Subsidies blight on wine industry

July 20, 2013

Australian winemakers get tax subsidies and guess what?

They’re producing too much wine.

Treasury Wine Estates chief executive David Dearie said the over-production was encouraged by an uneven tax and rebate system.

He has called for the Wine Equalisation Tax to be scrapped.

“It is widely rorted, underpins the excess supply that has blighted Australian wine,” he said.

“For a cost of circa $200 million in 2008-9, the WET rebate is now forecast to reach $310 million in 2015-16, something that should dismay us as an industry and as taxpayers.”

Any subsidies distort market signals, interfere with the natural relationship between supply, are very expensive and eventually harm the industry they’re trying to protect.


Farm subsidies transfer cash to rich

July 3, 2013

George Monbiot says farming subsidies are a transfer of cash to the rich.

The main subsidy, the single farm payment, is doled out by the hectare. The more land you own or rent, the more money you receive. . .

When our government says “we must help the farmers”, it means “we must help the 0.1%”. Most of the land here is owned by exceedingly wealthy people. Some of them are millionaires from elsewhere: sheikhs, oligarchs and mining magnates who own vast estates in this country. Although they might pay no taxes in the UK, they receive millions in farm subsidies. They are the world’s most successful benefit tourists. Yet, amid the manufactured terror of immigrants living off British welfare payments, we scarcely hear a word said against them. . .

Thanks in large part to subsidies, the value of farmland in the UK has tripled in 10 years: it has risen faster than almost any other speculative asset. . .

An uncapped subsidy system damages the interests of small farmers. It reinforces the economies of scale enjoyed by the biggest landlords, helping them to drive the small producers out of business. . .

He could have added that subsidies  distort the usual rules of supply and demand, increase inefficiencies, limit choice and add costs for consumers, protect poor performers from their own folly and create unfair competition for non-subsidised produce.

Most New Zealand farmers were somewhat less than enthusiastic about being dragged into the real world by the Lange-Douglas government in the mid 1980s but I haven’t met a single one who would want to go back to subsidies.

It’s better to face the market and prosper, or not, as a result of your own efforts than be at the mercy of political and bureaucratic whim.

Hat tip: Tim Worstall


Ag subsidies dropping

September 28, 2012

The  OECD agricultural policy monitoring and evaluation report shows a small drop in agricultural subsidies in the past year.

In 2011 support to producers across the OECD amounted to USD 252 billion or Eur 182 billion as measured by the Producer Support estimate (PSE) This is equivalent to 19% of gross farm receipts in OECD countries, down slightly from 20% in 2010. This is the lowest level observed since OECD began measuring support in the 1980s when the PSE as a percentage of gross farm receipts was 37%.

The drop isn’t as encouraging as the numbers suggest.

In recent years the decline in producer support was largely driven by higher prices on international markets rather than policy changes.

However, the trend is down and it will improve in three years when the European Union stops subsidising its farmers.

Some countries are giving support based on such things as historical area, livestock numbers and income rather than production which distorts the market less.

Australia, Chile and New Zealand had the lowest level of support – less than 1 to 4% of gross farm receipts. In Norway, Switzerland, Japan, Korea and Iceland from a half to two-thirds of gross farm returns were from subsidies.

The analysis for New Zealand starts on page 185. It shows most of the support is sector-wide general services such as research and biosecurity which improve the economic environment for agriculture.

Hat tip: Interest.co.nz


Key calls for end to ag subsidies

September 8, 2012

Prime Minister John Key used his opening speech to the APEC forum in Vladivostok to call for an end to agricultural subsidies:

. . . TPP would not be a substitute for World Trade Organisation trade talks, he said. The reality was less-developed countries often weren’t included in trade negotiations like TPP, he said.

And while agreements like TPP dealt with barriers to trade and investment, they did not get to the heart of subsidies.

Key said World Trade Organisation negotiations were the key to tackling high domestic subsidies in many economies’ agricultural sectors. He noted the New Zealand experience through the 1980s and 90s following the removal of subsidies there.

“While there is some pain…farmers responded very quickly to the signals – cut costs, increased productivity,” Key said.

“This level of subsidisation is no longer affordable nor sustainable,” he said.

“Now is the time for leaders around the world to be bold,” Key said, calling on them to eradicate subsidies, and start down the road of deficit reduction. . .

The mid to late 80s were very tough years for farming here. But I don’t know a single farmer who would go back to subsidies and farmers we met in England and Europe in June were looking forward to the end of subsidies there too.

They said they’d rather be answerable to markets than at the whim of politicians and bureaucrats.

Agricultural subsidies distort supply and demand, add to costs for taxpayers and consumers and promote inefficiency.

Getting rid of subsidies will open up trading opportunities to the benefit of producers and consumers.


Greens want to keep milk price high

August 22, 2012

Remember how the Green Party was concerned about high milk prices in New Zealand and wanted something done to make it cheaper?

They’ve changed their tune now and want to keep Canadian milk prices artificially high.

They don’t say that explicitly but that’s what their oppositionto the Trans Pacific Partnership  which would remove agricultural regulations such as Canada’s supply management system for dairy, which aims to preserve farmers’ livelihoods would do.

These farmers’ livelihoods are being paid for through higher prices for dairy products paid for by tax payers and consumers.

A free trade deal which opens the Canadian market to dairy products from other countries – including New Zealand and their closest neighbour the USA – would improve the range and lower the prices for consumers.

It would make life more difficult for some Canadian dairy farmers just as removing subsidies in the 80s did for farmers here, but I don’t know a single farmer who wants the protection back.

Once  Canadian farmers adjust they’ll find they are much better off answering to the market rather than to politicians and bureaucrats and consumers. If they’re not they’ll follow market signals and swap to a different land use from which they can make a decent living without the need of protection or subsidies; or they’ll sell to someone who can cope with the real world.

As Anti Dismal says:

 . . . Some Canadian farmers can’t make a living without regulation and protection, so they should be doing something else. Also the farmer’s lifestyle is costing Canadian taxpayer a huge amount. De-regulation would remove much of these costs to the Canadian taxpayer.

Hasn’t Metiria noticed that New Zealand de-regulated its farming in the 1980s, and yes some farmers went under, but today farming is better and stronger then it ever was under the old protection and regulation regime. . .

Kiwiblog nails it:

. . . So the NZ Green Party is against NZ dairy farmers being able to have fair access into Canada!!! Their concern is to protect inefficient subsidized Canadian farmers, not to help NZ farmers export more milk. . .

. . . The Greens basically don’t like trade. They voted against the FTA with China which has seen us export an extra $12 billion to China since it was signed. They want Canada to keep up its tariffs of up to 300%.

As the most remote developed country in the world, trade is vital to our future. Yet, the Greens want to kill it off. . .

The Green party wanted New Zealand farmers to subsidise New Zealand consumers when the price of milk increased here. Now they want Canadian taxpayers and consumers to keep subsidising Canadian farmers and keep New Zealand produce out of that market.

Any subsidies or protection is unfair and expensive to taxpayers, consumers and other producers.

This is the party which says it promotes fair trade but it doesn’t accept that if it’s not free it’s not fair.


Good farmers prefer market to politicians

July 12, 2012

European dairy farmers installed a milk lake in front of the European parliament in protest at falling milk prices.

The European Milk Board (EMB), which represents 100,000 dairy farmers across the EU, is calling for a programme of voluntary reductions in production which would allow producers to cut milk output by up to 25% of their quota.

Under their proposals, there would also be financial compensation for the value of the production lost. . .

Hundreds of EMB members travelled to Brussels from countries including Belgium, France, Germany and The Netherlands to join in the protest against the mismanagement of the milk market.

The group said overproduction on the European milk market is leading to a drastic fall in milk prices and leading directly to the next milk crisis.

EMB said the surplus of milk in the market was pushing prices to the floor and the survival of farms could not be guaranteed this way.

Under CAP reform, European dairy farmers are calling for the introduction of a voluntary supply constraint and the setting up of a European Monitoring Agency, to restore the balance between supply and demand.

EMB president Romuald Schaber said: “The only way to alleviate the situation is to reduce production, preferably by a voluntary supply constraint in the short term.”

The root of the problem is quotas and subsidies not the balance between supply and demand.

When we were in Europe last month we met dairy farmers who wanted to increase production but would have to buy quota which would make it very expensive.

We got the impression good farmers were looking forward to the end of the quotas and subsidies? Then they would be farming to produce what the market wanted rather than being dictated to by bureaucrats and politicians.

The transition to a free market will be painful for some, as it was in New Zealand. But it will be better in the long run for both producers and consumers when the market sorts out supply and demand.


All better without subsidies

December 12, 2011

A visiting dairy farmer from the United States said they have very few subsidies now and that’s the way most farmers there like it.

The prefer to prosper, or not, through their own efforts rather than at the whim of the government.

That sentiment is shared by farmers here and the OECD:

Countries should focus on improving farm productivity, sustainability and long-term competitiveness, rather than policies that distort markets.

NZ has the lowest agricultural  subsidies in the OECD:

New Zealand has the lowest level of government support to agriculture in the OECD, at just 1% of farm income. Australia (3%), Chile (4%) and the United States (9%) are also well below the OECD average.
  • The European Union has reduced its level of support to 22% of farm income, but remains above the OECD average.
  • Support to farmers remains relatively high in Korea (47%), Iceland (48%), Japan (49%), Switzerland (56%) and Norway (60%).
  • Brazil, South Africa and Ukraine generally support agriculture at levels well below the OECD average, while support in China is approaching the OECD average. In Russia, farm support now exceeds the OECD average.

I didn’t think we had any support at all. If I’m reading the report correctly that 1% is sector-wide policy measures  representing general services to agriculture.

New Zealand farmer were dragged unwillingly into the real world in the 1980s but I haven’t met a single farmer in the last 20 years that would want to go back.

Farmers and the country are better off without subsidies.


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