Are we really better off without control?

Farmers frequently complain that they are exploited and ‘things were much better’ in the old days. Are they right?

Global farming - Dr Koos Coetzee

When I studied agricultural economics many years ago, four pieces of legislation were regarded as the cornerstones of agricultural policy.

These were:

  • The Marketing Act;
  • The Co-operative Act;
  • The Agricultural Credit Act;
  • The Soil Conservation Act.

These four acts governed much of the relationship between government and farmers. Since 1994, they have largely been replaced by other legislation. Various interest groups agitated for the old marketing schemes to be scrapped. It has to be said, however, that through their rigidity and arrogance, the control boards played into the hands of those in whose interest it was to remove control from the marketing chains.

Was the changeover too rapid?
A major change occurred when the Marketing Act was replaced at the beginning of 1998. The first action taken under the auspices of the new act was to close down all the former marketing boards. This was done with an unseemly haste that surprised even some of the authors of the act.

Suddenly farmers who were used to a regulated marketing environment were left to fend for themselves.

In time, the agricultural sector came to realise that there were crucial functions that could only be done collectively. The maintenance of quality standards, provision of marketing information, generic product promotion, transformation and export promotion were the main functions identified for collective action.

No intervention in the marketing channel
The various agricultural industries applied successfully for statutory funding and created organisations to perform these collective functions on their behalf. However, none of the schemes allowed any intervention in the marketing channel.

There are well-known agricultural officials who are proud of their role in removing the marketing chains. As one journalist recently put it in no uncertain terms, “[This] single-handedly resulted in the breakdown of the marketing system”.

Farmers, on the other hand, frequently complain today that they are exploited and that ‘things were much better’ in the old days.

Under the previous marketing schemes, prices were closely managed. In the grain marketing chains, for example, the producer price, manufacturer’s price and retail price of many products were controlled.

Single-channel marketing schemes were also vigorously enforced, and people were actually prosecuted for contravening the single-channel regulations.

To take just one example, it was illegal for a farmer to sell maize to a neighbour. Every producer was compelled to sell at a specified price to the local co-operative, which was appointed as an agent for the Maize Board.

A fair price for their products
Producer prices were determined by government and were largely based on a cost-plus approach. Although the system was undoubtedly rigid, it ensured that farmers received a ‘fair’ price for their products.

When the grain schemes closed down, farmers no longer received a standard price, and processors and retailers no longer had to abide by fixed prices.

Logically, retail prices should be related to producer prices. A look at the relationship between producer and retail prices shows that this is unfortunately no longer the case.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy.