Estimating Vulnerability of U.S. Peanut Producers to Changes in Farm Support

In the paper, we make an attempt to estimate the supply of farmer stock peanuts in the Southeastern Region of the U.S. and evaluate production effects of the recent changes in farm support policies and of trade liberalization that have affected prices. The choice of estimation methodology is dictated by the unavailability of suitable time-series data due to heavily regulated nature of the U.S. peanut markets before 2002. Supply estimation is performed by estimating farm-level supply using cross-sectional survey data on farm-level costs and returns. Results show that producers not able to expand peanut acreage are likely to be vulnerable to price reductions, as there might exist economies of scale. Production on dry land is likely to remain unprofitable at the current price levels. The analysis is complicated by severe multicollinearity problems and noisiness of the input data explained by the fact that many input variables may be inverse proxies for land productivity, which varied because of the constraints imposed by the supply management policies.