2. Arguments and Available Evidence on Deregulation
Statutory Single-buyer Status (“the Single Desk”)
The most important of all potential Producer Board reforms is allowing producers a choice of exporter. This paper, in referring to “deregulation”, is primarily concerned with removing the barriers to contestability in agricultural export marketing.
The Dairy, Apple and Pear, and Kiwifruit Boards are formed by statutes and regulations which makes them the sole licensed New Zealand exporters of produce for their industries. This does not, however, make them monopoly sellers because they compete against exporters from other countries. New Zealand dairy exports account for less than 2% of world dairy production; apple exports 1.7% of the world total; and kiwifruit exports approximately 25%[4] They are also relatively small when compared to their competitors (see table 1 below).
However, these Boards are the monopsonistic[5] buyers of New Zealand produce intended for export (this can also be expressed as monopolistic suppliers of marketing services to New Zealand producers). New Zealand export producers therefore have no choice of marketer and single-buyer Producer Board legislation acts to restrict competition for their supply.
The effects of this statutory monopsony can be divided into static effects – as at a point in time – and dynamic effects – on the industry’s resource re-allocation over time and medium-term growth rate. The static benefits and risks of contestability include those related to market power, weak selling and incentives for efficiency and effectiveness. The dynamic benefits and risks of contestability include incentives to innovate and use capital productively, commercial flexibility, investment and technology and value added.
Notes
- [4]New Zealand’s market share in fruit exports is higher during the Southern Hemisphere season – approximately 63% for kiwifruit and 11% for apples - but this is being eroded by greater ability to store Northern Hemisphere produce in Controlled Atmosphere storage.
- [5]A monopsonist is a single buyer (as opposed to a single seller). This means that it can exert its dominance over the people or firms who it buys goods from. In this case, Producer Boards can exert dominance over producers.
