Some time ago, a friend sent me the following program for a one-day meeting sponsored by the Cooperative Extension Service in another state. Thirty minutes were allocated to each of the following topics: The Coastal Zone Management Act: What Will It Mean to You?; General Labor Laws You Should Know; EPA Worker Protection Standards; Making Your Fuel Storage Tanks Legal; Traffic Laws for Farm Equipment; Pesticide Laws Governing Private Applicators; Farm Record Keeping Systems: What Is Required for Restricted Use Pesticides?
Most of the farmers I know would not look forward to attending this type of meeting. Unlike most grower meetings of the past, the topics on this program do not deal with increasing revenue or decreasing production costs. Instead, all of the program topics deal with regulatory compliance – one of the most important challenges facing farm managers today.
Potential ‘Regulation Outlaw’ Status?
Regulations and unfunded mandates impose additional costs on the farm business. Although the cost of any one rule may be small, the cumulative impact of many new regulations can be large. The cost of a regulation is like a hidden tax. For example, there is no difference between a law that says you must buy a certain pollution control device for your tractor and a law that says you must pay a tax to the government, which the government will then use to buy a pollution control device and give to you. The economic impact is the same.
Many farmers and other business people feel they are smothering under the costs of government rules, paper work and unfunded mandates. Because so many regulations are vague and subject to interpretation, it is difficult for a farmer to know when he is in violation. Everyone becomes a potential outlaw, and the uncertainty leads to a strained relationship between the farmer and the government.
As Representative Frank Lucas, Chairman of the House Agriculture Committee, recently told EPA Administrator Lisa Jackson, “Farmers and ranchers believe your agency is attacking them.”
Senator Pat Roberts, ranking member of the Senate Agriculture Committee, recently said, “Regulations are the No. 1 concern of farmers.” According to Roberts, there is “a massive wave of unnecessary regulations that do not come close to meeting any cost/benefit structure.”
Influence On The Number And Size Of Farms
The concept of economies of size refers to a decrease in average cost associated with increasing the size of the business. Economies of size exist for regulatory compliance just as they do for many agricultural production, marketing and finance activities. For example, the cost of building a fuel tank spill containment system for a 20,000-gallon tank is less than twice the cost of building one for a 10,000-gallon tank. In other words, the per-gallon cost of complying with spill containment regulations declines as the size of the fuel facility increases. Economies of size in regulatory compliance will accelerate the trend toward larger farms.
Alternatively, some regulations exempt businesses or facilities below a certain size. These exemptions discourage the expansion of smaller operations. The trend may be toward businesses that fall into two groups – very large or very small.
Issues Associated With Regulatory Compliance
Regulatory Compliance Skills Advantage
Although farm organizations continuously lobby for government regulatory relief and reform, farm managers must deal with the rules now on the books. Just as accountants and lawyers are employed to assist with tax law compliance, a market is developing for compliance assistance with other regulations. The growing regulatory burden will influence who farms in the future. Farmers with superior technical and legal training, superior communications and research skills and better access to information and regulators will have a comparative advantage in regulatory compliance. These farmers will expand and displace farmers who lack regulatory compliance skills.
Dr. Bert Greenwalt farms with his father and brother at Hazen, Ark., and is a Professor of
Agricultural Economics in the Arkansas State University College of Agriculture.