It’s the market that matters

Quote of the day:

. . . It’s not the market’s job to consume milk as and when the farmer produces it. It’s the farmer’s job to produce milk when the market needs it. . . Dr Jon Hauser

In New Zealand, as in Australia about which Dr Hauser writes, milk supply is mostly seasonal.

That is less of a problem here when most of our milk is turned into milk powder, butter or cheese and exported. In most other countries most milk is consumed domestically in fresh liquid form and demand is relatively constant regardless of any peaks or troughs in production.

But regardless of what happens to the milk, the underlying principle is the same – it is up to producers to meet the market in terms of quantity, quality and price.

This is a concept which European and British farmers who have been protected from the market by subsidies are struggling to grasp:

Up to 2,000 dairy farmers are expected in Westminster today to protest at cuts to the price they’re paid for their milk. Last year, dairy farmers received a little under 29p for every litre they sold: this is set to fall to less than 25p. Since it costs about 30p to produce a litre of milk, the cuts constitute yet another catastrophe for a benighted domestic industry, and may put many thousands of dairy farmers out of business. “There has been an unprecedented outcry of anger and frustration among farmers,” says the National Farmers’ Union. “We are united in our demand for an immediate reversal” of the cuts.

Prices for farmers have stalled over the last 15 years: in 1997 they were receiving 25p for a litre of milk, while feed costs alone have doubled since 2010. Half of Britain’s dairy farmers went out of business between 2000 and 2010. Like the pig farmers who only save themselves from going out of business by growing their own feed, dairy farmers will likely attempt to make up the shortfall by reducing staff, which will of course have corollary impact. . .

Welcome to the real world, where, as Tim Worstall observes supply and demand rule:

. . . We’re in a rigged market because of the EU. That’s one cause.

But far more importantly, we’ve the standard interaction of supply and demand. Dairy farming is becoming more efficient: as farming has been doing since the Neolithic. That rising food production is what has enabled civilisation to develop. More milk is being produced from less land with fewer cows. It really is not a surprise that prices paid to producers are falling in real terms.

The effect of this is to bankrupt some producers and force them out of production. Which is, harsh though it may sound, exactly what needs to happen. Production is becoming more efficient thus we need fewer producers. . .

A Yorkshire farmer we visited last month said that message was the one good thing to come out of the foot and mouth epidemic.

All his cows were killed and before he replaced his herd he went through the figures. He realised that dairying didn’t stack up for him and rather than buying more cows he increased the amount of crop he grows.

The market matters. Rather than wasting their energy on protesting to politicians, farmers should be working out how to meet it.

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