Environmental Defenders Office (TAS) Submission
September 1998
By Penny Holloway
Law Student volunteer at the EDO
Competition is widely touted as the answer to all economic
woes. It is true that certain areas of industry can only benefit
from the allocative, productive and dynamic efficiency which
result from increases in competition. However this is not always
the case. The highly influential Hilmer Report of 1993 states
"In some cases competitive market outcomes will not meet the
national interest, because they fail to deliver either efficiency
or some other valued social objective".1 The
Report goes on to put forward the following as one of a number of
broad principles as a basis for national competition policy:
"There should be no regulatory restrictions on competition
unless clearly demonstrated to be in the public interest".2
The basis of this submission is that the protection of the
environment is both a "valued social objective" and
"in the public interest" . The Agricultural and
Veterinary Chemicals Legislation ought to be brought in line with
national competition policy but not to the extent that it impedes
on the valued social objective of environmental protection.
Within the sphere of microeconomic analysis pollution and other
forms of environmental degredation form negative externalities.
In the simplest of markets with pure competition and no form of
government intervention price and industry conduct are determined
by the interaction of demand and supply within the market. In an
altruistic world social considerations such as the environment
would automatically be integrated into the demand and supply
decisions made by each consumer and producer. In this situation
demand and supply would reach an equilibrium at which
environmental protection is recognised and implemented and no
negative externality would result.
To use the present context, in such a market there would be no
need for government regulation of the production, distribution
and use of agricultural chemicals on the basis of environmental
protection. Consumers of these chemicals would demand only those
which are safe for the environment. Suppliers would comply in
order to retain market share.
Unfortunately the perfect altruistic market is a myth. The
rational consumer is uninformed and irrational with respect to
environmental issues and demand does not correspond with
environmental friendliness. The rational producer seeks to
minimise monetary costs and environmental considerations can be
prohibitively costly for producers facing a market which does not
require them. The reality is that in the Australian marketplace
for agricultural and veterinary chemicals, a competitive market
would cause adverse environmental effects by encouraging the
creation of this negative externality. It is true that much
headway has been made in recent years with respect to community
awareness of environmental issues. Germany presents probably the
most advanced national market in this area. However until all
consumers become more informed and demand environmentally
friendly products, government regulation is the only alternative.
Government regulation seeks to overcome the environmental problem
by forcing the market to take its own externalities into account.
It is true that government regulation imposes a market failure of
its own in the form of stifled production. However without
regulation the environmental harm caused will also increase, and
regulation was introduced in the first place to prevent or
ameliorate environmental harm. Government restrictions on
competition in the form of legislative control, such as the
Agricultural and Veterinary Chemicals legislation, is required to
address market failure and protect both the community and the
environment from the negative impact of chemical use.
A high level of government regulation in this area also has the
positive effect of protecting the community from the unknown. The
current provisions of the Agvet Code are very wide with respect
to the definition of agricultural chemical product.3
This allows regulation of a large number of substances both
currently used and under development. Without such a high level
of regulation the community and environment will become
susceptible to chemicals whose effects are not yet scientifically
certain.
Consumers also gain protection from government regulation. By
setting chemical standards which require proof of effect the
Agvet Code protects the environment from chemical overuse, where
a particular ingredient is substandard in its effectiveness.4
Conserving the amount of each product needed is in the interests
of the consumer both in terms of environmental protection and
cost savings. Licensing and permit control encourage similar good
practice and safeguarding of community welfare.5
Any loosening of regulation in the agricultural and veterinary
chemicals industry will bring about a number of results. No doubt
it will have a "positive" impact on the revenue of
producers by decreasing the cost of compliance. A negative impact
is similarly likely as the externality created in the form of
environmental harm increases. We submit that the latter ought to
out-weigh the former when considering the public benefit of any
changes to the Agricultural and Veterinary Chemicals Legislation.
The widely quoted Hilmer Report6 is the darling of
Australian pro-competition analysts. As can be seen in the
opening paragraph of this submission, even Professor Hilmer
acknowledges that a valued social objective may override the
requirements of competition policy. The Trade Practices Tribunal
has considered this notion of " public benefit" and
concluded that social objectives such as environmental concerns
fall within this category.7 When considering whether a
high level of government regulation of the Agricultural and
Veterinary Chemicals industry ought to be retained, we submit
that the long-term ecological and community benefit derived from
regulation far outweighs any burden which the legislation places
on producers and users.
1 National Competition Policy,
Report by the Independent Committee of Inquiry, August 1993, p18
2 Ibid, p 206
3 Section 4(2) Agricultural and Veterinary Chemicals
Code Act (Cth), 1994
4 Ibid s.14(3)(f)
5 Part 7 and Part 8 Agricultural and Veterinary
Chemicals Code Act (Cth), 1994; Agricultural and Veterinary
Chemicals (Control of Use) Act, 1995 and Regulations, 1996
6 See 1
7 Re ACI Operations Pty Ltd; Re 7Eleven Stores Pty Ltd