Opinion ID: 791768
Heading Depth: 2
Heading Rank: 1

Heading: The History of the Peanut Quota

Text: 5 In order to assess whether the Members have a property interest in the peanut quota, it is necessary to understand the statutory evolution of the peanut quota program. In the 1930s the United States' economic depression particularly affected the agricultural community. Congress, in an attempt to mitigate the effects of the depression on agricultural products, enacted the Agricultural Adjustment Act of 1938 (AAA), ch. 30 tit. III, § 301 et seq., 52 Stat. 31, 38, which regulated the production and sale of tobacco and wheat within the United States. The statute instituted acreage allotments to prevent oversupply of the targeted agricultural commodities. In 1941, the AAA was amended to include farm acreage allotments for peanuts. The Agricultural Adjustment Act of 1938, as amended, ch. 39, tit. III, §§ 357-359, 55 Stat. 88, 88-91 (the 1941 Act). The 1941 Act sought to regulate the production of peanuts to avoid severe fluctuations in price caused by rapid changes in market demand and the year-long lag in response to that demand caused by crop growing cycles. 1941 Act, 55 Stat. at 88. Since 1941, Congress has regulated peanut production primarily through quotas set by the Secretary of Agriculture (Secretary), but the nature and reach of the quota system has not remained constant. 6 Under the 1941 Act, the Secretary was required to proclaim annually the total quantity of peanuts that would be made available for marketing the following year; this was known as the national marketing quota. This quota was to be equal to the average amount of peanuts harvested during the five years prior to the year of the proclamation, adjusted for trends in production and prospective demand. To apportion the national marketing quota among the producing peanut farms, it was converted to a national acreage allotment. This allotment was derived by dividing the national marketing quota by the normal yield per acre. 3 7 The national acreage allotment was divided proportionally among states based on the average relative peanut production per state for the five years immediately preceding the proclamation year, adjusted for trends in yields and abnormal conditions of production. Each state acreage allotment was subsequently apportioned among farms in that state. The farms that obtained allotments were farms on which peanuts were grown in any of the three years immediately preceding the year for which the allotment was determined. The state allotments were apportioned on the basis of the tillable acreage available for the production of peanuts and the past acreage of peanuts grown on the farm. The actual amount of peanuts produced on the acreage allotment equaled the marketing quota for the farm. 1941 Act, 55 Stat. at 89-90. 8 A farmer with an allotment was subject to financial penalties 4 if he marketed peanuts in excess of his farm's marketing quota. Any farmer who grew peanuts without an allotment was also subject to financial penalties. 5 9 Under the 1941 Act, the Secretary of Agriculture was directed to make loans available to farmers with marketing quotas for peanuts. The Secretary of Agriculture provided the loans through the Commodity Credit Corporation (CCC). The CCC offered loans to farmers at rates between fifty and seventy-five percent of the parity price 6 of peanuts. 1941 Act, 55 Stat. at 91. These loans provided farmers with operating capital. The loans were non-recourse, such that if the farmer was unable to sell his crop at a profit and repay the loan with interest before it matured, the CCC accepted the actual peanut crop sales revenue as full repayment of the loan. 10 The Agricultural Act of 1949, ch. 792, tit. I, § 101, 63 Stat. 1051-52 (the 1949 Act), instituted the price support program. The 1949 Act increased loan rates overall. It also tied the loan rates into an inverse relationship with the amount of overproduction of peanuts for the year. 11 The AAA was amended again in 1967 to allow peanut farm owners and operators to sell or lease all or any part of the right to all or any part of their peanut acreage allotment. Pub.L. No. 90-211, § 358a, 81 Stat. 658 (the 1967 Act). The 1967 Act also permitted an owner of a farm with an acreage allotment to transfer the allotment to his other farms. Transfers were restricted such that they were only permitted between farms within the county in which the peanut acreage allotment was apportioned. Other restrictions further limited the transferability of the allotments. 12 By 1977, the introduction of new seed varieties, new fertilizers, and new farm management techniques had substantially increased the yield of peanuts per acre. As a result, there was an oversupply of peanuts. These conditions prompted Congress to revamp the peanut program in the Food and Agriculture Act of 1977, Pub.L. No. 95-113, §§ 801-807, 91 Stat. 913, 944-49 (the 1977 Act). The 1977 Act temporarily suspended much of the AAA and its subsequent amendments and, in its place, instituted poundage quotas based on the weight of peanuts produced by the quota holders. The new poundage quotas applied only to peanuts destined for domestic edible use. 7 The poundage quota system was used in conjunction with the acreage allotment system; a poundage quota was established for each farm that possessed an acreage allotment under the AAA. 13 The 1977 Act also amended the price support program to provide different support levels for quota peanuts and additional peanuts. Quota peanuts were any peanuts that were eligible for domestic edible use and that did not exceed the poundage quota of the farm. Additional peanuts were any peanuts that were in excess of a farm's poundage quota but not in excess of the actual production of the acreage allotment. This differentiation continued to discourage overproduction because the price support provided for additional peanuts was substantially lower than that provided for quota peanuts. 8 14 In 1981, Congress passed yet another law that temporarily suspended the AAA. The Agriculture and Food Act of 1981, Pub.L. No. 97-98, §§ 701-707, 95 Stat. 1213, 1248-56 (the 1981 Act). The 1981 Act terminated acreage allocations and marked the end of a four year transition to the poundage quota system that began with the 1977 Act. The 1981 Act retained the two-tiered system (of quota peanuts and additional peanuts) based on poundage. It also enlarged the definition of additional peanuts to include any peanuts that were not covered by a poundage quota, irrespective of whether the peanuts were grown by a farm that possessed a poundage quota. Thus, under the 1981 Act, the peanut quota no longer restricted the production of peanuts. Poundage quota holders simply received more generous support from the government than non-quota holders. 15 In 1996, to mitigate the ever increasing costs to the public of maintaining the price support programs, Congress enacted the 1996 FAIR Act. The 1996 FAIR Act, like the 1977, 1981, 1985, and 1990 Acts before it, suspended most provisions of the AAA. The 1996 FAIR Act, in large part, continued the system created in 1977 with minor modifications. The price support for peanut producers under the 1996 FAIR Act took the form of marketing assistance loans. The U.S. Department of Agriculture (USDA) set loan rates and extended these loans to marketing associations, which, in turn, made loans to peanut producers. The loans were again represented by non-recourse notes, such that if the revenue from the sale of the peanuts did not cover the full amount of the loan, the marketing association and, by default, the USDA made up the difference. If the revenue from the sale of the peanut crop covered the loan amount, the producer repaid the loan in full. 16 The 1996 FAIR Act established marketing loan rates through the 2002 marketing year. 9 The 1996 FAIR Act set the loan rate for quota peanuts at $610.00 per ton. 1996 FAIR Act, § 155(a)(2). By comparison, the loan rate set by the Secretary for non-quota peanuts in 1997 was $132.00 per ton. 10 The loan rate differential, combined with restrictions on importation, gave quota holders a considerable financial advantage in the peanut market by setting a floor on the price they would receive for their crop. 17 The 1996 FAIR Act specifically allowed quota holders to sell or lease their quotas to other producers with a farm in the same state. 1996 FAIR Act, § 155(i)(6)(A). The 1996 Act also amended the AAA to specifically protect transferors from a subsequent reduction of their quotas: Any farm poundage quota transferred under this paragraph shall not result in any reduction in the farm poundage quota for the transferring farm if the transferred quota is produced or considered produced on the receiving farm. 1996 FAIR Act, § 155(i)(6)(D). 18 In 2002, Congress amended the peanut quota program by repealing the marketing quota program, establishing a buyout of quota holders, and creating a new price support program. The buyout provision authorized a one-time payment to quota holders of $0.55 per pound, which equated to a payment of $0.11 per pound for five years. 2002 Act, § 1309(b)(1). 19 To have been eligible for the new quota, one must have been a producer on a farm in the United States that produced or was prevented from planting peanuts during any or all of the 1998 through 2001 crop years. 2002 Act, § 1301(5). Thus, the new quota was available to an owner, operator, landlord, tenant, or sharecropper that shares in the risk of producing a crop on a farm and is entitled to share in the crop available for marketing from the farm. 2002 Act, § 1301(8). This definition of producer marks a distinct departure from the definition used in previous statutes, including the 1996 Act, because it excludes from consideration farmers who leased or transferred their quotas to other producers. 7 C.F.R. § 729.214(m) (2003). Prior to the 2002 Act, farmers were considered producers even if they had leased their quotas and, as a consequence, could have a quota even if they did not share in the risk of producing a crop. 20