The suggested approach would be to assemble a team to perform the initial analysis which would be performed in two phases. The first phase be primarily a “desk-top” exercise involving the identification, analysis and classification of relevant legal rules and the identification of the agencies responsible for implementing and enforcing the rules. The second phase would involve field research, primarily by interviewing various participants in the agricultural marketing system including farmers, wholesalers, retailers, market agents, state officials, market officials, and consumers. This part of the study would be aimed at identifying how the law actually functions, including the costs to the authorities of implementing it, the costs to market participants in complying with it, the responses of participants to it, and the effects on the performance of the market. The results of the study could be summarised in a matrix in the form of Figure 1 which uses three hypothetical legal rules as an example.
Phase 1
The first step is to identify the actual law applicable to the various stages of agricultural marketing. (Annex 1 lists some of the areas of law to be considered and questions to be asked in this regard). The relevant laws and the precise rules would be filled in the first column of the matrix.
The purpose of the legal rule should then be identified where possible (column 2). In many cases this is likely to be difficult, particularly where the rule is an old one, and frequently a range of rationales will be mentioned for the same rule (all of which may be correct). The point here is not so much to arrive at a single, historically correct, purpose for the enactment of the rule, but rather to focus attention on trying to identify the social purpose(s) which the rule was intended to achieve in relation to agricultural marketing. This allows the effectiveness of the rule as a tool for achieving policy objectives to be evaluated by comparing the original purpose with the actual responses of actors in the market (column 8) and the performance of the market (column 9) - insofar as these can be evaluated. Furthermore, if it is difficult to identify a relevant purpose for a rule it suggests that the rule is likely to be either irrelevant or redundant.
The third column in the matrix requires the legal mechanism being used to be identified more precisely if this is not already apparent from the first column. It also allows the rule or legal mechanism to be classified according to its main object - structure (s), conduct ©; or result ®.
Identification of the agencies responsible for implementing and enforcing particular rules is important as the institutional structure has a very strong influence on the functioning of a regulatory system. The information summarised in the fourth column should also highlight any inappropriate fragmentation of regulatory powers and jurisdictional overlaps between state agencies.
Phase 2
The second phase of the exercise will be to examine how the legal rule actually functions in context. Since the responses of participant to a rule will be determined by their own interpretation of it in relation to their own interests, most of the data will be subjective in nature and a degree of inconsistency must be expected. The data may be collected in any convenient form and only a few salient points would be reflected on the matrix.
Analysis of the incentives to comply with a legal rule (mainly economic but also social) and the sanctions for non-compliance is important in predicting the extent to which the rule is likely to be effective. The incentives will often be different for different participants and where there are significant variations these should be indicated to facilitate understanding of the responses of market participants. (One way of beginning an analysis of incentives is to ask who would benefit and who would lose from compliance with the rule).
Where there are strong economic incentives for compliance one would expect a high degree of compliance and low enforcement costs. On the other hand, where there are significant economic benefits to be obtained by non-compliance (i.e. strong negative economic incentives to compliance) one would expect high enforcement costs if the law is to be effective. In such cases, even if there are high sanctions for non-compliance these may not have a significant deterrent effect unless there is a significant enforcement effort which increases the probability of offenders being caught.
One of the most important factors to assess is the compliance costs of various participants. What is important here is to identify how participants see the cost of complying with a rule. This may involve direct financial costs such as licence fees or finance charges incurred as a result of delayed payment, as well as factors such as inconvenience and delays. If high compliance costs co-exist with low or negative compliance incentives, the law is likely to be ineffective without heavy expenditure on enforcement. Unnecessarily high compliance costs can also function as a type of “friction” in the regulatory machinery which reduces efficiency and increases the cost of transactions in the market.
It is important to attempt to identify the responses of various participants to a rule (in fact the response is usually to a version of the rule as communicated by intermediaries such as officials and conditioned by other factors such as past experience). If the response from a key “target group” of market participants is negligible, unanticipated, or undesirable, it would suggest that a re-evaluation is required and that corrective action should be taken, for example, by adjusting incentives or sanctions and improving communication of the rule to the target group.
The aggregate of the responses by different classes of participants will be an important determinant of the performance of the market in response to the legal measure (which is recorded in the last column). From a policy maker’s point of view, the last column of the matrix reflects what really counts since it should enable the effectiveness of the legal rule as an instrument for implementing policy to be evaluated. In many cases it will be difficult to make unequivocal statements about the effects of a rule on market performance but the information recorded in the previous columns should help in identifying areas to focus on in assessing the effect on performance. For example, by starting with the original purpose behind the legislation (column 2) and armed with the knowledge of what aspect of the market the mechanism will act on (structure, conduct or result), who will implement and enforce it (column 4), whether the economic forces will push each class of participant - including state agencies - towards or away from compliance and enforcement; and how participants are responding (column 8), it should at least be possible to develop a well-informed hypothesis of the likely effect on performance (column 9). In addition, reference can be made to the discussions in section 4 of various laws which predominantly affect certain aspects of the marketing system, such as the movement of goods, availability of credit and access to markets.
In using the above methodology it is important to appreciate that regulatory systems change over time and current events are influenced by history. It is important not to lose sight of the fact that such a study (or at least that part of it based on the results obtained from phase 2) is only a snapshot of the system at a particular moment. Therefore, where the regulatory system is being reformed to strengthen the legal environment for agricultural marketing it would be advisable to conduct a baseline study of the status quo and then undertake further studies at a later date to evaluate the effects of the changes.
Figure 1: Matrix of Assessment Criteria for Legal Instruments with hypothetical examples
|
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
(7) |
(8) |
(9) |
|
Commercial Code |
To increase trade by facilitating transfer of ownership of
stored goods |
Creation of principle of exchange and security interest.
(s) |
(I) Market participants (voluntary) |
Strong (+) economic incentives |
(I) Negligible |
Negligible |
Inventory credit offered by banks |
Increase in liquidity. |
|
Marketing Act |
Facilitate trade & protect consumers. |
National Standardization © |
(I) National Trading |
No incentives for traders. |
(I) Moderate additional inspectors required. |
Traders: moderate to high in short term (cost of new scales
etc). |
Compliance by larger traders, evasion by unlicensed
traders. |
Variable: some increase in consumer protection, also evasion
& abuse (eg. officials taking bribes). |
|
Maize Control Act |
To stabilise prices, protect farmers from fluctuations, &
increase production. |
Seasonal price fixing by Ministerial regulation ® |
(I) Maize Board |
Strong (-) economic incentives Sanctions: fines, confiscation,
imprisonment. |
(I) High - cost of single marketing channel infrastructure
& of intervention to stabilise prices. |
Farmers: Variable, High cost if shortage, benefit if
oversupply. |
Farmers: Sale of part of crop on parallel market |
No increase in production. Mounting costs to state Flourishing
parallel markets undermining state revenue collection. |
