MAF Policy Conference Papers in Agricultural Economics
1994
MAF Policy Technical Paper 94/4
ISSN 1171-4662
ISBN 0-478-07353-4
Compiled by: Dr R W M Johnson
for
MAF Agriculture Policy
Wellington
April 1994
Disclaimer
While every effort has been made to ensure that the information herein is accurate, the Ministry of Agriculture and Fisheries does not accept liability for errors of fact, omission, interpretation or opinion which may be present, nor for the consequences of any decision based on this information.
Any views or opinions expressed do not necessarily represent the official
view of the
Ministry of Agriculture and Fisheries.
(c) Crown Copyright - Ministry or Agriculture and Fisheries 1994
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise stored in any retrieval system of any nature, without die written permission of the Ministry of Agriculture and Fisheries.
For additional information
Comments on this paper, including errors of fact, be appreciated and
omission and interpretation, would should be sent to the Director responsible for the
foreword.
Enquiries about this publication should be directed to:
Mrs Jackie Hill
Manager
MAF Information Bureau
P 0 Box 2526
WELLINGTON
Telephone (04) 498-9850
Facsimile (04) 894 0720
FOREWORD
I welcome the publication of this third edition of conference papers prepared by members of the staff of MAF Agriculture Policy. The previous volume contained all the 1993 conference papers. I support the effort that has gone into their preparation as the material complements the daily input into policy advice that this Ministry is committed to perform.
I should make it clear that these papers are the views of the individual authors and that they do not necessarily represent official MAF views.
However, I believe that research studies and the preparation of papers for peer review should be encouraged if the Ministry is to continue to give high quality advice to Ministers and other Departments on the issues that come within its responsibilities.
I recommend the reading of these essays to anyone who is interested in the policy formation process and the issues in the agricultural sector that they address.
John E Askwith
Director
Policy Services
MAF Policy
INTRODUCTION
This volume of Technical Papers is made up from contributed papers of MAF Agriculture Policy staff and ex-staff to the 38th Annual Conference of the Australian Agricultural Economics Society held at Victoria University 8-12 February 1994. They are brought together in one volume to encourage staff to read them and to make them available to the interested public.
The first paper discusses recent developments in the rules for international trade particularly with regard to the agreements reached in November 1993 to bring about the conclusion of the Uruguay Round of the GATT. As part of those agreements, the GAIT Agreement specified the content of the policy measures which would be exempted from agreed domestic support commitments. Domestic support commitments are the schedules of commitments that individual countries will have to supply to the GAIT secretariat that indicate a reduction in government support for industry. The exemptions are those policies which do not have a distorting effect on production and trade.
The implication of these agreements is that if governments wish to provide assistance for social reasons to a particular sector, then they must be consistent with the rules agreed to in the GAIT agreement. Thus special criteria have been developed for judging whether direct payments paid to producers are consistent. Decoupled income support should not be related to, or based on, the type or volume of production, or to prices, applying to any product or factors or production employed. The paper discusses these rules and then goes on to analyse whether social programmes for the rural sector are consistent with the intentions of the agreements. Examples are drawn from the New Zealand welfare experience.
The next paper is concerned with rural development. In recent years, the Ministry of Agriculture and Fisheries has been concerned to more clearly define what its functions and responsibilities are. With respect to rural development, the Minister has agreed that the Ministry outcome should be to improve the quality and level of rural services, including information services, so that rural dwellers can make informed decisions for themselves. The emphasis is on rural dwellers and not on farmers and their families. The aim is to facilitate improvements in service levels through self-help schemes.
The paper brings out the changes that have taken place in government's approaches to rural development. There has been a swing away from programmes and policies dictated from the centre to the facilitation of projects developed by rural people interested in the development of their area. This has considerable importance in an international sense for rural development. It is widely agreed that all levels of society should have a say and be consulted on economic, social and environmental matters, This approach emphasises the relationships between humans and nature and requires the commitment and full participation of all stakeholders in decision-making.
In short, this paper brings out that rural society can be seen as a dynamic whole where the welfare of people involved can be enhanced by government action. The emphasis is on self-help and a reduction in direct government involvement.
The next paper is concerned with the environment and pollution. One of the tenets of environmental legislation is that polluters must pay for any damage they cause. This is sometimes called the internalisation of externalities (e.g. how to get water users in a catchment to agree on rational water sharing schemes where upstream users can ignore the wants of downstream users). Difficulties arise in the resolution of problems where the damage caused cannot be attributed to any particular individual (farm water runoff that affects downstream quality).
This paper discusses the methods whereby the responsibility for managing such resources can be transferred to the group involved rather than the individuals. It discusses the farm runoff problem and also cases where impacts on marine mammals follow intensive fishing effort. The solution suggested is to establish the group who has collective responsibility for causing the environmental effect. It is suggested that regional councils might have this role in the case of farm runoff and catchment management consortiums be formed to identify the respective groups.
In the case of marine mammals, it is suggested that government devolve certain management responsibilities to associations of quotaholders who would be required to meet environmental standards set by government, The principle standards would be sustainable catch limits and restrictions on fishing methods which adversely affected marine mammals.
The next papers are concerned with the state of the deer farming industry in New Zealand and the conflict between forestry and pastoral agriculture on the pastoral hinterland.
The concern of the deer farming paper is to bring together all of the available information on recent supply and demand trends for the industry. This includes both New Zealand and international components. The deer industry has changed from a sporting activity to a commercial harvesting activity in recent years. In addition, there had been earlier recognition that excessive numbers of deer were having adverse effects on indigenous vegetation.
The commercialisation of deer farming has brought feral numbers of deer under control and created a farming activity with significant export returns. The paper sets out a great deal of information on the international markets that are supplied by the New Zealand industry including trends in consumption, prices, and production. The paper then goes on to discuss production and prices in New Zealand and the factors which affect growth of the industry. The paper ends with a discussion of an econometric model which brings together both the international and the domestic components of the industry.
The conflict of pastoral farming with forestry planting is a relatively new one in New Zealand. Most of the pastoral area was cleared of forest in the first place and English pastures established in its place. For many years the relative economics of pastoral products and forest products favoured continued pastoral utilisation of such land. More recently, world prices of sawn timber and unprocessed pine logs have moved in favour of forestry.
This paper examines the options facing landowners in the Taranaki area on the relative economics of the two industries. The paper recognises that profit and risk are both components of the farm decision process. Budgets are therefore evaluated using profit forecasts based on gross margins, and risk estimates based on the variability of production and price parameters. The models used identify the highest expected net revenue for a given level of risk. The results show that Taranaki landholders could well plant a proportion of their farms in Pinus radiata with increasing future returns and a reduction in the risk taken. Farmers willing to take higher risks could plant a larger proportion of their farms to forestry.
The last paper in this volume concerns the application of public choice theory to agricultural policy decision making in New Zealand. The paper as presented is an abbreviated version of the presidential address to the Australian Agricultural Economics Society on February 8th 1994 and includes some new material. Public choice emphasises that politicians and bureaucrats tend to take self-interested attitudes to the policies they endorse and that they have an undue concern for the political interest groups which put pressure on government. Such policies are called private-interest policies and may be compared with public-interest policies which are designed to meet the greatest good of the greatest number.
The paper takes 18 agricultural policy propositions put in place over recent years and examines them from a private and a public interest point of view. Six criteria are developed to make the necessary judgements about the status of the policies. It turns out that the majority of policies examined lie in the realm of the public interest but there have been exceptions, particularly in the period of export lead growth in New Zealand, where definite transfers of power and resources to the private sector have taken place. Even in these cases, it was a majority decision of the government at the time that such transfers were in the national interest. This was even agreed by Treasury at that time! The usefulness of this approach is that it clarifies for politicians and bureaucrats whether a particular policy proposal is worth considering and whether the national interest, which should be paramount, is fully met by the proposal.
R W M Johnson
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