Propping up the potato barons

The humble spud is rarely a topic of serious political debate. However, a research paper written by an economics honours student at the University of WA has the potential to make spuds the political hot potato they ought to be in a pre-election environment.

Oliver Kerr, who is also studying law and has been known to play a reasonable game of hockey, has produced a document as devastating in its detail as it is exposing the terrible truth about why so many people believe WA potatoes are pretty awful.

Buried in his academic paper titled "the economic effects of regulation of the WA potato market", Kerr has exposed a series of unpalatable facts about potatoes in WA. First, they are expensive relative to other States. Second, taxpayers are being slugged more than $6 million a year for the privilege of propping up a handful of spud growers and thirdly, our spuds taste awful.

This last point is an extrapolation by Briefcase, and one the local potato industry will probably consider an exaggeration. But, from the mouths of babes (well, a 22-year-old student anyway) comes the revelation that the two most widely grown potato varieties in WA are the delaware and the nadine. These are not grown commercially anywhere else in Australia, which begs the obvious question, why?

And the answer is that they are big, fat, heavy potatoes and growers in WA, protected by the WA Potato Marketing Corporation, get paid by weight. No value is placed on taste or quality. Or, in Kerr’s economics focused paper: "This suggests that under competitive conditions there is no viable market for these varieties. It seems likely, therefore, that consumers do not prefer these potatoes where a wide choice is available."

And, that goes to the heart of WA’s potato disgrace. Decades of protection has not only produced an industry that is inefficient and produces expensive potatoes but it produces rubbish to boot.

Arguments over the marketing of potatoes in WA are not new. True socialists such as Agriculture Minister Kim Chance, defend the system and have retained the State-run corporation because they say it matches supply with demand, stabilises prices, and prevents over-production.

These have been the standard arguments since World War Two when potatoes were elevated to the status of "vital agricultural commodity", a status preserved in legislation drafted by the late John Tonkin when Minister for Agriculture in 1946 and who said in that year that – "there is no intention whatsoever to exploit the consumers but rather to provide them with a good product at a reasonable price". Good old Super-Tonk always was a bit of a joker, though he would not be laughing at the mockery made of his idealistic dream. 

What Kerr has done with his research, which has been published in the Melbourne Institute’s Quarterly Bulletin of Economic Trends, is expose the nonsense of ministerial argument (Tonkin and Chance) responsible for the WA potato corporation having the unique status of being the last remaining horticultural statutory marketing authority in Australia.

Using the devastating logic of youth and enough mathematical mumbo-jumbo to send Minister Kim back to the safety of driving a harvester at Doodlakine (such as: n = - log (1 – Q (r + p) / q / log (1 + r + p)) Kerr demonstrates the focus on supply (rather than demand), a licensing system based on acreage and payment on weight produced rather than quality, costs WA taxpayers $3 million a year "due to the excessively high price of potatoes and an artificially limited range of varieties".

As if a $3 million transfer from taxpayers to a handful of spud growers around Manjimup was not bad enough (you can get a couple of new schools for that), there was an even more direct cost last year of $3.7 million in withheld National Competition Commission payments because WA insists on keeping its potato corporation (a few more schools not built).

And, to add insult to injury, Kerr also uses Agriculture Department research (Kim’s own department) to demonstrate that potato farmers, with their acreage-restricted licences, tip $1 million worth of excess fertiliser on to their crops to maximise production of their heavyweight delaware spuds which no-one east of Esperance would eat.

To illustrate the point about excess fertiliser Kerr’s research shows that the average potato yield in WA is 38.4 tonnes per hectare, second only to Tasmania’s 45.1t/ha and way above New South Wales (23.3t/ha) and Victoria (28.6t/ha). Defenders of regulation might argue that the boys in Manjimup are just better farmers, which is highly unlikely – though there is no doubt they have a better business.

Financial returns to potato growers under WA’s taxpayer supported licensing system verge on an obscene $459 per tonne, more than double the $209/t to Tasmania growers and way above Victoria ($359/t) and NSW ($385/t).

As if the artificial boost from excess use of fertiliser to get the weight up and the ridiculous gap in financial returns is not sufficient proof, consider this evidence. Because potatoes in WA are so lucrative (thank you dear taxpayer) the percentage of potatoes measured against total vegetable production in WA is a whopping 19.1 per cent – six-times the share held by potatoes in unregulated Tasmanian horticulture, three-times the share in unregulated Queensland and more than double the market share in unregulated NSW.

In a nutshell, growing potatoes under a system of government protection is not only a goldmine in WA (thank you dear taxpayer), it is also arguably the last industry in Australia where no-one actually seems to care about what the customer wants – unless Minister Kim reckons that delaware and nadine spuds are actually the best in the world.

The final word, however, must go to student Kerr who says in the conclusion of his thesis: "Regulation of WA’s potato market yields benefits only to a select group of licensed farmers, but the costs are paid by the whole of society. Those who lose from regulation are consumers, who pay excessive prices for an artificially limited range of varieties of potatoes, and potential potato producers who are barred from entry to the market by regulation".

BRIEFCASE is still waiting for a return phone call from Consumer Protection Commissioner, Pat Walker, about the questionable statement by his department that unleaded fuel in WA is the cheapest in Australia, which it is not. He is probably just too busy and not avoiding issue.  However, it is interesting to note that the offending press release has been shifted from the front page of the FuelWatch site to the archives. Next stop for the statement: the rubbish bin.

"Socialism, is little better than a dusty survival of a plan to meet the problems of 50 years ago based on a misunderstanding of what someone said a hundred years ago.” – John Maynard Keynes.