Citrus Cartel Would Make OPEC Jealous
Most people think we’re paying for the big freeze now with higher citrus prices, but they’re wrong.
Actually, we’ve been paying for this freeze for years, thanks to a loony system of agricultural socialism whereby the government lets growers’ cartels control prices and supplies.
The result is artificially high prices and overproduction that comes in handy only once every couple of decades or so--whenever there’s a bad freeze. The rest of the time, the system works by limiting supplies of fresh citrus and, in effect, taxing widows and orphans for the sake of farmers who typically have $1 million or more in assets.
The funny thing is, the system probably isn’t any better for California’s $1-billion-a-year citrus industry than it is for anyone else. It only really works for bad farmers.
Citrus interests such as Sunkist, the big cooperative in Sherman Oaks, insist that the cartels are a blessing for everybody. Charles C. Teague, president of Sunkist’s predecessor, told the U.S. Department of Agriculture that very thing 50 years ago.
Why, without a cartel, “those who will survive will be those who produce the best quality fruit, the greatest production per acre and the lowest cost,” he said. Imagine: Producers of crummy, expensive fruit would face ruin!
Most growers support the system, believing that it makes farming less risky and perhaps more equitable. They vote on it every few years; the next orange balloting is due in late spring. (The navel orange volume rules are suspended for the freeze.)
The cartel system--authorized by federal “marketing orders”--dates back to the Depression and rests on a combination of “Grapes of Wrath” rhetoric, campaign contributions and ignorance. It’s just another feature of the Alice-in-Wonderland landscape of American farm policy, which is well known for paying farmers not to farm, subsidizing a product as lethal as tobacco, etc.
Many of these dumb ideas are under pressure because they cost the federal government money and thus add to the deficit. The beauty of agricultural cartels, though, is that only the consumer pays--perhaps $30 million a year just for navels, according to a 1986 USDA study.
Here’s how they work: Federal law allows some farmers--say, California and Arizona orange growers--to establish a committee that will decide how much of the crop will be delivered to market. (The rest is stored, processed or left to rot.)
The cartel then allocates market share to the various citrus packers based on how much fruit they’ve contracted to handle. The packers in turn divvy up this business among the growers. Cartel decisions carry the force of law, and violators face criminal as well as civil penalties.
Last season, for instance, the Navel Orange Administrative Committee, faced with a record crop, allowed only 61% of it to reach U.S. produce shelves; 28% was juiced, fed to cattle, etc., and 11% was exported.
Agricultural economists such as Lawrence Shepard at UC Davis find that the system results in higher prices for oranges leading, eventually, to increased production (sales are limited; output isn’t). But because the cartel keeps prices from falling in response to supply, more and more oranges must be dumped or juiced, often at a loss.
Thus, orange eaters subsidize juice drinkers; growers are subsidized by consumers, who are on average less affluent, and society devotes more resources to growing oranges than is warranted by demand. Yet, in the long run, the growers don’t make any more money--they just produce more and more oranges for unprofitable ends.
The system would be outrageous even if it were good for growers. Besides the theoretical reasons for ending it, citrus farming isn’t fragile. Except for two modestly losing years, it’s been profitable all through the 1980s. It even survived a whole series of tax setbacks, in which it lost the accelerated depreciation, passive-income deductions and other advantages that made citrus groves so popular with orthodontists and airline pilots. Some water subsidies persist, however, so nobody needs to take up a collection for the growers.
James Moody, a Washington lawyer representing dissident growers, says the system works mainly for Sunkist, which dominates the NOAC. He also says it’s helped kill off hundreds of small California packing firms. Predictably, some remaining packers ship black market oranges when their quotas are filled, rather than turn away paying customers.
Carl Pescosolido, an Exeter, Calif., grower who studied economics at Harvard and was once sued by the USDA for giving oranges away, notes that Florida oranges and California grapefruits are sold without volume controls--and without any of the cataclysmic consequences that cartel advocates predict. “This is a welfare system for the rich,” he says. “OPEC would be jealous.”
Iowa State University’s Neil Harl, an expert in farm law and economics, believes that the 1990s will see a worldwide move away from price supports and other market interference in agriculture, from Moscow to Washington.
Maybe it’ll even reach California.
