Farm Fraud and The South Texas Watermelon Disaster

A crop of watermelons.

The statute of limitations has run out on whatever crimes were committed in the government's watermelon program. After paying out $47.8 million in dubious insurance claims, the government has dropped the case. IStock/IStockPhoto hide caption

itoggle caption IStock/IStockPhoto

In 1999, the Risk Management Agency, the U.S. Department of Agriculture agency that oversees the nation's crop insurance program, created a pilot plan designed to insure fall-planted watermelons in seven Southern states.

Fraud on the Farm Series

NPR's John Burnett looks at why farm fraud is growing in size and complexity, and why some insurance companies look the other way.

Farmers flocked to the program because it was a no-lose proposition. If they raised a good crop of melons, they'd sell them on the market. If the crop failed, the government would pick up the tab. Within months, both the watermelons and the government-backed insurance program were deemed a disaster.

"That watermelon thing was as bad as it gets. Anybody could be involved in it," said Charles LaGrange, sales manager of Starr Produce Company in Rio Grande City.

The story offers a clear example of how certain greedy farmers exploit ill-planned federal crop insurance programs.

The USDA insured 386 policies for watermelons worth $63.7 million of liability in 1999. Later that same year, 241 farmers claimed their watermelon crops failed and collected $47.8 million — 75 percent of the total liability. The money paid out was tax dollars.

Abuse of the program was particularly egregious in South Texas, where the USDA Office of Inspector General conducted three separate audits. According to the OIG, in one instance, an insurance agent in Hidalgo County, near the Mexican border, sold policies to 19 farmers, none of whom had experience growing watermelons, and who had been recruited by the agent's own son.

The farmers insured a total of 6,600 acres of melons. Predictably, when their crops failed, the producers received $5.5 million in indemnities from the U.S. Treasury.

In South Texas, it was common knowledge that many farmers who jumped into the watermelon program had no intention of making a crop.

Charles LaGrange, sales manager of Starr Produce Company in Rio Grande City, described several techniques used by farmers to guarantee a poor crop: "You can select the cheapest seed you can find," he said. "You're not gonna be able to harvest much. You cannot apply herbicides to keep weeds down. You can miss a couple of irrigations."

Jeff Fossett, sales manager of Bagley Produce, in Edinburg, Texas, a major watermelon wholesaler, is angry that shyster farmers ruined the program for the honest ones. His company contracts with farmers in South and West Texas to grow watermelons; those regions are risky areas for fruit and vegetable farming.

"We had a humongous amount of rain in West Texas, 11 inches in one day. We lost a (watermelon) crop to disease… But now watermelons are not insurable," Fossett said. "You have somebody who goes out and abuses the system, so now we have nothing... After that fiasco, that was the end of it."

Even the crop insurance companies that sell and service the policies, which are frequently criticized for their inattentiveness to fraud and abuse, opposed the watermelon program. Bob Parkerson, president of National Crop Insurance Services, says the USDA requires them to sell certain insurance.

"If he's growing watermelons in the desert and the government tells us we're gonna have to insure that…we have to insure them," Parkerson said.

He concluded, "Somebody made a lot of money. It [the program] was a beaut."

A farmer who sabotages his own crop through poor farming practices in order to collect the insurance is breaking the law. Concerned about the growing size and complexity of crop insurance frauds, the USDA Inspector General's Office and the U.S. Department of Justice are making bigger cases against crooked farmers — and the loss adjustors and insurance agents who frequently collude with them.

Though several federal prosecutors looked at farmers suspected of abusing the watermelon program in South Texas, as well as South Florida, they declined to take the case because of its complexity and the length of time necessary to build a prosecution.

"If you're the typical prosecutor... you could work on [farm fraud], or here come five bank robberies," said Richard Edwards, the assistant U.S. attorney in Asheville, N.C. He just wrapped up an exhaustive, three-year case involving a $9 million tomato scam in which eight people pled guilty.

"Crop insurance is very complicated," he said. "It makes prosecutors' and jurors' eyes glaze over."

But, he added, it can also be extremely lucrative. "With a pen, some white-out and some paper, you can make millions. And it's a lot harder to prove than a bank robbery," Edwards said.

The USDA reports that after six years, the statute of limitations has run out on whatever crimes were committed in the watermelon program. After paying out $47.8 million in dubious insurance claims, the government has dropped the case.

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