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Changes needed in USDA's: Administration of peanut program

Each segment of the U.S. peanut industry — growers, shellers and manufacturers — all supported the peanut title of the 2002 farm bill, and probably would support the continuation of the program in a new farm bill. But changes first would have to be made in the USDA's administration of the legislation.

That was the message delivered by Alabama peanut producer Mark Kaiser when he testified recently before the U.S. House of Representatives Committee on Agriculture.

Kaiser, who is a board member of the Alabama Peanut Producers Association, grows about 300 acres of peanuts near Alabama's Gulf Coast, in Baldwin County.

He began growing peanuts in 1998, before the new program was enacted, but he believes it generally has been good for growers. “In our area of Alabama, where there has been a lot of expansion of peanut acreage, the program has made it easier to produce peanuts,” says Kaiser.

Despite lower-than-normal average yields across most of Alabama this past season, Kaiser says he had a fairly good year on his farm, making a decent crop of peanuts. “We had some good, timely rainfall. But other parts of Baldwin County were not so lucky, with growers being hurt this year by drought conditions. Our peanuts are not irrigated, so every year is a challenge,” he says.

Kaiser says the experience of testifying before Congress was an interesting one, and he's hopeful at this point that new farm legislation will be good for peanut producers and for the entire industry. The changes made in the last farm bill allowed the peanut industry to move into the future with a program designed to make U.S. producers competitive in both the domestic and export marketplaces, he says.

In fact, according to the University of Georgia's National Center for Peanut Competitiveness, since 2002, U.S. total peanut domestic consumption has increased by 16.5 percent.

Benefits marketing

Kaiser told the House Committee that the new peanut program has encouraged peanut product manufacturers to develop new products and spend more money on marketing these products.

Despite the fact that NAFTA and the Uruguay Round of GATT trade agreements have allowed peanut imports to increase significantly — reaching a high of 71,782 metric tons in 2001 — the new peanut program has provided U.S. producers with the ability to compete with imports. The 2005 peanut import level was just 12,196 metric tons, which is an 83 percent drop in imports.

And, unlike the old quota program, the new peanut program has also allowed growers to more readily enter peanut production, especially in non-traditional areas, such as the Gulf Coast where Kaiser farms. In Alabama alone, peanut production has expanded from 15 counties in 2002 to 32 counties in 2005, and Alabama is now the second ranking peanut-producing state in the United States.

Georgia also has expanded production to counties that traditionally have been limited in the number of commodity options for producers. The 2005 Georgia peanut crop was valued at approximately $370 million, providing 50,000 jobs to the state's economy. In addition, South Carolina and Mississippi have now become important peanut states.

It's the USDA's administration of the peanut program that has been lacking, says Kaiser. “While the domestic marketplace has seen a healthy increase in demand from consumers and production growth for producers, this has not been the case for the peanut export market,” he says.

The USDA has continued to set the loan repayment rate for peanuts too high, says Kaiser. And despite language to the contrary in the 2002 farm bill, the department has relied too much on data unrelated to the price other export nations are receiving for peanuts in the world marketplace, he adds.

“U.S. peanut producers have lost a significant portion of their export market not withstanding the changes invoked by the 2002 farm bill,” he says. “Our present export situation is directly related to the high loan repayment rate set by USDA.

The 2002 farm bill directed the USDA secretary to establish a loan repayment rate that will:

  • Minimize potential loan forfeitures.

  • Minimize the accumulation of stocks of peanuts by the federal government.

  • Minimize the cost by the federal government in storing peanuts.

  • Allow peanuts produced in the United States to be marketed freely and competitively, both domestically and internationally.

It is this last point that is most problematic, said Kaiser when he represented the Southern Peanut Farmers Federation during the recent congressional hearing. The federation, which represents more than 80 percent of the peanuts grown in the United States, believes the USDA is not sufficiently considering the competition in the world marketplace. This lack of response to competition from other origins has critically wounded U.S. export programs.

Peanut producers have met with USDA Farm Service Agency economists, discussing several options to better address this issue, says Kaiser. The following options were discussed for achieving a more accurate posted price:

  • USDA should use the International Trade Commission methodology to convert shelled stock prices to farmers stock. This has been accepted as a suitable method within the U.S. industry and internationally.

  • USDA should ask the Foreign Agricultural Service to collect farmer stock information from U.S. agricultural attaches in peanut-exporting countries such as India, China and Argentina.

  • Another option may be a percentage value difference of shelled goods from the United States versus other peanut origins. Domestic farmers stock prices could be factored to determine the value of other origin farmer stock and those values included in the USDA posted price formula.

The Southern Peanut Farmers Federation, says Kaiser, is scheduling a series of producer hearings to discuss the various components of the peanut program and its effectiveness for the 2006 crop.

“At present, we support the continuation of the structure of the current program but will seek to update specific provisions. The current program should be considered as the basis for the next program. When the 2002 farm bill was drafted, peanut producers did not envision record-high energy prices that impact our major crop inputs including fuel, fertilizer and chemicals.

“The 2006 peanut crop has felt the full impact of these increased costs. It is important that the next farm bill not rest on the backs of declining farm equity. In Alabama, we saw more than a 26 percent reduction in peanut plantings for the 2006 crop year. High energy costs and weak contract offers are the primary variables for less acreage. Weak contract offers are a direct result of the loan repayment rate being set too high. With a declining export market, peanuts are not moving out of the loan quickly enough, resulting in a buyers' market.”

Storage, handling fees

Storage and handling fees provided in the 2002 farm bill are eliminated for the 2007 crop year, and producers consider this an integral part of the peanut program, says Kaiser. Without these fees, the marketing loan will be reduced, for producers, in excess of $50 per ton.

“With a 26 percent reduction in Alabama production in the 2006 crop year, peanut plantings could fall below pre-2002 levels in the 2007 crop year if these fees are not restored. If these fees are not included in the 2007 farm bill, these costs will be passed on to the peanut producer. The $355 per ton marketing loan rate in the 2002 farm bill will now be reduced to an approximately $300 per ton marketing loan rate. Producers in the Southeast will not plant peanuts at this level,” he says.

Kaiser says peanut producers in the Southeast also are very concerned about the revival of the World Trade Organization negotiations. “The federation has met with the Office of the U.S. Trade Representative on several occasions but they do not seem to understand that the U.S. peanut producer problem is not closed foreign markets but a USDA loan repayment rate set far too high, assuring that potential foreign buyers find U.S. peanuts cost prohibitive.”

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