Jun 4, 2015

Supreme Court weighs merits of reserve programs

A group of California raisin growers is challenging a federal marketing order reserve program before the U.S. Supreme Court, and depending on the ruling, the case could have far-reaching implications.

The case involves raisin grower Marvin Horne, Kerman, California, his wife Laura and about 60 fellow raisin producers. In arguing before the Supreme Court, Horne’s attorney, Brian Leighton, said the reserve program constitutes a taking of private property without just compensation – a violation of the Fifth Amendment.

How the ruling could affect the Fresno, Calif.-based Raisin Administrative Committee (RAC), which administers the federal raisin marketing order, is unknown. Debbie Powell, interim president and general manager, said she couldn’t comment on the case and referred questions to the Department of Justice in Washington, D.C. Repeated calls to that department went unanswered.

About 20 different commodities have some type of set-aside as part of their federal marketing order. Among them are the California almond and walnut industries, which haven’t used the provisions for years, and the tart cherry industry.

Perry Hedin, executive director of the DeWitt, Mich.-based Cherry Industry Administrative Board, said that until the Supreme Court rules, he doesn’t know exactly how the raisin case might affect the tart cherry industry.

“If they rule against the RAC, it would apply only to them because they are the ones who are doing it that way,” he said. “If they get broader in their determination, then we certainly will have to understand whether it has an impact on those other programs.”

Richard Waycott, president and chief executive officer of the Modesto, Calif.-based Almond Board of California, said he hadn’t researched the raisin case. But he said that if the court rules in favor of the disaffected raisin growers, it could possibly affect the almond reserve provision.

“What I don’t know are the nuances of their program, and the way we treat reserve inventory is fundamentally different than theirs,” Waycott said.

Because demand has exceeded supply in recent years, the almond reserve hasn’t been used since 1999, he said.

Under the federal marketing order established in 1949 and administered by USDA, the Raisin Administrative Committee requires handlers to set aside part of the crop in a reserve during large production years. The committee manages the reserve and may later sell it into other outlets, such as overseas or to USDA feeding programs.

Since the 2002-03 crop, Horne and his group, Raisin Valley Farms Marketing Association, have refused to abide by the reserve. Instead of diverting raisins into the set-aside, Horne’s group packaged the dried fruit and sold it into traditional markets.

Horne figured since his group consisted of growers rather than handlers, it would be exempt from the reserve requirements. USDA thought otherwise and levied a total of $693,000 in fines and penalties against them.

As part of the case, Horne and his group are seeking to have the fines and penalties reversed, Leighton said.

During the hour-long argument before the justices on April 22, the government countered that the program was not a taking because the reserve raisins were not kept in federal warehouses.

In a brief submitted to the Supreme Court, SunMaid Growers, a Kingsburg, Calif.-based grower marketing cooperative representing about 30 percent of the raisin crop, supported USDA.

“Petitioners, however, acted as free riders in defying the marketing order’s reserve-pool requirements, and thereby gained a competitive advantage as both handlers and as producers,” according to the brief prepared by attorneys with McDermott Will & Emery, Washington, D.C.

Chief Justice John Roberts Jr. appeared to side with Horne’s group, Leighton said.

“‘Some of these scenarios are really scary,” Leighton said, relaying Roberts’ comments. “‘Can the government order Apple for each five iPhones, one has to be provided to the government?’”

If a commodity is required to be held off the market but the government doesn’t take actual control of it, it is considered a regulatory taking and is harder to prove in court, Leighton said. But he said the fact that RAC took control of the reserve raisins makes it an actual taking of private property.

During the 2002-03 crop year, for example, raisin production was predicted to be a near-record 2.8 million tons, leading to a reserve of 47 percent. Yet the amount returned to growers was only $249 per ton for reserve raisins, an amount that doesn’t even cover production costs, Leighton said.

The following crop year, the reserve was 30 percent, he said. The administrative committee sold it for $1,259 per ton, but growers received nothing.

The raisin reserve hasn’t been used since the 2008-09 crop.

The Supreme Court case is just the latest round in a years-long legal battle Horne and his group have waged against the raisin marketing order. Last year, the Ninth Circuit ruled against them, saying the reserve was not a taking of private property.

The federal tart cherry marketing order operates slightly differently, Hedin said.

If a crop is large, a portion may be designated as restricted tonnage, which can only be marketed overseas or sold into new markets. The remainder is considered free tonnage and can be sold anywhere.

The size of tart cherry crops tends to be volatile, with a large crop one year followed by a much smaller one the next. The marketing order helps stabilize supplies and improve returns to growers and processors, Hedin said.

A tart cherry marketing order referendum comes before growers and processors every six years, asking them whether they want to continue it. In 1986, the industry voted to discontinue the order.

“Prices plummeted very quickly after that,” Hedin said. “Prices were miserable. In 1995 when prices were in the single digits, people realized they couldn’t conduct business in this fashion.”

So growers and processors petitioned USDA to put the marketing order to another vote, and it was approved. Since 1997, the tart cherry industry has voted to continue it three times.

In addition to designating free and restricted tonnage, the tart cherry program includes marketing, promotion and research activities.

The Supreme Court hasn’t said when it will rule on the Horne case. Leighton said 99 percent of the time, the justices issue their rulings on the last day of June.

– Vicky Boyd