NPGG) will present three policy options in pre-farm bill testimony to the U.S. House Agriculture Committee. The proposals are designed to help stem the tide of imports and “keep peanut farmers in business,” says Bob Sutter, CEO of the North Carolina Peanut Growers Association.

At a late February meeting in Atlanta, NPGG voted to include the following three options in testimony: A marketing loan program, a marketing base program and a program with a Step 2 arrangement similar to the one in cotton.

“At the present time we are supporting the testimony of the grower group,” Sutter says. “We aren't singling out one option. We want to try to get the best thing for the producers.”

The marketing loan option would set up a program similar to corn. Producers would be able sell an unlimited amount of peanuts without a price-support level. The loan rate would be $500 per ton. It would be figured from the loan rate, the Loan Deficiency Payment (LDP) and the adjusted world price.

Agricultural Market Transition Act (AMTA) payments would be made to quota owners and producers. USDA would have discretion to limit production to hold down costs. Support for this option came mainly from the Southeast.

The marketing base option would have a $500 per ton loan rate and would work similar to the current program. For example, the buyer would pay $500 for the peanuts. The owner and the grower would split a 15-cents per pound transition payment.

Under this option, there would be a limited amount of production eligible for the $500 loan rate. In effect, it would be called a marketing base. Production would be distributed based on a peanut farmer's past production history. The amount of production eligible for the loan would increase because it would slow down and reverse the trend in imports, Sutter says.

The third option would keep the same program in place, with a $650 per ton support price, a cost of production escalator and a Step 2-type arrangement similar to that in place for cotton.

Under the Step-2 arrangement, the farmer would be paid $650 at the buying point. The first purchaser then would be able to redeem the peanuts at a cost less than $650. “If the adjusted world price is $450 per ton, then the government would make up the difference in a Step 2-type arrangement,” Sutter says.

Peanut farmers in the Virginia-Carolina area favor the Step-2 option, Sutter says. “It gives us a way to keep the production control system in place and at the same time allows us to compete with imports,” he says. “The V-C area is very reluctant to move away from quota.”

The Georgia Peanut Commission recently voted to support changing the federal peanut program to a market loan program, thereby eliminating the no-net cost provision of the current program.

Randy Griggs, executive director of the Alabama Peanut Producers Association, says he isn't sure his group wants to “draw a line in the sand” and favor one proposal over another.

“Things will evolve, there will be give and take, and we want to maintain flexibility. We'll inform our board members of these proposals, and we'll see about the reaction in Washington, D.C. All of the ideas did something to address our competitive situation with the imports. A lot of folks would like to see a price increase and keep things as they are, but that can't happen if we want a healthy peanut industry,” says Griggs.

Some things never change, he says, and that applies to opposition to the current peanut program. “We still have congressional opposition to the program. The elements that have opposed us in the past still are organized, and we still stand out as being different when compared to other major commodities,” says Griggs.

“If we continue under the current peanut program, we'll reduce the demand for quota peanuts which means quota will be cut. Otherwise, peanuts will go into the government loan and be crushed at a cost to the government. Under the current program, that'll mean increased assessments for U.S. growers.”

There are, however, more peanut-state congressmen in leadership positions than ever before, and that's good news for growers, he adds. “There's a push to have a program where peanuts are similar to other commodities. If you're in with other commodities, you don't stand out as much, and opponents don't target you quite as much. We want to be responsible, but we've learned our lesson with the current no-net cost program.”

Growers must understand, says Griggs, the devastating impact that the GATT and NAFTA trade agreements soon will have on U.S. peanut production. Under the agreements, tariff rates on imported peanuts eventually will be phased out.

“If we continue under the current peanut program, we'll reduce the demand for quota peanuts which means quota will be cut. Otherwise, peanuts will go into the government loan and be crushed at a cost to the government. Under the current program, that'll mean increased assessments for U.S. growers.

“The cost of U.S. peanuts to the manufacturers must be competitive with imports if this industry is to survive. The risks of doing nothing — of keeping the current program — are reduced demand, reduced quota, government costs and grower assessments,”he says.

Dan Hunter, executive director of the Southwestern Peanut Growers Association, says a Step 2 program, similar to that in place for cotton, could provide a framework for domestic peanut marketing that would help keep farmers in business at considerably less cost to the government than a marketing loan plan.

“This concept would provide a stimulus for the U. S. peanut producer and maintain domestic processing and manufacturing,” Hunter says.

Under a Step 2 program, growers would receive a price feasible to staying in business, including cost of production increases. Processors and manufacturers would be allowed to buy peanuts at world market prices for U.S. consumption. The government would make up the difference between world price and established support price.

Hunter explained the concept recently to a peanut growers' meeting in Caddo County, Okla.

“If the cost adjusted price support rate for the producer was $650 per ton and the determined world price was $500 per ton, Step 2 cost would be $150 per ton. Cost to the government would be $180 million ($150 per ton times 1.2 million tons of domestic quota).”

“Under Step 2, producers would not receive benefits directly from the government and would not be subject to payment limits.” Hunter says Step 2 makes more sense than a marketing loan for a number of reasons.

“A marketing loan does not consider the unique mechanics necessary for peanut marketing,” he said. “Peanuts are a semi-perishable commodity. We can't store them for extended periods of time, as we can cotton and grains. We have to move them into the market relatively quickly.” Step 2 also would cost the government less money than a marketing loan, “which in some cases exceeds $700 million a year.”

Hunter says current cost attributed to peanut domestic support by the World Trade Organization is $347 million per year. Even at a $400 world market price, the Step 2 program would cost considerably less ($300 million versus $700 million in the marketing loan or $347 million under the current system).

Under a marketing loan program, Hunter says, “Oklahoma peanut growers would be forced out of business. A quota buyout would put them out of business sooner.”

Hunter believes the Step 2 plan should garner support from all aspects of the peanut industry.

“Growers benefit by maintaining the price support structure. Processors and manufacturers can buy high quality, domestic peanuts at world market prices, eliminating the price incentives for foreign peanuts without trade distortion since the program levels the market and does not undercut it. “And government outlays would be far below current WTO costs and estimated marketing loan expenditures.” Peanuts produced primarily for export could be supported at a higher rate using a flexible loan incentive concept, Hunter says. “If a $300 per ton export loan incentive was in place, the producer could produce for the export market or utilize Association loan pools made more attractive by an improved loan rate, without relying solely on purchaser contract,” he says. Costs, he says, should be minimal because market signals would dictate production for export and the support rate expense would be offset by returns from alternative oil and meal markets. Hunter says Congress understands that the 1996 farm act created a hardship for U.S. peanut growers. “They realize that they cut too much,” he said. “That's one reason they approved a $30 per ton supplement for quota peanuts last year ($16 per ton for additionals). “We need $60 per ton for 2001, considering the higher costs for fuel.”

That would help for the short-term,” Hunter said. “But long-term, we must devise a program that will get more money in farmers' pockets.”

Hunter says as talks on peanut program proposals begin he “hopes we are not constrained to a no-net cost approach. “Long-term challenges will remain with WTO and NAFTA. But we don't need to write a farm bill based on what might occur in trade negotiations.” Hunter says. “It's time we wrote one for farmers.”

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