It’s not difficult to find out the prices farmers receive for their produce. Unless they sell by private sale the price paid for milk, stock and crops is public information.
What those who criticise us of creaming it when prices are higher overlook is that the price is an indication of gross income only and takes no account of the costs of production and other necessary expenditure.
Many also forget that the price of dairy products or meat in the supermarket aren’t a very good indication of the returns to producers.
“The current high milk prices has many thinking that farmers must be creaming it but we’re not,” says Lachlan McKenzie, Federated Farmers Dairy chairperson.
“If you look at a litre of milk, the farmer’s share expressed as revenue, is about 300 mils.
“Most dairy farmers, myself included, got less than $0.60 for a litre of milk last season. From these 60 cents, we had to pay all the costs of production including, wages, vets, tax as well as paying the mortgage.
“A small number of dairy farmers are paid more for producing “winter milk”. There are a lot of extra costs running a dairy farm through winter but even they get only a small premium on a per litre equivalent.
“So if someone’s making a mint from milk, I’d suggest looking a lot closer at retail margins.
Fonterra’s decision to freeze the price of milk came as a surprise to farmers. I suspect it’s a PR exercise because the damage to the brand of ever rising prices was deemed to be greater than the cost of keeping it down.
The Visible Hand in Economics sounds a note of caution about this move:
Now if that is what they want to do, I’m sure they have good reason. However, lets all remember one thing: if Fonterra decides to sell milk in NZ more cheaply than it does overseas it is taking a litre of milk that would have been more highly valued by a non-New Zealander and giving it to a New Zealander.
That transfers funds from the co-operative – and the farmers who own it – to domestic consumers. That’s okay if it’s done for commercial reasons but what happens when the freeze comes off?
Supermarkets have followed Fonterra’s lead by announcing they won’t raise prices anymore this year but they have the opportunity to offset the impact of that by increasing their mark up on something else.
This hasn’t stopped calls for price controls which Agriculture Minister David Carter, has sensibly resisted.
David Carter says he will not be advocating the subsidising of dairy products, because there is no reason to artificially establish pricing for any of the country’s export products.
Mr Carter says high international prices for export products are good and the benefits will ultimately flow through to all consumers.
High prices for dairy products is keeping the New Zealand dollar high. If it was lower it would increase the cost of imports including fuel, food and medicine and there’d be complaints about that too.
The problem isn’t the high price of the food we produce it’s low incomes and that won’t be solved by sabotaging the exports which are the key to economic recovery.