January 10th 2004

  Buy Issue 2673

Articles from this issue:

COVER STORY: Daniel Mannix: the man and his legacy

EDITORIAL: Battle lines drawn for 2004

The Price of Freedom : its contemporary relevance

COMMENT: Faith and the elite agenda

Australian culture wars: losing the argument?

COMMENT: Solving the Policy Nuts Industry Crisis in a few minutes

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Solving the Policy Nuts Industry Crisis in a few minutes

by Rod Jensen

News Weekly, January 10, 2004
Emeritus Professor of Economics, Rod Jensen, presents a sardonic view of the politics of competition policy as it has been applied to Australia's rural industries.

The scene: The Minister's office (Federal or State, Labor or Coalition, it really doesn't matter) on a quiet day following a relaxed Cabinet meeting where the minister has had a good day - his submissions were accepted and he felt worthwhile and fairly important, indeed perhaps as a potential party leader. Enter a senior mandarin who has been a great support for the Minister in handling his portfolio; he has provided the Minister with the advice which had been so successful in cabinet.

Minister, you should be aware that there is an important problem emerging in the policy nuts (for policy nuts read, dairy, sugar, pigmeat, etc) industry which is your direct responsibility, one which will soon become very difficult to handle unless we act soon.

Minister: I thought the policy nuts industry was thriving, with happy farmers in happy places, all owning valuable production quotas, good prices, and with consumers eating lots of policy nuts, keeping the industry prosperous.

Mandarin: Very perceptive, Minister, but all that has changed in recent years, and there is much unhappiness in the industry and in the rural regions where the policy nuts are grown. Many farmers are going broke, they are getting restless and angry, and soon we will be accused of doing nothing to help them.

Minister: What has happened to bring about this disaster? Who can we blame? Why is it happening?

Mandarin (softly): Minister, they are saying that it is the fault of your Government, for removing all tariff protection from the policy nuts industry and allowing free imports of cheaper and subsidised policy nuts from other countries - most of the policy nuts now eaten by Australians are now imported.

Minister: But this could escalate into a major political problem. Can't we give them some protection so that Australians are eating more Australian policy nuts?

Mandarin: You could ask Cabinet to reverse its firm policy decision on free trade and the abolition of tariffs - it would be a courageous thing to do. I would suggest a much simpler and more effective approach, one which will increase your profile as a progressive thinker, and one which has been successful before when primary industries are in trouble.

Minister: I have respect for your experience and insight. Tell me about your solution.

Mandarin: We should say that many of the policy nuts farmers are inefficient because they cannot compete with the world market, demand that the industry be reformed and say that we insist on complete deregulation to reform the policy nuts industry.

Minister: But they will use that awful expression "the level playing field" and say that the playing field isn't level because of the subsidies the farmers get in other countries.

Mandarin: Your Government refuses to subsidise industries just to give them a level playing field - so they must be inefficient if they can't compete on the world market.

Minister (breathing a sigh of relief): Haven't we done this deregulation thing before?

Mandarin: Several times, Minister, we know now how the routine works, and how to answer all of the arguments the industry and others will raise. Minister: What will we say?

Mandarin: We will say as little as possible, except that we will repeat over and over again, that everybody will be better off, the policy nuts growers, the policy nuts processors, the retailers who sell policy nuts and of course the policy nuts consumers - that they will all be better off. We will say over and over that total and unregulated competition will provide the solution by making everyone more efficient, and that it will create more employment and income in each region growing policy nuts. And that is all we will ever have to say - no arguments, no facts, just this statement.

Minister: Didn't we say that before, several times, and didn't a lot of people say we were wrong, that everybody can't be better off? Who criticised us last time?

Mandarin: Minister, there were a few academics that we were able to ignore completely by not responding at all - academics are used to being ignored. The farmers groups (the Policy Nut Growers, the PNG) are not organised sufficiently, they fight internally, and have no history or experience of successful political action. We will have to talk to them and convince them that they will have to agree to deregulation or lose our financial support. Under competition policy it will be illegal for policy nuts growers to get together to interfere with free competition. The National Farmers (NFF) Federation won't listen to the PNG and for some obscure reason supported us on this issue earlier and won't cause a problem.

Minister. Won't there be some problems like unemployment in regions which rely heavily on the policy nuts industry, where many families are growing policy nuts?

Mandarin: It will be a small effect in unimportant areas with no political clout. In fact, you could organise your party members of the House to attend all public meetings (if there are any) and sympathise very vocally with the local growers. This will get the Government wide political support. The vote in the House will be so low key that no one will notice.

Minister: You mentioned financial support - how much will it cost the Government? I will need to get Cabinet agreement if it will cost a great deal. That could be very difficult asking for money to support growers.

Mandarin: The good news, Minister, is that it will cost us nothing. We will, as usual, levy the consumers of policy nuts say ten cents per pound, and establish a fund which we will call a Policy Nuts Rescue Fund (a politically clever title) to provide some compensation for the growers, conditional on accepting what we offer. All we will need to do is arrange for the collection of funds and the payout to those who accept the deal - and they will have no real choice but to accept it.

Minister: But who will actually be better off or worse off if we do this?

Mandarin: Well Minister, the usual scenario is this. The retailers, the supermarkets are the strong players in the market, so they call the shots. The processors have to compete to the retailers, the supermarkets, so they squeeze the prices to the farmers. The farmers are the big losers too. They will be under pressure. Their prices will be lower and they will lose the value of their quotas. But we won't have to make sure that they are compensated fully for their quotas, they will be glad to get something rather than nothing if we maintain a tough line. The consumers end up paying more, but they don't notice it because policy nuts are really only a small part of their problems.

Minister: I can see that it will do some harm to my reputation in the farming community, and I have worked hard to be helpful and to gain their confidence.

Mandarin: There will be a difficult time for a short time, but the public has a very short memory. Before too long, you will then be in a position to take the high moral ground. Picture this Minister. You will be able to take a firm stand as a leader representing the primary industries, say again and again that everyone was meant to be better off, and should have been. You can demand, yes demand, to know where the consumer dollar goes, say the farmers have been shortchanged, and that things have to change. You will be seen then as sympathetic to the cause of the farmers, and their best friend in the Government.

Minister: What are the alternatives?

Mandarin: Minister, the alternatives will require real government money to provide support for real government programs - they will require more departmental staff to actually do something, therefore a special Cabinet submission for more funds, and will require you to argue in Cabinet against your leader. It would be very difficult.

Minister: What about the Opposition? They will have a field day at my expense!

Mandarin (with a slight and knowing smile): Minister, when they were in government, they were wise enough to do exactly the same thing with other industries in trouble. They have other more dramatic issues to use to attack the Government.

Minister: Well done! We will be seen as strong leaders, my reputation as a friend of the farmers will be enhanced, it won't cost us anything, and we can shake off any flak without trouble. Please start the paperwork moving and write my speeches and answers to questions. By the way, isn't the review of your performance bonus coming up? I will remember your help on this issue.

Mandarin: Thank you Minister.

(Postscript - some time later)

Minister to Mandarin:
I see that the CEO of a large supermarket chain has met with the policy nuts growers and has promised them that he will write a letter of support to our leader to save the policy nuts industry. Didn't he support deregulation very strongly, and didn't his chain do very well out of deregulation?

Mandarin: They certainly argued hard for deregulation and took the lion's share of the dollars. It means, Minister, that so many policy nuts growers have dropped out of the industry, he is worried about the reliability of the supply of policy nuts to his stores. He now wants to convince the farmers that he is on their side.

Minister: What do we do about the letter when it comes?

Mandarin: Nothing.

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