Utah growers: No longer a bowl of cherries
Utah's cherry growers plan to let 10 million pounds of cherries rot on the ground this year, rather than putting them on the market and allowing consumers to buy them. Why? To keep prices high.
A few weeks ago, I wrote something about the MBA Oath, and included a made-up example of how market power in the market for fresh daisies destroyed social value. This real-world story about cherries fits that example perfectly.
This cartel behavior --- which would be illegal in most industries --- is coordinated by the Cherry Industry Administrative Board. The US government gives agricultural producers the right to organize to limit production. And we all pay higher prices for food as a result.
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So I can see how this effects Utah cherry prices, but doesn't this price also depend on elasticity? Won't consumers just buy cherries from Washington, or where ever supply isn't limited? How far does the collusion go? In the end might this hurt Utah cherry growers as new markets are created to support the demand for lower price cherries?
The Cherry Industry Administrative Board covers cherry production in these states: Michigan, New York, Oregon, Pennsylvania, Utah, Washington, and Wisconsin. If you manage to grow a cherry in Idaho, I guess you're exempt from their marketing orders.
Here's a link to the CIAB's final marketing orders from 2008:
http://www.cherryboard.org/September2008Precentages.pdf
Eighteen percent of cherry production (that's one cherry in five and about 36 million pounds) was "diverted" from the market in 2008.
What does it mean to be diverted?
From the CIAB's web site: "Red tart cherries in excess of demand are diverted from the market in any one of several ways which include either in the orchard, at the plant or through unique markets such as food bank donations, exportation and new product development."
Couldn't food banks use these cherries without affecting prices?
Yes, assuming you can stop the food bank from reselling the cherries to a grocer or canner.
That's why they list "donating to the food bank" as one of the possible ways to divert supply. The CIAB just wants you to do something with your cherries that won't affect the price.
This Federal Marketing Order is artificially inflating the red tart cherry to domestic consumers here in the United States. Basically, this program allows the red tart cherry to be overpriced here in the United States and underpriced or "diversion cherries" are dumped at a lower price overseas. Then as a bonus; if the growers grow too many the government will buy the surplus at these artificially high prices. What a government: where else can you create laws to get the government to subsidize your industry.
It's not just the US that does this --- agricultural subsidies are common throughout the world.
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