Peanut Program:

Changes Are Needed to Make the Program Responsive to Market Forces

RCED-93-18: Published: Feb 8, 1993. Publicly Released: Mar 5, 1993.

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Pursuant to a congressional request, GAO reviewed the Department of Agriculture's (USDA) peanut program.

GAO found that: (1) the number of peanut farms with quota has decreased as the average farm size has increased; (2) peanut farms now produce yields nearly five times greater than yields produced in 1934; (3) 22 percent of U.S. peanut producers control over 80 percent of the quota; (4) quota peanut producers have had an opportunity to receive a 51-percent minimum net return after costs, since the yearly quota support price has been well above production costs; (5) the peanut program provides disaster transfer payments to protect quota producers from losses in peanut quality caused by adverse conditions; (6) the peanut program supports farmers with assigned quota who elect not to grow peanuts, since these farmers sell or rent their quota to others; (7) the peanut program adds $314 million to $513 million each year to consumers' costs of buying peanuts; (8) USDA incurred average annual costs of $34.4 million from 1986 through 1990 supporting the peanut program; (9) government agencies that are required to purchase peanuts and peanut products for various food assistance programs at the high quota support price continually pay more for peanuts than they would without the program; and (10) the peanut program may affect the international market by increasing the volume of peanuts available for export.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: The 104th Congress did not directly address this recommendation. However, the 1996 farm bill reduced the quota price support to $610 per ton and required that the program be operated at no net cost to the government.

    Matter: Congress should amend the peanut legislation to allow the quota support price to decrease as well as increase each year as production costs decrease and increase.

  2. Status: Closed - Implemented

    Comments: In the 1996 farm bill, the 104th Congress permitted the sale, lease, and transfer of quotas across county lines within a state up to an annual specified amount.

    Matter: Congress should reexamine the method of assigning quota in view of the fact that a large volume of quota is owned by persons who do not grow peanuts with that quota. If the poundage quota system is continued, Congress should allow quota to be transferred to producers outside the boundaries of counties where quota is currently assigned in order to promote competition among the more efficient peanut producers.

  3. Status: Closed - Implemented

    Comments: The 1996 farm bill lowered the quota support price to $610 per ton. However, this price is still higher than the cost of producing peanuts and the world market price.

    Matter: Congress should reduce the annual quota support price so that, over time, the price will more closely parallel the cost of producing peanuts and the world market price. Such action would reduce the net returns after costs that quota peanut producers now receive, as well as reduce costs to U.S. consumers and the government.

  4. Status: Closed - Not Implemented

    Comments: The 104th Congress took a number of steps in the Federal Agriculture Improvement and Reform Act of 1996 to make the peanut program more responsive to market forces. Given the nature of the changes made to the program, this recommendation is no longer applicable.

    Matter: In determining the length of any transition period, Congress, with assistance from USDA, should consider such factors as: (1) producers' recent expectations concerning the life of the peanut program; and (2) the useful life of capital investments in equipment specifically purchased for peanut production.

  5. Status: Closed - Implemented

    Comments: The 104th Congress took a number of steps in the Federal Agriculture Improvement and Reform Act of 1996 to make the peanut program more responsive to market forces.

    Matter: In view of the many changes that have occurred in agriculture since the peanut program was created, including globalization of agricultural markets, a reduction in the number of peanut producers receiving most of the program benefits, and increased costs to consumers, Congress should restructure the peanut program to make it more responsive to market forces. In restructuring the program, Congress should provide for a period of transition to allow producers time to make adjustments in their investment decisions.

  6. Status: Closed - Not Implemented

    Comments: The 104th Congress did not address this issue in the 1996 farm bill. It appears that Congress is not interested in addressing this issue at the time.

    Matter: Congress should permit government agencies such as USDA, which procures peanuts and peanut products for various food assistance programs, to purchase domestic peanuts at the world market price rather than at the higher quota support price.

 

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