The Heritage Foundation

Executive Memorandum #30 on Regulation

July 26, 1983

July 26, 1983 | Executive Memorandum on Regulation

Marketing Orders: Sacrificing the Consumer


(Archived document, may contain errors)

7/26/83 .30 _MARKETING ORDERS: @'SA CRIFICING ---THE CONSUMER":

While Ronald Reagan con tinues touting the sUperiority of the free enterprise.system,.his Administration has done little to promote free trade or deregulation. subsidies to the steelindustry, "Voluntary" import quotas on.automobiles, import restrictions on motorcycles and sugar, and abandonment of trucking deregulat .ion are examples of the Reagan Adminis- tration's "free market" policies. A decision about to be made by Secretary of Agriculture John Block seems likely to continue the trend. The Administration is apparently planni n g to continue legalized car- telization in agriculture by approving the' markef-ing order recentl'y'sub- mitted-by the Lemon Administrative Committee. MaIrketing orders, instituted in 1937 by the Agricultural Marketing Agreement Act,''protect collective d e cision-making by growers of a particular crop., The Secretary of Agri- culture is authorized'(but not requiked)'to aipprove'such orders for milk, fruits, vegetables, and specialty crops (principally nuts). There ate two types'of such orders. Qualitk 'cont r ol marketing orders allow producers to est 'ablish grading standards-and determine which grades of a crop will be made available to various sub-sections of the market. A higher grade of pecans is required if the nuts'are to be sold in the shell at-grocery stores, for example, than for use in baked goods. Quality controls also permit.joint promotion of homogeneous Agricultural products. 'The'message that "orange juice isn't just for breakfast a4ymorelll is paid for by the orange growers rather than-a ny spe c ific company selling orange juice. Although.restrictive, these quality contiols are not the princ'ipal cause of concern. A much greater threat is pose 'd by the type of marketing orders which contain quantity controls. These allow producers in a given reg i on to determine collectively what portion of their crop they will allow on the market in a giv'en year. This is-often achieved through a process by which, growers are ordered to holda specified percenta:e of their'crops off 9 the market-in a "reserve pool . " Advocates argue that quantity controls stabilize market prices and that stable market-prices guarantee the growersl:well-being. Proponents further claim thatmarketinq orders are arelati,@ely inexpensive means of achieving-stable prices for farmers. The federal government does not make direct outlays to support prices and the producers bear the costs of storage,

These arguments ignore A fundamental point.. Whether consumers are considered taxpa ers who buy groceries or.groce'' buyers who pay taxes, .y ry

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t hey still lose under this scheme. Market price stabilization through quantity controls sets prices at a level above that which would occur under competitive conditions. The bottom line is higher food bills. The Reagan Administration attempted to addr ess the prob lems presented. by these marketing orders. The Department of Agriculture provided growers. with three options: 1) They could submit a plan to phase out producer allotment programs over five years. 2) Market allocation and reserve pool program s could be used if primary markets (fresh lemons sold in the grocery store, for example) had available a quantity equal to 11 'Opercent of a moving average of recent years' sales. -Onl@, then could pooling and secondary market allocations (lemons sold to f u rniture polish manufacturers or exported, for example) be approved. 3) Produder s were asked for greater flexibility in prorate programs, those designed to spread sales of fresh fruit evenly through the year. Adjustments to actual production were sought r a ther than rigidly establishing the quantity allocated to certain markets before the total output for the year is known. In submitting their marketing order for the-1983-1984 fiscal year, the lemon growers are ignoring the USDA guidelines. Most important, t he lemon producers fail to increase the percentage of their crop allocated to the primary domestic market. Indeed, projections show the percentage of total output for the primary lemon market will fall from 28 percent of total production in fiscal 1982-19 8 3 to only 24 percent in fiscal 1983- 1984. If this sort of market allocation is permitted, it will harm consumers. Because marketing orders with quantity controls have the force of law, new sources of supply usually are subject to the controls. The federa l government thus prevents those willing to sell at lower prices from gaining a larger market share. In addition, when growers from other countries would provide an alternative source of supply, lowering prices for the consumer, import quotas and restricti o ns are sought to keep prices high for the benefit of domestic growers. The Reagan Administration should enforce its earlier decisions to phase out these orders. The lemon growers' marketing order now being considered'by Secretary Block presents the govern m ent with a chance to benefit the consumers by strengthening the competitive marketplace. In disapproving the lemon marketing orders,.Secretaiy Block can make a strong pro-consumer, pro-free market statement by discontinuing the Administra- tion's support of these legalized cartels.

Catherine England Policy Analyst

For further information: "Just Deserts, Mr. Block," Wall Street Journal, May 5, 1983, p. 34. "Reagan Moves to Curb Power of Farm Boards," Wall Street Journal, May 4, 1983, p. -4. Conrad MacKerr on, "Marketing Orders--Do They Help Some Farmers at the Consumer's Expense?," National Journal, June 6, 1983, pp. 1072-1074.

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