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The California Raisin Show: Last Gasp for the New Deal’s Supply Controls?

By John G. Dillard and Jerry Chapin

Do USDA’s mandatory supply controls violate the Fifth Amendment even if they are intended to prop up commodity prices? According to the Supreme Court, the answer is “yes.” On Monday June 22nd, all but one justice sided with California raisin growers and handlers, Marvin and Laura Horne in Horne v. USDA-a decision that will ultimately keep the government’s hand out of the proverbial oatmeal raisin cookie jar.

The Horne case centered on the constitutionality of mandatory supply controls that were implemented pursuant to the Agricultural Marketing Act of 1937 (AMA). The AMA was a New Deal era program championed by President Roosevelt and farmers that were weary of oversupply, which caused plummeting commodity prices. Under the AMA, commodity producers can come together and promulgate “marketing orders.” These marketing orders can be used to establish quality standards and collect assessments for research and promotion. However, when the AMA was originally enacted, the most powerful and controversial tool it provided to commodity groups was the authority to create and enforce supply controls.

Here is how the supply controls work: the Raisin Administrative Committee (RAC), which was established by the California raisin marketing order, is composed of 47 raisin industry specialists. Every growing season, the RAC forecasts the demand for raisins. In years where the supply is expected to well exceed demand, the RAC will order that “reserve pools” of raisins be withheld from the market after harvest and processing. The raisins in the reserve pool are oftentimes sold in noncompetitive markets, such as federal agencies or foreign governments, or donated to charity. Any profits from these non-competitive sales are then turned over to the raisin handlers.

Under the raisin marketing order, producers and handlers cannot market raisins that are placed in reserve tonnage. USDA, via the RAC, holds title to the raisins that are held in reserve. Yet, at the time that these raisins are placed in reserve, producers and handlers receive no compensation for the raisins. Therein lays the rub that some producers have had with the reserve program.

Marvin Horne and his family produce raisins and handle raisins for other growers. In the 2002-2003 growing season, the RAC ordered growers to set aside 47% of their raisin crop for reserve. The Hornes ignored the order and marketed their raisins directly to food processors and bakeries. For this, USDA assessed $680,000 in fees and penalties. The Hornes fought back.

The Hornes argued that the reserve tonnage requirement was a “taking” under the Fifth Amendment and, as such, they were entitled to “just compensation” for their raisin crop that was diverted to reserve pools. USDA countered that (1) a taking did not occur because the reserve pool propped up raisin prices; (2) growers received just compensation for the reserve raisins because they received a distribution of the profits from USDA’s reserve sales; and (3) personal property is not afforded the same protection as real property under the Fifth Amendment. The Court, led by Chief Justice Roberts sided with the Hornes, holding that the reserve requirement amounted to a taking and, thus, growers were entitled to just compensation for their raisins that were placed on reserve. As a result, the Court invalidated USDA’s fees and penalties against the Hornes.

The Horne decision signals what is likely the end of Depression-era supply controls. Although the reserve requirement could technically continue, USDA would be required to pay market prices to growers and handlers for the entirety of the crop that was placed in reserve, which defeats the purpose of the supply controls.

While the decision in Horne establishes historic precedent, it is unlikely to have a far-reaching effect on most agricultural producers. Although there are dozens of commodities produced under AMA marketing orders, only six currently allow for reserve pool supply controls (almonds, dates, dried prunes, raisins, spearmint oil, and tart cherries). Among those crops, supply controls have been rarely used in the last 30 years. Furthermore, the decision in Horne only affects supply control programs that rely on reserve pools to control markets. It would not affect quota-allotment systems, such as the former tobacco program. Nor would it affect voluntary supply controls, such as the Conservation Reserve Program.

While the AMA brought stability during a time of upheaval in the agricultural economy, times have clearly changed. Farmers have much more access to marketing resources and information, which allows them to make more sophisticated production decisions. Most commodities have moved past reliance on supply controls to stabilize prices. Raisin producers will soon be joining their ranks.

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