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Prophets of loss

It implies that fighting the government is either not possible or not worth it, but sucking up helps

IT IS generally believed that, psychologically speaking, losses are twice as powerful as gains. That is, there is a strong tendency to prefer to avoid a loss rather than acquire a gain.

Known as loss aversion, it explains why someone who loses $100 will lose more satisfaction than another person will gain satisfaction from winning $100.

The push within the grains industry for a “voluntary” code of conduct is difficult to explain as anything other than loss aversion. The justification offered is that it will prevent something worse. There is no gain.

It is based on the assumption that the freedom to use crop chemicals is in danger of being restricted by regulators. A code of practice representing “best practice”, it is claimed, will head that off.

There is nothing inherently wrong with a voluntary code of practice. Those to whom it is relevant can choose whether or not to comply. Ignoring it is a valid option.

However, there are two problems when it is based on loss aversion. One is that there is no positive incentive. No advantage or benefit is available to those who adopt the code. The other is that it can really only work if it is compulsory. After all, if the regulators really are contemplating imposing something on an industry, it is not much deterrence if the code is only adopted by half of those to whom it could apply.

In fact, there are numerous examples of voluntary codes of practice being incorporated into legislation and subject to government enforcement. When that happens, ignoring it could land you in court.

The theory that onerous government intervention can be averted by a less onerous code of conduct is relatively common, particularly among people who believe they lack political power. It implies that fighting the government is either not possible or not worth it, but sucking up helps. It is frequently promoted by those whose career is based on ‘government relations’.

Perhaps that explains why it is being promoted by Grain Producers Australia (GPA), the organisation aspiring to become the peak body speaking to government on behalf of the grains industry.

Last year GPA tried to convince the government that grain growers were not capable of marketing their grain themselves and should continue to pay a levy to fund quality control and market information measures. It failed.

More successful was WA’s Pastoralists and Graziers Association (PGA), which convinced the government that contrary to GPA’s assertion of “market failure”, the market was quite capable of dealing with these issues.

The philosophical difference is pretty obvious. GPA believes in collective action and is willing to enlist the law to impose its views. The PGA believes in free markets and non-compulsion.

As to the view that a code of conduct will help, there is little evidence to support that. The cotton industry is the only one I can think of that might have headed off a regulatory problem with such a code, and even that is arguable. The rapid decline in chemical use following the introduction of GM cotton may have had the same effect by itself.

Moreover, there is plenty of precedent to show that governments can be fought and beaten. On deregulation of wheat exports there was pressure from elements of the Coalition and other farmer organisations, yet the PGA was successful in convincing the government that full deregulation was justified.

If there were to be a move by regulators to restrict access to chemicals by grain growers, there would be ample opportunity to put up a fight. Grain exports are a vital contributor to our economy and there are compelling reasons why it should not be hobbled.

I’m pretty sure the PGA would be in there fighting hard, and judging by its record it is likely to be pretty persuasive.

The GPA, on the other hand, I’m not so sure about.

  • David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at reclaimfreedom@gmail.com
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    READER COMMENTS

    Real Farmer
    24/04/2013 5:12:41 PM

    Leyonhjelm has again demonstrated his ignorance and arrogance misrepresenting the work that GPA has and is doing. GPA fought hard to balance the market power of bulk handlers and PGA sought to empower CBH in the hope of a windfall when it is demutualised. In fact David, GPA was very effective and the conditions of passing of the wheat Bill were much more favourable and in fact acknowledged the market failure that did and continues to occur in the grain market. There have been moves to restrict access to and use of chemicals and GPA has been effective in averting that so far too.
    seethelight
    25/04/2013 12:37:39 PM

    Leyonhelm; 'ignorant and arrogant'.You mean he doesn't know and doesn't care,Real Farmer?Why should he,when your 'facts' concerning the PGA's objective is to maximise CBH's windfall value by giving CBH greater powers is a fantasy.Just this week the Competition Tribunal stripped CBH of its monopoly transport powers. A decision welcomed by the PGA. You can find the story in the Farm Weekly. And while your on your fact finding mission, search for Bunge,Bunbury,Port and you will find that the PGA were instrumental in this development. Does the loss of monopoly privileges increase CBH's value?
    Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

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