Farmer–herder clashes and the free market

In the free-market ideology, the ultimate purpose of a country’s law is to maximise wealth for the country’s citizens. This is why establishing a legal framework for economic activities to occur is the primary responsibility of every government. I want us to take a lesson from the Coase Theorem. It is named after the British […]

In the free-market ideology, the ultimate purpose of a country’s law is to maximise wealth for the country’s citizens. This is why establishing a legal framework for economic activities to occur is the primary responsibility of every government.

I want us to take a lesson from the Coase Theorem. It is named after the British economist Ronald Coase. He excelled in America among notable post-war free-market economists and even won the Nobel Prize in Economics in 1991. The Coase theorem explains how bargaining helps settle property disputes in a simple, non-technical method.

When Coase presented his argument to 21 American economists in 1960, only one of them initially agreed. Some consider it heresy in the economics discipline. One of the 20 who disagreed, George Stigler, another Nobel Prize winner in 1982, thought a fine economist like Coase should not make such an obvious mistake. But after explaining his argument, all 21 economists from the University of Chicago, including Milton Friedman, agreed with him.

Before Coase’s proposition, economists across all political persuasions followed Arthur Pigou’s idea developed in the 1920s. Pigou’s idea is to apply corrective taxation. For example, if a herd of cows were to destroy a neighbouring farmer’s crops, Pigou suggests that the government should use a tactic of corrective tax to stop the herdsman from letting his cattle stray on the farmland. Literally suggesting the herdsmen should pay a tax for being negligent. If not, the herdsman would have no incentive to stop his cattle from further damage.

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Pigou’s idea sounds practical. After all, nothing says sorry better than money. And even Nigeria’s grazing law, as implemented by state governments in Nigeria, can be thought of as a Pigouvian traditional method. But it does not seem to be effective. We can all agree that a 1921 idea can be replaced with a more practical, simpler, and newer version.

Now, let us consider present-day Nigeria. According to the NBS 2022 data, 16 per cent of the 40.2 million agricultural households in Nigeria practice cattle rearing. And these are the most worrying group. The other 41.2 per cent who engage in goat farming are not seen as problematic, despite the fact that these animals stray to eat farm produce.

Economically speaking, Pigou’s approach continues to shape political decisions in agriculture. It reduces our agricultural efficiency in crop and beef production. As the liability is placed to restrain the herdsman from destroying the farmer’s crops, we ignore the positive contribution of the herder. Because the problem is reciprocal, the herdsman also bears a cost if he is forced to prevent all harm to the farmer. Therefore, a rational economic solution may be best achieved by preventing harm to both herdsmen and farmers.

In a traditional approach, like applying the anti-open grazing law, economists would find that the number of cattle would be reduced to a considerable amount that the herdsman can control. However, that means there will be a low supply of local livestock in the Nigerian market, which can make the economic condition much worse.

To mitigate these economic and traditional issues, Coase suggested a situation where a favourable outcome will succeed, without the intervention of the government, regardless of the imposed liability. The theory is based on the existence of laws, such as property rights, which exist in Nigeria. The theory states that, “As long as property rights are specified and there are no transaction costs, the market can produce a desirable outcome for both parties.” Regardless of legal liability for damaging crops by the straying cattle, the outcome would remain unchanged.

If the cost of occasional damage is less than the cost of fencing, the farmer and herdsman will find it rational to accept some damage. Coase suggests that the farmer and herders should use either the cost of their output or the selling prices to reach an acceptable financial agreement, privately. Here, private means without involving law enforcement authorities, like the police or the military, who will require inducements or other forms of additional costs for both parties. He calls it avoiding transaction cost.

In practice, a state in Nigeria may have an anti-open grazing law that holds the herder liable for damage to farm crops, or a law mandating the construction of a fence on every farm. If erecting a fence is very expensive, the herdsman will prefer to pay for the occasional damage to crops.

But if this had happened in a state without any anti-open grazing laws and where property lines are not clear, the herdsman would not be legally liable for any damaged farm crops. In this case, Coase suggests the crop farmer would have to pay for fencing his farm or possibly provide some security. And if the cost of fencing is higher than the occasional damage caused by the straying cattle, the farmer will have to accept the intrusion by the straying cattle. But this only applies where land rights are unclear, like we are in a no-man’s land. Thanks to our Constitution, Nigeria has a land ownership law and other property rights. With property rights, it is easier to determine who pays for the damage caused by the straying cattle.

Can the Coase theorem work in Nigeria? It depends!

In reality, the Coase theorem is only practical when it involves a small number of people. It is usually complicated when it affects thousands of farmers and herders. In small villages with established traditional systems and a shared language and culture, it is expected that the Coase theorem will be effective if land ownership and property rights are clearly assigned.

However, an agreement may not be achieved due to language and cultural barriers, as well as social conventions. In cases like these, police or other agencies may be involved. These authorities end up costing more money to the victims. As emphasised by Coase, when costs keep rising, people will resort to other methods to gain an advantage in bargaining. This may also include violence, as we currently observe it.

So, yes, adopting the Coase theorem in Nigeria would require stronger legal institutions and “serious” law enforcement personnel. It sounds simple, but these two points are the major problems of governance in Nigeria. And if, one day, we happen to address them, we can all step back and allow market forces to facilitate deal-making between farmers, herders, and other players.