Ironic Twist to Citrus Production Dispute

It is ironic that producers’ cheating on a governmentally enforced policy designed to profit sellers at consumer expense could potentially lead to the demise of that policy and a dramatic reduction in consumer prices. But that is currently the case for agricultural marketing orders in the California citrus industry (“Putting the Squeeze on Big Orange,” May 9), where lower orange prices caused by the temporary suspension of marketing orders have gone hand in hand with federal lawsuits against producers for not charging consumers enough (by not restricting sales enough) when they were in effect.

Basically, citrus agricultural marketing orders establish governmentally enforced grower cartels, which give producer administrative committees (dominated by Sunkist to the extent that a 1982 Small Business Administration report stated that “the Lemon Administrative Committee’s annual marketing policy statement originates at Sunkist”) the power to set weekly quotas restricting how many fresh oranges and lemons each grower can sell.

The official rationale for this Depression-era holdover is to stabilize the market for perishable products (implying that growers are incapable of rationally marketing their crop without government help), but the actual effect is to boost fresh citrus prices. What cannot be sold fresh must be allowed to rot or be “dumped” in far less lucrative juice, export or by-product markets.

Unfortunately, the “stabilizing the market” argument is inconsistent with the evidence. Studies have found that lemon prices vary more than those for other fruits without marketing orders (e.g., grapefruit and limes, whose markets are hardly chaotic). A 1981 USDA study found that marketing orders increased price fluctuations, by hindering the use of forward contracts in futures markets, a long-established mechanism for reducing price volatility.

The increase in fresh citrus prices that results from marketing orders is estimated at 30% to 40%. But even this anti-consumer effect is turned to a PR advantage by industry arguments about drastic losses to producers if marketing orders were ended, ignoring the fact that any such losses represent the benefits of lower prices these restrictions now deny consumers.

Even far lower-price citrus exports, rather than being recognized as representing part of the waste in the current system, are put forward as benefits. Rather than admitting the difference in net price between what the fruit would fetch fresh in the U.S. and in Japan, cartel members point only to the export earnings that result. That is like claiming that selling a $15,000 domestic car to Japan for $9,000 generates $9,000 in benefits to Americans, instead of a $6,000 loss.

Not only do marketing orders result in waste, they actually increase the waste by stimulating production. The high prices for fresh fruit that they cause, together with the way quotas are allocated, encourages growers to raise more fruit that will have to be dumped in order to get the right to sell more fresh fruit (at a ratio of as much as 3 or 4 to 1 for lemons).

If a private group tried to pursue marketing orders in an industry, the government would prosecute them under antitrust laws for such an obviously anti-competitive practice. In citrus, however, the government has maintained and enforced cartels that, together with other agricultural restrictions and subsidy programs, cost a family of four about $500 a year.

It is long past time to see through the self-serving falsehoods that have buttressed this policy and end this “monument to socialism”--because it is anti-consumer, not because producers have failed to abide well enough by their government-enforced cartel’s terms.

GARY M. GALLES

Camarillo

The writer is an associate professor of economics at Pepperdine University in Malibu