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IB95118: Peanuts: Policy Issues Remy Jurenas January 19, 2001 CONTENTS
The 1996 omnibus farm bill (P.L. 104-127) authorizes a peanut program for the 1996-2002 crops. The program supports the incomes of producers and aims to ensure that ample supplies of peanuts are produced for the U.S. market. To accomplish this, the U.S. Department of Agriculture (USDA) supports the farm price of peanuts primarily by limiting the amount of peanuts each eligible farm can sell for domestic food use ("quota" peanuts) at a specified "high" price level. Farmers are free to sell peanuts produced in excess of their quota ("additionals"), primarily for export and crushing into peanut oil and meal. Two levels of price support are available: a high level for "quota" peanuts, and a much lower rate for "additionals." During 1995/96 farm bill debate, to address the issue of mounting government costs, most peanut growers proposed making changes so that the program would operate at "no-cost," and adjusting how the quota loan rate was set relative to 1995's $678/ton level. Growers argued that the program supports rural economies and that its basic structure be maintained. Peanut shellers and product manufacturers recommended significant reductions in the quota price support level (down to $550/ton and $450/ton, respectively). These two groups argued this change was critical to the long-term survival of the peanut industry, and was needed to reverse declining consumer demand for peanut products. Other manufacturers and their coalition partners favored outright repeal of the program, arguing government should not play a role in managing supplies and dictating prices. With farm programs under scrutiny in a much changed political and ideological climate, the debate over peanut policy was par- ticularly intense. House floor action in 1996 retained the Agriculture Committee's proposed modifications to the existing program by only a 3-vote margin (212-209). The final law resulted in two major changes. The support level for "quota" peanuts was reduced 10% to $610 per ton and frozen at that level for the 1996-2002 crops. To achieve a no-cost program, 2 quota-related provisions that had contributed to program costs were eliminated. Since 1996, program opponents have continued to press for further change. In the last such effort in July 1998 during floor debate on the FY1999 agriculture appropriations measure, the House rejected (181-244) an amendment that would have further lowered the 1998 crop quota loan rate to not more than $550 per ton. Amendment proponents argued that the 1996 law changes did not benefit consumers with lower peanut product prices and retained strong government involvement in the peanut marketplace. Peanut program supporters countered that further reducing quota price support would devastate peanut producers and rural communities, and would negate the 7-year policy commitment made to growers. In 1999, and again in 2000, peanut growers and product manufacturers reportedly entered into a truce, agreeing not to battle out their differences legislatively. In recent legislative activity, the 2000/01 farm aid package (in P.L. 106-224) provides income payments to peanut growers, similar to a payment provision included in the 1999 farm aid package. Also, to address the impact of 1999 program losses on Southeast growers, P.L. 106-246 provides a mechanism for USDA to cover the balance of these losses, to be paid back by growers in future years. The U.S. Department of Agriculture (USDA) on December 13, 2000, announced that the national poundage quota for the 2001 peanut crop will be set at 1.18 million short tons (2.36 billion pounds), the same as the 1999 and 2000 level. USDA's decision not to increase the quota for the third year in a row appears to reflect an assessment that (1) domestic peanut consumption for food has leveled off, and (2) projected increased peanut imports (allowed to enter under trade agreements) continue to displace domestically-produced peanuts that otherwise would enter U.S. food marketing channels. Peanuts are a regional crop, with most production occurring in three areas. In 1997-99, the Southeast (Georgia, Alabama, Florida, and South Carolina) accounted for 55% of U.S. peanut output; the Southwest (Texas, Oklahoma, and New Mexico), 30%; and the Virginia- North Carolina region, 15%. The largest producer was Georgia, which accounted for 38% of total peanut output, followed by Texas with 24%. Production is geographically concentrated in each state; accordingly, peanuts account for a large share of farm and related agribusiness income earned in a number of peanut-producing counties. According to the Census of Agriculture, there were 12,211 peanut producers in the United States in 1997, down from 16,194 in 1992. Production nationwide, while fluctuating from year to year due to variable weather, averaged almost 3.8 billion pounds (1.89 million short tons) annually in the 1997-99 period, down from an annual average of 4.3 billion pounds (2.14 million tons) in 1990-92. Peanut output generated $1 billion in cash receipts each year from 1997 to 1999 to farmers, nearly a 25% decline from the $1.3 billion annual average in the 1990-92 period. Lower production and cash receipts in the most recent period reflect the impact of two significant policy changes made by the 1996 farm bill: (1) setting the amount producers can sell domestically (the "poundage quota") equal to projected U.S. food demand (see Poundage Quotas and provision 4 below), and (2) lowering by 10% the support level for peanuts sold to meet U.S. food demand (see Price Support and provision 3). Higher imports also have contributed to lower receipts. Imports in the 1999/2000 marketing year (MY) accounted for almost 8% of domestic food use, compared to a fraction of one percent prior to 1993/94. Increased imports reflect the market access commitments made by the United States under various trade agreements (see Import Restrictions). Just over 41% of the 1999 peanut supply was consumed as food domestically. Of the remainder, 13% was crushed into oil (viewed as a premium cooking oil) and into meal (used as a protein supplement in livestock feed rations). Sales overseas accounted for about 14%, with the European Union, Canada, and Japan being major export markets. Consumption for domestic food use fell an average 2.3% each year from MY1989/90 to MY1995/96, largely due to changing demographics (primarily smaller numbers of children among the baby-boomer generation), health and dietary concerns about the fat content in peanuts, and competition from other snack foods that has prompted consumers to shift away from higher-priced peanut products toward lower-priced snack products. In a reversal of this trend, starting in MY1996/97, U.S. peanut consumption for food has increased an average 3.0% each year. Observers speculate that this recent trend might reflect a decline in concern over fat in foods, a growing awareness by consumers of studies that show eating peanuts may be beneficial to health, and increased retail promotion by peanut product manufacturers. Of the peanuts used for domestic food use and export in MY1999/2000, 46% were processed into peanut butter (a staple in American diets), over 23% went into snack peanut products, 21% were used in peanut candy, and 9% were marketed as cleaned in-shell (i.e., ballpark, roasted). Features of the Peanut Program To support the farm price of peanuts, the U.S. Department of Agriculture (USDA) will (for the 1996-2002 crops) continue to extend price support benefits to growers, place a limit on the amount of peanuts allowed to be sold for domestic food use, and generally restrict imports of foreign peanuts. The most significant changes made by the enacted 1996 farm bill reduce the level of minimum price guarantees available on domestically marketed peanuts ("quota" peanuts) and effectively eliminate the program's future budget exposure. In the last 2 years, Congress has authorized income payments to peanut growers as part of broad financial assistance packages approved for the agricultural sector. The peanut program's purpose is to support the incomes of peanut producers and ensure ample domestic peanut supplies. It differs from the grains, rice and cotton programs in that USDA historically has not made direct payments to peanut growers (notwithstanding the recent actions Congress has taken). Rather, growers' income is supported primarily through USDA actions taken to manage peanut supplies and by making available price guarantees set in statute. Unlike the voluntary nature of USDA's grain and cotton programs, the peanut program's features are mandatory on all farmers if those that produce quota peanuts vote to approve poundage quotas. In a referendum held December 1997, 94.8% of those voting favored poundage quotas. As a result, quotas apply to farm marketings of peanuts through the 2002 crop. The following summarizes only the main program features. Some of the complex and detailed components (viewed as critical to program implementation by both producers and buyers) are further described in the Provisions of the 1996-2002 Peanut Program section). Price Support. Two levels of price support benefits are available to producers, depending on the end use and destination of the peanuts sold. Benefits are extended in the form of "non-recourse" loans that USDA extends to three areawide marketing associations (see below). Non-recourse means that an association pledges the peanuts acquired from growers (for which a payment is made) as loan collateral. Peanuts marketed for food use in the United States ("quota" peanuts) are eligible for a high level of price support. Peanuts exported or crushed into peanut oil and meal (referred to as "additionals") are eligible only for a much lower level of support. The higher "quota" support level reflects the historical premium assigned to peanuts sold domestically into the high-value edible use market and covers production costs. The lower level for additionals reflects the much lower market value of peanuts sold for export or crushing. Operating under complex procedures, each association (under contract with USDA's Commodity Credit Corporation) sells and disposes of acquired quota peanuts at not less than specified price levels, and of acquired additionals at market prices. To the extent that sales do not cover loan proceeds extended to growers, the difference ("losses") are made up by tapping association "profits," with the remaining losses, until recently, absorbed by the federal government. As required by the new statute, the quota loan rate for the 1996-2002 crops is frozen at $610 per ton (30.5 cents per pound). This change effectively reduces quota support by 10.1% from 1995's $678.36/ton (33.92 cents/lb.) level. Also, the 1996 farm bill retains the requirement that USDA set the loan rate for additionals at a level that ensures the CCC does not incur losses from their sale and disposal, and that also takes into account demand for peanut oil and meal, expected prices of other vegetable oils and protein meals, and export demand for peanuts. USDA on February 14, 2000, announced that the additionals loan rate for the 2000 crop will be $132 per ton (6.6 cents/lb.), $43 less than the level of $175 per ton set for additionals marketed from the 1998-99 crops (see table below). Income Support for 1999 and 2000 Crop Peanuts. For the 1999 and 2000 crops, producers are eligible to receive payments intended to partially compensate growers for continuing low commodity prices and increasing costs of production. The 1999 crop payment rates spelled out in FY2000 agriculture appropriations (Section 803(a) of P.L. 106-78) were set equal to 5% of the quota or additional loan rate. USDA accordingly disbursed $55 million to eligible peanut growers. Another emergency farm aid package specified the payment rate for 2000 crop quota and additional peanuts (Section 204(a) of P.L. 106-224) (see table below for details). USDA estimates that $61 million will be made available under this provision after grower signup ends early this year.
Supply Management. Two mechanisms limit the amount of peanuts allowed to be sold in the domestic market: the national poundage quota and import restrictions. Both tools serve to manage the amount of peanuts supplied for primarily U.S. food use. Poundage Quotas. A national poundage quota limits the quantity of peanuts that producers can sell for domestic consumption (see "buyback" exception below). The national quota is distributed among eligible states based on each state's previous year's share of the quota, and then distributed by "farm" to quota holders based largely on past production history. A producer holding or leasing farm quota receives price protection at the high price support level, whether by selling to commercial buyers or effectively transferring ownership of their unsold peanuts to USDA's designated marketing agent in return for price support benefits. A farmer may sell peanuts produced in excess of his farm quota(s) (referred to as "non-quota" or "additionals") primarily for export or crushing into peanut oil and meal. A farmer without a quota can produce as much as he wants, but must market them as additionals for export or crushing. However, when quota peanuts fall short in meeting domestic food demand (as a result of lower production due to poor weather and/or of changing manufacturer preferences for peanut type), any farmer may sell additionals as quota peanuts under the "buyback" provision. As producers, shellers, and users have adjusted to the new market environment created by the 1996 farm bill changes, buybacks in the 1996, 1997 and 1998 marketing years accounted for a much higher share of domestic peanut sales for food than in previous years (about 10-15% versus 1-3%). Buyback activity in 1999/ 2000 has fallen significantly, apparently in reaction to farmer concern about the losses they likely will need to absorb as a result of such activity associated with the 1998 crop (see provision 6, (d) and (g) below). The 1996 law requires USDA to announce a national poundage quota equal to projected U.S. peanut consumption for food and related uses (excluding seed). Use of this quota tool is intended to guard against a surplus, and to limit the program's budget exposure. Under previous farm bills, USDA each year was required to set the national quota (defined then to also include seed use) at not less than a specified statutory minimum, even if USDA's projection showed food use would be lower. The 1996 law eliminates the minimum provision. Under the revised definition, USDA on December 13, 1999, announced that the 2000 crop national poundage quota will be 1.18 million tons, the same as set for the 1999 quota. USDA's decision not to increase the quota reflects its assessment that (1) domestic peanut consumption for food has leveled off, and (2) projected increased peanut imports (allowed to enter under trade agreements) will continue to displace domestically-produced peanuts that otherwise would enter U.S. food marketing channels. The 2000 quota level is a 12.6% reduction from the minimum 1.35 million ton national poundage quota that was in effect for the 1991-1995 crops. Import Restrictions. Under multilaterally and bilaterally negotiated trade agreements, the United States imposes three tariff-rate quotas (TRQs) on peanut imports. The TRQ based on General Agreement of Tariffs and Trade (GATT) market access rules permits imports up to a specified level (the in-quota amount) to enter at a "bound," or fixed, tariff. Imports under two bilateral trade agreements enter duty free. Imports above the in-quota in each TRQ also can enter, but are subject to a very high tariff (which declines by 15% over 6 years). This high tariff reflects the protective value of the previous small absolute quota. With the high above-quota tariff, foreign- origin peanuts will not be price competitive in the U.S. market for quite some time. Under the three trade agreements, U.S. market access commitments mean that the in- quota amount (compared to the pre-1995 import quota's 1.7 million pounds) is much larger in 2000 -- 126 million pounds, rising gradually each year to reach 127.6 million pounds in 2007. Under the GATT agreement, Argentina is allocated more than an 80% share of the TRQ. Under the North American Free Trade Agreement (NAFTA), Mexico has duty-free access to the U.S. market for Mexican-produced peanuts under a quota that gradually rises through 2008. Afterwards, Mexican-origin peanuts will be allowed to enter in unlimited quantities. Israel has duty-free access for domestically produced peanuts under a small TRQ that expires at year-end 2001. A separate GATT-based import quota also caps U.S. imports of peanut butter and paste at slightly above the 1993 level. However, imports of peanut butter and paste from Mexico under NAFTA are exempt from this quota, as long as peanuts used in these products are grown in Mexico. In general terms, the GATT-based import quotas are in effect through 2000; the NAFTA provisions apply indefinitely unless the United States or Mexico were to withdraw, upon notice, from the agreement. Three area marketing associations help to administer the peanut program, acting as agents for the Commodity Credit Corporation (CCC) -- the entity that finances USDA farm programs. These regional associations keep track of quota and additional peanuts that are sold, offer price support loan benefits to farmers, and arrange for warehousing peanuts brought under loan. The CCC finances each association's price support operations and overhead costs with funds borrowed from the U.S. Treasury. Separately, county offices of the Farm Service Agency (FSA) administer poundage quotas, maintain farm data, and perform other functions by dealing directly with producers and quota holders. USDA estimates that FSA field administrative costs associated with loan making and quota management totaled about $2.8 million in FY1998. A budget deficit marketing assessment applies only to marketings of domestically produced peanuts. Imports are not subject to this levy. Assessments collected from growers and "first purchasers" represent the peanut sector's contribution to budget deficit reduction targets. The assessment rate for the 1997-2002 crops is 1.2% of the "quota" or "additionals" loan rate, whichever applies. Growers pay 54.2% of the assessment rate; the first buyers' share is 45.8%. Under this requirement, USDA has collected about $10-$12 million annually since FY1996 in assessments. As "directed" by Congress in report language in the FY 1999 agriculture appropriations measure, the Secretary of Agriculture in January 2000 decided to apply assessments collected against the 1996, 1997, and 1998 crops to cover part of anticipated Southeast area marketing association's losses as prescribed under a loss sharing mechanism included in the 1996 enacted program (see provision 6, (d) and (g) below). Provisions of the 1996-2002 Program The enacted peanut program incorporates, with a few changes, the provisions agreed upon in November 1995 in the conference report on the farm programs' portion of the subsequently vetoed budget reconciliation measure (H.R. 2491). However, two differences in the stand-alone farm bills (H.R. 2854; S. 1541) passed by each chamber in February 1996 took time for conferees to resolve. One compromise makes a producer ineligible for price support benefits for one year if he effectively sells his crop to the federal government for 2 years rather than to a buyer who makes a written price offer at the quota support level ($610/ton). Conferees also (1) settled differences reflecting regional rivalries and peanut type supply/demand imbalances on how program losses are to be shared, and (2) agreed to allow the sale and lease of 40% (over 5 years) of a county's poundage quota across county lines but still within the same state. The enacted modified program largely kept intact the broad outlines of past U.S. peanut policy, but addressed the issues of the level of price support available for quota peanuts and program cost. Final provisions include aspects of the peanut growers' proposal, and a split-the-difference compromise between the 1995 crop's $678/ton quota loan rate and peanut shellers' call for a support level around $550/ton. Price support on quota peanuts marketed domestically will be reduced 10% to $610/ton. While growers in late 1995 opposed any support reduction, manufacturers argued then that the reduction was not deep enough to reverse the decline in domestic peanut consumption. The Congressional Budget Office (CBO) then projected that changes made to key quota provisions would generate more than $400 million in budget savings over FY1997-2003. The 1996-enacted program, though, does not amend peanut import policy under GATT, NAFTA and one other agreement which will continue to be administered under existing Presidential authority. Program provisions: (1) reauthorize the program for 7 years (for crop years 1996-2002 -- the same as for all other commodity programs). (2) result in a "no-cost" program by eliminating the quota-related provisions that noticeably increased the program's budget exposure (i.e., actual outlays) since 1991 as food demand for peanuts continued to fall. According to CBO, these and related changes save (relative to CBO's December 1995 baseline projections) $412 million in the FY1997-2002 period. Two key changes: (a) eliminate the requirement that USDA announce a minimum national poundage quota (the amount that producers can sell into the domestic market each year -- set at 1.35 million tons for the 1992-95 crops). Instead, USDA is given discretionary authority to announce the national quota at a level equal to domestic demand for food (see "determination of national poundage quota" below). (b) repeal the "undermarketings" provision that allows any producer who experiences a production shortfall because of poor weather to carry forward that year's unused quota to market a portion of future years' output as "quota" peanuts. Previously, USDA had no discretion on how to handle undermarketings in setting the national quota level, meaning that sales of "undermarketed" peanuts in recent years contributed to domestic marketings being higher than domestic food demand for peanuts. (3) lower the quota price support level to $610/ton (a 10.1% decline from 1995's $678.36/ton loan rate). Support for domestically marketed peanuts for food use will be frozen, or fixed, at $610/ton through the 2002 crop. Growers in late 1995 expressed their dislike for the absence of an escalator clause that would have allowed adjustments in the support level (to be capped at 5% each year) up or down to reflect changes in production costs. By contrast, shellers and manufacturers pointed out that the quota rate was not reduced enough to revive domestic peanut consumption. Shellers had proposed a 15% drop in the 1996 crop quota loan rate -- to about $577/ton, and an additional 5% drop in 1997 -- to almost $548/ton; adjustments in future years would be set using a formula that heavily weighted market prices. Product manufacturers (represented by the American Peanut Product Manufacturers) wanted to see the 1996 quota rate reduced 20% to $542/ton, with a further staged lowering to close to world market prices of about $450/ton by 2000. (4) revise USDA's determination of the national poundage quota. Previously, USDA was required to set the national quota at an amount equal to estimated: (1) "domestic edible use" (i.e, peanuts consumed for food, used on the farm, and small amounts sold locally), (2) seed use, and (3) related uses, but not less than 1.35 million tons each year. The program dropped the minimum level, and now requires USDA to set the national quota equal only to projected "domestic edible" and "related" uses. "Seed" no longer will be included in this quota determination. (5) make two categories of current quota holders ineligible to own quota after 1997. Since USDA announced that the 1996 national poundage quota will be lowered from 1995's level by 250,000 tons to bring domestic sales in line with U.S. demand for food use (see item 2a above), all quota owners will share in this reduction by being allocated a corresponding smaller 1996 quota than last year. However, after the 1997 crop, quota owned by most public entities (i.e., a municipality, airport authority, school, refuge) and non-producers who reside out-of-state will be transferred to other quota owners in the same state. The final change does not affect as many individuals as the provision agreed upon by conferees in budget reconciliation, which was much broader in scope. (6) change the way that program losses are shared among the three producing regions. The previous "area cross-compliance" provision served to reduce the program's cost to the federal government (i.e., as area association and/or CCC-owned peanut inventories were sold) by requiring producers to offset some of this cost under a complex process. In practice, sharing losses had pitted regions against each other, as well as growers of additionals against those that primarily sell quota peanuts. Final provisions expand upon and reprioritize the order in which any losses in an area quota pool are to be covered. The revised order: (a) first, reduces proceeds due a producer by the amount of losses incurred on his transfer of "additionals" into a "quota" loan pool (under "disaster transfers" provision), (b) then reduces the proceeds due a producer for gains attributable to him from his sale of "additionals" for domestic use ("buyback") and export, (c) next taps profits from the sale for domestic edible use of additionals owned or controlled by the CCC in the same region (with an exception for Valencia peanuts grown in New Mexico), (d) then taps the share of marketing assessment funds that USDA collects from growers, (e) next taps gains of other area quota pools (the "cross compliance" provision), except for gains on separate pools established for Valencia peanuts produced in New Mexico, (f) then taps gains of additionals owned or controlled by the CCC in other regions that are sold for domestic edible use, (g) next taps for a second time the marketing assessment funds collected by USDA (i.e., that portion paid in by handlers), and (h) lastly, to cover an association's remaining quota pool losses, increases the assessment on "quota" peanuts marketed only by growers in that region. Items (a) and (b) are commonly referred to as "individual cross compliance." Though complex, these changes in the process to be followed to cover losses within and between associations are intended to place greater responsibility for absorbing losses on those individual producers and regions that actually generate them. Depending on other decisions that USDA makes, the cumulative impact of this prioritized loss-sharing mechanism is intended to bring program costs down to zero. Nevertheless, projected losses in the Southeast associated with a higher-than-average portion of the 1999 crop being placed under quota loan were expected to trigger all of the above loss sharing provisions. Because these losses are substantial (possibly reaching $60 million), USDA in late 1999 faced pressure from growers to apply the marketing assessment funds collected in the 1996-98 period to cover in part these losses. Growers of quota peanuts expressed concern that if the last provision (step h above) were triggered, they would face paying an assessment of up to $95 per ton this year for every ton of 2000 crop quota peanuts marketed, according to USDA estimates. Further, language in the FY2000 agriculture appropriations conference report "expect[ed]" USDA to use funds collected but not yet transferred to the U.S. Treasury to offset these losses. To address this issue, Secretary of Agriculture Dan Glickman on January 10, 2000, approved the use of $28 million to reduce projected 1999 losses, which in turn, reduced the assessment that Southeast growers could faced paying later in 2000. Even with this decision, assessment funds collected during FY2000 were not expected to cover the balance of expected 1999 quota peanut losses ($32 million). As a result, quota growers in the Southeast region faced the prospect of still paying an additional assessment in 2000/01. Because such a payment would have cut into grower income received this marketing year, some groups advocated the option of designating the assessments collected in future years to cover 1999 losses. This approach was reflected in a provision included in P.L. 106-246 (Section 2101 of Title II, chapter 1) that directed USDA to borrow from the Commodity Credit Corporation to cover the balance of these losses. This "loan" will be repaid by growers as the CCC collects marketing assessments from them in this and future years until the entire amount is paid off. (7) reduce by about 80% the benefits available to producers that take advantage of the disaster transfer payments provision. Producers who experience a decline in the production and quality of peanuts (thus unmarketable as quota peanuts for domestic food use) due to adverse weather and growing conditions can place any amount of additional peanuts under loan in the fall, request that the peanuts be transferred to the quota pools to the extent their quota is not fully utilized, and receive full quota price benefits. This in effect gives participating growers 100% price and income protection against weather-caused problems on the amount of output so transferred. Since these transferred peanuts are lower in market value than the quota loan proceeds distributed to producers, the resulting losses as stocks are sold below effective acquisition cost have contributed to program costs. The modified provision will limit such payments to 25% of the farm poundage quota X [times] a minimum 70% of the quota support level. This provision primarily affects the Southwest region, where most disaster transfer payments occur. This limitation (placed on individual producers) is intended to reduce the need to tap other 1996-enacted provisions (see item 6) designed to cover "quota" pool losses. (8) continue the budget deficit reduction ("marketing") assessments imposed on peanut producers and first handlers at the 1.15% rate applicable to the 1996 crop and at the 1.2% rate for the 1997-2002 crops. Assessments of about $10-$12 million collected annually will initially represent the peanut sector's contribution to budget deficit reduction. However, if USDA needs to tap assessments to cover "quota" pool losses under the revised prioritized loss sharing mechanism (see item 6 (d) and (g) above), the sector's contribution to deficit reduction will be lower. (9) continue current policy on setting the lower loan rate for non-quota peanuts (additionals). USDA would continue to announce a support level that does not result in losses to the CCC from the sale and disposal of additionals placed under loan. (10) make a producer ineligible for price support benefits for one year if he effectively sells his crop to the federal government for two consecutive marketing years rather than to a handler who makes a written offer to buy at or above the quota support level. Conferees struck this compromise in considering a House-adopted provision that would have required a 5% reduction in quota support extended to a producer who does not accept an offer from a handler located within the same or adjoining county to purchase his quota peanuts at a price equal to or greater than the quota loan rate. Its intent was to address the criticism made by peanut shellers and product manufacturers that farmers sometimes use the program in ways that result the market intermediaries and end users paying growers $20-$30 more per ton (i.e., referred to as the price premium) compared to the quota price support level. In fall 1995, conferees in budget reconciliation had agreed upon reducing by up to 15% price support benefits in cases like this; this provision was later removed from the reconciliation's peanut program section due to the Senate parliamentarian's application of the Byrd rule. This rule prohibits the inclusion of extraneous provisions in reconciliation measures if, in general, they do not produce a change in outlays or revenues. (11) allow the sale and lease of up to 40% of a county's poundage quota across county lines but still within the same state by the year 2000. Up to 15% of the county quota can be transferred in 1996, an additional 10% in 1997, and an additional 5% in each of 1998, 1999, and 2000. One exception, though, allows producers in counties with less than 100,000 pounds of quota to transfer quota without any limit within a state. Conferees struck this compromise between the House provision that would have expanded both types of "transfers" to allow almost unlimited leasing and sale of quota across county lines in the same state in the spring (before normal planting season) or in the fall (after planting season), and the much more restrictive authority retained in the Senate bill. Previous law allowed both types of transfers only within the same county (with two exceptions - to an adjoining county in some situations, and in any state with less than 10,000 tons of quota to any other county in that state). In the seven largest peanut producing states, transfers were not permitted across county lines. Another provision places no limits on fall transfers within the same state. Previous law allowed leasing of quota in the fall or after normal planting season only under certain conditions. Peanut Market Promotion and Research USDA announced on July 19, 1999, that eligible peanut growers, voting in a producer referendum, approved implementation of a promotion, research, and consumer information order for peanuts. One of the primary objectives of this largely producer-developed initiative is to increase peanut use over the long term. Once the order becomes effective, funds raised through an assessment on all peanuts that farmers sell will be used to promote peanuts by informing consumers of their nutritional benefits, and to finance additional research that will, among other purposes, help farmers find ways to reduce their production costs. Though this initiative is not a part of the peanut program, the intent is to use the financial resources raised from producers to boost domestic peanut consumption and to find approaches that would enhance the economic viability of the peanut producing sector. Agriculture Secretary Glickman on February 15, 2000, announced the members and alternates of the National Peanut Board, which will decide on and oversee the activities carried out under the order. Current plans calling for the Board to decide by the end of the year which promotional and research activities to fund, using the estimated $10 million expected to be collected from farmers under the 1% assessment imposed on the total value of all farmers' peanuts sold. Attention most recently has focused on USDA's proposal to include a public member on this Board to add diversity to its composition. Growers oppose this move, arguing that USDA should have proposed this in the plan voted on in the grower referendum. Legislation Introduced Since 1996 Farm Act Bills Introduced in 105th Congress Representatives Shays and Lowey on June 11, 1997, and Senator Santorum on November 13, 1997, introduced H.R. 1864 and S. 1535, respectively, to phase out the current peanut program at the end of the 2001 crop year. The House bill is similar to the amendment that Representative Shays offered during 1996 farm bill floor debate in February 1996 that was rejected on a 212-209 vote. Both bills proposed to reduce the current $610 per ton price support level for peanuts marketed for domestic food use (quota peanuts) to $550 for the 1998 crop, $515 in 1999, $480 in 2000, and $445 in 2001. S. 1535 also required USDA to add carryover stocks to projected domestic food use in determining each year's national poundage quota level, taking into account imports, government purchases, and "buyback" activity. Other provisions permitted the unlimited sale, lease, and transfer of quota across county and state lines; the sale of additionals also for seed, to U.S. government agencies, and for domestic food use to offset projected imports; capping the initial disbursement of loan proceeds to producers at 80% in 1998-2001; and revising the process for sharing loan losses. Beginning with the 2002 crop, both bills made available nonrecourse loans at not more than $350 per ton. H.R. 1864 would also authorized loan deficiency payments to be made to producers who choose not to take out nonrecourse loans. With both bills proposing to repeal the current supply management system effective October 1, 2001, there would no longer be any distinction made between quota and additional peanuts in administering all price support operations. Supporters of both bills pointed out that the "Depression-era" program is anti-competitive, and restricts who can grow and sell peanuts to a small number of farmers at the expense of consumers. They argued that these proposals provide for a "fair transition period" for farmers and lenders to adjust to a new market, following which the peanut program will operate like most other commodity programs. Supporters of the peanut program countered that changes made by the 1996 farm bill reduced the quota support level by 10% and eliminated all government costs. They questioned the impetus to debate the program each year and argued that the 1996-enacted provisions should be given an opportunity to work. Another measure (H.R. 1875), introduced by Representative Crane, proposed to permit U.S. firms to import Mexican peanuts into free trade zones (FTZs), to be processed into peanut butter and paste for sale in the U.S. market. Currently, duty-free imports of Mexican peanuts are capped under NAFTA, but there is no limit on the amount of peanut butter produced from Mexican peanuts that can enter. According to an AP wire story, the president of the peanut shelling company (which also operates a peanut butter plant) seeking this change said this proposal would put American companies on equal footing with Mexican peanut butter manufacturers, without forcing them to move to and build new plants in Mexico. Peanut growers countered, saying that the plan would cost farm jobs because Mexican peanuts entering a FTZ would displace American-grown peanuts. Their spokesman pointed out that peanut shellers and manufacturers not located in a proposed FTZ would also be at a disadvantage. House Floor Amendments Debated During 105th Congress In recent years, opponents of the peanut program have turned to the appropriations process to pursue their objectives. In House floor debate on the FY1998 agriculture appropriations measure (H.R. 2160), Representative Neumann on July 24, 1997, offered an amendment that effectively would have required USDA to administer a peanut program for the 1998 crop with a loan rate for quota peanuts not higher than $550 per ton. If enacted, this proposal would have reduced the quota price support level $60 (or almost 10%) from the minimum $610 per ton available under current law. This amendment drew from a provision in H.R. 1864 that called for the same amount of reduction in quota price support. The House rejected this amendment on a vote of 185-242. During floor debate, supporters of the amendment argued that the "quota" features of the program limit the supply of peanuts and thus keep the price of peanuts paid by consumers higher than would be otherwise. Members mentioned that the domestically-supported price is almost twice the world price of peanuts, in part because of the added costs that producers incur in acquiring and/or renting quota. Two members added that USDA's implementation of the 1996 farm bill's program had "created an artificial government-induced shortage" of peanuts -- an example of "Government price fixing" that ignores consumer interests. Others argued that the program benefits an "elite few" -- those who own 68% of the quota nationwide (according to GAO's 1993 report) due to inheritance or purchase but that do not farm peanuts themselves. As a result, they claimed the program supports quota holders at the expense of consumers and taxpayers. The amendment's opponents countered that the 1996 changes ended direct taxpayer support of the peanut program (saving $434 million over 7 years) and made it market oriented. Several mentioned that the government's "contract" made in the 1996 farm bill provided peanut growers with a safety net that should not be violated and should be allowed to work as enacted. It was pointed out that growers have already had to adjust to a 10% reduction in their support price and must live with that level now for 7 years without any adjustment for inflation. Several argued that the proposal represented an effort by large "greedy" food corporations to increase their profits at the expense of small family farmers and rural communities, claiming that consumers would not see cheaper peanut butter and candy bars. It was further noted that even though farmers have already experienced a price cut, manufacturers have not "passed on one penny" of savings to household consumers. During House floor debate on the FY1999 agriculture appropriations measure (H.R. 4101) on July 23, 1998, Representative Neumann again offered an amendment that would have required USDA to administer a peanut program for the 1999 crop with a loan rate for quota peanuts not higher than $550 per ton. In the debate that followed, many of the arguments made last year were again presented. The House rejected this amendment on a 181- 244 vote. Legislative Activity in 106th Congress Bills introduced. Senator Santorum on April 14, 1999, introduced S. 802 (slightly different from S. 1535 offered in the last Congress) to phase out the current peanut program at the end of the 2001 crop year. Representative Shays introduced an identical bill (H.R. 2571) on July 20, 1999. These measures would reduce the currently authorized $610 per ton price support level for peanuts marketed for domestic food use (quota peanuts) to $550 for the 2000 crop and $500 for the 2001 crop. Quotas would be eliminated for the 2002 and subsequent year crops. Starting in 2002, all peanuts produced would be eligible for non-recourse loans at not more than $350 per ton. A new section would amend the National School Lunch Act to require (upon enactment) that peanuts and products purchased by USDA for donation under six nutrition programs be bought at prevailing world market prices, and that such purchases be only of additional (non-quota) peanuts. The bill's supporters argue that the changes proposed would "correct the inequities of the peanut quota system," result in a price support program similar to that available for other crops, and enable USDA to purchase lower-priced peanuts for its nutrition programs. Another measure (H.R. 2598) proposes to end the peanut program, effective October 1, 1999. Peanut growers and product manufacturers met in May 1999 and reportedly agreed to not battle out their differences in Congress. Reflecting this truce, no amendment to alter the peanut program was offered during House and Senate consideration of their respective FY2000 agriculture appropriations bills (H.R. 1906; S. 1233). A similar agreement for 2000 reportedly also was struck between growers and manufacturers. Floor action. The FY2000 agriculture appropriations measure (P.L. 106-78) included as part of a broad farm aid package payments for producers of the 1999 peanut crop as compensation for low commodity prices and continued increases in peanut production costs. Payments were made to producers on produced quota or additional peanuts equal to 5% of the loan rate set for each peanut category in early 2000. A similar provision to provide payments to growers harvesting the 2000 crop is included in the 2000 farm aid package approved by Congress (Section 204(a) of P.L. 106-224). Taxpayers rather than peanut product manufacturers will cover the cost of this proposed income transfer; payments made by the U.S. Treasury to producers would have no impact on the price that peanut shellers and food manufacturers pay for peanuts. P.L. 106-69 (H.R. 2084) P.L. 106-78 (H.R. 1906) Agricultural Risk Protection Act of 1999. Conferees added a farm aid package to crop insurance reform provisions to provide income payments to growers of quota and additional peanuts (Section 204(a)). Conference report (H.Rept. 106-639) filed May 24, 2000. House agreed to report by voice vote May 25. Senate agreed to report 91 - 4 on May 25. Signed into law June 22, 2000. P.L. 106-246 (H.R. 4425) P.L. 106-387 (H.R. 4461) H.R. 2598 (Wu) H.R. 3263 / S. 1669 (Bishop / Cleland)
S. 802 / H.R. 2571 (Santorum /
Shays) CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS U.S. Congress. House. Committee on Ways and Means. Subcommittee on Trade. Hearing on U.S. Efforts to Reduce Barriers to Trade in Agriculture. Testimony by John Frydenlund for the American Peanut Coalition, on the peanut program and related trade issues. Washington, D.C. February 12, 1998. American Peanut Product Manufacturers, Western Peanut Growers Association, and Panhandle Peanut Growers Association. Overdue for Reform: Policy Alternatives For the U.S. Peanut Program. Prepared by Abel, Daft, & Earley. November 1994. 73 p. Auburn University (AL), Department of Agricultural Economics and Rural Sociology. "Southeast Peanut Industry: Economic Impact of Conceivable Policy Changes" and Supplement. Report by N. Rob Martin, Jr., J. Lavaughn Johnson, and H. Arlen Smith, prepared for the Alabama and Florida Peanut Producers Associations and the Georgia Peanut Commission. Summer 1995. 16 p. Public Voice for Food and Health Policy. Peanut Barons: "Quota Lords" in America's Cities, Suburbs and Non-Farm Communities. September 1995. 107 p. University of Georgia. College of Agricultural and Environmental Sciences. Department of Agricultural and Applied Economics. 1996 Farm Bill: Preliminary Implications for Peanuts by Stanley M. Fletcher, W. Donald Shurley, Dale H. Carley, and Changping Chen. FS-96-07. April 1996. 21 p. U.S. Department of Agriculture. Economic Research Service. Commercial Agriculture Division. Peanuts: Background for 1995 Farm Legislation by Scott Sanford and Sam Evans. Agricultural Economic Report No. 710. April 1995. 34 p. ----. Agricultural Outlook. "U.S. Peanut
Consumption Rebounds." December 1998. Pp. 12-15 (available on the Web in printed
format at ----. Foreign Agricultural Service. WTO Listening Sessions.
Statements made at Winterhaven, FL, June 4, 1999, by: Wilbur Gamble, National Peanut
Growers Group (available on the Web at http://www.fas.usda.gov/itp/wto/florida/gamble.html),
and Jeff Crawford (available at http://www.fas.usda.gov/itp/wto/florida/crawford.html).
Statements made at Austin, TX, July 8, 1999, by: Dan Hunter, National Peanut Growers Group
(available at http://ffas.usda.gov/itp/wto/texas/hunter.html),
and Evans Plowden, Jr., American Peanut Shellers Association (available at U.S. General Accounting Office. Peanut Program: Changes Are Needed to Make the Program Responsive to Market Forces. Report to Honorable Charles E. Schumer, House of Representatives. GAO/RCED-93-18. February 1993. 81 p. ----. Commodity Programs: Impact of Support Provisions on Selected Commodity Prices. Letter Report, GAO/RCED-97-45. February 21, 1997. Pp. 12-15, 45-49 address the peanut program (available on the Web in printed report format at also available, but without charts, at http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?IPaddress=162.140.64.21&filename=rc97045.txt&a mp;directory=/diskb/wais/data/gao. Return to CONTENTS section of this
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