2001, Volume 9, Paper 6
ISSN: 1883-5675
Single Desk Selling by the NSW Grains Board: Public Benefit or Public Cost?
R.J. Farquharson and G.R. Griffith
Abstract
In this paper we report an economic analysis of the activities of the NSW Grains Board over the period 1992 – 1998. This work was undertaken in conjunction with a NSW State Government review of the legislation that grants powers of vesting and single desk selling to the Board, powers that can be considered as restrictions to competition. A net public benefit test was used as the basis for the review. Economic trade theory, institutional arrangements and econometric analysis were used to conceptualise conditions necessary and sufficient for price discrimination to be present, and then estimates were made of the dimensions of the social benefits and costs associated with the price discrimination behaviour. The main results were that for sales of malting barley the Board’s activities were found to deliver a net benefit to producers, but domestic prices were higher resulting in a net overall social cost. No net benefit to producers was found for feed barley or canola.
Resulting from the review, a report was submitted to the NSW Minister for Agriculture in July 1999. The Government announced in August 2000 that the NSW Grains Board would continue to hold vesting powers for the next five years. Following a concurrent investigation of the Board’s financial position, severe financial problems were identified and the Board acted to find an equity partner. In October 2000 the Minister announced an agreement between the NSW Grains Board and Grainco Australia Ltd of Queensland, whereby Grainco purchased exclusive export rights for barley, canola and sorghum grown in NSW and domestic vesting rights for malt barley. The Grains Board bankers were to absorb most of the accumulated losses.
A Public Accounts Committee of the NSW Parliament subsequently reported on the collapse of the Board and identified a number of reasons, including a conflict between the Board structure and incentives, industry change and a high-growth strategy pursued in later years. Other operational factors also contributed. These reasons are quite separate to the net public benefit test reported in this paper. There are valuable lessons for government and corporate entities in the Public Accounts Committee Report, but the analysis presented in this paper deals with a separate issue. It casts doubt on the argument for granting monopoly powers in agricultural marketing, from a societal point of view. This potential drawback should be considered a primary objection to such schemes; the operational failings identified elsewhere are additional considerations.
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