Government intervention isn’t the answer

22/06/2009

Thousands of farmers from the European Union’s 27 member states are taking to the streets of Luxembourg today to demonstrate against poor returns.

“Food production is the single biggest economic activity in Europe and it is facing serious problems,” said the organisation’s secretary general Pekka Pesonen. “Dairy in particular is in a very severe crisis, and other sectors, from pig meat and olive oil to sheep and goats are suffering, too.

“Even as the causes of the problems differ, the result is always the same – we are not getting a fair share of the value of the final product.”

Producers all over the world could no doubt say the same thing but those of us who’re in the real world know that’s mostly to do with the market and very little to do with the government.

The crisis affecting the dairy sector is likely to be a major focus of attention. Despite a decision by the EU dairy management committee this week to raise export refunds for milk powders, Irish Farmers’ Association leader Padraig Walshe called for a “much more aggressive approach”.

“Prices have fallen to their lowest level in recent history, in some countries to those of 1983. To make matters worse, production costs have remained at an all-time high. This is disastrous for farm incomes, endangering the very existence of dairy production in the EU.”

A taste of the protest to come next week was given in Brussels on Thursday (18 June), when hundred of farmers from Germany, France, Belgium and Holland drove their tractors to the city centre as EU heads of state met for a summit meeting. . .

Their principle demand was for an immediate 5% quota cut, to tighten the market and allow cost covering prices to be achieved. But the EU Commission says production is already well below quota and such a cut would make no difference.

A 5% quota cut to tighten the market means a forced reduction in supply to force prices up so consumers pay more. That’s not a subsidy from the taxpayer but from the consumer which amounts to the same thing in the end.

Farming in Europe is facing a crisis. But if government intervention in the market by way of subsidies and quota controls is the answer they are asking the wrong question.


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