This NPR story is full of manure. It’s also full of insight:
Many organic farmers are hopping mad right now at the U.S. Food and Drug Administration, and their reason involves perhaps the most under-appreciated part of agriculture: plant food, aka fertilizer. Specifically, the FDA, as part of its overhaul of food safety regulations, wants to limit the use of animal manure…
The Food and Drug Administration considers manure a food safety risk….
There is an alternative: Composted manure. The heat from composting kills disease-causing microbes. [C]ompost would cost… anywhere from three to six times more than manure…
[O]rganic farmers are not united in their opposition to the FDA regulations. There’s a divide between large and small producers.
You mean large farmers love these regulations? Of course they do! In fact, larger firms love regulations in general. And if you happen to love regulation, well, I gotta tell you – your love may or may not be well-founded. But one thing’s for sure: It’s killing the smaller, more local firms. Regulation is one of the main explanations for why corporations must be so large, so impersonal, and so powerful in our society. And this NPR story helps explain it.
Complying with a regulation always costs something, whether that cost is large or small. (And also: Whether the regulation is sensible, which many are, or foolish, which many also are.) Whatever the case may be, the costs of regulatory compliance have a funny property about them: They tend to be fixed, or relatively fixed, when compared to the marginal costs of making one more unit of product.
It doesn’t look like much, but that fact is the key to the whole business.
I’ll give an example. Suppose there are two widget factories – Acme and World Wide Widgets. In a typical year, Acme sells 10,000 widgets per year, with a net profit of $100,000. It’s a tiny corporation, but it does okay, employing just a few people and delivering to its owners a modest profit.
World Wide Widgets sells 1,000,000,000 widgets per year, and – because this is a simplified example – it happens to have just the same per-unit profit. That means that it makes $10 billion in profits in a typical year.
One day a disaster strikes at World Wide Widgets: Somehow, a child chokes on a widget and dies. Accounts of the incident vary, but one thing is clear: Somebody Must Do Something. (It’s For The Children!)
A representative from World Wide Widgets goes to Congress and cries tears of contrition on national TV. “Please,” says the rep, “please pass a law helping us to be safe!”
Obediently, and full of the tearful zeitgeist, Congress passes a law declaring that during regular hours of operation, all widget factories must have a trained, paid, full-time safety officer on duty. (Is this otherwise a good law? Is it a bad law? Who knows! I mean, I have the power, as the crafter of the example, to make it either a bad law or a good one, ceteris paribus. But I’m gonna vague it up, because it doesn’t matter.)
The safety officer’s salary and benefits come to $100,000 per year. Acme widgets can’t hire one and still turn a profit. World Wide Widgets barely even notices the cost. They remain profitable either way. And – best of all – if Acme’s owners decide to sell their business, World Wide Widgets might be able to consolidate: They bring all of Acme’s equipment and employees over to their new, expanded, slightly more impersonal and slightly more powerful factory. And they still only need to hire one safety officer. They’re now both bigger and more profitable.
The above example is one reason why, for many regulations, smaller firms are often exempted: If we want them even to exist at all, we can’t treat them like the big guys. But that also has a perverse effect – it sets up a two-tiered economy, in which a firm may choose either to be big or small, but growth from one to the other is always more of a risk than it otherwise would be. As a result, some innovative new processes and products don’t get a chance to go national.
In the past, organic food was an interesting example of the opposite. At the outset of the organic food movement, there were no state-mandated definitions of “organic.” There were relatively few regulations about organic food at all, aside from the ordinary food-safety ones. The industry for quite some time used third parties for certification, or farmers and firms developed their own definitions and simply represented them to customers themselves. That produced some misrepresentation, of course, but it also allowed many consumers and producers alike to discuss the question of just what we mean by “organic.” (Note: It’s not as simple as you think!)
As a result, firms of various sizes were able to advance different and competing definitions for organic food, to experiment with different forms of producing it, and to offer many different (at least purportedly) organic products to consumers, even while remaining both small and flexible.
Increasingly, however, the government did begin to regulate organic food, and that brings us back to the NPR story. Composting manure would appear to be at least a relatively fixed cost: If it’s not a lump sum or a fixed cost per year, it’s certainly one that’s proportional to units sold, because one can almost always make a slightly bigger compost pile.
As a result, the small firms will die out, while the big firms will get bigger. And they’ll thank the friendly government that helped them do to so. And well-meaning progressives will scratch their heads and wonder why organic agriculture, of all things, sold out. (“It used to be about the food, man, not about corporate profits…”)
If you want your answer, it’s over there. In the manure pile.