The evolution of the federal government’s peanut program – from a supply-control program that restricted production through quota poundage allotments and a two-tiered pricing system to a more market-oriented program – has been a game changer as far as exports are concerned.

“So the big question is how can we increase exports?  Because they are our future,” says Don Koehler, executive director of the Georgia Peanut Commission. “Exports represent the growth that we’ll have in the market, because we have a mature market in the United States.”

Peanut Futures: Marketing for Profitability, an exclusive editorial series sponsored by DuPont Crop Protection, examines recent developments in U.S. and international peanut markets. This is the third story in the series.

Koehler says that “old program” mentality too often destroys opportunity in the U.S. peanut industry, referring to the peanut quota program that was phased out with the 2002 Farm Bill. “As an industry, we’ve still got a lot of that old program mentality, but we’re seeing less and less of it, and that’s good for us,” he says.

The peanut quota allotment program had been in place since the 1930s. Quota assigned to farmers was limited to domestic use only while additional were used for export and crush. The program began as an acreage allotment and then changed to poundage allotments in the late 1970s. Quota was based on historical production, and there was no movement of acreage across states and limited movement across county lines.

The quota program, says Koehler, managed supplies to levels that were tighter than they needed to be.

“There was no opportunity for growth in the old peanut program. We knew what consumption was, and that’s what the quota was – that’s just how it worked. The cost of production escalator actually rewarded inefficiency, because if the cost of production increased, then the support price increased.

“Over time, the quota itself had a value that was greater than the peanuts. There were folks who were renting quota and were not growing peanuts, and they did well with that.”

Koehler says he admits that he was a champion for the peanut program because it seemed to work and it paid a lot of mortgages on the farm. But for any cause, he says, there has to be some effect.

“Quota ended up being a big part of the costs for farmers. We had people paying up to $200-plus for quota just to be able to participate in the program, and the escalator allowed farmers to be a little lax on managing their costs. The domestic market was ‘the’ market – no one was really concerned much about the export market. Exports were an after-thought for additional peanuts (peanuts sold in excess of the quota).”

Growth opportunities in exports

The U.S. domestic peanut market is more mature than the world market, says Koehler, so opportunities for growth in the domestic market are far more limited than in the export market.

“We need to get away from this old program mentality and look more at our opportunities in the world market. If the domestic manufacturers don’t get peanuts because someone in Europe or China bought them, it shouldn’t matter as long as we sell peanuts – it’s all one market, and we should get away from this old program mentality of there being an export market and a domestic market.”

Population growth is going to occur outside the United States, he says. “We’re pretty good about controlling our population, but the population growth in the world will happen outside the U.S., and if we don’t feed that demand, I promise you that someone else will. Having a record-large crop in 2012 should have taught us something about the value of exports. We have to be ready to participate in that market.”

The export market, says Koehler, also will help us to increase interest in the domestic market.

“If a domestic manufacturer knows that someone in another country is interested in our peanuts, they might decide they need to buy their peanuts sooner and cover their bases earlier on. Wouldn’t it be great if we could sell everything at a reasonable price at harvest?

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“If we fail to increase demand, then we’ve lost an opportunity. The opportunity is there, and we saw it with China. When China stepped away from the market, or when the Chinese government helped to push them away from the market, Canada, Mexico and Europe picked up the slack there because there was interest and a need for what we had.”

There’s no such thing as too many peanuts, there’s just too few markets, says Koehler.

“This is why I say that 2012 was a good lesson for us, and we need to learn that lesson. We need a stable supply so if manufactures decide they’re going to put a new product on the market, then they’ll have the peanuts to do it.”

Research remains vital to growing the peanut market, says Koehler. “We need economic data so that whenever we do things like trying to eliminate trade tariffs, we’ll have a basis for it. Production research also must continue to address making us the lowest unit-cost producers in the world. I think we can get there. We’ve got the finest infrastructures, we’ve got the finest farmers, and substantial investments are being made. So I believe we can be the lowest-cost producers, but we’ve got to be concerned about unit efficiency, and research plays a large role in helping us get to that point.”

Economic research also is critical in helping peanut farmers make decisions, he says. A lot of times, farmers will do whatever they’ve seen their neighbors do down the road. We just can’t afford to do that. Farming decisions have to be based upon the numbers.

“We’ve got to have the most value worldwide, and we need to reward growers for quality. Farmers need to understand their impact on quality. Value sells peanuts, and U.S. growers need to offer the best value possible.”