AN amazing thing happened just before Christmas. A committee of inquiry recommended that the government do nothing. And the government accepted its recommendations.
This is almost unheard of in modern Australia. Our governments are totally addicted to “doing something”, even when a problem is more imagined than real. Doing nothing is a very rare event.
The subject was the inquiry into wheat stocks information undertaken by the Wheat Industry Advisory Taskforce. Its six recommendations were to the effect that there is no need for additional intervention by government to increase the provision of information about stocks and that if more information is needed, it is up to industry to provide it. It even suggested how to go about this.
Agriculture Minister Barnaby Joyce immediately accepted the committee’s recommendations.
The basis of the Taskforce decision was whether there was “market failure”, a concept in economic theory that describes when the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better off without making someone else worse off.
At issue was whether a lack of information about wheat stocks was preventing the market from operating efficiently and, if so, whether the government ought to intervene.
This debate is not really about market information though. It is a legacy of the abolition of the export single desk. A dogged rear-guard action has been fought to retain government involvement in the wheat market by those who do not believe in free markets.
Their dream is to restore the single desk, but until that’s achieved they regard any government involvement as better than none.
And for once Labor is not the culprit. When the legislation deregulating the wheat market was examined by the Senate’s Rural and Regional Affairs and Transport Legislative Committee, it was certain Liberal and Greens senators who wrote a dissenting report arguing that it was “too soon” for the wheat industry to be left to its own devices. To them, “too soon” is a euphemism for “not in my lifetime”.
What the Taskforce found was that there were quite divergent views as to what kind of information was considered necessary to make the market sufficiently transparent, with some inferring that you can never have too much.
However, it also noted that there was a lack of willingness to pay for this information. While there was support for the role of the previous ABS/ABARES reports, compiled at taxpayer expense, the industry could not agree to continue these once external funding was required.
The Taskforce also found that requiring stocks disclosure under a mandatory system would impose a significant regulatory burden and cost to industry that would outweigh the benefits generated to the market. It even suggested that, while additional information may be beneficial in times of low stocks, it may reduce prices when supplies are high.
WA’s Pastoralists and Graziers Association, which supported continued disclosure of stocks under existing port access undertakings, argued that prices for WA wheat had risen since the market was deregulated and disclosure of aggregated private up-country holdings was no longer required.
The Taskforce nonetheless recommended that grain handlers consider voluntarily sharing stocks information via an independent third party. Known as a pooled sales audit, this approach is used in certain industries where the participants agree that greater transparency would be valuable. Indeed, my company is the independent third party for three such audits.
But whether the information would be all that valuable is another matter. While economic theory says markets are most efficient when all participants have perfect information, there is no such market in reality. Moreover, that does not indicate market failure or justify government intervention. There is probably no market ever invented that has been improved by government intervention.
Notwithstanding the Taskforce’s findings and the government’s acceptance of its recommendations, those seeking to re-regulate the wheat market will not rest. The taskforce is still to consider the issue of wheat quality and whether the government can do a better job than the market at matching growers, varieties and processors. There will be plenty urging the government not to allow doing nothing to become a habit.
To read the Taskforce report visit: www.wheattaskforce.gov.au
David Leyonhjelm has been an agribusiness consultant for 25 years and was recently elected to the Senate for the Liberal Democrats. He may be contacted at firstname.lastname@example.org