The history of federal peanut policy is the perfect antidote to anyone who still believes that Congress could competently manage a lemonade stand. Federal spending for peanut subsidies will have risen eightfold between last year and next year — reaching almost a billion dollars and approaching the total value of the peanut harvest. This debacle is only the latest pratfall in a long history of horrendous federal mismanagement.
The peanut program has long combined the worst traits of feudalism and central economic planning. In 1949, to curtail subsidy outlays, Congress made it a federal crime to grow peanuts for fellow Americans without a federal license. The feds closed off the peanut industry, distributing licenses to existing farmers and prohibiting anyone else from entering the business.
The federal government maintained draconian controls to prevent any unlicensed peanuts from entering Americans’ stomachs. The Washington Post noted in 1993, “USDA [Department of Agriculture] employees study aerial photographs to help identify farmers who are planting more than their allotted amount of peanuts. Violators are heavily fined. USDA also issues each farmer a card imbedded with a computer chip that lists his quota. The farmer must present that card before he can sell his peanuts at a buying point.”
The federal program destroyed peanut farmers’ productivity, exhausting the soil and driving down peanut yields in many places. Quota allotments could not be rented outside of the county they were originally allocated to in 1949. Peanut yields in parts of Texas went into a long-term decline. While many acres with yields below 1,000 pounds had quotas, more than a million acres with potential yields of 2,500 pounds or more were banned from producing for the domestic market. Land with peanut allotments was more expensive, thereby driving up farmers’ cost of production.
Like most farm programs, the peanut program had complicated formulas that achieved little more than skewering taxpayers. In 1985, Congress dictated that peanut price-support levels must be based on the cost of production. And, with vintage Beltway wisdom, it decreed that price supports could only be increased — never decreased — regardless of whether farmers’ costs of production fell. The federal price support operates as a floor for market prices; naturally, Congress forgot to include a price ceiling. A bad drought in 1990 destroyed harvests and sent the temporary per-pound cost of producing peanuts up sharply. The Agriculture Department irrevocably boosted its price support level in the following years. By the mid 1990s, Americans’ peanut consumption was falling sharply. The General Accounting Office estimated in 1993 that the program cost consumers more than half a billion dollars a year in higher prices.
Strict controls on farmers were complemented by draconian import restrictions. Americans were long permitted to buy only 1.7 million pounds of foreign peanuts annually — roughly two foreign peanuts per year for each American citizen. That quota ended thanks to a 1990s-era trade agreement. Unfortunately, the Clinton administration placated U.S. peanut growers by slapping a 155 percent tariff on peanut butter imports — a sneak attack on the mainstay of freelance writers’ diets. The peanut program guaranteed American farmers prices that were roughly double world market levels, thereby forcing every person who bought a bag of jumbo goobers to pay tribute to Congress’s favorites.
Congressional “generosity”
The feds’ devotion to controlling the peanut supply led to a proliferation of other restrictions on Americans. Farmers were permitted to grow peanuts for export without a federal license. However, the USDA imposed very strict controls on the handling of those peanuts to prevent any of them from illicitly penetrating American grocery stores. Washington lawyer Jim Moody said that there were tighter controls over the export shipments of peanuts to U.S. ports than the government imposes on the shipment of plutonium used in nuclear weapons.
The peanut program was created supposedly to help save family farms. But the number of peanut farmers plunged by more than 75 percent after the licensing scheme began. Many farmers sold their licenses to investors. The program sharply inflated the cost of production because most farmers had to rent the license to raise their crops.
On the other hand, peanut farmers who owned peanut-growing licenses received windfall profits that would make an oil sheik blush. The General Accounting Office estimated in 1993 that the Agriculture Department provided “an average minimum net return after costs of 51%” — more than eight times the average corporate profit in the United States.
Congress ended the peanut licensing scheme in 2002 with a $4 billion buyout that provided a windfall to license holders. The largest “peanut buyout” payment went to the John Hancock Insurance Company, which collected $2 million. There was no good justification for “bailing out” peanut-license holders, but the payouts bred generosity that redounded on congressional candidates.
Congress should have admitted that there was no more justification for subsidizing peanuts than for propping up cashews or pecans — two crops that have thrived without handouts. Instead, it created a new subsidy program that was far more generous than other crop-subsidy programs. Congress effectively permitted peanut farmers to collect twice as much in federal subsidies as other farmers ($250,000 per year or $500,000 for husband and wife). The 2014 farm bill guaranteed peanut farmers prices that were much higher than have prevailed for most of this century. Peanut subsidies are also pegged at much loftier levels than for most other subsidized crops.
Despite plunging peanut prices, farmers boosted peanut production by more than 20 percent last year. The USDA expects to spend nearly $50 million a year to store and handle surplus peanuts. Industry experts are warning that there could be insufficient space in federally licensed warehouses to store the next crop.
The USDA is planning to dump more than a million pounds of surplus peanuts on Haiti. Sixty organizations have signed a letter to the Agriculture Department and the U.S. Agency for International Development warning that the donation “could potentially set off a series of devastating consequences.” Haiti has about 150,000 peanut farmers. The industry is “a huge source of livelihood” for nearly 500,000 people, Claire Gilbert of Grassroots International, “a global organization working to right the wrongs of poverty, hunger, and injustice,” told NPR, “especially women, if you include the supply chains that process the peanuts.” One of the leaders of Haiti’s largest rural organization, the Peasant Movement of Papaye, denounced the peanut donation as “a plan of death” for the country’s farmers.
The U.S. government has a long record of wrecking Haitian agriculture markets. In 1979 a development consultant told a congressional committee, “Farmers in Haiti are known to not even bring their crops to market the week that [food aid] is distributed, since they are unable to get a fair price while whole bags of U.S. food are being sold.” In 1984, ten people were killed in Haiti when government troops fired on crowds rioting to protest corruption in the U.S. food-donation program. Dumping subsidized rice on Haiti in the 1990s bankrupted legions of Haitian rice growers.
But the USDA seems to have learned nothing from prior debacles. Raymond Offenheiser, the president of Oxfam America, an organization that funds “global movements for social change,” complains that the “USDA has not done any market analysis in Haiti to ensure that this project does not interfere with local markets and does not reduce the opportunities for Haitian peanut farmers to sell their crop.” The USDA seems to care only about getting rid of the evidence of the failure of the peanut program.
Wealth through waste
The revised peanut program, with its soaring budget costs, shifted costs from consumers to taxpayers. That may become a lightning rod in the coming years — if anyone in Washington ever decides to give a tinker’s dam about the federal budget deficit.
The peanut program is typical of the train wreck of farm subsidies. The USDA forecasts that spending for farm-commodity programs will increase eightfold from 2015 to 2017. Farm programs are costing far more than forecast in the 2014 farm bill.
Farm programs are the same hopeless failures now that they were in the 1930s when Franklin Roosevelt made Agriculture Secretary Henry Wallace a “farm dictator.” (Many of the architects of federal agricultural policy in the 1930s thought the Soviet economic system was superior to that of the United States and there was a communist clique in the USDA policymaking branch, according to historian Arthur Schlesinger.) Even when USDA officials were not fans of Moscow, they sometimes gave farmers horrible advice. H.C. Taylor, the USDA’s chief economist in the 1920s, urged farmers not to waste their money on unnecessary new-fangled technology such as tractors. But the eightfold increase in plowing productivity that tractors delivered helped make a mockery of the USDA’s attempt to control farmers and prices.
Federal agricultural policy has long been a conspiracy against the best farmers — against those who do not need a handout to survive and prosper. Farm policy is based on a blind faith in giving some men arbitrary power over other men’s livelihood. Farm programs are a testament to the great economic fallacy of modern times: that government can create wealth through waste, that there is a political alchemy that can increase prosperity by repressing productivity, and that government can enrich society by doing things that would impoverish any individual.
Farm policy has long sacrificed individual liberty to an endless series of desperate political schemes to drive up crop prices. Agricultural policy is the clearest example of the economic debility of U.S. political system. Government economic interventions are almost always the union of power and ignorance. The only way to successfully reform farm programs is to abolish them. Farmers’ productivity has always advanced faster than politicians’ understanding. The agricultural policy of the last 75 years is simply the history of politicians’ misunderstanding of technological developments, fear of economic change, and distrust of price adjustments. The only solution to the farm problem is to end political control over agriculture.