Published on 05/04/01

Georgia Farmers Eye Peanut Program Change

A federal program that anchors a major part of Georgia's farm economy is currently under fire as the United States prepares its future farm policy to comply with freer trade in the world.

Since the 1930s, the U.S. government has run a peanut program that controls domestic supply and demand through a quota and price support system.

In the past, this program had little effect on world trade, and world trade had little effect on it, said Nathan Smith, an economist with the University of Georgia Extension Service.

Going to Change

"But the peanut program doesn't fit with the current (U.S.) trade policies," Smith said. "The program is going to change. But by how much? That's the question right now."

Any changes to the current peanut program will affect Georgia's economy, Smith said. Peanuts contribute about $400 million a year to Georgia's farm economy and about $800 million in economic activity for the state. Georgia grows about 40 percent of U.S. peanuts.

It will be another year and half before the next farm bill is implemented. But the House Agricultural Committee is now preparing the part that will affect the peanut program, Smith said. They hope to have the basis ironed out by June.

How will a domestic peanut program fit into a farm bill that encourages more open world trade?

Competing with The World

Unchecked free trade would hurt the domestic peanut industry, Smith said. High tariffs keep the U.S. peanut market from being flooded by foreign peanuts. But these tariffs will be lowered in the future and allow more peanuts to be imported.

The Free Trade Areas of America recently met in Canada to discuss further expansion of free trade for all of the Western Hemisphere. This agreement includes open trade with peanut-producing countries such as Argentina and Nicaragua.

Farmers in these countries have much lower input costs than U.S. growers have. They can sell their peanuts cheap. "And those countries would have access to our market," Smith said. Peanut farming in Georgia would be cut drastically.

Trade Distorter

The World Trade Organization believes government subsidies distort free world trade, Smith said.

WTO considers a domestic program a "trade distorter" if it supports the number of acres of a commodity planted or the amount or price of the crop.

Even though the current peanut program is considered a no-net-cost program, the WTO says it's a barrier against open world trade.

The peanut program costs the United States in trade negotiations. "The WTO says the current program distorts world trade by $347 million," Smith said.

Under WTO rules, the United States has agreed to limit its spending on agricultural trade-distorting programs to $19.1 billion. This is referred to as "amber box" spending, which includes the current peanut program, Smith said.

In WTO terminology, different types of spending go into different color boxes. Spending that distorts trade goes into the amber box. Spending that does not distort trade goes into a green box.

Peanut Proposals

The U.S. peanut industry is considering two major proposals.

One proposes to stimulate the purchase of U.S. peanuts in the world market. Peanuts would receive a price support similar to the current program, Smith said. Processors would buy U.S. peanuts at the world price, and the government would make up the difference between the domestic price and the world price.

"This program would modify the current program but not move it out of the amber box," Smith said.

A second program would be a marketing loan option. Other major U.S. crops such as corn and cotton are under this type of program. The government would still make payments to compensate for world prices. But the program would not be tied to production control and would fit under WTO trade rules, Smith said.

Whatever the outcome, he said, Georgia peanut farmers can expect changes in the federal program that has governed their industry for a long time.

Brad Haire is the former news editor with the University of Georgia College of Agricultural and Environmental Sciences.