Taking the Fix Out of Farm Subsidies

0 Comments | Insight on the News, August 13, 2001 | by Hans S. Nichols

With an eye on revising the Freedom to Farm Act, lawmakers want to end federal subsidies for peanut and sugarcane growers. But they wig face stiff opposition from lobbyists.

A peanut butter and jelly sandwich costs all Americans about the same. But according to consumer groups and concerned congressmen, this luncheon staple costs too much. That's because peanut butter and jelly are squeezed by a federal agricultural policy that sweetens the sandwich for producers at the expense of consumers. Peanuts are subsidized and sold in the United States at nearly twice the international price; the sugar in the jelly cost two to four times the world market price. Even the glass of milk to wash it down costs more than it should, say agricultural-policy analysts, because of government interference in the marketplace.

"The crazy quilt of our agriculture program harkens back to a time when we had 6 million farms and one-fourth of our population living on them," says Rep. Earl Blumenauer, D-Ore. Now, with less than 2 percent of Americans living on the family homestead and fewer than 2 million farms, Blumenauer argues, Congress should "totally rethink" U.S. agricultural policy.

Given that the federal government funded more than one-half of the direct payments to farmers last year, taxpayers are hit twice when they buy products that contain staples such as sugar and peanuts at inflated prices. Artur Jaeger of the Consumer Federation of America says the sugar and peanut programs hurt consumers most. As Congress gears up to recalibrate the 1996 Freedom to Farm Act, congressmen on both sides of the aisle want "to have one more shot" at retiring these programs, says Sen. Richard Lugar of Indiana, the ranking Republican on me Senate Agriculture Committee. However, they'll face formidable opponents in sugar and peanut lobbies and their united, if sometimes unrelated, congressional allies.

Consider the case of Doyle Fincher, a peanut grower in West Texas who farmed about 300 acres last year. When it came time to sell his product, he unloaded one-fourth of his crop at $610 per ton, the price the government mandates for domestic sales. The rest of his harvest, however, was destined for the world market, where peanuts fetched about $350 per ton in 2000. That's because he owns a peanut quota for some of his crop but not all of it. Like many other West Texas peanut farmers, Pincher argues that U.S. peanut policy needs to be leveled.

"Peanuts are the only commodity that uses quotas to restrict production," says Rep. Christopher Shays, R-Conn. "As a result, consumers are forced to pay between $300 million to $500 million annually in the form of higher costs for peanut products," he continues, relying on General Accounting Office (GAO) statistics. More than two-thirds of the quota owners are in the business of quota leasing -- that is, they have become mere brokers who lease their quota to actual growers, according to Rich Pasco of the American Peanut Coalition. Since the leases were worth about $240 a ton last year, that amounts to considerable "corporate welfare," says Armond Morris of the Georgia Peanut Commission. The federal fine for unauthorized selling of peanuts in the domestic market is 140 percent of the government-mandated $610 per ton. As Morris quips, "You'd be nuts to try it."

Of course, some peanut farmers -- mostly in Georgia and usually in possession of sufficient quotas -- are not too enthusiastic about all this talk of reform. The quota-holders blame free-trade arrangements such as the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA) for highlighting the differences between the prices of domestic and international peanuts. Now that the figures are circulating, the peanut-quota lobby is starting to get anxious. "We got a problem here and we recognize that," Emory Murphy, a spokesman for the Georgia Peanut Coalition, tells Insight. That's because "we have a market that's higher than the world market," continues Murphy. "But it's an economic fact that they [Third-World producers] have a comparative advantage." He suggests Congress needs to establish a new program to ensure peanut farmers are guaranteed a certain price for their crops. An unvarnished advocate of federal crop supports and keeping out imports, Murphy claims that "if our society is an economic success, then it has been done on the backs of regulation and regulated economies."

While Murphy concedes that the peanut quotas probably will be altered -- or even abolished -- in this year's farm bill, he wants to make sure Georgia peanut growers are protected from the winds of globalization. A competitive peanut market might work "in your think-tank utopian world," he tells Insight, "but in Third-World countries they don't have the EPA [Environmental Protection Agency] or the minimum wage or nothin' like that." To protect the peanut farmer's way of life, Congress needs either to retain the current quota system (and prevent imports from skewing the market) or establish a market loan program that guarantees a set price, contends Murphy.