Raisins, Takings, and the Regulatory State

Alden Abbott —  22 June 2015

Today, in Horne v. Department of Agriculture, the U.S. Supreme Court held that the Fifth Amendment requires that the Government pay just compensation when it takes personal property, just as when it takes real property, and that the Government cannot make raisin growers relinquish their property without just compensation as a condition of selling their raisins in interstate commerce. This decision represents a major victory for economic liberty, but it is at best the first step in the reining in of anticompetitive cartel-like government regulation by government. (See my previous discussion of this matter at Truth on the Market here and a more detailed discussion of today’s decision here.) A capsule summary of the Court’s holding follows.

Most American raisins are grown in California. Under a United States Department of Agriculture Raisin Marketing Order, California raisin growers must give a percentage of their crop to a Raisin Administrative Committee (a government entity largely comprised of raisin producers appointed by the Secretary of Agriculture) to sell, allocate, or dispose of, and the government sets the compensation price that growers are paid for these “reserved” raisins. After selling the reserved raisins and deducting expenses, the Committee returns any net proceeds to the growers. The Hornes were assessed a fine of $480,000 plus a $200,000 civil penalty for refusing to set aside raisins for the government in 2002. The Hornes sued in court, arguing that the reserve requirement violated the Fifth Amendment Takings Clause. The Ninth Circuit rejected the Hornes’ claim that this was a per se taking, because personal property is entitled to less protection than private property, and concluded rather that this should be treated as a regulatory taking, such as a government condition on the grant of a land use permit. The Supreme Court reversed, holding that neither the text nor the history of the Takings Clause suggests that appropriation of personal property is different from appropriation of real property. The Court also held that the government may not avoid its categorical duty to pay just compensation by reserving to the property owner a contingent interest in the property. The Court further held that in this case, the government mandate to surrender property as a condition to engage in commerce effects a per se taking, noting that selling raisins in interstate commerce is “not a special governmental benefit that the Government may hold hostage, to be ransomed by the waiver of constitutional protection.” The Court majority determined that the case should not be remanded to the Ninth Circuit to calculate the amount of just compensation, because the government already did so when it fined the Hornes $480,000, the fair market value of the raisins.

The Horne decision is a victory for economic freedom and the right of individuals not to participate in government cartel schemes that harm the public interest. Unfortunately, however, it is a limited one. As the dissent by Justice Sotomayor indicates, “the Government . . . can permissibly achieve its market control goals by imposing a quota without offering raisin producers a way of reaping any return whatsoever on the raisins they cannot sell.” In short, today’s holding turns entirely on the conclusion that the raisin marketing order involves a “physical taking” of raisins. A more straightforward regulatory scheme under which the federal government directly limited production by raisin growers (much as the government did to a small wheat farmer in Wickard v. Filburn) likely would pass constitutional muster under modern Commerce Clause jurisprudence.

Thus, if it is truly interested in benefiting the American public and ferreting out special interest favoritism in agriculture, Congress should give serious consideration to prohibiting far more than production limitations in agricultural marketing orders. More generally, it should consider legislation to bar any regulatory restrictions that have the effect of limiting the freedom of individual farmers to grow and sell as much of their crop as they please. Such a rule would promote general free market competition, to the benefit of American consumers and the American economy.

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.

2 responses to Raisins, Takings, and the Regulatory State

  1. 

    The problem with the Raisin Administrative Committee is that it was too practical, direct, and farmer-like. It specified the physical delivery of a percentage of the raisins produced. This was an obvious “physical taking”.

    If FedGov had collected the equivalent tax and used that cash to buy the raisins on the market, then the Supreme Court wouldn’t have figured it out. SC: “Tax? Yeah, FedGov can do that.” Even so, the takings lasted 80 years.

    I suggest that the real problem of the marketing order was the unseemly physicality of it all. Men with guns would come by to collect their share of the raisins. After 80 years, this seemed to be impolite, not what a civilized country should do. We live in a time of delicate sensibiilites. When the same taking is accomplished by a tax accounting entry and an electronic bank transfer, then no one minds much, except maybe the person sending the money.

    Mr. Abbott mentions this above. It isn’t a “taking” if the oppressor stops you from producing something rather than taking his cut at the end. It is fine if FedGov sells indulgences allowing production which is generally limited or prohibited.

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