The raisin law.
The US Supreme Court hearing regarding raisins is not a public matter that one reads about very often in the daily press, but this year is an exception. The current raisin related news comes as a result of the old raisin law that came to life in 1937 (The Great Depression era) and has been obligating US raisin producers to hand the US government a part of the yearly crop of this commodity for which government could compensate the producer or not. This law binding "government seized" part of raisins' crop is not trivial and could be even as high as 47% of the total yearly crop, depending on the year. The main purpose of this federal law was price stabilization in order to keep prices of raisins over years as steady as possible. The famous Adam Smith's "invisible hand" had been aided by the government intervention to bring higher benefits to the society. But did it really help? Supposedly this law has been set up in order to benefit producers and processors of raisins, to soften price fluctuations. Consumers' welfare? Well, nobody mentioned that. Not everybody agrees that this law has really helped all raisin producers. Some claim that this policy imposed unnecessary hardship on at least some of them and has been violating the Fifth Amendment to the Constitution of the United States that says that the government should provide a "JUST COMPENSATION" when it takes "PRIVATE PROPERTY FOR PUBLIC USE".
The interesting question that immediately comes to mind is why this raisin law issue became a news topic only this year and not earlier. After all, this rather outdated and controversial policy has been in place for many years. Well, in my mind there is at least one reason for that and it is associated with the most recent, severe drought in California. The drought that has already put many of California's farmers into bankruptcy has negatively influenced agricultural production of all commodities in the region, including the production of raisins. The consequences of this climatic disaster have serious economic implications, not only for California and the US, but also for the world markets.
California delivers about 40% of the total world production of raisins (and about 99% of total US production) so it can easily be stated that this is the region that due to its high production possibilities is able to influence the world's supply, hence the world price for this commodity. The current, prolonged drought in California brings obvious problems in grape production, which acts as the raw product in the production of raisins. As a consequence, it introduces serious problems for raisin producers as they face and will face higher prices for the raw product. In a situation where costs for raisin producers are increasing and also the old raisin law which still obligates those producers to deliver part of their crop to the government, natural opposition against the law arises. Knowing that due to the size of raisin production in California and its ability to influence world prices, the current drought in the area will cause a spike in prices of raisins in the world market. Therefore, why would California's raisin producers continue to watch the situation of increasing price of raisins with a possibility for higher revenues from the sales of raisins that are now in shortage in the world market without questioning a contentious policy of price stabilization from 1937? Well, they wouldn't. This is why some of them took it in front of the US Supreme Court.
The verdict in this raisin case will probably be announced in June 2015. As much as it is doubtful that the US Supreme Court will agree with claims that the Raisin Law violates the Fifth Amendment to the Constitution of the US, the issue remains very interesting, especially when one considers how outdated the law really is. In addition, in the US there are similar laws for other agricultural commodities: almonds, plums, spearmint oil. If the US Supreme Court ruled in favour of the claims of raisin farmers, it could mean new cases will come from the producers of these other commodities. As a consequence some of the archaic US price stabilization policies that in fact don't bring any stabilization anywhere could be finally abandoned. And this could be the best possible outcome coming from this devastating drought in California.
This article was originally posted by Sustainable Collective, who have since joined forces with The Starfish Canada.