Surprised by the biosecurity issue

08/08/2013 § 4 Comments

The issue with botulism bacteria in Fonterra’s whey powder has been in the news all week. There’s been lots of talk of milk prices, exchange rates, marketing images and damage to brands. Most of it is fairly simple. A lot of it, at least over the weekend, was speculation about what could or might happen — filler more than news.

I have one small note to add. I have been working in agricultural economics in New Zealand for the last ten years, all across the sector. Dairy, sheep/beef, apple, kiwifruit, potatoes, forestry, wine, lettuce — lots of different products. I’ve also worked on many different issues: trade, technology, consumer trends, productivity. One area in particular has been biosecurity, which in New Zealand refers to keeping bugs out (in other countries, it refers to biological terrorism, which led to some confusion once when I visited the OECD).

In the biosecurity work I’ve done or seen in New Zealand over the last ten years, the focus has been primarily on (a) trade and tourism, (b) farm-level practices and (c) the environment. There’s a big programme called Better Border Biosecurity, which should be self-explanatory. They are trying to keep the bugs out of the country (although there’s nothing they can do about the occasional organism swept across the Tasman by the wind). Farm-level research on the potential impacts of biosecurity issues has been around things like foot and mouth or tuberculosis. Or, take a look at this webpage that lists biosecurity publications for New Zealand — lots of marine pests, on-farm pests, etc.

And then a dirty pipe lets the side down. It wasn’t the biosecurity scare we expected. Just a guess, but the systems may therefore not really have been in place to deal with it.

Why weren’t we ready? Again, a guess. The work I do and see tends to come from Ministries or the public good science system (FRST, MoRST, MSI, MBIE, CoREs). Environmental biosecurity is a public good (non-rival, non-excludable), and so gets funded through those channels. Farm-level biosecurity is also a public good, but in a different way. Agricultural production has long been acknowledged as an appropriate area of public funding because of the non-rival, non-excludable nature of knowledge.

On the other hand, cleanliness in the supply chain is seen more as a private good — embedded in a commodity product that is rival and excludable. Therefore, it is seen as the domain of private firms — Fonterra, in this case. They should invest in cleanliness or biosecurity in proportion to the business risks, without public funding.

This is a debatable proposition, of course, depending on the spill-over impacts on marketing image and exchange rates. We are now getting some data on how big those spill-overs might be. I hope someone gets a chance to do a proper analysis of the whole situation when it is over.

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§ 4 Responses to Surprised by the biosecurity issue

  • detmackey says:

    I think you have have to explain/defend this point more.

    Farm-level biosecurity is also a public good, but in a different way. Agricultural production has long been acknowledged as an appropriate area of public funding because of the non-rival, non-excludable nature of knowledge.

    • I’m relying on standard theory. It may be difficult to control access to knowledge once it has been produced, and your use of facts doesn’t reduce my ability to use those facts. So, non-exclusive and non-rival. As a result, it is difficult for the producer of knowledge to profit. The private returns to knowledge are much less than the social returns, so knowledge is under-produced relative to other goods and services that are more privatisable. To overcome this issue, we gather some of the socially produced value through taxation and direct it to knowledge production.

      • detmackey says:

        Sorry, wasn’t confused by the notion of public goods. Was surprised by the suggestion that agricultural production was special in this regard.

        I’d like to see discussion of who the social returns accrue to. If it’s largely other producers, then the public (collective) funding should be farming groups, no?

        This would explain farmers levy themselves for such things as research and traceability.

      • It’s a good question. Some of the argument was developed when ag was a bigger portion of the economy, so was rooted in general economic development (and this is still the argument in developing countries). Some returns may accrue to producers, but a large portion accrues to consumers in lower prices, and (again in the development context) to the government as increased revenues for supporting other sectors (industrialisation).

        Thus, in NZ, there is a combination of producer levies and public monies. Do we have the right mix? I’m not sure. Individual farmers do have a hard time profiting from new technologies. One reaction to that is near-monopolies who shall remain nameless. Is that any better for the country’s welfare than a competitive market with subsidised research? Complex question.

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