Marketing Loans Induced Acreage Expansion in U.S.
Dry Peas
William Lin
Gary Lucier
The 2002 Farm Act signaled a new
era within the U.S. dry edible pea and lentil industry
by initiating a Federal loan program for producers.
The program, known as the Marketing Loan Program,
assures producers of an effective grower price not
lower than the loan rate, thereby reducing market
risk. Prior to the policy change, chronically low
world prices, a limited domestic market, inconsistent
commercial export markets, and a lack of processing
and handling facilities outside of the Pacific Northwest
limited dry edible pea and lentil production. The
price protection offered by the marketing loan program,
however, was expected to lead to rapid expansion
in planted acreage for dry peas, which are a high-protein
food for both humans and livestock. As anticipated,
area planted to U.S. dry edible green and yellow
peas soared from 206,800 acres in 2001 to a record-high
925,500 acres in 2006.
In 1997, Washington and Idaho
were the top producing States, producing high-quality
dry peas and lentils destined largely for food use.
Dry peas were planted outside the Pacific Northwest
mainly for agronomic benefits in crop rotations.
By 2004, these two States were dwarfed by rapidly
rising output in North Dakota and Montana. The lower
cost of production (abundance of inexpensive land
and ability to use standard machinery) in the upper
Midwest favors production of dry peas (many of which
are lower cost feed grade), while growers in Washington
and Idaho enjoy consistently higher quality and
easier and cheaper access to shipping channels.
To evaluate the impact of the
Marketing Loan Program, ERS developed an acreage
response model that operates as a system of acreage
allocation decisions for dry peas and important
alternative crops. Empirical analysis of data for
2003-05 indicates that marketing loans were key
in the expansion of dry pea acreage in North Dakota
and Montana beyond that induced by market forces.
Because the domestic dry pea food
market is small (less than 1 pound per person per
year) and the domestic dry pea feed market is both
small and as yet undeveloped, the industry has turned
to the highly competitive world market to sell much
of the additional production induced by marketing
loans. As a result, U.S. dry pea export volume quadrupled
between 2002 and 2005. Commercial shipments to India,
Spain, and Cuba have increased since the early 2000s.
Shipments to Canada from the upper
Midwest have also increased due to the weaker dollar
and the proximity of some U.S. growers to Canadian
dry pea dealers and processors. Canada, as the leading
exporter of dry peas, has expressed concern that
U.S. dry pea marketing loans are trade distorting.
However, ERS analysis indicates that marketing loans
had negligible impacts on world dry pea prices and
only minor impacts on U.S. export volume.
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