The Hindu Business Line : American peanut sector in transition

THE peanut (groundnut) sector of the world's third largest producer the US is undergoing significant changes in the aftermath of the 2002 Farm Act, which introduced a major shift by eliminating the longstanding peanut marketing quota system and ushering in better market-orientation.

Although the transition has been marked by lower prices for many producers and adjustments to marketing and risk management strategies, peanut producers are now taking advantage of the increased planting flexibility and are expanding production in higher yield areas.

In the new programme, peanut quota owners received quota buyout payments, while peanut producers are now eligible for supports such as marketing loans, direct payments and counter-cyclical payments, available to producers of other mainstream crops.

Although longer term impacts of the policy changes are still playing out in the peanut sector, the Economic Research Service of the US Department of Agriculture (USDA) in a recent study has observed that average farm-level prices and production incentives - as reflected by planted acreage - have declined compared with pre-2002, but appear to be stabilising.

Peanut production in the US is now beginning to shift from farms in less productive growing areas to those in higher yielding areas largely in southwest— the result of increased planting flexibility and perhaps indicating increased production by more-efficient producers.

The report observed that lower domestic prices stemming from policy change have dampened import demand, but exports are likely to remain below levels regularly reached in the 1990s.

Although prices are lower and are potentially more variable than under the marketing quota system, producers are adapting to price uncertainty by managing risk through contracting and marketing association.

Suggesting that the export outlook was not so promising on current reckoning, the report pointed out that stiffening competition from low cost exporters in recent years has led to a downtrend in US peanut exports.

Interestingly, China overtook India as the world's largest producer of groundnut in 1995 and the very next year edged the US out as the world's largest exporter. Currently, China's groundnut exports average 1.1 million tonnes, representing over 50 per cent of world trade, while exports from the US have slipped to an average of 224,000 tonnes from the average of 334,000 tonnes in the 1990s.

Amongst major producers, the US enjoys the highest yield of 3,000 kg/ha, producing about 1.7-1.8 million tonnes of groundnut. China is not far behind at 2,700-2,900 kg/ha, producing 13-15 million tonnes from five million ha. At about 8 million ha, India has the world's largest acreage for groundnut, but yields are extremely low at about 900 kg/ha.

The altered policy environment in the US is sure to impact the global peanut market. Declining exports from the US is opening a window of opportunity for Indian groundnut. With greater emphasis on reduction in cost of production (through higher yields) and improvement in quality, India should be in a position to explore export markets for selected peanut kernels.