text: Single Desk Selling and The NSW Grains Board - Selling A Pup To The Public
  Bob Farquharson and Garry Griffith (NSW Agriculture)
  The debate about Government-mandated agricultural marketing arrangements was given a new direction in 1995 with the agreement of the Council of Australian Governments on a net public benefit test for legislative review ( Council of Australian Governments 1995 ). The focus in policy analysis was shifted from the previous justification of 'improved marketing', from the producer's perspective, to that of a broader societal view.
  A recent Review conducted in the net public benefit context ( NSW Government Review Group 1999 , Farquharson and Griffith (2001) ) showed that the estimated gains from restrictions to competition written into the NSW Grain Marketing Act 1991 were not likely to be positive. Overlaying this review process has been the much-publicised bankruptcy of the NSW Grains Board. The reasons for that failure have been investigated, and further review processes are continuing. However, we contend that the operational reasons for the financial failure are not necessarily connected to the above public benefit test finding, and that this is an important point to make in the policy debate. In this paper we review the NSW Grains Board analysis of Farquharson and Griffith (2001) in the context of recent industry developments.
  All members of COAG endorsed a Competition Principles Agreement to review legislation that restricts competition ( Milham and Davenport 1999 ). The Agreement required that legislation should not restrict competition unless it could be demonstrated that the benefits to the community as a whole outweighed the costs, and that the objectives of the legislation could only be achieved by restricting competition.
  Three types of price premiums are possible (Meyers Strategy Group 1996) - competitive, market restriction and price discrimination (see the first box). Of these, price discrimination was the only one considered relevant in a restrictions-to-competition context. However, we need to be careful in considering the concept of price discrimination. Lipsey, Langley and Mahoney (1981) noted that price discrimination often has a bad reputation. It is prohibited under Section 49(i) of the Trade Practices Act (in relation to the prices charged to different purchasers), but judging whether price discrimination is good or bad depends on the details of each case, as well as personal value-judgements.
  Types of price premiums
  A seller or marketer of a product can obtain three types of price premiums. These are:
  competitive premiums reflecting normal pricing activities of suppliers attempting to achieve the highest possible price in a market and/or gain a sale over a competitor;
  market restriction premiums which can be generated as a result of intervention by governments in a market such as the use of quotas, tariffs, subsidies or taxes; and
  price discrimination premiums resulting from the ability of a supplier to price discriminate to customers, or 'price to market', based on some market power.
  Of these the first two were not considered relevant in a Competition Principles context, but the third was. Vesting and single desk arrangements are commonly associated with market power and price discrimination premiums and these were the focus for the review.
  Was the NSW Grains Board able to price discriminate? In theory the restrictions to competition can generate a benefit to producers in an agricultural industry through effective price discrimination. This involves using legislative fiat to acquire stocks of produce and adjust quantities sold in different markets, impacting on prices received and raising revenue for producers. The first question above asks whether the Board was able, in theory and practice, to price discriminate. The necessary conditions for this question are discussed in this section, and evidence for the sufficient conditions is presented in the next. These sections follow closely the information presented in Farquharson and Griffith (2001) .
  The existing price and quantity information in each market was the starting point for the analysis of benefits and costs of the arrangements. The requirement was to estimate the prices and quantities that would have occurred in each market, if price discrimination were not practised , ie if the law of one price prevailed. With this information the producer revenues and consumer/end-user impacts of removing the competition restriction could be valued. The methodology developed by the Centre for International Economics (1997) was used to make these calculations.
  The methodology, assumptions, analysis and results used in this evaluation are presented in Farquharson and Griffith (2001) . The graphical representation of price discrimination is presented in Figure 1. The observed domestic and export prices under the current (price discrimination) arrangements are Pd and Pe, respectively. Using assumptions about the demand elasticities in each market and an equilibrium equation, the equilibrium price Pc was then calculated. This information, together with observed prices and quantities, allowed estimation of consumer and producer benefit levels associated with price discrimination compared to the perfect competition case. These benefits are calculated using the concepts explained in the second box.
  Economic surplus concepts
  Consumers are said to receive utility or surplus from the purchase of a good or service if the price they pay for the good or service is less than the price they would have been willing to pay. If their willingness to pay is represented by their demand curve, the area under the demand curve and above the price line typically measures consumer surplus (to all consumers).
  Similarly, producers are said to receive surplus from the sale of a good or service if the price they receive for the good or surplus is greater than the price they would have been willing to accept. If their willingness to accept is represented by their supply curve, producer surplus (to all producers) is typically measured by the area above the supply curve and below the price line.
  For a best estimate of the export demand elasticity of -10, the results indicated a net gain to grain producers of $0.206 million per annum, a net processor/consumer loss of $1.235 million per annum, and an overall net cost of $1.029 million per annum. These results assumed that the Board knew with certainty the values of export demand elasticities, and further that it used that knowledge to maximise returns to growers. In sensitivity analyses these assumptions were relaxed, but the results were seen to be quite stable and there was never likely to be a net (positive) benefit for the NSW economy as a whole from price discrimination in malting barley markets.
  A Public Accounts Committee of the NSW Parliament found that reasons for failure of the NSW Grains Board included a conflict between the Board structure and incentives, industry change, the high growth strategy pursued by the Board in later years, and other operational factors ( Public Accounts Committee 2001 ). These reasons are not related to the public benefit test. However, there is a link in that the high growth strategy appears to have been prompted by the deregulatory push and the review under National Competition Policy (NCP) guidelines ( Wyatt and Allen 2000, p. 3 ).
  The transfer of product from domestic to export markets leads to higher prices paid by domestic consumers or manufacturers, a transfer of surplus in the domestic market from consumers or manufacturers to producers, and an associated efficiency loss to consumers or manufacturers. Product shifted to the export market is likely to earn a lower price with no net gain. However, there are other broader considerations that can be considered in considering such arrangements ( Lipsey et al. 1981 ).
  A review of the national Wheat Marketing Act by an independent Committee also considered the effects of single desk selling of bulk export wheat ( Irving, Arney and Lindner 2000 ). This Committee could not find clear, credible and unambiguous evidence that these arrangements for the marketing of export wheat were of net benefit to the Australian community.
  The Federal Government response was to retain the legislative underpinning for Australia's single desk arrangements for exporting wheat ( Truss 2001 ), with a possible review in 2004 depending on government political decisions.
  For barley, the deregulation of the Victorian industry in 2001 ( Brumby and Hamilton 2000 ) occurred on the basis that there was no compelling reason for an export monopoly and that this was expected to stimulate investment and innovation. While the South Australian and NSW ( Amery 2000 ) industry regulated arrangements have been maintained, the Victorian move will provide additional dynamics and a test of state allegiances.
  This is no doubt being driven by commercial pressures, but also by the public inquiry process in the competition policy framework as evidenced in Irving et al. (2000) and NSW Government Review Group (1999) .
  Amery , Richard (2000), 'State Government Retains Vesting Powers of NSW Grains Board', Media Release, Minister for Agriculture, Sydney.
  Brumby , John and Hamilton, Keith (2000), 'Victoria opens its $102 million barley market to export competition', Media Release, Minister for Agriculture and Office of the Treasurer, Melbourne.
  Farquharson , R.J. and Griffith, G.R. (2001), 'Single Desk Selling by the NSW Grains Board: Public Benefit or Public Cost', Australian Agribusiness Review , Paper 6, Volume 9. Available on line at: http://www.agrifood.info/review/2001/Farquharson.html
  Griffith , G.R. and Mullen, J.D. (2001), 'Pricing-to-market in NSW rice export markets', Australian Journal of Agricultural and Resource Economics 45(3): 323-334.
  Irving , Malcolm, Arney, Jeff and Lindner, Bob (2000), National Competition Policy Review of the Wheat Marketing Act 1989 , NCP - WMA Review Committee, Canberra.
  Lipsey , Richard G., Langley, Paul C. and Mahoney, Dennis M. (1981), Positive Economics for Australian Students , Weidenfeld and Nicolson, London.
  Milham , N. and Davenport, S. (1999), 'Plant and Animal Health Regulation: Some Competition Policy Issues', Agribusiness Perspectives , Paper 19. Available on line at: http://www.agrifood.info/perspectives/1998/Milham.html
  NSW Government Review Group (1999), Review of the NSW Grain Marketing Act 1991: Final Report , The Government of New South Wales, Orange.
  Public Accounts Committee (2001), Inquiry into the Collapse of the New South Wales Grains Board , Report 10/52 (No. 128), Sydney.
  Truss , Warren (2001), 'Wheat single desk to remain', Media Release, Minister for Agriculture, Fisheries and Forestry, Canberra.
  Wyatt , S. and Allen, L. (2000), 'NSW Grains Board losses top $8.5m', [Online]. Available: http://afr.com/news/20000728/A34723-2000Jul27.html [2000, 28 July].