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Relatively small, well-funded interest groups are often successful in obtaining funds from federal legislators, either directly through straightforward subsidies or indirectly through regulatory constraints and mandates. Often, the benefits are concentrated among a relatively small number of wealthy individuals or institutions in the group. The peanut lobby is an ideal example of how such interest groups can successfully extract funds from the federal government.
The peanut industry is relatively small, currently consisting of about 6,000 generally affluent and financially secure farm businesses, and geographically concentrated, operating in a relatively small number of counties in a small number of states. The peanut lobby’s exceptional effectiveness in obtaining taxpayer funds is illustrated by the fact that after passage of the 2014 Farm Bill in early 2014, between 2014 and 2016 on average annually peanut producers received over $340 an acre in taxpayer subsidies. Those payments amounted to almost half the total revenues farm businesses received from all sources of funds, almost matching their revenues from the sale of peanuts in the marketplace. Further, farm businesses raising peanuts enjoy exceptionally generous treatment in terms of limits on the subsidy payments they can receive. No other group of farm businesses, producing commodities such as rice, corn, and wheat, comes close to receiving such levels of government subsidies for a specific crop.
How, then, should the peanut program be reformed in the next farm bill? If no general public purpose is served by the subsidies, as seems to be the case, then the answer is clear. Terminate all peanut subsidy programs and let farm businesses in the peanut industry operate like most other smaller and midsize companies. At a minimum, the rationale for allowing peanut farm businesses separate payment limits and extremely generous direct subsidies is elusive. Thus, such special entitlements should be eliminated. The current peanut program represents an extreme among extremes as agricultural subsidies go. Therefore, major changes are needed, if not to eliminate such an unmerited waste of scarce taxpayer resources, then at least to bring levels of support into line with what other (generously supported) commodities currently enjoy.
Relatively small, well-funded interest groups are often successful in obtaining funds from federal legislators, either directly through straightforward subsidies or indirectly through regulatory constraints and mandates. Often, the benefits are concentrated among a relatively small number of wealthy individuals or institutions in the group, although such programs are typically rationalized through claims that they target a few financially vulnerable entities. The accompanying rhetoric often uses litanies such as “we need to save the family farm” or “farmers who put food on your table are essential to survival!” Interest groups accomplish their objectives by providing legislators with support through votes and campaign funds.1 Their policy objectives are typically to obtain new programs and regulations that benefit their members and ensure the continuation and, if feasible, expansion of existing programs. Moreover, when an interest group’s current federal program disadvantages other influential lobbies, the groups frequently work together to design new or modified policies that serve both groups, typically at everybody else’s expense.2
Once upon a time, the programs serving an interest group may have been put in place to address broad public policy objectives such as poverty alleviation in rural communities and low farm incomes, but they have long since ceased to serve those purposes. However, ending such programs is extremely difficult,3 not least because the revenues the programs generate are used to fund further lobbying by the interest groups that benefit from them.4 Today’s farm-based peanut industry provides an unambiguous example of an interest group that falls into this category and that has been remarkably successful in obtaining and maintaining benefits that have little or no public policy justification.
Beginning with the Agricultural Adjustment Act of 1933, farm businesses growing peanuts have benefited from federal policies that increase their incomes by raising the prices US consumers pay for peanuts. Initially, federal support for peanut production was provided through paid land retirement programs, then price supports, and then, until 2002, via a quota system that raised the price of peanuts used in consumer-oriented products such as peanut butter. Since 2002, farm businesses producing peanuts have sustained highly successful direct raids on the public purse in which legislators with agricultural constituencies have been complicit. Times and industries change, however, as do industry needs that turn into wants for federal programs that generate direct or indirect subsidies. This fact is as true for peanuts as it is for most other major subsectors of the US agricultural production industry.5
Today, peanuts are produced in different ways by different commercial entities than they were between 1933 and 1949. Insight into the dramatic nature of that change can be illustrated by comparing United States Department of Agriculture (USDA) Agricultural Census data for 1949 and 2012, shown in Table 1. In 1949, the nation’s peanut crop was raised by over 183,000 farms that planted, on average, 12.1 acres of peanuts per farm, with average yields of 808 pounds per acre and average per-farm peanut production of 4.9 tons. These farms also raised other crops but were mostly small-scale enterprises, many of which used the work of every adult family member on a full-time or near to full-time basis, at a time when farm household incomes were generally below the average US household income.
In 2012, 6,561 farm businesses produced the nation’s peanut crop, planting an average of 247 acres per farm with average yields of 4,211 pounds per acre6 and average per-farm peanut production of 525 tons. Most of these farms also produced other agricultural commodities and were sophisticated commercial businesses that used advanced technologies embedded in complex plant varieties, extensive machinery and equipment, and much less labor. Thus, in 2012, on average each peanut farm business’ production was over 100 times larger than the output of the average peanut farm in 1949. Clearly, the businesses producing peanuts in 2012 were nothing like their 1949 counterparts. The business people who own the assets and manage these farm businesses also tend to enjoy household incomes well above those of the average US household in 2012.
The federal programs—which were introduced in 1933, adjusted in 1937, modified in 1941, and expanded in 1948 and again in 1949 with the goal of raising peanut farmers’ incomes7—could perhaps have been justified as poverty alleviation initiatives at those times. Sixty-five years later, in the context of the 2014 Farm Bill, the peanut lobby’s best justification for federal subsidy programs was perhaps their purely normative “entitlement” claim that because peanut operations had benefited from substantial federal subsidies for so long, it would be unfair to take those subsidies from them. In 2002, the peanut lobby made similar “fairness” arguments to validate a $1.3 billion congressional gift of a five-year-long series of substantial program buyout payments to holders of peanut production quotas that had provided high prices for peanuts marketed to US consumers since 1978.
In addition, and on much the same basis, in 2002 farms continuing to produce peanuts were given access to a highly lucrative set of direct subsidy programs, which were already available to growers of “program” commodities such as corn and wheat. Those programs included the now-discontinued Direct Payments Program, through which producers simply received a check in the mail because peanuts had once been grown on the land they owned or farmed. In 2002, peanut growers, far fewer in numbers than quota holders (many of whom had long since divorced themselves from production agriculture), were also given a quasi–price support Countercyclical Payments Program and the long-standing loan rate program (another farm support program dating back to the early 1940s).
In effect, through a standard lobbying process, in the context of the 2002 Farm Bill, peanut producers used their political influence to obtain funds directly from taxpayers instead of consumers using standard arguments about the dire financial straits of the agriculture sector to cover what really amounted to naked rent-seeking. When their main sources of federal largesse, the Direct Payments and Countercyclical Payments programs, were scheduled for cancellation in the 2014 Farm Bill, peanut growers lobbied successfully for favorable treatment with respect to the new Price Loss Coverage (PLC) program. They ended up with a PLC reference price of $535 per ton, effectively a guaranteed minimum price that applied not to actual production but rather to their historical production reflected in program “base.”8 As shown in Figure 1, the PLC peanut target price substantially exceeded the market prices growers had received all but two of the previous nine years,9 or any market price they were likely to receive in the foreseeable future. The PLC program, as structured in 2014, was therefore set up to ensure peanut growers (or individuals with peanut base, whether actually producing peanuts or not) would receive over $300 per acre in taxpayer funds for the duration of the 2014 Farm Bill. To put these subsidies in perspective, $300 per acre on an average of about 250 acres is $75,000 in taxpayer payments to the average-sized peanut operation, over three times the US poverty line wage for a family of three or four, and almost 50 percent higher than the median household income. These subsidies are being paid to business owners with an average net worth that exceeds $1.5 million.
Such is the current state of play in the US federal peanut policy world—a lucrative PLC program, accompanied by a new heavily subsidized crop revenue insurance program also mandated by the 2014 Farm Bill. To hear some lobbyists talk, one might end up thinking that crop insurance initiatives for most commodities are needed because, unlike Main Street business owners who are typically poorer and much more highly leveraged, farm businesses owners are too bereft of financial resources and management skills to handle their own risks. An alternative hypothesis is that, like President Jimmy Carter, most peanut growers are well educated and well financed, and they simply wanted their “fair share” of the highly lucrative $8.5 billion a year of taxpayer-funded federal crop insurance subsidy pie, including a revenue insurance program expected to be more lucrative than a yield insurance program already available to them.
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