Over-regulating the small guy

Scale-appropriate regulation necessary for fair competition, small local businesses

Earlier this month, the Manitoba Agriculture-Food and Rural Initiatives (MAFRI) collected and is currently slated to destroy thousands of dollars of agricultural product from a small family farm in southern Manitoba. MAFRI claims that the product in question, belonging to Pam and Clint Cavers, is not up to the provincial standard for eatable food product, and thus puts consumers at risk.

Ironically, this was not the case when MAFRI presented the Caverses with a $10,000 cash prize just months ago for their award-winning prosciutto.

The “standard” that the province says the Caverses were violating was a broad regulation that covers all food processors, ranging from small family processors like the Caverses to multibillion-dollar corporations such as Maple Leaf Foods.

These regulations are put in place for two reasons: to protect consumers, and to protect corporations. All industries—from banking to baking—have been legislated in a way that prevents consumers from being taken advantage of and ensures they receive a consistent product from suppliers.

Companies also receive the assurance that competing firms must adhere to the same regulations as them, making foreign firms think twice before moving into the highly regulated Canadian market.

What these regulations do not take into consideration is the size of businesses and their impact on consumers. Regulations that vary based on the size of the business (measured generally on gross output, sales, or customer base), called scale-appropriate regulations, have been adopted in multiple industries to allow smaller businesses to rise in the marketplace.

Without these scale-appropriate regulations, smaller companies must invest huge amounts of capital to meet the same standards as their larger corporate counterparts.

Risk management is the primary driver for regulation. Put simply: the higher the risk, the tighter controls need to be to prevent error or accident. Risk is simply measured by the probability of an error occurring multiplied by its impact.
When looking at market-dominant corporations, like Maple Leaf, the potential impact is major. This was made all too clear to the public during the 2008 listeriosis outbreaks in which millions of dollars of product were recalled, nearly two dozen individuals lost their lives, and dozens more fell ill. Because the impact of error is so high, regulations for firms like Maple Leaf must be extremely tight to reduce the probability of error occurring.

Switch gears and look at Pam and Clint Cavers’ operations. The Caverses’ market is not a 30-million person market like that of Maple Leaf. The Caverses’ market is not even 30,000, 0.1 per cent of Maple Leaf’s. This greatly reduces the impact that an error would have, therefore reducing the overall risk. To compensate for this, regulations need to be toned down to allow smaller producers to compete in the market.

Scale-appropriate regulation is not only missing from the meat processing industry in Manitoba; it is missing from countless industries across the country. This limits the growth of small businesses, allowing corporate superpowers to grow, and allowing oligopolies to form in the Canadian economy. This also limits the innovation that takes place in the marketplace by creating financial barriers that new firms struggle to overcome.

While under-regulation is dangerous, over-regulation is as well. Governments should be taking a hard look at the impacts and costs of regulation on small businesses and how it affects their long-term growth. If regulation does limit their growth, there is a need to further assess the risks these firms pose to Canadian consumers and ensure regulation is scale-appropriate. Without this second step, governments are not giving small businesses the fair chance they deserve.

1 Comment on "Over-regulating the small guy"

  1. Bryce Cronkrite | October 1, 2013 at 8:08 am |

    The impact to the person eating the product is still the same.

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