THE BUYBACK represents one of a handful of provisions in the peanut supply management program that the next U.S. Congress should address and modify to make the program fair to producers.
Limiting imports to current levels, adding a cost of production provision to quota pricing, and including country of origin labels on all peanuts also would help stabilize an industry that has lost a good portion of its earning potential over the past seven years.
Carlos Squires, Caddo County, Okla., peanut farmer and board chairman of the Southwestern Peanut Growers' Association, discussed these and other peanut policy issues recently with Southwest Farm Press.
"We've got to get something done about the buyback," Squires said. "We ought to get a bonus for quota peanuts this year because of poor crop prospects, but we will not because of abuses to the buyback provision."
The buyback allows farmers to redeem non-quota (additional) peanuts out of export channels and into the domestic edible market in years when drought or other disasters limit the amount of quota available.
The provision was designed to maintain supply stability in the domestic market and prevent shortages and spikes in prices. That's not how the provision works in real life, Squires said.
"Under the regulations, no one but the producer is supposed to receive profits from the peanut loan pool. But, for the past few years, growers have had to sign buyback agreements in the spring to fix a price on their additional peanuts. The shellers are getting the advantage."
Squires said shellers receive half the pool profit that would ordinarily go to the grower. "Shellers can turn non-quota peanuts into quota for $675 per ton. With the funds they get from the pool, they can cut that cost to just $575. It's a good deal for them."
The problem for growers is that additional peanuts that come back into the domestic edible market when no real shortage exists will displace quota peanuts. "We're especially vulnerable in the Southwest because we harvest after the other regions," Squires said. "By the time we take our quota peanuts to the market, there may be no place for them, so we have to put them into the loan and face the possibility of paying assessments."
That happened to Southeast farmers just last year.
SQUIRES SAID when drought hits one region, the buyback should be used to move non-quota peanuts from other areas into the domestic market to offset losses and maintain supplies.
"We don't want to do away with the buyback provision," he said. "It's a useful marketing and supply management tool. But we do need to change it."
Squires said springtime buyback contracts should be disallowed. "The provision will kick in at harvest if conditions warrant."
Squires also expressed concern that little competition remains in the peanut buying industry. "We basically have two companies buying 75 percent of the peanuts. That's a symptom of change that is sweeping agriculture. Concentration limits competition and it's a big issue that Congress needs to address."
Squires also wants to see cost of production used in establishing support prices. The peanut program included an escalator clause until revisions in the last law, seven years ago, eliminated it.
"We want a cost of production clause," Squires said. "If production costs increase, support prices go up; if production costs decline, we take a cut.
"But we need to go back for the last seven years and include what we have lost in that time."
Squires believes if a cost of production clause had been part of the last peanut program, quota peanuts today would be more than $700 per ton.
He justifies that figure because of significant hikes in diesel, natural gas and water costs over the past few years. Labor and equipment costs also have risen.
It makes sense, he said, to include production costs for all commodities, not just peanuts.
"We could be headed toward a situation with food similar to the energy crises we've faced," he said. "This country does not ever want to be in a position where it can be held hostage for food.
"Agriculture must be put on the same level as military spending. Both are vital to our national security."
Squires said government agriculture programs for years have done more to "subsidize consumers than to help farmers."
Imports also weigh heavily on peanut profit potential.
"We are going to see imports, especially with the world market becoming a dumping ground for cheap agricultural products," Squires said. "Trade is essential, but imports should not displace domestic production."
He favors a country of origin labeling regulation that would inform consumers where agriculture products are grown.
"That gives them a choice," he said. "And it's up to us to educate them on the differences in quality and safety of peanuts produced in the United States, compared to those produced in China and other countries."
He said NAFTA has not hurt the peanut industry as much as some feared but still poses threats. "It may not hurt as much if it's policed properly," he said. "Unfortunately, a lot of peanuts from countries not covered under NAFTA are finding their way into U.S. markets through Mexico. If Mexican peanut farmers produced all the peanuts that came through there last year, average yield would have been close to 9,000 pounds per acre in some regions. Trans-shipments could be a big problem."
He hopes to see some of these issues addressed quickly and is encouraged by early rumblings that indicate Congress could take up farm bill discussions next year.
"It's imperative that we begin to inform our legislators that we need changes," he said. He praised Texas Congressmen Charles Stenholm and Larry Combest and Oklahoma Congressman Frank Lucas for their long-time support of agriculture.
"They have done a good job keeping our programs alive," he said. "They will continue to be supportive but they have a lot of people to convince."
He said agriculture's next mission should be to inform the general public. Check-off funds approved in a referendum last year will be used to provide better public relations for the industry, he said.
"We have high expectation that funds from that program will help us inform the public about peanuts," he said. "We produce the safest supply of food of any country in the world, but farmers are not reaping the benefit of that achievement. We have to drive that point home."
Squires said farming is significantly more complex and expensive than it was when he started back in 1966, and he's concerned that few young people choose farming as a profession.
"It takes at least $1 million to get started, and when someone leaves a farm, it's usually too expensive to get back in. This country can not let farmers go out of business and prevent young people from coming back to the farm without a severe impact on the consumer.
"No country in the world is more blessed with natural resources than the United States," he said. But we need youth to be able to take over when this generation retires."