Utility enhancing constraints and dairy

In his grad public choice class, Gordon Tullock liked to tell a story from his early career as a State Department official in China, where he was stationed prior to being overrun by the Communists (as best I understand the story).

He said it was common practice for labourers to pull barges up canals using ropes. Another worker would watch over them with a lash, making sure everyone was pulling hard. When he inquired into the practice, he found that the team was paid based on how quickly they would get the barge up the river. None of them, while pulling, could monitor the others to ensure nobody was shirking. And they all knew they'd be tempted to shirk absent a monitor. And so they found it beneficial to assign someone with a whip to watch over the team. The team chose one of their own to stand over them all with a whip, to make sure everyone did his share.

Bernard Hickey today points to more evidence of animal neglect and cruelty in New Zealand's dairy industry. If you go and read the horror stories, be sure to go for the unicorn chaser afterwards.

The Ministry of Agriculture and Fisheries has almost no staff assigned to check into animal welfare complaints. Fonterra, the large dairy cooperative that purchases the vast majority of milk produced in New Zealand, will not get involved in animal welfare cases except where a farmer has been convicted and has not fixed the problem that led to conviction. Of course, since there are almost no animal welfare inspectors, probability of conviction is slim.

Hickey worries that these stories could tarnish New Zealand's dairy image and hurt our position as the largest exporter of the world's traded milk. It's possible. I don't know the probability, but it's possible. Fonterra is residual claimant if New Zealand's dairy industry takes a big hit on this kind of issue. Sometimes, it's worthwhile for a cooperative to designate a whipmaster, and Fonterra seems well placed to take on the job if its shareholders/members want it.

If Fonterra doesn't want to act as whipmaster itself, is there anything that would stop Fonterra from voluntarily paying a levy to the government to fund the hiring of more MAF officers whose sole role would be ensuring animal welfare on Fonterra cooperative farms, then slapping some "animal friendly" stickers on all brands of Fonterra milk? Fonterra's annual turnover is $19.5 billion, with payout to shareholder members of about $9 billion. Would a million or two to equip a team of vets be all that costly in the grand scheme of things? What risk of PR disaster would be sufficient to make the expenditure worthwhile? If there's no impediment to this kind of thing, and Fonterra chooses not to do it, it suggests that Fonterra does not weigh terribly heavily the risks of brand deterioration due to some of its farmer members' rather terrible practices and sees little potential for selling premium "Don't be Evil" product.

Let's hope that Bernard Hickey is successful in making Fonterra deem these kinds of investments worthwhile.

Previous post: animal welfare.

Update: Bernard Hickey's links are broken; try here here here.