Peanut Program: Potential Effects of Proposed Farm Bill on Producers, Consumers, Government, and Peanut Imports and Exports

The current federal peanut program, administered by the U.S. Department of Agriculture, is designed to support producers' incomes while ensuring an ample supply of domestically produced peanuts. To achieve these goals, the program controls the domestic supply of peanuts and guarantees producers a minimum price for their crops. This price substantially exceeds the price for peanuts in world markets. The program uses two mechanisms to control the domestic supply of peanuts--a national quota on the number of pounds that can be sold for edible consumption domestically and import restrictions. Only producers holding quota, either through ownership or rental of farmland, may sell their peanuts domestically as "quota" peanuts. Generally, all other production, referred to as "additional" peanuts, must be exported or crushed for oil or meal. The program protects producers' incomes through a two-tiered system that sets minimum support prices for quota and for additional peanuts. GAO and others have criticized the program because it provides substantial benefits to a relatively small number of producers who hold most of the quota, generally restricts nonquota holders from producing peanuts for the U.S. domestic market, and increases consumers' cost. In July 2001, the House Agriculture Committee approved the 2002 Farm Bill. If implemented, this bill would eliminate the national poundage quota and replace the current two-tiered price system with several new support mechanisms for peanut quota owners and producers. These changes would essentially bring the peanut program in line with other commodity programs.