agribusiness communication

AGRIBUSINESS COMMUNICATIONWITH FEDERAL GOVERNMENT

byThomas L. Sporleder

Department of Agricultural EconomicsTexas A&M University

Introduction and Background

Industrialization is occurring inthe agriculture and food sector of oureconomy. Industrialization impliesmany things. One is a strong relentlesstrend toward fewer but larger firms innearly all industries within the foodproduction and distribution sector.Industrializationalso implies explicit,unavoidable, and ever-increasing inter-dependence among firms and betweenfirms and government. Industrializationinevitably increases the complexity ofsociety. This complexity is manifestmany ways. Sophisticated exchangearrangements among firms which rely onforward contracts and/or computerizedtrading, world market interdependencies,technological developments which bothcreate and destroy markets almost over-night, and government concern and in-volvement in all aspects of businessare examples of this complexity. Govern-ment is more active in regulatory andlegislative roles at all levels--local,state, and federal.

This paper addresses methods forinterfacing agribusiness firms and thefederal government. The objectives areto examine the differences in regulatoryand legislative roles of the federalgovernment, examine methods for corporatecommunication with the federal establish-ment and finally to address the inter-action which may exist between the methodof communication and the regulatory and

February 77/page 56

legislative functions of federal govern-ment.

The scope of the paper is limitedto the federal level because of thedramatic variance in situation from onelocal or state government to another.Situations vary from relatively minimalinvolvement by local or state officialswith laissez faire attitudes to activistgovernments with numerous regulatory andservice bureaus. The alternatives andneed for communication with government,at this level may be vitally important,but depends significantly on thesesituations.

For purposes of this paper, agri-business is defined in the broadestcontext as all nonfarm firms either partlyor wholly engaged in the agriculture andfood sector. Thus, agribusiness involvesfirms supplying imputs at the productionlevel as well as the myriad of food con-version industries between farm gate andfinal consumer.

As mentioned above, the long-termtrend in number of these firms is declin-ing. For example, the number of food andkindred products manufacturers declinedfrom slightly over 41,000 to about 23,000during the 25 year period from 1947 to1972 (Table 1). The decline since 1963has been at an average annual rate ofabout 3 percent. As firms exit theseindustries the average size and complexityof those remaining

Journal of

increase.

Food Distribution Researcl

Table 1. Number of Food and KindredProducts Manufacturers,Census Years 1947 to 1972,United States

Average YearlyNumber of PercentageCompanies Change From(4 Digit Previous

Year Industries) Census Year-number- -percent-

1947 41,1471954 38,610 -0.91958 36,545 -1.31963 32,617 -2.11967 27,706 -3.21972 23,326 -3.0

Source: U.S. Department of Commerce,General Summary, 1972, Censusof Manufacturers, and selectedprevious census years.

Fewer firms and increasing com-plexity and interdependencyare the keybackground elements which lend impetusto the desire and need for communicationwith federal government. This paperfirst reviews the current status of thetheory of regulation, then examinesmethods of representation of agribusinessat the federal level, and finally con-siders the interaction which may existbetween methods of representation andthe type of issue.

Status of theTheory of Regulation

During the past five years a signi-ficant increase in scientific literatureconcerned with the theory of regulationhas occurred. In this literature,economic regulation is taken to meangovernment intervention in the market.Thus, the phrase “economic regulation”refers to subsidies of all sorts andthe impact of legislative or regulatoryfunctions of government. Although the

“theory of regulation” is really amisnomer since no integrated, generallyaccepted theory exists, literatureappearing in the last few years mayprovide the necessary structure on whichto build such an integrated theory.

Two general tracts have been followedto date in attempting to build a theoryof regulation. The newest is the “capture”theory proposed primarily by Stigler andPosner, both of University of Chicago(2and 3). The second and eldest tractis the “public interest” theory which isthe more widely accepted among socialscientists today. The status Qf eachtract will be reviewed briefly, althoughmore space is devoted to the capturetheory since it is the newest.

Capture Theory

In his recent writings, Stigler (3)has proposed that there exist four primaryareas in which industry or occupationalinterest groups may seek governmentassistance, either legislatively orthrough regulatory decisions at theprivilege of the executive branch. Theseareas are:

1. direct money subsidy

2. control over entry by new rivals(includingprotective tariffs)

3. actions impacting on substitutes andcomplements

4. price fixing

The direct money subsidy is manifestin terms of cash payment or loan guaranteesto individual firms or interest groups(such as the educational establishments).Control over entry is achieved in manyways such as federal licensing (e.g. com-mon carriers), patents, production orimport quotas (e.g. agriculture and oil),protective tariffs, and the like. Actions

Journal of Food Distribution Research February 77/page 57

which alter or impact on substitutesand complements for a product or ser-vice are things such as subsidies toairports achieved through airlineindustry representation. Building coderegulations which prohibit labor-saving materials from use in construc-tion achieved through labor unionrepresentation is another example.Finally, price-fixing is manifest initems such as prohibition of interestpayments on demand deposits, directregulation of price through governmentedict (e.g. airline industry), or anytemporary or permanent price ceiling.

The democratic political processin the above areas is distinctly dif-ferent from the market process inseveral fundamental respects (3, pp.10-13). Most basic is that the polit-ical process yields a decision whicheveryone must accept, unlike the marketprocess. The mandatory universalityof political decisions means that thedecision process must involve everyoneand not simply those directly affectedby the decision.

The essence of the capture theoryof economic regulation is that regula-tion by government is in response topressure from various special interestgroups which are attempting to maximizeincomes of their members. Such theoryis based on the premise that, sincegovernment possesses the power to givevaluable benefits to particular interestgroups, the expression of that powermay be viewed as a product whose alloca-tion is determined by su~ply and demand(2, p. 344). Hence, other things beingequal, the allocation of such benefitwould go to those who value it most.The difficulty with such theory is thatit is mute on the allocation of con-sumer protection type regulation. Cer-tainly the allocation of this typeregulation has not historically been onthe basis of which parties value it the

most and therefore are most able topay for it.

Public Interest Theory

The essence of the older “publicinterest” theory of economic regulationis that regulation by government issupplied in response to public demandfor correction of inefficient or inequit-able market practices (2, p. 335).Regulation of common carriers, farm sub-sidies, and tariffs, for example, all areviewed as governmental reaction to in-efficiency or inequity in markets.Whether regulation is actively sought byindustry or whether regulation is imposed,this theory would contend that regula-tion which occurs is primarily for theprotection or benefit of the public atlarge (or at least a large public seg-ment).

As indicated by Posner (2, p. 339),the public interest theory is made morepalatable by observing that regulatoryagencies may be asked to perform im-possible tasks. For example, a regulatoryagency may be directed by the legislativebranch to determine costs of regulatedcommon carriers and hold prices (rates)in line with such costs. However, measure-ment and/or control devices to effec-tively implement such a task probably donot exist.

The status of either theory ofeconomic regulation is dynamic. Eithertheory obviously needs further develop-ment before it can become a useful, inte-grated explanatory model.

Methods ofFederal Representation

Corporations possess political assetsof considerable magnitude. Factors suchas large-scale organization and corporatewealth enable firms to be relatively moreeffective in influencing political decisions

February 77/page 58 Journal of Food Distribution Research

compared to many other entities in oursociety. Of course, political resourcesare not synonymous with politicalpower. Resources represent only onenecessary ingredient of power. Also,effective capability to translateresources into power varies substant-ially from one firm to another depend-ing on factors such as corporatemanagerial philosophy toward politicalactivity and internal organizationalstructure.

There exist only two fundamentalmethods for federal representation ofan agribusiness firm. One is individ-ual corporate political involvementthrough what is typically known as the“Washington representative.” Thesecond fundamental method is collectiverepresentation which involves sustain-ing membership in an association, suchas a trade association. In practice,of course, a corporation may employboth types of representation.

Washington Rrepresentative

The phrase “Washington representa-tive” may be somewhat of a misnomersince such an individual need not havean office in Washington, D.C., althoughthat is a widespread practice. Theso-called Washington representative isan individual, usually with some exper-ience in the employ of either theexecutive or legislative branch of thefederal government, that is retained bya corporation to represent corporateinterests at the federal level. In anycorporation, of course> there may be anumber of management personnel that dealwith government relations but suchindividuals are not Washington represent-atives. The latter individuals areconstantly ready to act in regard topolicy implications of specific casesand situations or on a policy issue thatis not yet defined in regulations. In

short, those persons with governmentrelations responsibility react to legis-lative and regulatory matters ratherthan being formally assigned to corporaterepresentation in legislative or regula-tory matters.

The Washington representative doesnot necessarily replace or alleviate theneed for a corporation to retain a lobby-ing specialist for a particular job. Theprofessional lobbyist is, of course,oriented solely to the Congress and fol-lows legislativematters full-time. TheWashington representative, however,represents a corporation on both legis-lative and regulatory matters. Indeed,liaison with regulatory agencies of theexecutive branch may consume the bulk ofthe time spent by a Washington representa-tive in representing the corporation’sinterest.

The advantage of individual represent-ation compared to collective representa-tion through an association is singularityof purpose and interest that can be con-veyed. Associations may not be able totake concrete positions on particularissues because of the heterogeneity ofinterests among members of the associa-tion. The disadvantage of individualrepresentation compared to collectiverepresentation is primarily one of cost.Membership in an association typicallywould be less costly than retaining anindividual for which the firm pays salaryand expenses. As previously mentionedhowever, many large agribusiness corpora-tions do not see these forms of representa-tion as alternatives but rather use bothindividual and collective representationto communicate at the federal level.

Collective Representation

Collective representation of agri-business is manifest in two basic formsof trade associations. These are product


or functional. The former associationsare product oriented while the latterare oriented toward a function such asbanking or wholesaling. An example ofa pr%duct oriented association would bethe Institute of Shortening and EdibleOils, Inc., while the National FoodBrokers Association is an example ofthe functionally oriented association.

Commodity oriented associationsmay be single product (e.g. corn)>product group (e.g. grain), or cross-product general organizations (e.g.National Council of Farmer Cooperatives).Of course, the breadth of representa-tion in terms of number of firms isgreater for cross-product associationsthan for single product associations.However, heterogeneity within the groupis directly related to the breadth ofthe organization also. In essence,within group heterogeneity of interestincreases directly with the number offirms the association attempts torepresent.

A significant amalgam in terms ofagribusiness representation at thefederal level is the Food Group. This

is an informal group designed to facili-tate interassociation information ex-change. The Food Group is not anassociation so it represents no one nortakes any action. However, even thoughthe Food Group is an information ex-change mechanism, its individual memberassociations are some of the most action-oriented organizations representingagribusiness. The alliance is not new(1949) and has a history of successfullycoordinating agribusiness representationamong associations on specific issues.1

The relative frequency of occurrenceof each form of association is indicatedby analyzing 1976 Food Group membership.Using the product and functional class-ifications outlined above, each 1976member of the Food Group was categorized

exclusively into one or the other depend-ing on the association’s primary orienta-tion (Table 2). Of the association mem-bers, 76 percent were product orientedwhile only 24 percent were functionallyoriented. Total membership of the FoodGroup was 84 with 64 of these beingproduct oriented associations. “

Within the product oriented classi-fication, 52 percent were associationswith a single product orientation, 42percent were product category oriented,and only ,6percent were cross-productoriented. ~is tabulation indicates asignificant propensity toward singleproduct or product category associationsrather than broad multi-product associa-tions.

Within the functional category, 30percent or 6 associations were generalfunctional such as wholesaling or banking.Another 35 percent, or 7 associations,were service oriented such as associa-tions representing consultants, stateDepartments of Agriculture, or land-grantuniversities. Another 25 percent, or 5associations, were retail oriented while10 percent, or only 2 associations, wereoriented toward hotel, restaurant, andinstitution representation.

In the aggregate, the 1976 Food Groupclearly is composed of a preponderance ofproduct oriented associations rather thanfunctionally oriented associations.Within the product category, associationsare predominantly single product orientedor product category oriented.

Interaction Between Method ofRepresentation and Type of Issue

Regulatory versus Legislative

Communication between agribusinessfirms and federal government is a functionof the type of issue under consideration.For example, there exists a broad inherent


Table 2. Taxonomy of the 1976 FoodGroup, Washington, D.C.

Classification Number Percent

Product OrientationSingle Product 33 39Product Category 27 32Cross-Products ~ _5_

Tota1 64 76

FunctionalOrientationGenera1 6 7Retail 5 6HRI 2 2Service 7 ~

Total z 24*

*Does not add due to rounding error.

Source: Computed based on 1976 FoodGroup Directory.

difference between regulatory and legis-lative issues. tigislative issues tendto be of wide impact and tend to havemore universality than regulatory issues.Contrast this to a regulation issued byan executive branch agency which tendsto more specific and narrow in its impacton agribusiness. For example, legisla-tion establishing the EnvironmentalProtection Agency to promulgate cleanerair and water is an issue which haswide impact on business and consumers.However, an EPA regulation may be issuedwhich involves specific guidelines forthe amount of particulate allowed inwaste water discharge from a certainfood processing plant or type of pro-cessing facility. The point is thatthere is a tendency for regulatory issues,on the average, to be of more narrowfocus and impact than legislative issues.

The consequence of this inherentdifference between regulatory and

legislative issues is that the affectedsegments of the agribusiness communitytend to differ substantially. Also,regulatory issues tend to have directand distinct economic impact on anindividual corporation while legislativeissues tend to have less direct and morevague economic impact on an individualcorporation. In actuality, a continuumexists for both regulatory and legisla-tive issues which runs from specific,direct economic impact on a small numberof individual firms (e.g. Federal TradeCommission action against four cerealmanufacturers) to indirect, vague economicimpact on all firms (e.g. inflation orunemployment legislation). The functionalrelationship between specificity of issueand number of firms concerned is importanthowever.

On broad, general issues more homo-geneity of position tends to exist amongcorporations with respect to the issue.These are also the issues that tend tohave indirect and vague economic impacton particular firms. The converse isthat as issues become more direct andspecific in economic impact the fewerthe number of firms that are concernedwith the issue and more heterogeneity ofopinion tends to exist among corporationswith respect to the issue.

Another distinction between legisla-tive and regulatory issues is that theloci of power is relatively more diffusewith regard to legislative issues. Regula-tory issues, emanating from agencieswithin the executive branch, tend to havea specific locus of power. In fact, formost regulations currently operating, notonly can a specific executive branch agencybe pinpointed as in charge, but typicallya specific individual within that agencyhas designated responsibility for theregulation. Compare this to a typicallegislative issue where the locus of poweris spread (albeit unevenly, perhaps) over535 legislators.


A final distinction betweenlegislative and regulatory issues isthat legislative issues are relativelyslow in formation and transformationinto new law. Regulatory issues, how-ever, tend to be much swifter in forma-tion and transformation into a newregulation. Regulations can be nearlyinstantaneous (e.g. ban on cyclamates)and are, in general, more susceptibleto swift transformation into new rules.This means the gestation period onlegislative issues tends to be longerwhich allows more time for formation ofdefinitive positions by individualcorporations and more time to evaluatethe extent of direct impact on an in-dividual corporation of alternativeresolutions to any particular issue.

Interaction

Given the propensities of legisla-tive and regulatory issues discussedabove, the interaction between type ofissue and the optimum method of repre-sentation becomes quite apparent.Multi-product associations would tendto be the optimum method for corporaterepresentation of broad, general issues.As the issues become less broad andmore specific, the smaller less heter-ogeneous associations, such as the singleproduct associations, become the optimalmethod for representation of corporateinterest. Finally, with regulation orlegislation that may have direct andspecific impact on one or only a fewfirms, the Washington representativebecomes the optimal method of representa-tion.

Associations with a large numberof members typically are restrained fromtaking definitive action or a definitiveposition when the issue is specific andmay only impact on a small segment ofthat association’s membership. Due tothe heterogeneity inherent in a largenumber of members, consensus cannot be

gained which would allow the broadlybased organization to take a definitiveposition on a specific issue. Anotherfactor,whichmay prevent definitive posi-tions by large associations on specificissues is that privileged information mayneed to be revealed in, for example, aregulatory issue in order to adequatelyrepresent the position of an individualcorporation. For competitive reasons, afirm may refuse, or at least be reluctant,to turn such information over to anassociation.

In summary, expected effectivenessof various methods of representation orcommunication varies substantially bytype of issue (Table 3). Conmmnicationand effective representation of an individ-ual corporation’s interest could beexpected to be greatest through a Washing-ton representative for specific issues ofdirect economic consequence to the fimn.Also, for issues of broad, indirecteconomic impact, greatest effectivenessin representation of an individual cor-poration’s interest would be expectedthrough a multi-product association orother large coalition. Conversely aWashington representative would be expectedto be relatively ineffective in repre-senting individual corporate interests onbroad issues. Representation through alarge coalition with respect to specificissues would be expected to be relativelyineffective also.

An alternative way of formalizingthis general relationship is to relateexpected costs and gains incurred by anindividual corporation to the size ormembership of any particular coalition(Figure 1). To generalize even furtherthe preceding relationships, the expecteddirect economic impact on an individualfirm would be.expected to be inverselyrelated to the size of a given coalition.For example, a specific OSHA regulationmay have a direct adverse economic impacton textile mills through a noise pollution


Table 3. Expected Relative Effective-ness of Various Methods ofRepresentationby Type ofIssue.

Type of IssueSpecific Broad,Direct Indirect

Method of Economic EconomicRepresentation Impact Impact

WashingtonRepresentative High Low

Single orProductCategoryAssociation Moderate Moderate

Multi-ProductAssociation Low High

Figure 1. Plausible RelationshipBetween Type of Issue andSize of a Coalition

ExpectedDirectEconomicImpact onFirm i

IMembers of Coalition

standard. The direct economic impact onfirm i may be relatively great and spec-ifically measurable but affect only asmall number of firms. Hence, the coali-tion concerned with the regulation issmall. The converse is (say) a legisla-tive bill to promote employment or controlinflation which may have relatively minordirect economic impact on firm i butrelatively homogeneous positions existamong firms with respect to the issue.Hence, the coalition is relatively largebut the expected direct economic impacton firm i is relatively small.

Summary and Implications

The need for communication andrepresentation at the federal level hasincreased over time as agribusiness firmshave become fewer in number but largerand as society becomes more complex. Asthis industrialization process increasesthe complexity of society, corporatepolitical involvement at all governmentallevels will likely become more intense.No one method of representation of indivd-ual corporate interest is likely to beadequate. A significant interactionexists between the expected effectivenessof the method of representation and thetype of issue. Large coalitions tendto be optimal for broad issues of indirecteconomic impact on specific firms whilesmaller coalitions or individual repre-sentation tends to be optimal for specificissues of direct economic impact. Expecteddirect economic impact of legislation orregulation on individual firms is sug-gested to be inversely related to theexpected size of a coalition.

Footnote

‘For an example of such a coordinatingeffort with regard to the Hart “Truth inPackaging” Bill see Hall (1, p. 166).


References

1. Hall, Donald R., Cooperative Lobby-ing - The Power of Pressure(Tucson,Arizona: The Universityof Arizona Press, 1969).

2. Posner, Richard A., “Theories ofEconomic Regulation,” The BellJournal of Economics and Manage-ment Science, 5:335-358, Autumn,1974.

3. Stigler, George J., “The Theory ofEconomic Regulation,” The BellJournal of Economics and Manage-ment Science, 2:3-21, Spring,1971.


agribusiness communication

Documents