1.  Introduction

This report reviews the arguments and evidence for and against deregulation of Producer Boards and assesses whether deregulation is likely to generate net benefits for producers and the New Zealand economy. The report focuses on single desk Boards (primarily dairy, apple & pear and kiwifruit).

Deregulation has both potential costs and benefits. This paper concludes that benefits are likely to outweigh costs. However, neither this conclusion, nor the case for single-buyer status, can be definitively proven (The perceived benefits of deregulation will therefore rest heavily on the degree to which, on the basis of experience in other industries and overseas, contestability is likely to deliver better incentives for efficiency, innovation and investment. The arguments in this report are generally supported by the experiences of other countries which have deregulated their single desk agricultural exporters.

Each Producer Board industry is unique, and specific features of each are discussed. However, many of the arguments for and against deregulation are common to all relevant industries because they relate to the benefits of contestability and (potentially) demutualisation.[2]

Historical Context

Producer Boards were generally formed in New Zealand before World War 2 to (a) coordinate exports to Britain and (b) attempt to countervail the purchasing power of large British buyers. However, single desk powers were not generally conferred until World War 2 and shortly afterwards, when they were seen as a way to coordinate produce flows, thereby combating problems with disrupted transport (Purvis and Chan, 1995).

Apart from introduction of the Kiwifruit Marketing Board in 1988-89, the general trend since the 1970s has been one of decreasing Government intervention in agricultural marketing, eg. removal of Supplementary Minimum Prices.

Legislative Backing

The three Boards which this paper focuses on all have legislative backing. The Dairy Board is formed by the Dairy Board Act 1961; the Apple and Pear Marketing Board is established by the Apple and Pear Marketing Act 1971; and the Kiwifruit Marketing Board is formed by the Kiwifruit Marketing Regulations 1977 under the Primary Products Marketing Act 1953. Although each is different in some respects, the statutes and regulations generally give the Boards the power to:

• acquire and market all produce intended for export;

• determine quality standards and payments to producers;

• provide and take funds from marketing revenues for various industry-wide activities including representation and research and development; and

• undertake the commercial actions of a “natural person” in doing so.

It is an offence for other individuals or corporations to export products controlled by the Boards without a licence. The issue of export licences is controlled by the Boards.

Objective of Agricultural Marketing Regulation

For the purposes of this paper, the assumed objective is to provide maximum net sustainable benefits to the New Zealand economy. Because consumers of exported produce are not in New Zealand, this equates to ensuring that the resources used in generating those exports in New Zealand, including in farming and orcharding, earn the highest possible return over time.

Issues in the Producer Board Debate

Debate over Producer Board deregulation often confuses two separate issues – the incentive and governance effects of cooperatives and the effects of the single-buyer structure. Issues raised by deregulation therefore include:

• allowing Boards to undertake normal commercial practices, including changing corporate form, diversification of their businesses, raising equity, etc. (“cooperative” issues); and

• allowing other firms or individuals to export without statutory restriction, thereby giving producers the ability to choose how and by whom their produce is exported (“single desk” issues).

A number of other issues, including funding for research and development and management of access to tariff quota markets, are related to the debate. However, these issues can be addressed in alternative ways and should not, therefore, be central to the deregulation decision[3].