Farmers get tiny slice of food price

May 15, 2008

An NZIER report commissioned by Federated Farmers shows producers are not the main beneficiaries of food price rises.

The farmer’s share of the retail price was 40.12 % for honey, 35.46% for milk, 30.97% for lamb chops, 18.86% for blade steak, 16.37 for bread and just 5.3% for cheese.

Feds President Charlie Pedersen  says that means the farmer’s share is just three slices or bread in a 20 slice loaf, one of four pieces of steak, three glasses from a two litre bottle of milk and a tiny slice of kilo block of cheese.

The cause of high food prices is complex and outside the control of the food producer. Transport, processing, energy and marketing, plus normal margins are some of the factors which have pushed prices up. There is a link to export prices, but this has never changed since New Zealand began exporting meat back in 1882. There is a misconception that because dairy farmers are receiving good payouts from Fonterra, this is driving up prices.

In fact, fertiliser and the cost of compliance have risen. Food producers have had to cope with a severe drought and pay high prices for supplementary feed for their stock. Many sheep and beef farmers will suffer losses this year adding to the losses of previous years.

This report clearly shows that food producers are certainly not ‘creaming it’. Let’s not forget that food producers also have to buy food for their families.

Let’s also not forget that the farmers’ share is a gross return.

The full report concludes:

One influence on the gap between retail food prices and farmers’ returns is changes in general prices in the economy (inflation), particularly from goods such as petrol. Inflation also puts downward pressure on farmers’ profits, as the returns farmers receive need to cover increasing costs of production.

A feature of New Zealand agriculture is that the majority of our agricultural production is sold in markets overseas. New Zealand also imports a significant proportion of food by value. Given the significance of these international factors, addressing increasing domestic food prices requires a response broader than simply targeting the returns to New Zealand farmers. Lowering domestic farmers’ returns

may depress the domestic supply of food, and in turn increase dependence on  imported foods and the growth of food prices further.

 

We saw this happening when we were in Argentina last April. The Government had increased taxes on exports of beef and dairy products in an attempt to keep domestic prices low. But as our host, an economist, pointed out the market always wins because farmers were getting rid of cattle and growing soya instead which was giving a much better return. As a result of this meat and dairy supplies were decreasing and there were fears Argentina would have to resort to imports at world prices.

 

An increase in the export tax on soya earlier this year led to farmer protests and in spite of resulting shortages of food, an Argentinean friend said most people support the farmers rather than the Government.

Rising prices of basic foods here has led to calls for subsidies. Those of us who went through the ag-sag of the 80s know the trouble that would cause.There are no easy answers to the question of making food affordable but attempts to tax exports or subsidise producers will only make the problem worse.


Receivership for furniture company

May 10, 2008

Willetts Furniture Company  has been placed in receivership at the request of managing director Colin Willetts. The ODT reports that Colin is confident the company can trade its way back to profitability and I hope so.

 

The company is a long –term anchor tenant in Oamaru’s historic precinct. It was launched in 1985, just as the ag-sag was starting to bite and was one of few good news business stories in the area at that time and for several years afterwards. It makes beautiful timber furniture, including the new Eco range which uses plantation timber such as pine and treats it with a special process so it looks like native timber.

 

Willetts developed overseas markets for its quality rimu furniture but much of this was lost when Government legislated to ban logging of native forests in 2003. The high dollar and cheap imports will also have made competing on overseas and domestic markets more difficult.


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