42. The above review of the evolution of the wool and mohair marketing structure reveals that private traders did indeed hold a relative monopsony/monopoly position in the market and were able to earn monopoly profits from the trade. On both theoretical and empirical grounds, however, there are reasons to believe that this was not earned in the wool and mohair side of the transaction, but in the sale of consumer goods to producers. All reforms to the wool and mohair marketing structure since the 1950s have been predicated on the premise that the wool and mohair trade needed to be made more competitive. Whatever the merit of that premise, because the source of profit was incorrectly identified, these reforms have had little positive impact on the problem. Indeed, government intervention now guarantees traders a profit from wool and mohair sales where none was guaranteed (or as frequently earned) before. As well, several inefficiencies and adverse equity effects have been introduced into the system. It is evident that where monopsony/monopoly conditions prevail, increased competition on the purchasing side of the transaction is a necessary, but not sufficient, condition for the reduction of excess profits.
43. Increased competition in the sale of consumer goods at the wholesale and retail level is also necessary if excess profits are to be reduced. In this regard, government retailers and wholesalers are rarely any more effective than marketing agencies. In Lesotho, restrictive licensing, high capital requirements, and certain anti-competitive practices of traders all contributed to the problems in this area. All of these could have been dealt with by the government short of actually involving itself in marketing. The restricted traders' license (which permitted trade in everything but wool and mohair) went some way towards overcoming the high capital requirements of trading and attracted many aspiring Basotho traders. Special or subsidized credit provisions could also have been provided. The hawkers' license also helped to increase competition. With the dramatic increase in mine wages in the 1970s, many Basotho invested in small rural shops. This proliferation of rural outlets has further increased competition in retail trade. In addition, elimination of anti-competitive licensing restrictions and government policing of anticompetitive practices would increase competition short of direct government involvement in marketing.
44. From the standpoints of both efficiency and equity, most of the product marketing should have been left to the private traders. As with retail trade, competition could have been encouraged by facilitating the participation of new entrants in the market. If special provision had further been made for Basotho entrants, this could have lessened the European predominance in trading.
45. The government should still have a role to play in the wool and mohair marketing system, but it should reduce its present role as a direct participant and concentrate on its regulatory, monitoring and facilitating functions. Additional to the existing functions mentioned in paragraph 13 above, the government, particular, should:
a. provide a regulatory function to police anti-competitive and dishonest practices and to ensure that minimum standards in grading and packaging are maintained;b. provide a monitoring function to gather and analyse data relating to wool and mohair production and marketing so as to keep the industry abreast of trends and developments and to provide guidance to government's livestock development programmes;
c. operate a market information service to keep farmers apprised of market prices;
d. train and certify wool and mohair classers;
e. represent Lesotho's interests in the South African Wool and Mohair Boards, in STABEX determinations, the International Wool Secretariat, the International Mohair Association and other relevant bodies.
46. While this shift of emphasis remains necessary, the government may find it justifiable to operate some marketing outlets, particularly in areas where, for reasons of high cost, traders are unwilling to operate. In this regard, implicit subsidies may be justified in order to extend marketing facilities to all producers.
47. Those shearing sheds for which continued government operation is not justified should be leased to private buyers. This could be a means by which small operators could get into the business and could significantly increase the larger tracers' competition.
48. Because they are illegal, most government analyses of the marketing system ignore the role of smugglers. Officials ignore smugglers at their peril, however. Farmers consider the smuggler a very real alternative outlet and are prepared to utilize him when official outlets are unable to meet their marketing needs. In this way, smugglers are not only a bellwether of the marketing system but a last resort for producers.
49. Survey data suggest that many of the functions currently performed by smugglers were previously performed by hawkers. Re-licensing hawkers to purchase wool and mohair should lessen the attraction of smuggling.
