Let’s say you want to become a raisin farmer. This is probably a bad business model if you live in, say, northern Minnesota, but in California’s San Joaquin Valley it makes a lot of sense, since that’s where most U.S. raisins—and half the raisins in the world—come from. You can see the Sun-Maid and Dole Food (DOLE) fields as you drive along the highway, their grapes shriveling in the sun. So you move to Fresno, buy some land, grow some grapes, turn them into raisins and then sell them.
Wait, not so fast. Did you give part of your crop to the federal raisin reserve?
Last month the Supreme Court ruled on an obscure little case called Horne v. Department of Agriculture, brought by a California raisin farmer who claims that by requiring him to pay into this so-called raisin reserve, the U.S. Department of Agriculture (USDA) is illegally confiscating his private property. The case didn’t attract much media attention because the unanimous ruling was just a logistical one—it was kicked it back to a lower court—that was dwarfed by the gay-marriage and voting-rights decisions, which, understandably, are much bigger political issues than dried fruit.
Still, for most of us the discovery of a governmental raisin hoard will count as a question-raising surprise. Where are they kept? Why are they kept? Is the American economy in danger of being thrust into recession by an avalanche of underpriced raisins? What other piles of fruit are out there, and, more importantly, can we eat them?
“There is no Uncle Scrooge’s nickel bank of raisins,” says Dr. Mechel Paggi, director for the Center of Agricultural Business at Fresno State University. “No one storage unit full of raisins. The rules are not quite so draconian as that.” Darn. That would’ve been such a good episode of Storage Wars.
Instead, the raisin reserve is part of what’s called a federal marketing order, a set of rules establishing how much of a specific crop can be sold in any given year. The regulations date back to the Agricultural Marketing Agreement of 1937, which sought to give Depression and Dust Bowl-ravaged farmers a way to limit supply collectively so they could raise crop prices to sustainable levels. Make the grapes a little less wrathful, and all that.
There are 22 crops with marketing orders, including avocados, olives, and prunes. The orders are set by individual crop committees with comically bureaucratic names such as the Raisin Administrative Committee and the Almond Board of California, which are overseen by the USDA. “The USDA is kind of like a policeman,” explains Andrew Novakovic, professor of agricultural economics at Cornell University. “They don’t make the decisions so much as make sure everyone abides by the rules.”
Perishable foods don’t have reserve pools because that would be stupid—what’s the point of hoarding millions of peaches if they’re just going to go bad?— so those market orders control supply in other ways. Raisins and nuts, however, keep for a long time.
“They’re just set aside in a separate stack at each packaging plant,” says Gary Schultz, president of the Raisin Administrative Committee. In the past, up to 47 percent of a raisin yield has been reserved this way. Once set aside, they aren’t allowed to be sold. “Then if the committee decides to release some or all of them into the marketplace later … we hold an auction,” Shultz says. Every raisin farmer has to surrender his raisins, whether he wants to or not.
That’s where the court case comes in. For the past 11 years, Marvin Horne, a 68-year-old California raisin farmer, has refused to play by the Raisin Administrative Committee’s rules and now owes $650,000 in fines and 1.2 million pounds of raisins. Horne believes he’s economically hurt by his inability to sell his entire raisin yield—even though the reserve is designed to inflate prices so that farmers make more money, not less. “There is a pretty good argument and evidence that raisin farmers as a whole come out ahead from the reserve policy, to the disadvantage of consumers and taxpayers,” says Dan Sumner, director of the Agricultural Issues Center at the University of California at Davis.
But Novakovic at Cornell isn’t so sure: “If I’m not selling 10 percent of my crop but I’m getting a higher price for the other 90 percent of it, which is better? If you give me exact numbers, it’s easy to do [the] arithmetic and find out. But when you don’t know the price ahead of time, you can’t answer that question.”
Novakovic thinks that in the long run, the crop reserves have a negligible effect on prices. That may be why most of those 22 crop committees have suspended or eliminated their orders in recent years. Almond reserves, for example, haven’t been required since 1994; the order on nectarines and peaches was terminated in 2011. Even things in the raisin world are changing. The raisin committee hasn’t instituted a reserve in the past three years and might not have one next year, either.
“This is the first time since 1949 that we’ve gone this long without one,” says Schultz. “Global supply and demand has been very much in balance.” That’s good to know, but has anyone checked on the oatmeal cookie market lately?