The Wall Street Journal
Monday, July 29, 1985
We Shell Out a Peck for This Nutty Program
By James Bovard

Amazingly, consumers may soon get a break on the 1985 farm
bill. When the Senate considers the agricultural bill this
week, Sen. Richard Lugar (R., Ind.) intends to offer an
amendment to terminate the current peanut program. If Sen.
Lugar's amendment passes, the farm lobby's phalanx will be
broken, and other farm programs might be defeated.

Sen. Lugar is targeting perhaps the most obnoxious farm
program around. It slashes productivity, boosts costs,
inflates prices, and sacrifices some farmers to other
farmers. If consumers are ever to make a stand in the farm
bill fight, the peanut program is a good place to begin.

Farmers cannot grow peanuts for their fellow citizens
without a federal license. Thirty-six years ago, to reduce
budget outlays under a generous price-support program,
Congress closed off the peanut industry, distributing
licenses to grow peanuts to existing farmers and prohibiting
anyone else from entering the business. Feudalism still
reigns, and the farmer who violates the peanut proscription
is subject to heavy fines and ensnarement in the Agriculture
Department bureaucracy.

The peanut program is particularly perverse because
Congress has piled on one restriction after another over the
years. In 1977, Congress, in an attempt to reduce budget
outlays caused by peanut surpluses, began restricting the
amount of peanuts to be sold in the U.S. The domestic peanut
supply has been nearly halved since 1975. This has created an
artificial shortage and shifted the cost of the peanut
program from the government to consumers.

The peanut program is replete with the usual ag policy
flim-flams. By law, peanut support prices must be based on
cost of production (COP). The Agriculture Department gets
this "fair price" by averaging costs of the most productive
and least competent farmers. The implicit premise is that no
matter how badly a farmer bungles his business, he is
entitled to be reimbursed (in part) for his efforts.

In 1980, peanuts were hit by drought, which sharply
reduced yields and thereby temporarily boosted per-pound
production costs. Congress based its 1981 COP calculation on
the 1980 drought year -- which conveniently justified a 21%
hike in price supports, from $440 to $555 a ton.

The COP figure is also a joke because the peanut program
itself adds as much as 50% to a farmer's cost of production.
Approximately half of all growers rent licenses to grow
(called quota allotments) from outsiders, paying a tribute of
up to $120 a ton for the right to grow goobers. The cost of
renting allotments is added to the COP formula, which results
in higher price supports, which drives up the rents for the
privilege to grow peanuts, which results in higher COP . . .
ad infinitum.

The quota system is also responsible for exhausting the
soil and driving down peanut yields in many places. Quota
allotments cannot be rented outside of the county they were
originally allocated to in 1949. Peanut yields in parts of
Texas have long been declining. While many acres with yields
below 1,000 pounds have quotas, over a million acres with
potential yields of 2,500 pounds or more are banned from
producing for the domestic market.

The restrictions on renting quotas outside the original
county have turned a program to protect peanut farmers into a
program to protect local tax bases.

The one good thing about the peanut program is also the
element that proves that the whole shebang is unnecessary. As
of 1981, any farmer could grow peanuts for export (called
Additional Peanuts) -- but with no real price guarantees from
Uncle Sam. Peanut export sales are now far above mid-1970s
levels. Georgia farmers are growing peanuts for export at
$325 a ton -- at the same time that Congress insists on
paying farmers $555 a ton to produce for domestic
consumption. Foreigners can buy U.S. peanuts much more
cheaply than Americans can.

Though it is good that more farmers have finally been
allowed to grow peanuts, the two-tier system sacrifices the
newcomers to the old guard. By strictly limiting the domestic
quota, the Agriculture Department reduces U.S. peanut
consumption and thereby dumps a few hundred million tons of
extra peanuts on the world market. This depresses prices
received by American farmers growing peanuts for export.

The two-tier system is absurd. Peanut butter made from
quota peanuts can be exported to Canada and Mexico, but
peanut butter made from additional peanuts cannot. (The
Agriculture Department fears the cheaper peanut butter made
from additional peanuts could be re-imported.) The additional
peanuts themselves can be exported to Canada, and American
peanut butter manufacturers are paranoid that Canadian
companies might be using cheap peanuts to make peanut butter
and then sending it back across the border. According to
congressional testimony, peanut-exporting companies are
required to closely supervise their peanuts until they cross
the border, which adds about $20 a ton to handling costs.

Congress gives peanut growers a far better deal than other
farmers receive. An American Peanut Product Manufacturers
Institute study estimated that peanut price supports "have
been set 80% above USDA-defined production costs . . . when
land costs are excluded, and 60% above when the inflated
costs of land are included." The Institute differs with the
Agriculture Department's method of calculating peanut
production costs. APPMI estimates that net returns to peanut
farmers are four to 10 times higher than returns from
competing crops.

Consumers are, as usual, the victims of this farm program.
The Agriculture Department estimates that the peanut program
boosts peanut butter prices 13.5%. Public Voice for Food and
Health Policy, a Washington consumer group, estimates that
the peanut program mulcts consumers for $250 million to $300
million a year.

There is hope for reform. The peanut program was almost
knocked off in 1981. That year, Rep. Stan Lundine (D., N.Y.)
proposed terminating the program, and the House approved
250-159. Sen. Lugar proposed phasing it out, and the Senate
initially approved, 56-42. (The Senate later reversed itself,
51-47, and Rep. Lundine's bill vanished in conference.) Now
both Rep. Lundine and Sen. Lugar will try again. APPMI, other
peanut-product manufacturers, and Public Voice are vigorously
lobbying to persuade Congress to end the goober madness. The
peanut program's opposition is stronger and better organized
this year and appears to have a good chance of success. And
if the peanut program can be knocked down, a domino effect
could occur with the rapid demise of the honey, wool and
sugar programs.

The peanut program artfully combines the worst traits of
feudalism and central economic planning. Congress has a
chance to end this program that makes a mockery of
efficiency, fairness and property rights.


Mr. Bovard writes frequently on farm and other U.S.