21/12/2015 - 09:46

Staring down the regulators

21/12/2015 - 09:46

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The Spud King’s battle with potato regulators is a flagship fight for those who want to cut red tape.

Staring down the regulators
ONGOING: Tony Galati remains embroiled in a legal fight with the PMC. Photo: Attila Csaszar

The Spud King’s battle with potato regulators is a flagship fight for those who want to cut red tape.

Potato grower and businessman Tony Galati has emerged as the people’s champion in his fight for a deregulated industry, despite a recent court setback in his battle with the Potato Marketing Corporation.

Mr Galati’s battle with bureaucracy has a parallel in the transport sector in Western Australia, where regulators are struggling to keep pace with the challenge thrown down to the taxi industry by disruptive ride-sharing service Uber.

In both cases, incumbent players have unwittingly highlighted the need for change by their (sometimes) stubborn refusal to adapt to the modern market.

It’s a fight that goes back decades for Mr Galati, who grew up in an immigrant family and was unable to speak English when he first started school.

The latest battlefront opened last year when the state government’s Economic Regulation Authority recommended deregulation of the industry in its microeconomic reform review.

That led to some of the state’s 78 growers exceeding their production quotas, putting a huge excess supply on the market.

To clear the surplus, Mr Galati gave away hundreds of tonnes free of charge at the opening of a new store in his Spudshed chain over summer.

Industry regulator the Potato Marketing Corporation had different ideas, claiming the potatoes should be destroyed or fed to cattle.

The regulator dug in, arguing it would pursue legal recourse against Mr Galati, who is the state’s biggest producer.

Speaking to Business News in February, Mr Galati said he’d rather to go to jail than be fined by the corporation for doing what he loves.

In the following months, the Labor Party advanced its position of deregulating the industry if it should win the next state election, while Shooters and Fishers representative Rick Mazza MLC added his voice to those in the deregulation corner.

A further blow for the 69-year-old PMC came from criticism within the Liberal Party, and the issue ignited some weeks later with federal ministers condemning the regulations in the leadup to discussions on the GST distribution.

In April, Premier Colin Barnett announced he would support deregulation after the next election, or earlier if the industry agreed.

New directors were appointed to the board of the PMC with a view to that end.

That didn’t stop a court battle over Mr Galati’s production, however, with the corporation winning an injunction, confirmed on appeal last week, that would limit his harvest until at least early January.

Nonetheless, it seems change is now almost inevitable, with analysis commissioned by growers reportedly favouring a move to deregulate the industry with compensation in the near future.

Around two thirds of the industry voted to take such a package to the government, it has been reported.

Costly stagnation

The ERA estimated the cost to WA consumers of continued regulation to be more than $40 million for the next 15 years.

The key driver of this cost is through two effective taxes placed on growers.

Just to grow potatoes, producers have to purchase a licence, which may cost up to $500,000, a large capital cost for newcomers.

Additionally, growers are forced to purchase a domestic market entitlement, generally worth anywhere from $100 to $500 per tonne.

It is using these mechanisms that the corporation has restricted entry into the industry and kept the supply of ware potatoes, (the variety sold in grocery stores) almost unchanged at just more than 50,000 tonnes per year for more than a decade.

The resultant cost consumers is about 13 cents per kilogram, paid to the corporation, or about 20 per cent of the price of a potato.

Peak industry body the Potato Growers Association has responded to these claims by arguing WA has better or equal prices than other states, with more price stability and a certain return for growers.

There are disadvantages for farmers, though, with producers, including Nick Tana’s Sumich Group, the state’s largest carrot grower, claiming he was blocked from entering the industry.

Despite the protection, the number of potato growers has almost halved, from more than 150 in 2004.

Notably, WA has the second highest yields per hectare for potatoes, but is the second lowest producing state by volume in Australia.

Spinning wheels

Ride-sharing service Uber has also made headlines this year, as it claims a stake in the metropolitan taxi market.

The popularity of the app led to a protest strike by taxi drivers, led by the Transport Workers Union.

The state government and the largest dispatcher, Swan Taxis, have been more proactive on this issue than has been the case with the potato sector, with a green paper on the industry released and efforts from the latter to improve its tech strategy.


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