Source: UNIVERSITY OF GEORGIA submitted to
NATIONAL CENTER FOR PEANUT COMPETITIVENESS
Sponsoring Institution
National Institute of Food and Agriculture
Project Status
TERMINATED
Funding Source
Reporting Frequency
Annual
Accession No.
0193364
Grant No.
2002-38855-01941
Project No.
GEO-2002-04503
Proposal No.
2002-04503
Multistate No.
(N/A)
Program Code
NS
Project Start Date
Sep 15, 2002
Project End Date
Sep 14, 2007
Grant Year
2002
Project Director
Fletcher, S. M.
Recipient Organization
UNIVERSITY OF GEORGIA
200 D.W. BROOKS DR
ATHENS,GA 30602-5016
Performing Department
AGRI & APPLIED ECONOMICS
Non Technical Summary
While peanuts are a cornerstone to much of the Southern rural economy, two key events have occurred that will erode this base unless a broad-based peanut research program is established. The first event was the current trade agreements and the second event was the passage of the 2002 Farm Bill. The goal is to establish a broad-based research program directed toward assuring the competitiveness of US peanuts. This project can be viewed as a triad of product development, economics, and production focused on the reduction of production costs, worldwide competitiveness, enhancement of desirability to consumers, and the improvement of product safety. Research will involve all disciplilnes, institutions, and industry segments.
Animal Health Component
80%
Research Effort Categories
Basic
20%
Applied
80%
Developmental
(N/A)
Classification

Knowledge Area (KA)Subject of Investigation (SOI)Field of Science (FOS)Percent
2051830106040%
5021830100010%
5021830101010%
5021830202010%
6011830301030%
Goals / Objectives
To determine the economic efficiency of current and potential peanut production practices and to assess these alternatives in improving the global competitiveness of U.S. peanut production. To determine methods of reducing risk to pest, weed and disease problems and climatic extremes that would enhance the competitiveness and environmental stewardship of U.S. peanut production. To develop and optimize technologies to produce nutritionally improved and novel peanut products in order to enhance desirability to consumers. To analyze the international peanut markets in relation to the U.S. peanut market and develop peanut trade models.
Project Methods
Current peanut budgets and the 1992 and 1997 USDA Peanut Cost of Production surveys will be used to develop a whole farm-planning model. New production research will beused to update and refine the model. Potential cultivar lines will also be tested for compatiability in these new developed systems. Risk indexes will be developed to aid in the reduction of risk associated with pest, weed, and disease problems and climatic extremes, and enhance the competitiveness. Extrusion conditions will be optimized to provide product characteristics indicated by previous consumer acceptance studies. A standardized protocol for applying edible films to peanuts will be utilized. Surface response methodology will be used to analyze the effect of composition and extrusion variables on the allergenic potential of the products. Finally a multi-country simulation econometric peanut model will be developed to analyze potential trade flows and impacts of trade agreements.

Progress 09/15/02 to 09/14/07

Outputs
The Peanut Center has been working on several projects this year. One area is the continuation of research dealing with peanut grading. Given the size of peanut buying points and their economic viability, the concept of central sites for grading was further investigated. The previous year indicated the potential of central sites when a national site was used. However, the results indicated that a national site with visual inspection may have issues since graders at one central site are not familiar with the different types of peanuts and their respective grading issues. This year the central site was expanded to having a central site in each of the three major peanut producing areas. This would address the peanut type issues found in the previous year research. 500 peanut samples were collected in each region with the aid of the USDA-AMS Federal-State Inspection Service. The current grading done at the buying point was duplicated at the central sites. Analysis of the grade data done at the buying points and at the central sites will be analyzed in 2008. The second area of research dealt with the 19 U.S. representative peanut farms. All 19 representative farms were fully developed so that stochastic analysis can be done on them. With these farms, analysis on the impact of energy costs was further investigated. This analysis further confirmed the potential detriment to southern agriculture brought forth in part by the increased energy costs. Another analysis done was to examine the economic viability of peanut farms with other types of farming operations across the United States. The data from the other farming operations were obtained from Texas A&M University Ag and Food Policy Center's representative farms.

Impacts
The January 2007 Baseline analysis on the 19 U.S. representative peanut farms indicates a slight improvement over the August 2006 Baseline, where 12 of 19 farms were forecast to have poor economic viability, 5 farms marginal, and 2 farms good through 2012. The bottom line is that the economic viability of the US Representative Peanut Farms is no where near as promising as it was with the August 2004 baseline, where 7 of the then 11 Southeastern Representative Peanuts Farms were forecast as good, 3 farms as marginal, and only 1 farm was forecast to have a poor economic viability through 2010. The decrease in the probability of economically viable peanut farms is largely due to the increases in fuel and fertilizer costs along with rising interest rates since the August 2004 Baseline was released. It should be stressed that this decline in viability is due to diminished returns in all crops across a whole farm basis. The peanut enterprises alone are not the sole reason for declines in economic viability. Analyses of current baseline projections are not promising for the United States peanut farming industry. Unless overall profitability of all crops produced on a peanut farm in the Southern United States increases, the economic viability is in jeopardy for this sector of the country. When the August 2007 Baseline data was used, there was a slight improvement for the U.S. representative peanut farms mainly due to the higher commodity prices for all crops. However, when comparing this set of representative farms with the other types of farming operations, there has not been a significant improvement. Feed grain farms rank the best among the seven types of farms represented in this analysis with 79% of the representative farms being classified as having good overall economic viability through 2012. Feed grains are followed closely by dairy farms and wheat farms, with 74% and 73%, classified respectively as having good overall economic viability. The cow-calf farms rank fourth dropping to 50% of the representative farms being classified as good. Thirty-two percent of the 19 representative peanut farms rank good in term of economic viability, while only 25% of the cotton farms rank good. None of the representative rice farms are ranked as good.

Publications

  • No publications reported this period


Progress 01/01/06 to 12/31/06

Outputs
The Peanut Center has been working on several projects this year. One project is investigating the U.S. shelled and in-shelled peanut trade flows into the EU market. Quarterly data is being used to analyze the trade flows along with the impact of our competitors on the U.S. market share. The source differentiated AIDS model is being used. A second area of research is dealing with the current grading system for peanuts in the U.S. The current grading system is based on the current Farm Bill regulations. The grading system goes back almost 50 years. In order to enhance price signals from the consumer, either in the domestic market or the export market, the current grading system needs to be modified. Research into the new technologies is starting. With over 450 buying points that each does peanut grading, any improvements by means of new and enhanced technology will be expensive. Based on previous research into the economic viability of the U.S. buying points, many of these buying points will not be able to adopt any potential new technology. Thus, the concept of central sites for grading was introduced. Over 400 peanut samples were collected with the aid of the USDA-AMS Federal-State Inspection Service. The current grading system was duplicated at the central site. Analysis of the grade data done at the buying points and at the central site will be analyzed in 2007. Based on the results, another test will be done with the 2007 peanut crop. Another area of research was the expansion of the peanut representative farms of the National Center for Peanut Competitiveness from the eleven Southeastern representative farms to nineteen representative farms covering the peanut producing areas from Virginia to New Mexico. This year was spent developing the eight additional peanut representative farms and updating the other representative farms. This updated database will be used to analyze alternative farm bill proposals as to the impact on the U.S. peanut farms and Southern agriculture. These representative farms will also be used to analyze any alternative proposals submitted in the Doha Round of WTO. A fourth study further investigated the potential impact of the increased energy costs on the national representative peanut farms. Using the August 2006 baseline, the economic viability over the period of 2006 to 2012 was considered. The Texas A&M Ag and Food Policy Center's FLIPSIM model was utilized. This research points out the potential detriment to southern agriculture brought forth in part by this increased energy costs which can significantly impact the success or failure of an enterprise and an industry as a whole.

Impacts
With the implementation of the 2002 FSRIA, U.S. peanut total domestic consumption has increased 20.7%. U.S. peanut imports has declined by 95.1% (2002-2005). In addition, U.S. peanut exports has declined by 27.4% (2002-2005) and our share has declined to 12.9% in 2005. The cost of peanut grading as percent of the value of the crop is 1.5%. This is significantly higher than alternative crops like cotton, corn, wheat and soybeans which range from .3% to .7%. For the nineteen national representative peanut farms with increased in input cost for 2006, only two farms were in the good overall economic viability category, five in the moderate category and twelve farms were poor for the period 2006-2012.

Publications

  • Lee, D.S., L. Kennedy and S.M. Fletcher. 2006. An Analysis of Latin American Peanut Trade. Journal of Agricultural and Applied Economics: 38(1):1-16. Lead article
  • Nadolnyak, D. A., S. M. Fletcher, and V. M. Hartarska. 2006. Southeastern Peanut-Production Cost Efficiency Under the Quota System: Implications for the Farm-Level Impacts of the 2002 Farm Act. Journal of Agricultural and Applied Economics: 38(1):213-224.
  • Fletcher, S.M. 2006. Testimony and Statement on Review of the Implementation of the Peanut Provisions of the Farm Security and Rural Investment Act of 2002. Proceedings of the United States Senate, Committee on Agriculture, Nutrition, and Forestry, Hearing to Review the Implementation of the Peanut Provisions of the Farm Security and Rural Investment Act of 2002. May 2, 2006. Washington, D.C. Miller Reporting Company, Inc.


Progress 01/01/05 to 12/31/05

Outputs
The Peanut Center has been working on several projects this year. One project investigated the impact of the proposed fiscal year 2006 budget reconciliation proposals on the Southeastern representative peanut farms from the National Center for Peanut Competitiveness. The economic viability for each farm was considered for each of the scenarios considering the impact of the changes on the net cash farm income, ending cash reserves and the probability of declining real ending net worth. A risk ranking procedure, stochastic efficiency with respect to function, was used to rank the scenarios based on the assumption that decision makers prefer more certainty equivalence of net income to less at each risk aversion level. The initial results indicate that the majority of the farms preferred way to achieve budget savings given the options would be to lower loan rates. In the FSRIA of 2002, peanut storage and handling costs for peanuts placed in the CCC loan will not be covered for the 2007 crop year. Thus, a study was conducted to investigate the impact of losing the storage and handling fees on the Southeastern representative peanut farms. The preliminary results indicate a long term negative impact on the economic viability of the representative peanut farms. A third study is investigating the strategic trade policies in the world peanut market. While the trend towards liberalization of agricultural trade is supposed to be welfare enhancing, liberalizing imperfectly competitive and often distorted markets can increase the incentives to overuse the still available trade policies, thus reversing the effects of the original design. At the same time, certain distortionary trade policies can be welfare enhancing by correcting for the history of sub-optimal production and strategic interactions. A welfare analysis was undertaken. The initial results indicate that liberalizing imperfectly competitive markets has ambiguous effects and is not necessarily welfare improving. A fourth study further investigated the potential impact of the increased energy costs on the Southeastern representative peanut farms. Using the August 2005 baseline, the economic viability over the period of 2005 to 2010 was considered. The Texas A&M Ag and Food Policy Centers FLIPSIM model was utilized. The increase in total fuel cost from 2002 to 2005 is roughly 63%. This research points out the potential detriment to Southeastern agriculture brought forth in part by this increased energy costs which can significantly impact the success or failure of an enterprise and an industry as a whole. Another research project underway is the investigation of whether rank-order tournaments can improve the efficiency of quality differentiated peanut markets under the marketing loan program operation. In particular, the efficiency and welfare effects of introducing quality premiums are being investigated.

Impacts
For the eleven southeastern representative peanut farms under the situation of increased energy costs, two farms were considered to have good overall economic viability, one moderate, and eight were poor for the period 2005 to 2010.Three farms were considered to have less than a 25% probability of a negative ending cash reserve and the remaining eight were considered to have greater than 50% probability. Greater than a 50% probability of a decline in net worth was seen on eight farms, between 26-50% was seen on one farm, and less than a 25% probability on two farms. The composite average total fuel cost across all farms for irrigated peanuts ranged from a low of $51.69 per acre in 2002 to a high of $83.85 per acre in 2005; dry peanuts ranged from $13.08 to $21.22 per acre; irrigated cotton ranged from $53.66 per acre to $87.05 per acre; dry cotton ranged from $11.38 to $18.46 per acre; irrigated corn from $66.72 to $108.24 per acre; and dry corn from $6.28 to $10.19 per acre. The increase in total fuel cost from 2002 to 2005 is roughly 63%.

Publications

  • Smith, N.B., V. Subramaniam, and S.M. Fletcher. 2005. Is Conservation Tillage an Economically Warranted Production Strategy under the New Peanut Program: A Perspective of Southern Peanut Production.Journal of Agricultural and Applied Economics: 37(2):520. Abstract
  • McCorvey, A.E., A.S. Luke-Morgan, and S.M. Fletcher. 2005. Impact of Energy Costs on the Financial Viability of Southeast Representative Peanut Farms. American Peanut Research and Education Society Proceedings 37:48. Abstract
  • Luke-Morgan, A.S., A.E. McCorvey, and S.M. Fletcher. 2005. Southeast Representative Peanut Buying Point Model: Analysis of Peanut Buying Points in Georgia, Florida and Alabama. American Peanut Research and Education Society Proceedings 37:52. Abstract
  • Fletcher, S.M., A.E. McCorvey, A.E., and A.S. Luke-Morgan. 2005. Virginia-Carolina Representative Peanut Farms Established Through the National Center for Peanut Competitiveness. American Peanut Research and Education Society Proceedings 37:60. Abstract
  • Fletcher, S.M., D.A. Nadolnyak, and C.L. Revoredo. 2005.Contract Marketing in the US after the 2002 Farm Act: The Case of Peanuts. Working Paper #11.2005, Environmental Economy and Policy Research Discussion Paper Series, Department of Land Economy, University of Cambridge, UK. Online at http://econpapers.repec.org/paper/lndwpaper/200511.htm. Abstract
  • Fletcher, S. M., and D. Nadolnyak. 2005. Biotechnology and International Competitiveness: Implications for Southern US Agriculture: Discussion, Journal of Agricultural and Applied Economic: 37(2):409-414.
  • He, S., S.M. Fletcher, and A. Rimal. 2005. Snack Peanut Consumption: Type Preference and Consumption Manners. Journal of Food Distribution Research 36(1):79-85.
  • Lee, D.S., L. Kennedy and S.M. Fletcher. 2006. An Analysis of Latin American Peanut Trade. Journal of Agricultural and Applied Economics: 38:. Accepted
  • Nadolnyak, D. A., S. M. Fletcher, and V. M. Hartarska. 2006. Peanut Production Cost Efficiency and Producer Characteristics in the Southeast: Implications for the Farm-Level Impacts of the 2002 Farm Act. Journal of Agricultural and Applied Economics: 38:. Accepted
  • Fletcher, S.M., and Nadolnyak, D.A. 2005. Can Rank-Order Tournaments Improve Efficiency of Quality Differentiated Crop Markets under Marketing Loan Program Operation? The Case of U.S. Peanuts, Proceedings of the the XIth Congress of the European Association of Agricultural Economists, The Future of Rural Europe Global Agri-Food System. http://www.eaae2005.dk/scientificprogramme.htm
  • Nadolnyak, D.A., S.M. Fletcher, and C.L. Revoredo. 2005.Crop Contracts versus Spot Markets under the Marketing Assistance Loan Program: The Case of Peanuts. Journal of Agricultural and Applied Economics: 37(2):502. Abstract
  • Fletcher, S.M., D.A. Nadolnyak, and V.M. Hartarska. 2005. Producer Characteristics and Peanut Cost Efficiency in the Southeast: Implications for the Farm-Level Impacts of the 2002 Farm Act. Journal of Agricultural and Applied Economics: 37(2):509. Abstract
  • Byrne, R.J., N.B. Smith, S.M. Fletcher, and B.J. Barnett. 2005. Risk Management Strategies for a Producer-Owned Peanut Shelling Cooperative. Journal of Agricultural and Applied Economics: 37(2):504. Abstract
  • Flanders, A., S.M. Fletcher, N.B. Smith, A.E. McCorvey, and C.R. Taylor. 2005. Crop Rotations and Dynamic Analysis of Southeastern Peanut Farms. Journal of Agricultural and Applied Economics: 37(2):501. Abstract
  • Fletcher, S.M., A. Flanders, N.B. Smith, and A.E. McCorvey. 2005. Government Payments: Economic Impact on Southeastern Peanut Farms. Journal of Agricultural and Applied Economics: 37(2):507. Abstract


Progress 01/01/04 to 12/31/04

Outputs
The Peanut Center has worked on several projects this year. One of the research projects dealt with verifying the validity of the peanut representative farms developed by the Peanut Center for the Southeast. During the 2004 Southern Peanut Farmers Federation Growers Conference, a representative peanut farm was developed from the attendees. This farm was compared to the composite representative farm from the NCPC database. The data from the two farms were very similar. Given the mix of producers at the conference and the diversity of the Southeast representative peanut farms, a comparison of the composite responses seems to validate that the NCPC database accurately depicts Southern peanut farms. A second study analyzed the distribution of planted peanut acreage in the United States since the passage of the Farm Security and Rural Investment Act of 2002. Data was obtained through the cooperation of the USDA-FSA. This data was inputted into a GIS system. The geographic landscape of planted peanut acreage continues to take a different shape as peanut farmers operate under the new Farm Bill. Peanut acreage continues to grow in many non-traditional production areas of the southeastern U.S. Runner type peanuts dominated 2004 peanut acreage with 79.6% of the total planted peanut acreage. Georgia planted 53.8% of the runner type peanut acreage in 2004 and 43.14% of all peanut acreage. Another study was conducted to determine the economic viability of the Southeast representative peanut farms over the period of 2004 to 2008. The FLIPSIM model developed by AFPC at Texas A&M was utilized in the study. Due to current world events and recent spikes in energy costs, the farms energy costs were adjusted to reflect December 2004 energy prices relative to the base prices of 2002. Diesel prices were increased by 76% and gasoline by 47% relative to the 2002 prices. Fertilizer cost for peanuts were increased by 23%, cotton fertilizer costs by approximately 38% and corn fertilizer costs by approximately 45.5% relative to 2002 fertilizer costs. Research was also conducted on alternative rotation crops for southeastern peanut farms. Alternative rotation crops have potential for increasing soil fertility, crop productivity and improving environmental stewardship. In this study, the benefit of velvet beans in a rotation was analyzed. Data from the NCPC representative peanut farms were utilized. A multi-year planning horizon is depicted by dynamic programming analysis.

Impacts
The recent energy cost increases impacted the representative farms where the probability of a cash flow deficit increased considerable. Under the baseline scenario, 4 farms had less than 25% probability of a cash flow deficit over the period 2004-2008. With increased energy costs, only 1 farm had less than 25% probability of a cash flow deficit. In terms of declining real net worth, only 1 farm had a greater than 50% probability of having a lower net worth at the end of 2008 under the baseline scenario. When increased energy costs are included, the number of farms having a greater than 50% probability of a decline in real new worth increased significantly to 5 farms. While the inclusion of velvet beans into a farms rotation has many environmental benefits, the market does not provide enough revenue for a farmer to adopt this practice. Research indicates that a green payment of $116/acre would equate returns for farms with velvet beans planted as a cover crop with farms planting only traditional crops.

Publications

  • Branch, W.D. and S.M. Fletcher. 2004. Evaluation of Advanced Georgia Peanut Breeding Lines with Reduced-Input and Without Irrigation. Crop Protection 23:1085-1088.
  • He, S., S.M. Fletcher, and A. Rimal. 2004. Nutrition Consideration in Food Choice. Journal of Food Distribution Research 35(1):124-126.
  • He, S., S.M. Fletcher, M.S. Chinnan, and Z. Shi. 2004. Factors Affecting School Students Consumption of Peanut Butter Sandwiches. Journal of Food Distribution Research 35(1):112-117.
  • Fletcher, S.M. and C.L. Revoredo. 2004. Does the US Need the Peanut Tariff Rate Quota Under the 2002 US Farm Act? 2003 Georgia Peanut Research Extension Report, UGA/CPES Research-Extension Publication No. 2-2004, pg. 10.
  • Fletcher, S.M. and C.L. Revoredo. 2004. Supplier Reputation and Price Premium: The Case of Peanuts in Rotterdam. 2003 Georgia Peanut Research Extension Report, UGA/CPES Research-Extension Publication No. 2-2004, pg. 11.
  • He, S., M.S. Chinnan, and S.M. Fletcher. 2004. Factors Affecting School Students Consumption of Peanut Butter Sandwiches. 2003 Georgia Peanut Research Extension Report, UGA/CPES Research-Extension Publication No. 2-2004, pg. 12-13.
  • Luke-Morgan, A., S. Fletcher, J.W. Todd. 2004. Tomato Spotted Wilt Virus: Economic Impact of Management Options Using a Resistant and Susceptible Cultivar, 2003 Georgia Peanut Research Extension Report, UGA/CPES Research-Extension Publication No. 2-2004, pg. 14-15.
  • McCorvey, A.E., A.S. Luke-Morgan, and S.M. Fletcher. 2004. Comparison of Returns Above Variable Cost Given Potential 2004 Commodity Price Scenarios for the Southeastern Representative Peanut Farms. 2003 Georgia Peanut Research Extension Report, UGA/CPES Research-Extension Publication No. 2-2004, pg. 16-17.
  • McCorvey, A.E., A.S. Luke-Morgan, and S.M. Fletcher. 2004. Impact of the Financial Viability of Southeastern Representative Peanut Farms of Potential Yield Restricting Factors. 2003 Georgia Peanut Research Extension Report, UGA/CPES Research-Extension Publication No. 2-2004, pg. 18-19.
  • Revoredo, C.L. and S.M. Fletcher. 2004. Does the Existence of Market Power Affect Marketing Loan Programs? 2003 Georgia Peanut Research Extension Report, UGA/CPES Research-Extension Publication No. 2-2004, pg. 20.


Progress 01/01/03 to 12/31/03

Outputs
The Peanut Center has worked on several projects this year. Research was also conducted on whether the existence of market power affects the peanut marketing loan under the 2002 Farm Security and Rural Investment Act. To measure the effect of market power on the marketing loan program we built a simulation model that captures the main characteristics of the US peanut market. In addition, we estimated the main relations using historical time series data. We consider two market structures: competitive, and when the peanut buyer possesses market power. The structure under market power was further broken into the cases when USDA sets the repayment rate equal or not to the price that buyers are willing to pay. With respect to prices, under market power, farmer stock peanut prices paid by shellers are lower than in the competitive situation. With respect to production, farm production under market power is meant to decrease with respect to the competitive case; however, farmers are protected by the MLP. With respect to stocks, under market power a higher proportion of the peanut crop is carried as stocks in comparison to the competitive case. Research was also conducted on whether the US needs the peanut tariff rate quota under the new 2002 FSRI Act. To analyze the elimination of the TRQs a bi-annual simulation model of the US domestic supply and demand market for peanuts, including the stocks carried by the government, and a US demand for foreign peanuts was developed. We use the model to compare three possible situations: with and without peanut TRQs, and the expansion of the TRQs minimum access. TRQs have the role of enforcing the USDA-set repayment rate when the import price is below the domestic equilibrium price. In terms of the impact from the elimination of the TRQ on the different market participants, we found that exporters of peanuts to the US will reduce their profits if the degree of substitution between foreign and domestic peanuts is high (most probable scenario). Research was also conducted on peanut trade suppliers reputation and the price premium. Two models were formulated, one theoretical and the other empirical. The theoretical model had the purpose to show how even when peanuts from two different origins have the same characteristics, other factors such as reliability of the exporter, may produce a price premium in favor of the product of the most reliable exporter. The empirical analysis used hedonic price analysis applied to data from a major trader of groundnuts in Rotterdam. The data allow us to analyze the prices while controlling for grade and other groundnut characteristics. Perceived reliability seems to be an important component of the observed export peanuts price, and suspicion of lack of reliability may imply a discount on the paid peanut price. Perceived reliability seems to be an important component of the observed export peanuts price, and suspicion of lack of reliability may imply a discount on the paid peanut price. Perceived reliability seems to be an important component of the observed export peanuts price, and suspicion of lack of reliability may imply a discount on the paid peanut price.

Impacts
Same as reported on GEO02001-05599

Publications

  • Same as reported on GEO02001-05599


Progress 01/01/02 to 12/31/02

Outputs
Same as reported on GEO-2001-05599

Impacts
Same as reported on GEO-2001-05599

Publications

  • Same as reported on GEO-2001-05599