The 2002 Farm Bill eliminates the peanut quota program and establishes a marketing loan program for peanuts. A Georgia and North Carolina peanut model farm are developed to examine farm level impacts of program changes. Results indicate more revenue derived from the government and an increase in net farm income.Agricultural and Food Policy,

Bullen, Gary

Smith, Nathan B.

English

Research Papers in Economics

 
 
 
 
 
Farm Level Impacts of the 2002 Farm Bill on a Georgia and North Carolina Farm 
 
 
 
 
 
 
 
 
 
 
Nathan Smith and Gary Bullen
1 
 
 
 
 
 
 
 
 
Selected Paper prepared for presentation at the Southern Agricultural Economics Association Annual 
Meeting, Mobile, Alabama, February 1-5, 2003 
 
 
 
 
 
 
 
 
 
 
Copyright 2003 by Nathan B. Smith and Gary S. Bullen.  All rights reserved.  Readers may make verbatim 
copies of this document for non-commercial purposes by any means, provided that this copyright notice 
appears on such copies. 
 
                                                            
1Assistant Professor, Department of Agricultural and Applied Economics, The University of Georgia; Farm 
Management Specialist, Department of Agricultural Economics, North Carolina State University. 
 
Contact Author: Nathan Smith, Agricultural and Applied Economics Department.  P.O. Box 1209, RDC.  
Tifton, GA 31793.  229-396-3512.  nathans@uga.edu Farm Level Impacts of the 2002 Farm Bill on a Georgia and North Carolina Farm 
 
Nathan Smith and Gary Bullen 
 
Situation 
  The Food Security and Rural Investment Act (FSRIA) of 2002, commonly known 
as the 2002 Farm Bill, expands the previous farm bill with a larger safety net in terms of 
total price and income support. Commodity programs that were eliminated in the 1996 
Farm Bill are reintroduced while oilseed support is expanded under FSRIA (USDA-
FSA). Support is provided mainly through commodity marketing loans, direct payments 
(AMTA transition payments under the 1996 Farm Bill) and the establishment of counter-
cyclical payments 
  The 2002 Farm Bill maintains the marketing loan program and adjusts loan rates 
for commodities in 2002 and 2004.  The income support mechanism of direct payments 
made on historical base is continued under FSRIA.  Additional income support is 
provided by FSIA in the form of counter-cyclical payments that are driven by price.  The 
counter-cyclical payments are triggered when the average season prices fall below a 
target price.  The target price is set by FSRIA for the duration of the farm bill, 2002 to 
2007.  
  Included in the commodity provisions of the 2002 Farm Bill is an historic change 
in policy for peanuts.  Subtitle C eliminates the traditional peanut quota program that has 
been in existence for better than 60 years and replaces it with a marketing loan type 
program similar to the one described above for the major program crops.   This is a major 
change for Southern agriculture impacting peanut producers, landowners and peanut 
quotaholders.  
The basic provisions of the new peanut program eliminate the quota poundage 
allotment and provides a buyout to quotaholders of $0.55 per pound (Smith).  The quota 
program which provided a $610 per ton support price for quota production is replaced 
with a marketing loan program.  Under the new program, all peanuts produced are eligible for a peanut commodity marketing loan based on $355 per ton.  The producer has 
the option to take out a loan or take a loan deficiency payment in lieu of the loan.  
  A peanut base is established for the historical peanut production as part of the 
new peanut program (USDA-FSA).  The historical peanut producer is defined as one who 
produced peanuts any year during the 1998 through 2001 time period.  The historical 
peanut producer receives a base acreage and program yield for peanuts based upon the 
average acreage and yield produced from 1998 to 2001. Annual direct payments (DP) 
and counter cyclical payments (CP) are calculated from the newly established peanut 
base.  The historical peanut producer receives the payments in 2002 and must assign the 
peanut base to a farm by March 31, 2003.  Once, assigned the peanut base remains with 
the farm for the remaining five years of the farm bill.  
  An important question is how will the changes to the peanut program and the 
Commodities Title in FSRIA will impact the profitability of a typical Southern row crop 
farm, particularly a peanut farm. To help producers compare income potential under the 
new farm bill a model farm was constructed and a whole farm budget analysis was 
conducted looking at net farm income under the 1996 and 2002 Farm Bills. 
 
Objectives 
The main objective of this paper is to: 
1)  Examine the impact of the program changes in the 2002 Farm Bill on the 
profitability of a cotton and peanut farm.    
2).  Compare results between two major cotton and peanut producing regions 
in the Southeast. 
3).  Identify major issues for Southeast peanut and cotton producers to 
consider in adjusting to the 2002 Farm Bill. 
 
 Procedures 
  A typical cotton and peanut model farm was constructed for South Central 
Georgia and Northeast Coastal North Carolina to examine farm program changes 
instituted by FSRIA.   These two areas were chosen because of the significant acreage 
and reliance on peanuts and cotton for farm income. Each model farm was constructed to 
reflect a typical operation in a large peanut production area of each state.  
  Data was obtained through interviews with County Extension Agents and 
producers in the counties of interest.  The South Central Georgia farm is based upon 
interviews with county agents from Coffee, Irwin, Wilcox and Worth counties and 
producer input from Worth County.  The Northeast Coastal North Carolina farm is based 
upon interviews from Halifax and Northampton counties.  Participants were asked to give 
a consensus on the farm size, crop mixes, production expenses, machinery and 
equipment, off-farm income, yields and quota.   Detailed crop enterprise budgets and 
balance sheets were developed from the data collected in interviews.      
A base plan was developed using FINLRB, a whole-farm budgeting program 
component of FINPACK (Center for Farm Financial Management).  FINPACK is a farm 
financial budgeting and analysis software from the Center for Farm Financial 
Management at the University of Minnesota.  To compare the base plan under the 1996 
and 2002 Farm Bills, crop prices and costs were assumed constant.  The net price for 
corn was assumed $2.35 per bushel, cotton $0.60 per pound, soybeans at $5.20, wheat at 
$2.52 per bushel.  The peanut price for 2001(1996 Farm Bill) was assumed to be $0.29 
per pound for North Carolina and $0.26 per pound for Georgia.  For 2002, the peanut 
price was assumed to be loan rate of $0.1775 per pound for both states.  
  Net farm income includes crop production revenue plus all government payments 
minus direct crop production expenses and depreciation (fixed costs).  Direct and counter 
cyclical payments are calculated on 85% of the base. 
   The direct payment is calculated as follows: 
(1)     DP = DPR * BA * PY * 85%.   
Where: 
DP = direct payment 
DPR = direct payment rate 
BA = base acreage 
PY = payment yield 
 
The counter cyclical payment is calculated as: 
(2)    CP = CPR * BA * PY * 85% 
Where: 
CP = counter cyclical payment 
CPR = counter cyclical payment rate 
BA = base acreage 
PY = payment yield 
 
Results 
  The profitability analysis shows that with the addition of counter cyclical 
payments and base updating, net farm income for each farm increases under the 2002 
Farm Bill.  This assumes costs and prices remain constant.  Annual net farm income for 
the South Central Georgia farm base plan increases from $42,090 to $128,878.  The 
Northeast Coastal North Carolina farm base plan increases in annual net farm income 
from $49,539 to $92,502.   Of importance is the percentage of net farm income that is 
government payments.  For 2002 the Georgia farm government payments make up 
110.3% of net farm income.  For the North Carolina farm, government payments make 
up 114.6% of net farm income.  Government payments under 2001 totaled $40,994 for 
the Georgia farm and $41,187 for the North Carolina farm.  The payments increase to $145,040 for the Georgia farm and $108,330 for the North Carolina farm.  In other 
words, these two model farms are not profitable without government payments except for 
the case of better than average peanut yields.   
It is important to note that at the assumed prices, maximum counter-cyclical 
payments trigger.  It is likely that the maximum counter-cyclical payment will not be paid 
each year.  For the 2002 the crop year, the actual counter cyclical payment for corn, 
soybeans and wheat may be zero.  
Payment limitations for direct and counter-cyclical payments do not trigger for 
the two farm base plans.  The direct payments for the SCG farm total $13,196  for 
peanuts and $22,271 for all other crops.  The direct payments for the NCNC farm total 
$7,543 for peanuts and $19,799 for all other crops.  The counter-cyclical payments for 
the SCG farm total $30,791 for peanuts and $50,319 for all other crops.  The counter-
cyclical payments for the NCNC farm total $17,600 for peanuts and $47,775 for all other 
crops.  An important issues come to bear on payment limits for these farms.  The counter-
cyclical payment is the most likely to trigger on all other crops.  Basically, farms larger 
than 1,200 acres will need to use multiple entities in order to avoid maxing out the 
counter-cyclical payment limit.  This means the effective payment limits of $40,000 for 
direct payments and $65,000 for counter-cyclical payments can be increased to $80,000 
and $130,000 respectively. 
Summary 
  To summarize, this analysis of a South Central Georgia farm and Northeast 
Coastal North Carolina farm shows potential to more than double net farm income.  But 
the increase in net farm income is due to increases in base payments through the addition 
of peanut base and increasing of cotton base.  Cotton and peanut base payments are 
important for both farms as government payments make up over 100% of net farm 
income.  Without the government payments, the farms would not be profitable.     This analysis should be considered a snap shot of impact of the new farm bill.  
Risk is not incorporated into the analysis but should be considered when considering 
potential base payments.  Further study should incorporate price and yield risk.  Another 
important component for study would be rental arrangement and the impact of base on 
land rent. 
 References 
 
Center for Farm Financial Management.  FINPACK 2001.  Version 2.11, University of 
Minnesota. 
 
Smith, Nathan B.  “New Peanut Program Provisions” Department of Agricultural and 
Applied Economics, University of Georgia. May, 2002. 
http://www.ces.uga.edu/Agriculture/agecon/fbill/fbill.html 
 
USDA-Farm Service Agency.  2002 Farm Bill.   http://www.usda.gov/farmbill/ 
 
USDA-National Agricultural Statistics Service.  Crop Production Report.  Various 
issues, http://usda.mannlib.cornell.edu/reports/nassr/field/pcp-bb/ 
 
 Table 1.  Owned and Rented Acreage by Crop for South Central Georgia Farm and 
Northeast Coastal North Carolina Farm. 
 
 Georgia  North  Carolina 
Crop Rented  Owned  Total  Rented  Owned  Total 
Peanuts  100 200 300 100  70  170 
Cotton  240 460 700 150 650 800 
Corn 30  70  100       
Soybeans       0  30  30 
Wheat 30  70  100      
Total Acres  300  
(25%) 
800 
(75%) 
1200 250 
(25%) 
750 
(75%) 
1000 
 Table 2.  Quota Assumptions for Georgia and North Carolina Farm. 
  Owned Pounds  Rented Pounds  Total Quota Pounds 
SCG  Farm  258,750 474,375 733,125 
NCNC  Farm  116,000 377,000 493,000 
 Table 3.  Owned and Rented Irrigated Acreage by Crop for South Central Georgia Farm 
and Northeast Coastal North Carolina Farm. 
 
 
Crop  Georgia North  Carolina 
 Irrigated  Non-Irr.  Total  Irrigated  Non-Irr.  Total 
Peanuts 150  150  300   170  170 
Cotton 350  350  700   800  800 
Corn 75  25  100       
Soybeans       30  30 
Wheat   100  100      
Total Acres  575  625  1200  0  1000  1000 
 Table 4.  Crop Enterprise Budgets for South Central Georgia Farm and Northeast Coastal 
North Carolina Farm, $/Acre. 
  Yield  Direct Cost  Fixed Cost  Total Cost 
GA Bt. Conv. Irr. Cotton  950 lb  $406.97  $165.43  $572.40 
GA Conv. Non-Irr. Cotton  600 lb  $304.68  $95.43  $345.27 
NC Bt./RR Irr. Cotton  750 lb  $345.27  $75.22  $420.59 
GA Irr. Peanuts  3500 lb  $458.62  $176.48  $635.10 
GA Non-Irr. Peanuts  2200 lb  $387.76  $106.48  $494.24 
NC Non-Irr. Peanuts  2900 lb  $517.62  $117.71  $635.33 
GA Irr. Corn  150 bu  $243.64  $114.82  $358.46 
GA Non-Irr. Corn  75 bu  $146.52  $44.82  $191.34 
GA Non-Irr. Wheat  45 bu  $102.70  $39.03  $141.73 
NC Non-Irr. RR Soybeans  45 bu  $139.91  $37.59  $177.50 
 Table 5.  Total Net Farm Income Under Base Plan and Alternative Scenarios for South 
Central Georgia Farm and Northeast Coastal North Carolina Farm. 
  South Central Georgia  Northeast Coastal North Carolina 
  2001  2002 2001 2002 
Base Plan  $42,090  $128,878  $49,539  $92,502 
Increased Yield
1  $64,073  $155,341 $55,425 $107,663 
Decreased Yield
1 $32,219  $109,068  $2,218    $61,950 
Higher Quota
2 $36,117 $146,936  $44,542  $99,061 
Lower Quota
2 $59,695 $118,359 $54,586  $86,006 
1  10% Increase or Decrease in Average Peanut Yield for the Farm. 
2  45% and 15% Owned Quota for Georgia and 36% and 12% Owned Quota for North 
Carolina. Table 6.  Total Net Farm Income Under Base Plan and Alternative Scenarios for South 
Central Georgia Farm and Northeast Coastal North Carolina Farm. 
  South Central Georgia  Northeast Coastal North Carolina 
 Net  Farm 
Income 
DCP Base 
Payments 
Quota 
Buyout
1 
Net Farm 
Income 
DCP Base 
Payments 
Quota 
Buyout
1 
Base Plan 
 
-$16,162 $116,577  $28,462  -$15,828 $108,330  $13,015 
Increased 
Yield
2 
$862 $126,014  $28,462  -$8,462  $116,125  $13,015 
Decreased 
Yield
2 
-$25,644 $107,149  $28,462  -$30,775 $100,919  $13,015 
Higher 
Quota
3 
 -$12,335  $116,577  $42,694  -$15,777  $114,838  $19,523 
Lower 
Quota
3 
-$12,449 $116,577  $14,231  -$15,817 $101,823 $6,508 
1  Assuming annual payments of 11 cents per pound for five years.
 
2  Assuming 10% Increase or Decrease in Average Peanut Yield for the Farm.   
3  45% and 15% owned quota for Georgia farm and 36% and 12% owned quota for North 
Carolina farm. Table 7.  Annual Payment Limitation and Total Annual Payments Recieved under 2002 
Base Plan for South Central Georgia Farm and Northeast Coastal North Carolina Farm. 
  Peanuts  All Other Crops 
 Direct    Counter 
Cyclical 
Direct Counter 
Cyclical 
Payment Limit
1  $40,000 $65,000 $40,000 $65,000 
GA  Farm  $13,196 $30,791 $22,271 $50,319 
NC  Farm  $7,543  $17,600 $19,799 $47,775 
1 Assuming the operation is set up as one entity 
  

FARM LEVEL IMPACTS OF THE 2002 FARM BILL ON A GEORGIA AND NORTH CAROLINA FARM

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