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Eliminating Fruit and Vegetable Planting Restrictions:
How Would Markets Be Affected?
Demcey Johnson, Barry Krissoff, Edwin Young, Linwood
Hoffman, Gary Lucier, and Vince Breneman
Economic Research Report No. (ERR-30), November 2006
Price and income support payments to farmers can influence
production decisions. 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.
Interest in market liberalization prompted U.S. policymakers
to design and implement less distorting government programs.
Farm legislation in 1996 and 2002 converted some support to
decoupled payments. Decoupled payments are per acre payments
based on historical plantings (also known as base acreage) of
program crops and yields rather than on current market prices
or production levels of the crops.
The 2002 Farm Act makes some payments to farms in proportion
to their base acreage of traditional program crops—wheat,
feed grains, upland cotton, rice, and oilseeds. Payments are
tied to the amount of cropland enrolled in programs and to base
acreage. Farmers producing non-program commodities may receive
payments if they also produced program commodities in the past,
but they are restricted in planting and harvesting wild rice,
fruit (including nuts), and vegetables (other than lentils,
dry peas, and mung beans) on base acreage. Fruit and vegetables
are not
supported by traditional commodity programs.
What Is the Issue?
In March 2005, the World Trade Organization (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. 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. The
concern is that, eliminating planting restrictions could shift
acreage away from program crops, such as corn or soybeans, and
into fruit and vegetables which could lead to a significant
decline in prices. What are the possible effects on fruit and
vegetable markets of ending planting and harvesting restrictions?
What Did the Study Find?
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 Southeastern States. However,
given the small amount of base acreage in Florida, removing
planting restrictions would have little effect on any expansion
there.
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 nonbase 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, dissuade 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. For example,
producing cantaloupes in Arizona may require shaping beds, laying
plastic mulch, hand thinning and weeding, pollinating, several
passes with chemical control agents, irrigating half a dozen
times during the season, and removing and disposing of the plastic
mulch. At harvest, growers must arrange for harvest labor, haul
the melons to a cooler where field heat is removed, and have
the product delivered to market quickly. In contrast, harvesting
equipment used in soybean operations would be more adaptable
for dry beans and many growers already have the experience needed
to produce dry beans.
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. 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.
How Did We Do the Analysis?
We examined planting restrictions from a farm, regional, and
national perspective. Due to the wide variety of fruit and vegetables
and limited information on potential market adjustments, we
relied on production and price data from the census of agriculture
and USDA’s National Agricultural Statistics Service and
on farm program data from the Farm Service Agency. We used data
from the census of agriculture and Farm Service Agency to determine
where program crops, wild rice, and fruit and vegetables are
grown and where land constraints might be significant for farmers
interested in expanding production. Our analysis of overall
market effects was complicated by the lack of comprehensive
and consistent data, the large number of commodities, and the
limited estimates of relevant economic parameters. We use breakeven
analysis and a simple market equilibrium simulation model to
illustrate the basic economic tradeoffs. While a more extensive
simulation would be informative, a comprehensive model that
includes fruit and vegetable markets is not available. Building
such a model was beyond the scope of this analysis.
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