Regulation

Another theme that surfaced strongly was the effect of regulation and compliance on business (see Table 8, p.37). Of the eleven cases studies, all but three mentioned compliance or regulatory requirements as a negative, even though they were not asked directly about this. Both Farm2&3, for whom regulation was not an obvious issue, were members of a co-operative (Silver Fern Farms)24. This may ease the burden of compliance somewhat for them (supporting the findings of Deakins et al., 2012) or even turn regulation into a competitive advantage. The co-operatives often had quite detailed expectations of their members, in terms of reporting requirements, the implementation of electronic data collection and product specifications, but the response of the farmers was positive, as they saw direct benefits from the process -

'...we email them our data and so they're getting a hell of a lot of information out of that. We've got that much information here at the moment, we've actually got to learn what we're really going to concentrate on and do it. But it's cool, because I think in the next five years, the sheep and beef industry's going to soar onto a new cloud. But it is a little bit daunting at the moment, the volume of technology that's coming through and just trying to establish what is the most important bits to bite off.' (Farm2)

Of those businesses that mentioned compliance, two regarded its effects less negatively than others (Forest1, Fish1). Fish1 mentioned new compliance costs and while it was 'onerous', they had successfully implemented the required changes. Forest 1 did not regard regulation as a factor limiting their activities and was matter-of-fact about increased health and safety requirements as a result of taking on a large client -

24 Farm1 was also in a co-operative, albeit a different one, and mentioned this as a positive because they took care of marketing and the time consuming task of dealing with export procedures.

'Well, the company pretty much told me what they wanted. "You need to have this, otherwise you can't work for us."'

They already had a high level of health and safety capability and regarded this as vital, even if it involved extra costs, not only for the welfare of the employees, but also as part of their value proposition to clients (Forest1).

Table 8. Reported experiences of regulation Case study ID Effect of regulation Details

Farm2&3 Forest2

No issues Effect of regulation mitigated by co-operative (Farm2&3)

Forest1 Fish1

Various minor negatives Rising compliance costs associated with addition of new

products (Fish1). Increased health and safety requirements, seen as a necessary cost (Forest1). Hort1,3&4

Farm1

Minor to moderate negative Council policy seen to promote central business district

over peripheral areas (Hort1). Rural zoning prohibits some activities (Hort3). Export requirements (Farm1). Taxation (Hort1&4)

Fish2, Hort2 Serious constraint Poor advice results in significant cost (Hort2).

Conflicting interpretations of food safety regulations, resulting in inability to fill export contracts (Fish2) Hort2&3

Farm1

Positive effect on innovation Food safety rules encouraging the building of new

facility (Farm1). High excise tax drives them to export more (Hort3). Strict food safety rules as a national strategic advantage (Hort2)

In those cases where they perceived compliance and regulation to have a more negative effect, several mentioned local government and/or the Resource Management Act, while central government policy or departments were mentioned by a further three cases. Another also mentioned government policy as an added pressure on their business, in the context of rises to GST and the minimum wage (Hort1).

Of those that mentioned the Resource Management Act or council policy, one felt that the Resource Management Act was being applied in a heavy-handed way, as a tool to discourage development at the periphery of town (at whose border they were located), in order to stimulate development in the town centre (Hort1). They saw the necessity of encouraging the town's economic development and had sympathy for the individual officials, whose job it was to apply the rules, but suffered from a lack of time and resources to deal with what they saw as never-ending new requirements (Hort1).

Hort3 meanwhile had bought a processing facility off-site 'because the council are making it very, very difficult for people to set up what they see as sort of industry in amongst rural, in a rural zone.' At the same time, however, they said that a council initiative in 2002 (to provide irrigation to outlying parts of the valley) had stimulated the development of vineyards in those areas, although as rates were doubled or tripled to pay for it, some farmers had been forced to leave the area as a result (Hort3).

The most serious effects of regulation and compliance on business were those seen in Fish2 and Hort2. Hort2 had paid for a $280,000 building unnecessarily, after taking advice from a planning official at the local council. It was only later, when he hired his own consultant, that he found that the initial information from the council was incorrect. While the cost was obviously significant to a young business and took money that could have been spent elsewhere, the owner was philosophical and partly blamed his own lack of experience for the mistake -

'I got the duty planner and he got the book out. He didn't seem to have much idea of what we were doing....But it just annoyed me that I had such poor advice. But then again, I went in there not particularly aware of what I, where I was at. Because this was early on, when I was learning about the process - I didn't know enough to argue the point with council, how's that?'

Perhaps even more seriously, Fish2 found itself unable to fill large export orders to the United States, because of conflicting interpretations of food safety regulations among government departments, both here and abroad, resulting in a 'massive' economic impact on their company -

'Our argument is, how I read the FDA report, is that it's results driven, not process driven. NZFSA's interpretation of it is that it's process driven. So they want us to treat the water, even though we've got no detectables in the water....But the spec the NZFSA has giving us is completely different to what the USFDA has given us.' (Fish2)

Careful and time-consuming negotiation takes place between the company and the authority, but frustration remains -

'One of the biggest problems I've had is, with a lot of the government departments (is that they) are a law unto themselves. It's all subjective. It comes down to their personal interpretation, rather than what the law says. So we've been battling with it forever. We've made a lot of progress, but we've got

to do it carefully so we don't upset them, 'cause then they just go -' (Fish2)

Some participants however, while detailing the negatives associated with compliance and regulation, paradoxically mentioned it as a source of innovation. Farm1, while wrestling with the paperwork involved with export requirements, also said that the necessity of complying with food safety rules was a contributory factor behind the decision to build an industry-leading processing facility, rather than simply renting an existing building (Farm1). Hort4 said the high excise taxes on wine sold domestically (excise tax is now more than the cost of the fruit) had forced them to look harder at exporting. Hort2 even described New Zealand's comparatively strict food safety rules as a strategic advantage over other countries -

'We can't do the sort of stuff the Sicilians do because (name of food safety consultant) would, again she'd spin out. It's just not the way New Zealanders do things. We believe we can do things better and different...' (Hort2)

Overall, however, the experience that these rural businesses had of regulation was overwhelmingly negative, ranging in severity from simply a cost of doing business, to a pointless or disconnected bureaucracy, to an inhibition of business growth, preventing them from acquiring major new contracts. Some degree of tension between business and the regulatory environment is probably inevitable, as the government seeks to place restrictions on business activity for a variety of reasons, including protecting the interests of other members of the community. However, as cases such as Hort2 and Fish2 illustrate, some rural businesses are suffering significantly from regulation or its application, with no visible advantages to the wider population as a result.