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The Produce Cartels

Summary:
Gabriella Beaumont-Smith In July 2021, President Biden signed an executive order (EO) directing multiple federal agencies to take action to inject more competition into the marketplace. The EO expands regulations across multiple sectors, including agriculture. Yet it mostly ignores how the government’s current actions impede competition across numerous agricultural industries, to American consumers’ detriment. One ...

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Gabriella Beaumont-Smith

In July 2021, President Biden signed an executive order (EO) directing multiple federal agencies to take action to inject more competition into the marketplace. The EO expands regulations across multiple sectors, including agriculture. Yet it mostly ignores how the government’s current actions impede competition across numerous agricultural industries, to American consumers’ detriment.

One such barrier is the marketing order—a domestic regulation that allows fruit, nut, and vegetable farmers to control how their product is sold in the United States. The current marketing order on South Texas onions is now under review, and thus provides a good example of just how this anticompetitive regulation works in practice.

Under the Agricultural Marketing Agreement Act of 1937, the United States Department of Agriculture (USDA) may establish a marketing order for a specific commodity and empower its domestic farmers and handlers to administer the order via a committee that sets the commodity’s requirements for sale on the U.S. fresh market. Committees that implement marketing orders are essentially government‐​empowered cartels that can collude to restrict supplies and thereby enjoy higher prices. While many marketing orders no longer explicitly restrict quantities, the requirements set forth in most orders implicitly do so because farmers cannot sell a certain produce item in the United States if it fails to pass inspection and meet the relevant order requirements. The law thus incentivizes farmers on these committees to collude to write rules narrowly, with criteria that permit their crops but just‐​so‐​happen to bar similar goods produced by competing farmers in other states and countries.

For example, California’s marketing order on grapes restricts how many grapes can fall off the bunch (known as shatter) before they can be sold. California grapes tend to be less sweet causing less shatter. Whereas farmers in Mexico grow sweeter varieties of grapes, including the popular “Cotton Candy” variety. Mexican exporters are pressed to access the U.S. market because the higher sugar content of these grapes causes more of them to fall off the bunch. As a result, those bunches that have lost too many grapes do not pass inspection and cannot be sold to Americans. By merely controlling how many grapes must be attached to the stems, California grape farmers protected themselves from competition and prevented American consumers from not only paying lower prices but also enjoying “Cotton Candy” and other sweeter grapes.

Free trade has gifted Americans fresh produce year‐​round — produce that was only available seasonally before U.S. trade barriers were lowered. As a result, Americans benefit from more options, better diet, and competitive prices. Eliminating marketing orders so that competition and trade can flourish could see your stores filled with not only cotton candy grapes but also foods we can’t even imagine (perhaps an innovative variety of onions that doesn’t make you cry when you slice it!).

And that brings us back to the marketing order on South Texas onions (Marketing Order 959).

The relevant committee for this order wrote rules on the size, grade, quality, and maturity of onions. As a result, South Texas onions and imported onions were required to pass onerous government inspections before they could be sold in the United States. Just as with grapes, these restrictions limited onion supplies and likely raised U.S. prices. Fortunately, USDA conducts a referendum every six years to review the marketing order’s efficacy, and the most recent referendum showed that only 57 percent of growers supported the order’s continuation — well short of the two‐​thirds needed to continue it. Unfortunately, USDA still hasn’t terminated the marketing order, even though the agency announced in March a partial suspension of the order and subsequently stated its belief that “termination of this program would be appropriate.” Instead, the USDA in November took the unusual step of reopening its review and backtracking on termination. The order thus continues to be in effect – not only maintaining a government‐​empowered cartel and insulating regional producers from competition, but also ignoring due process and setting a bad precedent for other marketing orders.

Protectionist marketing orders are based on superficialities that waste resources, reduce the variety of produce in the market, and distort prices. Perhaps President Biden’s next EO on competition can target the egregious law authorizing them, as well as other laws and regulations that harm American consumers by stifling free market competition. In the meantime, the least the USDA can do is terminate the South Texas onions marketing order – supporting not only American consumers, but also the rule of law.

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