USAID study suggests shift from varietal purity to labelling: Cotton boards be abolished

Abolition of Pakistan Cotton Board and Provincial Cotton Control Board has been suggested by a study sponsored by United States Agency for International Development (USAID) on the reform of regulatory framework in the cotton ginning sector. Recommending a Regulatory Reform Action Plan, the study said that the state of regulation clearly indicates that the reforms need to be done in the following way.
The focus of regulation should shift from maintaining varietal purity to adequate ''labelling'' and disclosure, and enforcement of labelling provisions could be undertaken in one of the following three ways: Labelling provisions without incentive arrangements/coercive enforcement (voluntary labelling): Labelling provisions not backed by incentives and/or penalties are not likely to be adhered to unless premiums are paid at every level of the value chain. However, in the current state, market premium is unlikely to be paid unless fixed by law/executive order. Price fixation is best avoided and remains difficult to enforce.
Labelling provisions accompanied by coercive enforcement: Coercive enforcement is generally a low cost method of modifying market behaviour. However, in a market where quality products are vastly outnumbered by low quality produce, ginners are likely to resist labelling, as it will reduce their profit margins. Further, coercive enforcement comes with its attendant problems - huge enforcement bureaucracy, resistance, rent seeking, etc.
Labelling provisions with incentives: In an environment characterised by weak rule of law, the best way forward is provision of incentives for labelling. These incentives can take the shape of monetary payouts to complying ginners, subsidising costs of labelling, reduced interest/no interest loans for lint cleaning machinery and reduced taxes and levies.
Regulations in the cotton sector take the shape of 12 laws, and cover nearly every part of the value chain. Of the 12 laws, seven are exclusive to cotton sector. However, these regulations/statutes have not been able to facilitate production and processing of high value cotton.
There are a number of reasons for this failure. Firstly, many of these laws are outdated and do not take note of improvements in cotton grading/standardisation and marketing. For instance, the major law in the area - Cotton Control Ordinance--still focuses on maintaining varietal purity when this characteristic does not drive buying decisions any more. Regulation, in fact, does not provide for comprehensive labelling and/or disclosures key to buying decisions.
Secondly, regulation has been unable to address the market causes of contamination. Thirdly, regulation is intrusive and attempts to control factors which are related to operation of markets, and fourthly regulation enforcement is weak because of lack of resources, inappropriate focus, multiplicity and overlaps.
While law should continue to encourage technological improvements/machinery upgrades, there is no one fixed way to achieve this objective. Various options suggested in the study are: Intrusive regulation requiring infrastructural and technological compliance''s in ginning factories.
Incentives for compliance, including provision of loans/reduced taxes/establishment of pricing mechanisms, and Consolidation of ginning factories. Benefits and downsides of these options are similar to labelling provision options. For instance, intrusive regulation is not effective and leads to discontent and agitation, while incentives require financial outlays. However, the government can avoid financial outlays by making spinners pay for improvements through the cotton cess fund, especially where spinner behaviour is considered to be the major cause of lack of labelling, good ginning practices, poor technology in ginning factories.
The option of consolidation, on the other hand, is a way to make business pay/provide for their own upkeep, technological needs and liquidity requirements. Such a route is frequently adopted in financial markets. Cotton ginning work in Pakistan is, however, done by people who are unwilling to corporatise and are likely to resist coporatisation requirements and/or fixing high capital requirements for the same.
On farm regulation, while important for contamination control, is extremely difficult to enforce through policing and this aspect of regulation should be achieved through voluntary certification only. Again, voluntary certification can be done through government appointed inspectors or private sector entities, although this report supports certification through private certification agencies for efficiency and effectiveness reasons.
Registration/information rendering requirements need to be rationalised and multiple use of information encouraged. Multiple use of information can be made possible by legally providing information that needs to be rendered and collected, entrusting collection/maintenance responsibilities to one institution and notifying departments/entities that may access information from the relevant database.
As cotton research is a public good, it should be funded from budget appropriations, and the cotton committee should be re-structured as the cotton research board. Cotton cess, as proposed earlier, should be used for technological improvement of the recalcitrant cotton ginning industry and not for varietal improvement.
Lastly, the study said, the laws need to be consolidated and their number reduced with consolidation effected at both federal and provincial levels. The ideal number of laws is three - two at the federal level, and one at the provincial level--with the federal laws dealing with cotton research and cotton standardisation respectively and the provincial law dealing with labelling, disclosures, technological compliance''s, record keeping and taxation.