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Raisin Cartel Deserves to Shrivel Up

May 5, 2006

Marvin Horne, long-time raisin grower, is charged with "stealing from us," according to the president of the Fresno Cooperative Raisin Growers. What is his crime? Selling his entire crop. That could cost him over $1 million as the result of an administrative hearing this month.

Selling what you produce is an odd reason for being defamed and punished, since people produce to sell, and selling more benefits consumers with lower prices. But thanks to the federal agricultural marketing order for California raisins (California produces almost all U.S. raisins), consumer benefits are routinely sacrificed in order to hike raisin prices.

Mr. Horne is under fire for threatening the system generating those anti-competitive, anti-consumer results.The raisin agricultural marketing order (AMO), with roots in the Depression-era Agricultural Marketing Agreement Act, is rationalized as a way to "stabilize" prices. However, it allows the Raisin Administration Committee (RAC), controlled by producers, to determine how much of each crop can be sold, with the rest forced into storage. That power to jointly restrict output to raise price makes it a cartel. A cartel with so many members would not usually succeed, and the mere attempt would be prosecuted if antitrust laws were applied, but AMOs are enforced by the government, through the USDA.

The raisin cartel illustrates Adam Smith's warning in Wealth of Nations: "People of the same trade seldom meet together...but the conversation ends in...some contrivance to raise prices...[Government] ought to do nothing to facilitate such assemblies, much less render them necessary."

Marvin Horne found a loophole in the cartel's enforcement mechanism, evading the set-asides imposed through regulations on raisin packers. So he is vilified as stealing from other members and prosecuted for threatening an arrangement illegal anywhere else. But the real thieves-stealing from American consumers--are the cartel members.

The case against the raisin cartel is clear-cut, once you look into it.

The RAC "stabilization" is accomplished by restricting sales, often substantially. "Free tonnage" has been as low as 53% of the crop in 2001, and less than 80% in most years. That helps producers by harming consumers, turning price "stabilization" into price enhancement.

Further, many crops without AMOs have avoided the market chaos they are supposedly necessary to avoid. In fact, both USDA and OMB studies have found that they actually increased price fluctuations, by hindering the use of volatility-reducing market mechanisms such as futures contracts.

The raisin cartel's effects on American consumers can also be seen in the gap between the "free tonnage" prices and "reserve pool" prices for raisins destined for low value markets. In 2001, those prices were $877.50 per ton versus $250 per ton; in 1998, it was $1250 versus $357; in 1984 and 1994, the differential approached 10 to 1.

The far lower prices charged in foreign markets are also evidence of harm to American consumers. However, cartel defenders spin the waste involved as if it was a benefit. They point to increased exports and export earnings, which amounts to saying that selling raisins worth $1,000 here for $300 overseas is a $300 benefit rather than a $700 waste.

The inroads being made by raisin imports also show that our prices are artificially inflated. If raisins are economical to produce here, priced competitively, they ought to be able to out-compete imports.

The current waste and consumer abuse is also revealed by cartel member statements, such as "our problem is over-supply" and "we need to keep the prices stable and up there," as well as industry proposals to directly restrict raisin production, so that the waste of growing "too much" will be reduced.

It is long past time for the government to stop trying to maintain a raisin cartel, picking consumer pockets for producers by "stabilizing" prices far above what the market would generate. Regardless of industry spin, it represents no unfair burden, as any private group trying to do the same thing would have been prosecuted for an obviously anticompetitive practice. It would simply undo an unjustified policy giving special treatment to raisin producers.

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