Several county production meetings and area meetings have addressed the direction of peanut policy and the next Farm Bill. To bring you up-to-date on developments in the peanut policy arena, two main proposals for the next peanut program are currently under consideration. One proposal is referred to as the Step-2 type program which retains a two-price system but makes modifications to the current program. The other proposal is known as the Marketing Loan concept coupled with a transition payment (AMTA) to compensate quota holders. A third proposal called the V-C option was presented to the National Peanut Growers Group by Virginia and North Carolina but has been withdrawn to my understanding. The two proposals outlined below do not preclude other proposals and refinements surfacing before the next farm bill is written, but they are receiving the most attention right now.
 

Step-2 Option

The Step-2 program proposes to stimulate purchase of US peanuts through a reverse LDP. Quota peanuts would receive a price support similar to the current program. Processors would purchase domestic peanuts at the world price and the US government would make up the difference between the domestic price and the world price. For example, if the support price is $650/ton and the world price is $400/ton, the government would make up the $250 difference.

Step-2 program proposals have come from the Southwestern Peanut Growers Association and GFA Peanut Association. Some of the details between the Step-2 proposals are different but the concept is essentially the same. The proposals preserve quota or a base, raise the support price, add a cost escalator, lower the minimum resale and eliminate the no-net cost provision. Central Texas and Oklahoma, Virginia, and North Carolina support a Step-2 program that preserves the two-price system of supply control. The GFA proposal is given below:

GFA Peanut Program Proposal

• Peanut quota becomes base
• Continue temporary seed quota
• Support price for base (quota) set at $700 paid by CCC draft with cost of production increases - shellers may redeem any or all base at floating market price but not less than $450
• Unlimited base (quota) transfer within state but not across state lines
• Additional peanuts for export at price agreed to between producer and handler
• Support price for additional loan at $132 to $175 per farmers stock ton
• Minimum resale for loan additional sold for export at 120% of average delivered contract price or $300 per farmers stock ton, whichever is greater
• No disaster transfers - to be covered by insurance
• All pool losses to be covered by government

Marketing Loan Option

The Marketing Loan option proposes a program similar to corn, cotton, wheat and the other seven major program crops. A marketing loan price would provide downside price protection while allowing the market price to go higher or lower. The government would make up the difference between the market price and the loan rate through a marketing loan gain or LDP when market price is below the loan rate. Various loan rates are being discussed.

A transition payment or AMTA would be included in the marketing loan program as compensation to quota holders. The payment would not be tied to production thus it would fit trade policy rules set out by GATT. Elimination of payment limitations is proposed to handle the increased level of payments. The GPC, GPPA and Georgia Farm Bureau Peanut Committee support the marketing loan concept. Florida, Western Plains (Texas), Texas Panhandle and Western Oklahoma also support the marketing loan concept. Alabama originally supported the Marketing Loan concept but has switched their position to the Step-2 in the latest vote. The GPC proposal is below:

GPC Proposal

• 14 cent payment limit free payment to quota holders
• For purposes of the transition payment, freeze the quota at the 2001 level for the life of the next farm bill
• $450 Marketing Loan program with producer option of Loan Deficiency Payment or Non-recourse Loan (but not both). The LDP would be based on the Rotterdam world price for peanuts.
• Include a cost escalator based on the consumer price index for the marketing loan rate
• Establish a base on produced and considered produced credit history to the individual with the history
• Eliminate payment limits on LDP's or alt least allow unlimited participation in thn non-recourse loan program
• Give the Secretary of Agriculture authority to implement production limits in the event cost of the Marketing Loan program exceeds $350 million; not to include reduction in price support

Why Change the Program?

Several folks have asked what is driving a change in the program and why must the decision be made now when we have over a year and a half before the current Farm Bill expires? Many issues are at work but the short answer is US trade policy and Congress.

US Trade Agreements

Trade agreements have prompted removal of non-tariff trade barriers and lowered tariffs in a move towards free trade. The strong belief is this trend will continue. At $610 per ton, Mexico will be able to export peanuts into the US for more than $400 per ton farmer stock equivalent by 2004 under the current NAFTA tariff rate schedule. The real threat to Georgia and US peanut producers, however, is an agreement involving the entire Western Hemisphere called the Free Trade Areas of the Americas, or FTAA for short. FTAA has a good probability of being implemented before the end of the next Farm Bill or 2008. If Argentina, Nicaragua, and Brazil fall under the same type tariffs as Mexico, the US could be flooded with peanut imports that would displace quota and lead to significant reductions in quota allotments.

To thwart this threat, US domestic peanuts need to somehow become competitive with the world price. Data from the US Department of Commerce shows the value of Argentina shelled peanuts imported into the US in 2000 as 34.8 cents per pound. Add another 2 cents per pound for shipping costs and that gives a 36.8 cents per pound Argentine peanut price here in the US. The 1998-99 average shelled price for US peanuts was 57.5 cents per pounds. Most everyone recognizes this is a problem that needs to be addressed as imports through Mexico and minimum access have captured 10% of the domestic market. The increase in demand in 1999 and 2000 did not result in quota increases because of this loss in market share. Tobacco growers understand this threat is all too real.

The current peanut program is a no-net cost program which saves taxpayers' money. For US trade agreements, however, the peanut quota program falls in the "amber box" spending category at a total of $347 million. The WTO basically classifies domestic support programs in two categories - minimal to no distortive effect on trade ("Green Box" measures) and trade-distorting support ("Amber Box" measures). Supply programs like the quota system are considered trade distorting support. Total amber box spending for the US under WTO rules is $19.1 billion. Spending above this level will result in trade sanctions against the US. Unfortunately, US trade agreements such as GATT and NAFTA are at odds with supply control programs such as the peanut program.

A Farm Bill Before 2002?

The other reason for the urgency in dealing with the peanut program is the House Agriculture Committee plans to have farm policy re-written by mid-summer. The committee began hearings in February on policy proposals. You can read commodity group testimony at http://www.agriculture.house.gov/comdty.htm.

Chairman Larry Combest (TX) has implemented a framework for re-writing the next farm bill that is different from years past. Commodity and farm groups are invited to testify before the House Ag Committee but must present a consensus policy proposal that details the effect on related industries, impacts on trade and federal budget spending, and how it would fit with US trade agreements. Major commodity groups including cotton, corn, rice, soybeans, wheat, cattle, and pork have presented testimony. Peanuts might not formally testify before the committee because no consensus has been reached.

In reality, looking at changes in a program that has been successful and in existence since the 1930s is a very touchy subject. Arriving at a consensus in a short amount of time is a major task, if possible at all. Peanut regions, producer groups and industry segments have traditionally opposed each other on program provisions. Therefore, it is likely separate proposals will be submitted to the committee from which program spending levels will be derived.

Sometimes you hear of someone discussing a defining moment in their life. We may one day look back on 2001 as a defining moment for the peanut industry in Georgia and the US from a policy perspective at the least.

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