Guest post from Rod Bogaards
The humble spud is not normally front and centre of economic debate. But news that Western Australians will finally be able to freely grow, market and buy potatoes provides an interesting case study of how difficult (and expensive) regulatory reform can be in Australia, and the inordinate time redundant and costly regulation can survive on the statute books.
It also serves as a cautionary tale for Queenslanders, with the Queensland Parliament recently re-regulating the sugar industry as the rest of the country largely consigns agricultural marketing regulation to history.
WA is abolishing its ‘potato police’, while Qld has re-regulated its sugar industry
The WA potato industry was regulated just after the Second World War through the Marketing of Potatoes Act 1946. Under the Act, potatoes could only be sold by licensed potato growers through the WA Government’s statutory marketing authority, the Potato Marketing Corporation (PMC). Licences determined the quantity and variety of potatoes produced for fresh consumption.
The regulatory powers of the PMC were extensive. It was an offence to deliver, sell or receive potatoes without its authorisation. It had the power to search premises suspected of growing potatoes illegally and impound crops for evidence. It could also stop and search vehicles if it suspected they were carrying more than 50 kilograms of potatoes.
Because of these broad powers, the PMC was affectionately referred to as the ‘potato police’. Potato grower, Tony Galati, was taken to court on numerous occasions for selling in excess of his potato quota and giving away ‘illicit’ potatoes for free.
The PMC set wholesale prices and pooled sale proceeds, paying growers an average return after deducting its own costs. Licences were originally based on farming area, creating an incentive to grow high-yielding varieties of potatoes, to maximise area yield, rather than lower yielding varieties generally preferred by Australian consumers. As a result, the WA potato market was dominated by the Nadine potato, which in some years contributed over 70% of total production. The Nadine is considered by many to be watery and tasteless and is far less common in deregulated eastern states markets.
In an attempt to better match production to consumption preferences, in 2006 the PMC set allocations for different potato varieties. In 2012‑13 it set 65 per cent white, 16 per cent blue, 11 per cent red and 8 per cent yellow varieties. Growers were forced to meet the required allocation associated with their licence even though their land might not be suitable for particular varieties. Despite these attempts at improving potato variety the regulated market in WA continued to concentrate production into just a few varieties.
In a recent inquiry WA’s Economic Regulation Authority (ERA) concluded that:
“… restrictions on potato marketing have raised the incomes of potato growers in Western Australia. However, this has been at the expense of Western Australian consumers, who have paid higher prices than they would have otherwise, have had a limited choice of potato varieties, and have endured poor product quality. The restrictions have also limited productivity growth in the industry. The ERA estimates that approximately $43 million per annum would be passed through to consumers in the form of lower prices should the industry be deregulated.”
There were many failed attempts to abolish potato marketing regulation, including through the National Competition Policy process in the early 2000s. In 2016, after 70 years, deregulation is in sight. But there is a sting in the tail for WA taxpayers because they will be funding the $14 million ‘adjustment package’ for potato growers. This is effectively payment for extinguishing grower monopoly licences, even though most growers had been allocated their licences at no cost and those that paid for them had held them for a sufficient time to earn a good return.
The long road to deregulate the marketing of a simple household staple is a sobering reminder of the challenges to achieving regulatory reform, which are amplified in more significant areas of public policy.
Rod Bogaards is an economist and former Director of the Productivity Commission.