Auburn, March 19, 2002---Southern peanut farmers have weathered their share of late-summer and early autumn storms, but nothing has prepared them for the whirlwind of changes portended in the new Farm Bill.

Since the 1970's, Southern peanut production has been regulated through a quota system that tightly manages peanut acreage and an import system that limits foreign competition.

By ensuring high commodity prices year after year, it is an approach that has suited producers just fine. Many federal policy-makers have liked it too, because the program, compared with other commodity programs, cost the taxpayers very little.

Then, along came NAFTA, which aims to phase out tariffs and other trade barriers.

With the lifting of these barriers, cheaper imported peanuts have poured into the United States, increasing almost 45-fold within the last few years. Raw Mexican peanuts have also taken a huge bite out of the American market.

This has left policy-makers with a huge challenge: developing a new system for peanuts that would one, comply with free-trade provisions; two, lower the prices of domestically produced peanuts to ensure their competitiveness; and three, guarantee producers an adequate financial safety net.

The solution, as some see it, is a program modeled closely after other commodity programs.

In fact, U.S. House and Senate conferees are now discussing a proposal that will put peanuts under a commodity program system just like cotton, corn or sorghum, says Dr. Jim Novak, an Alabama Cooperative Extension System economist.

Under the proposals being discussed, peanut producers would be eligible for fixed payments, such as other commodity producers received under the 1996 Farm Bill.

Eligible peanut producers would get these fixed payments regardless of whether they farm peanuts or not, Novak says.

"Under this proposal, if they have historically been producing peanuts and are considered eligible, they would receive payments of about $36 dollars a ton over 85 percent of their base acres," he says. "The payment would be made according to the yield and base acreage determined for their farm by the Farm Service Agency," he says.

Under current proposals, this base would be determined by the historic production on acreage between the 1998 and 2001 crop years, he adds.

The 2002 Farm Bill also proposes including counter-cyclical payments based on national commodity prices, Novak says. Under this approach, peanut producers will receive payments whenever prices fall below a level predetermined by Congress.

The new bill also establishes a marketing loan for peanuts, similar to cotton and soybeans, through which producers would receive $350 or $400 a ton, depending on whether the House or Senate provision ultimately prevails in Congress. The government would also pay an additional $1.3 billion to buy out farmers and others who currently hold peanut quota.

This, more than any other provision associated with the new program, has drawn fire from critics. Why, they ask, should producers be entitled to a buyout when they will still be eligible for subsidies?

However, these critics overlook a very crucial point, Novak says.

"The people that are being bought out may not be the same people who will be receiving the fixed and counter-cyclical payments," he says. "In Alabama, for example, only a small percentage of producers own their own quota."

"In most cases, they merely rent quotas owned by someone else."

In addition, those who own but do not farm, the quota often bought it, inherited it or farmed it at one time, he says.

A federal proposal to buy out the remaining peanut quotas has generated criticism among groups opposed to many of the features outlined in the 2002 Farm Bill.

This criticism, the advent of NAFTA and  the phasing out of the quota system have left many producers wondering about their future.

"What the future holds is anyone's guess," says Dr. James Novak, an Alabama Cooperative Extension System economist. "Last year's out-of-pocket (variable) cost of dryland peanut production was estimated to be about $473 per acre."

These variable costs, based on Alabama Extension System budgets, include the seed, fertilizer, chemicals and machinery operating costs necessary for production, he says.

"Adding another $156 for machinery payments and $61 in labor brings the total cost of producing peanuts to about $690 per acre," Novak says.

However, this does not include the additional costs of land rental and quota rent. Needless to say, all of these costs must be paid out of what producers earn from their annual yield. Success will largely depend on whether yields and prices can keep pace with costs.

While government payments will cover some of these expenses, producers are still unsure what these payments will be or how far they will go in defraying these costs.