How Ted Cruz opened markets for family farms

Throughout his career, Ted Cruz has shown that free markets create opportunities for small businesses, including family farms, without artificial subsidies or preferences for politically powerful groups. More than a decade ago, Cruz opened markets for small family farmers in Iowa and across the country by promoting competition, reducing regulation, and exposing the disingenuous arguments of special interests.

In 2002, as head of the Federal Trade Commission's policy arm, Cruz created a task force to study the government's role in conspiring with established businesses to suppress the growth of e-commerce, which threatened many existing (and lucrative) business models. As part of this initiative, Cruz launched a comprehensive study of the wine industry.

In wine, as in many other industries, entrenched businesses used government to suppress competition. In the early 2000s, more than half of all states banned or severely restricted direct shipments of wine to consumers from out-of-state wineries, even as many of these states allowed direct shipments from in-state wineries.

These discriminatory laws ostensibly protected minors from buying wine through the mail. Proponents argued, with a straight face, that without these laws teenagers would buy pinot noir and chardonnay online.

In reality, these laws protected powerful wine wholesalers from having to compete with small wineries, who could offer consumers more varieties at lower prices. The wholesalers would carry only a relative handful of mass-marketed wines, usually those produced by the largest wineries, and ignore thousands of niche wines typically produced by family farms. And, of course, wholesalers would mark up prices substantially before selling them.

As a result, small family wineries were effectively shut out of the national marketplace. If a visiting tourist happened to find and enjoy a wine from Iowa, depending on his or her home state, that tourist could be prohibited by law from placing an order directly with the winery.

Cruz recognized that smaller wineries needed an opportunity to compete. To build the case for competition, Cruz - an accomplished attorney - decided to gather some evidence. As a first step, Cruz surveyed the states about their experience with wine and underage drinking. Not surprisingly, the study found no evidence that any state had experienced problems with minors buying wine online or through the mail. Teenagers simply had cheaper, faster means of obtaining alcohol besides ordering expensive cabernets over the Internet.

Next, Cruz found that online competition benefited consumers. Working with economists, Cruz found that competition lowered prices for consumers, sometimes by as much as 21 percent. Online competition also gave consumers access to thousands of different varieties from smaller wineries across the country.

Armed with this evidence, the FTC's five commissioners, including both Republicans and Democrats, agreed to release a report encouraging states to open their markets to small family wineries (Cruz led by consensus at the FTC, and most of his agenda received unanimous support from both Republicans and Democrats).

The wine wholesalers, however, refused to let their protectionist privileges die on the vine. They brought in high-priced lobbyists and legal talent to defend their interests in court and in state legislatures, and according to some reports, even in the White House. Ultimately, the issue landed in the Supreme Court.

In 2005, based in large part on Cruz's study, the Supreme Court held that states could not discriminate against out-of-state wineries. In a 5-4 decision, the Court agreed with Cruz that the discriminatory laws 'represent the single largest regulatory barrier to expanded e-commerce in wine” and that there was 'little evidence” that minors were buying wine online (in a dissent, Justice Clarence Thomas decried the Court's reliance on the FTC's 'opinion” that online sales would enhance consumer welfare).

After the Court's decision, states across the country opened their markets to direct sales from out-of-state wineries. Since then, small family wineries have grown exponentially in popularity. In Iowa, for instance, the number of small family wineries has tripled in the past decade, from 33 in 2004 to 99 in 2014. These wineries can now sell to consumers across the country on a level playing field.

This market provides valuable opportunities for family farmers. According to an Iowa State study, Iowa wines and grapes contribute $420 million to the state's economy, attract hundreds of thousands of wine tourists, and employ several thousand people in vineyards, wineries, and agricultural tourism. More than 90 percent of Iowa' wineries are small producers who sell directly to consumers through tasting rooms, mailing lists, and, of course, e-commerce.

Consumers also benefited from open competition. For instance, after Virginia opened its market to direct shipments from out-of-state wineries, Virginia retailers lowered their prices to match the prices of their online competitors, plus shipping costs.

As demonstrated by Cruz's victory in the wine wars, free markets help both consumers and small businesses, including family farms. When the government restricts competition, either through discriminatory laws or artificial subsidies, it harms consumers and smaller producers, usually at the behest of powerful special interests.

A final word about ethanol. Some say that Cruz opposes the ethanol mandate because, as a Texan, he favors oil interests. Nothing could be further from the truth. Long before he was a candidate for anything, Cruz supported open competition and level playing fields in industries that span the full spectrum of the American economy.

At the FTC, Cruz opposed government mandates that would have restricted competition in favor of many powerful special interest groups: pharmaceutical companies, physicians, opticians, mortgage brokers, funeral directors, and gasoline retailers. Cruz even argued against his own economic self-interests. Cruz repeatedly fought to open competition in the legal market, including allowing non-lawyers to compete with lawyers.

In a Cruz economy, the marketplace will decide who wins, not bureaucrats and lobbyists. Everyone will have a chance to compete based on the merits, not political clout. From promoting a flat tax without loopholes to opposing subsidies that favor a few powerful interests,

Cruz is the candidate of the free market.

' Asheesh Agarwal and John Delacourt worked as attorneys for Ted Cruz when he was Director of the Office of Policy Planning at the Federal Trade Commission. Comments: editorial@thegazette.com