If participants in U.S. farm programs are allowed to plant and harvest fruit and vegetables, the effects on individual producers could be significant, according to a recent USDA report.
Recent challenges to U.S. farm programs from the world Trade Organization have created pressure to eliminate such restrictions in future agricultural policy.
“Although eliminating restrictions would not lead to substantial market impacts for most fruit or vegetables, the effects on individual producers could be significant. Some producers who are already producing fruit and vegetables could find it is no longer profitable, while others could profitably move into producing these crops. Producers with base acreage are the most likely to benefit because they would no longer face payment reductions,” according to the report.
Participants in U.S. farm programs currently are restricted from planting and harvesting fruits, most vegetables and wild rice on acreage historically used for program crops.
In March 2005, the WTO found that direct U.S. payments for cotton, and by extension all program commodities, do not meet the definition of decoupled payments because eligibility for payments restricts production of fruit and vegetables. This development draws into question whether the United States can continue to claim that program payments for any program commodity are “green box” supports — exempt from WTO regulations — without eliminating the planting restriction, states the report. In WTO terminology, “green box” supports are policies that are considered to “minimally” distort trade and are not subject to any limitations.
The quantity of fruit and vegetables produced and consumed is relatively small compared with that of program crops, and market demand is slow to respond to changing conditions, continues the USDA report. The concern is that eliminating planting restrictions could shift acreage away from program crops such as corn or soybeans and into fruit and vegetables, leading to a significant decline in prices.
What are the possible effects on fruit and vegetable markets of ending planting and harvesting restrictions? According to the report, eliminating planting restrictions could affect individual fruit and vegetable markets, depending on the costs and returns for producing the specific fruit or vegetable, which vary across regions and over time. Farmers would be more likely to shift acreage away from program crops and into fruit and vegetables in regions where the land and climate are suitable for fruit or vegetable production.
Commercial production of fruit and vegetables is concentrated regionally, with much of the production in Florida and California. Eliminating planting restrictions may facilitate the move from program crops to fruit and vegetables in such areas as California, southeastern Washington, southern Idaho, the area stretching from North Dakota throughout the upper Midwest to northwestern New York and the Coastal Plain in the Southeastern states.
However, given the small amount of base acreage in Florida, removing planting restrictions would have little effect on any expansion there, says the report. “Farmers in these regions, however, would not necessarily make large acreage shifts because restrictions are not always binding. For example, farmers can plant fruit and vegetables on the portion of their cropland that is not base acreage without a reduction in payment.”
If non-base cropland is not available, the farmer can lease or purchase non-base cropland and reconstitute the farm to include the new acreage, again without incurring a payment reduction. Farm program rules currently permit fruit and vegetables to be produced on base acreage if the farm has a history of planting fruit and vegetables. But in these cases, payments on these farms are reduced by $22 per acre on average.
Nearly 5 percent of fruit and vegetable production was on base acreage in 2003 and 2004.
In many cases, barriers other than program rules, such as the need for specialized equipment, expertise, agronomic constraints, or labor for harvesting, discourage producers from growing fruit or vegetables.
Startup costs for new and sometimes existing growers of fruit and vegetables can be substantial. Higher production costs and greater risk are two reasons that producers may choose not to plant additional acreage to fruit and vegetables.
Because some fruit and vegetables are expensive to produce, program crop farmers are more likely to switch to less capital-intensive crops, such as dry beans, or to processing vegetables, such as sweet corn or tomatoes, than to fresh fruit.
Although the market effects of eliminating restrictions are likely to be small for most fruit and vegetables, the effects on individual producers could be significant, according to the USDA report. Some producers who are already producing fruit and vegetables could find that it is no longer profitable, while others could profitably move into producing fruit and vegetables. Producers with base acreage are the most likely to benefit because they would be able to realize additional revenue from planting fruit and vegetables.
Price and income support payments to farmers can influence production decisions, states the report. These subsidy programs insulate producers from fluctuations in market prices and raise farm household income. Under such a system, however, producers base their planting decisions for the subsidized commodities not only on information about market conditions, but also on government payments.
Thus, in responding to distorted market signals, farmers may produce a different mix of commodities than they would otherwise.