In July 2021, President Biden signed an Executive Order (EO) ordering several federal agencies to take steps to inject more competition into the market. The EO extends the regulations to several sectors, including agriculture. Yet most of the time it ignores how the government’s current actions are hampering competition in many agricultural industries, to the detriment of American consumers.
One of those barriers is the Marketing Order, a national regulation that allows producers of fruits, nuts and vegetables to control how their product is sold in the United States. The current South Texas onion marketing order is currently under review and thus provides a good example of how this anti-competitive regulation works in practice.
Under the Agricultural Marketing Agreement Act of 1937, the United States Department of Agriculture (USDA) can establish a marketing order for a specific product and empower its national farmers and handlers to administer the order through the intermediary of a committee which sets the requirements of the product for sale in the US Fresh Market. The committees that implement the marketing orders are essentially government-empowered cartels that can agree to restrict supplies and thus take advantage of higher prices. While many marketing orders no longer explicitly limit quantities, the requirements in most orders do so implicitly because farmers cannot sell a certain product in the United States if it does not pass inspection and does not meet the relevant ordering requirements. The law therefore encourages farmers on these committees to agree to draft rules narrowly, with criteria that allow their crops but which precisely prevent similar products produced by competing farmers in other states and countries.
For example, the California Grapes Marketing Ordinance limits the number of grapes that can fall from the bunch (called splinters) before they can be sold. California grapes tend to be less sweet, which causes less breakage. While Mexican farmers cultivate sweeter grape varieties, including the popular “Cotton Candy” variety. Mexican exporters are in a hurry to enter the US market because the higher sugar content of these grapes is pushing more of them out of the bunch. As a result, bunches that have lost too many grapes do not pass inspection and cannot be sold to Americans. By simply controlling how many grapes are to be attached to the stems, California grape growers have shielded themselves from the competition and prevented American consumers from not only paying lower prices, but also enjoying “cotton candy” and other sweeter grapes.
Free trade provided Americans with fresh produce year round – products that were only available seasonally before U.S. trade barriers were lowered. As a result, Americans benefit from more options, better diets, and competitive prices. Eliminating marketing orders so that competition and commerce can thrive could see your stores filled with not only cotton candy grapes, but also foods that we can’t even imagine (perhaps an innovative variety of onions that don’t make you cry when you slice them!).
And that brings us back to the South Texas Onion Marketing Order (Marketing Order 959).
The competent committee for this order has drawn up rules on the size, grade, quality and ripeness of onions. As a result, South Texas onions and imported onions had to pass expensive government inspections before they could be sold in the United States. As with grapes, these restrictions limited onion supplies and likely increased prices in the United States. Fortunately, the USDA holds a referendum every six years to review the effectiveness of the marketing order, and the most recent referendum showed that only 57% of growers supported policing, well below expectations. two thirds needed to maintain it. Unfortunately, the USDA still has not terminated the marketing order, although the agency announced in March a partial suspension of the order and subsequently declared its belief that “termination of this program would be appropriate. “. Instead, the USDA in November took the unusual step of reopening its review and rolling back on termination. The order therefore continues to be in effect – not only by maintaining a government-empowered cartel and isolating regional producers from competition, but also bypassing due process and setting a bad precedent for other orders of marketing.
Protectionist marketing orders are based on superficialities that waste resources, reduce the variety of products in the market and distort prices. Perhaps President Biden’s next competition EO can target the blatant law that allows them, as well as other laws and regulations that hurt American consumers by stifling competition in the free market. In the meantime, the least the USDA can do is end the South Texas onion marketing order – supporting not only American consumers, but the rule of law as well.