Farmers raisin' hell over the 'Raisin Reserve'

There is a government program which can force a farmer to hand over nearly half of his or her annual crop without getting paid for it.

The removed crop is put into a national reserve.

It's not corn, the nation's No. 1 crop and a commodity which can move markets. It's not soybeans, wheat, cotton or even rice.

It's raisins.

Grapes drying in the sun at Raisin Valley Farms in Kerman, Calif.
Harriet Taylor | CNBC
Grapes drying in the sun at Raisin Valley Farms in Kerman, Calif.

Under a World War II era program, raisins can be forcibly set aside under the Raisin Marketing Order to help support prices. Other crops have had similar set asides over the years, but nothing has survived like the raisin reserve.

In the past, "We got paid for our raisins," said fourth-generation California farmer Laura Horne of the program. That changed a little over a decade ago. Now the USDA can take the grapes without paying a dime.

"It's communist," said her husband, Marvin Horne. "When you take something and don't pay for it, what is it?"

In 2002, the Hornes decided they'd had enough. They stopped handing over any of their grapes to the government and began processing and selling 100 percent of their own product. Other raisin growers joined them.

At first, nothing happened. There was no notice of violation from the USDA agency in charge of the raisin reserve, the Raisin Administrative Committee (RAC). Horne figured raisin authorities believed he wouldn't survive on his own. When he instead thrived, and other farmers joined him, Horne claims the RAC began an investigation full of "dirty tricks," which included photographing his children and grandchildren.

"It made the kids afraid, they didn't even want to go out in front of our facility to catch the bus," said Laura Horne.

Eventually, the government fined the Hornes $650,000 for grapes they didn't turn over, and the case went to court. Horne argued the raisin program violates the Constitution's ban on taking property without compensation. He lost that argument repeatedly, but he appealed all the way to the U.S. Supreme Court.

In a surprise, the high court gave Horne a partial victory. Justice Clarence Thomas wrote in the court's ruling that the raisin law "does not bar handlers from raising constitutional defenses," and sent the case back to the Ninth Circuit for another look.

Raisin Administrative Committee President Gary Schulz could not comment on the case to CNBC, but in the past he has said some of the raisins in the reserve are sold overseas, with proceeds used to cover committee costs and to promote raisin consumption. Any leftover profits are supposed to be distributed back to farmers, though Schulz told The Washington Post, "We pretty well spent it all."

As Marvin Horne waits for a new day in court, he is busy harvesting, processing and selling raisins. If he loses the case, he estimates the $650,000 he was originally ordered to pay has probably ballooned to $1.5 million. Does he have that much money? "No."

But his case may have already had an impact. For two years in a row, the Raisin Administrative Committee has not forced farmers to set aside any raisins. Zero. RAC's Schulz said that's merely a coincidence and has nothing to do with Horne's legal battle.

Finally, some other farmers are reportedly upset that Horne has been selling 100 percent of his crop for over a decade while they've been playing by the rules. Horne insists those farmers will join his fight.

"I'm abiding by the Constitution," he said, "and they had the same chance to do the same thing I'm doing."

"What we're doing is not wrong," said his wife, Laura. "I want to continue selling our own product."

—By CNBC's Jane Wells. Follow her on Twitter: @janewells.