How the USDA Raises Your Grocery Bill

The U.S. Department of Agriculture is raising costs for American consumers by dictating to farmers the quality and quantity of crops they can sell.  With fruit and vegetable prices rising, it’s time to take a new look at the market orders that control the produce that farmers are allowed to sell.

During the early 20th century, fruits and vegetables were cheaper than ever before. As a result, farmers’ revenues fell and some were driven into bankruptcy. These circumstances led to the Agricultural Marketing Agreement Act of 1937 (AMAA).

The AMAA allows the USDA to issue “market orders” that cap the volume of fruits and vegetables sold, prescribe conditions regarding packaging, handling, and set quality standards. 

AMAA advocates argue that market orders help prevent dangerous swings in crop prices and protect consumer confidence. For example, without market orders, a particularly plentiful avocado harvest may mean that avocado farmers would be unable to earn enough money to cover their production costs. If returns were especially low, some avocado farmers might even be forced out of business. 

Prior to the AMAA, such prospects and incidents were a source of much concern to the agricultural community. The recovery of the agricultural industry following the AMAA’s passage at the end of the Great Depression lends credence to advocates’ arguments. Though it is undeniable that market orders helped prices climb back to their pre-Depression-era levels and prevent swings in prices, the AMAA’s effects are worrying.   

By restricting the supply of fruits and vegetables with market orders, growers are able to charge consumers higher prices. While good harvests may be risky for farmers, they can be valuable to consumers, especially those on the lower end of the income spectrum. 

The negative consequences of the AAMA have been well-documented.  Over 30 years ago, in a 1981 article for the New York Times, investigative reporter Ann Crittenden wrote the following:

“From afar, it looks like a red haze on the horizon. But after the car swings onto the Famoso strip, a swath of pavement amid the citrus groves of the San Joaquin Valley, it becomes clear that what lies in the distance really is mounds of oranges.

Stretching in all directions are millions and millions of navel oranges, some stamped with the Sunkist label, all abandoned to rot under the California sun. The oranges have been dumped under what is known as a Federal marketing order.”

When this article was published, 40 percent of California’s orange crop was prevented from being sold and wholesale orange prices were 12 percent higher than they were the year before. According to Crittenden, this market order effectively mandated the voluntary measures which the Sunkist cooperative has been supporting since the 1920s.

Today, the USDA has 20 fewer market orders than it did in 1981, yet it still maintains 28  on produce that ranges from Kiwis to pistachios. Eighteen of these orders regulate quality and handling. For example, one prevents misshapen kiwis from sale, even though people might like to buy these kiwis at a discount.  Another mandates that only pears of certain sizes can be sold.

The other ten market orders specifically prescribe volume restrictions. Two of those ten, regarding the sale of tart cherries and spearmint oil, are currently active, and violators are met with sizeable fines. The other eight are currently inactive, though they can be “switched on,” if the relevant committee decides that fluctuations in weather or prices merit the change.

The processes for these orders virtually guarantee that the interests of consumers are disregarded. 

First the USDA holds a meeting, in which industry insiders, including growers, handlers, and their representatives, discuss how a market order might solve “market problems.” Then, once they reach a consensus, a “steering committee of key industry people” prepares a proposal which is sent to the Agricultural Marketing Service (AMS) along with a request for a public hearing. After a brief period for comments, the AMS drafts a final proposal. If the drafted proposal wins the vote of at least two-thirds of growers within a designated area, the Secretary of Agriculture issues it. 

At no time during this process are consumers invited to any committee meeting.  The vote is taken by the growers—who are interested in higher, rather than lower, prices.  

Earlier this year, the Supreme Court ruled in Horne v. Department of Agriculture—a case about a market order restricting the volume of raisins allowed to enter the market—that  the USDA cannot demand farmers forfeit produce unless they are compensated at the market price. Aside from this small victory, little has been done to address the AMAA’s many problems. 

When a market order harms consumers, it is usually the order that is attacked, not the law. Some market orders, such as the one responsible for the oranges described by Crittenden, have been removed, yet others, together with the structure of the AMAA, remains.

While reducing volatility in crop prices and maintaining consumer confidence are legitimate concerns, the costs of the AMAA – especially market orders restricting volume – are substantial. During the height of the Great Depression, when the agricultural industry was on the verge of collapse, volume restrictions may have been warranted. In the 21st century, when the average household headed by farmers earns 52 percent above average, and the taxpayers subsidize farms, the need for the AMAA to protect the wellbeing of America’s farmers is less pressing.

Rather than federal marketing orders, the process should be devolved to individual states. Every state has its own department of agriculture and many issue market orders similar to the USDA’s. 

Modern consumers have far more access to information about crop quality and handling than during the Great Depression. They are able to buy produce accordingly – diminishing the need for federal regulation to “protect consumer confidence.” Likewise, since modern farmers are more prosperous and financially secure than their Depression-Era counterparts, mandated federal protections are no longer essential to their survival.

Although they were once beneficial to Depression-era farmers and consumers, federal marketing orders are outdated today and should be phased out. Consumers all of over the country would be grateful.

Michael Shindler is a contributor to Economics21. Follow him on Twitter here.