Subsidies blight on wine industry


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


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


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:

Key calls for end to ag subsidies


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


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


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


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.

Democracies don’t have famines


Quote of the week from Roger Kerr:

Less edifying was a session titled ‘An Uncertain Harvest: Investigating Global Food Security’. Malthus seemed to have a couple of seats at the table in a round of agonizing about food security and whether the world can feed its population in the 21st century.

I made the point that food security is often the code word for agricultural protectionism. It has been the excuse for the common agricultural policy and protection of Japan’s rice farmers, for example. If markets are allowed to work, trading is free, and property rights and contracts are secure, it is hard to see why global supply and demand will not balance over the longer term.  As one delegate said, there’s never been a famine in a democracy.  

Consumers never win from protectionism and in the long-term producers don’t either. New Zealand is proof of that.

We might have been dragged kicking and screaming into the real susbisdy-free world in the 1980s but New Zealand farmers are much the stronger for it now.

Protectionism increases the power of politicians and bureaucrats which adds costs and uncertainties.

It also upsets the law of supply and demand, creating unwanted surpluses or unnecessary shortages.

Aid might be needed in the short-term but the best way to tackle famine is to open borders and ditch subsidies.

Fair Trade is a compelling slogan but the only really fair trade is free trade.

A subsidy by any other name


Quote of the week from Trans Tasman:

If a NZ business can’t deliver a good value/quality product to a NZ based Crown entity compared with a foreign based company without assistance then it is more politically honest not to call it a procurement policy, but a state subsidy. It will then be up to taxpayers whether the extra money is worth it.

It’s referring to Labour’s procurement policy for crown entities which aims to favour local businesses and it’s right.

There’s no point pussy-footing round with euphemisms, a subsidy by any other name still comes at a cost.

If local companies were used in spite of inferior goods and services and/or higher prices then they’d be being subsidised and it’s taxpayers who would pay the higher bill.

Sugar beet silliness


Phil Clarke blogs on sugar beet silliness in the EU.

Good weather has led to a bumper crop of beet and the EU as a whole is expecting to produce about 2.4 million tonnes. But that exceeds the 1.37m it’s allowed to export under a WTO ruling.

That was based on a complaint by Australia, Brazil and Thailand which had argued that the EU was “dumping” its surpluses on the world market.

But that was in the days when world prices were way below EU levels. The situation is very different today, with the global shortage of sugar leading to a doubling in prices in just 12 months.

The response suggested by CIBE is for the EU to increase the export ceiling for 2010, so that, instead of having to stockpile about 1m tonnes of surplus sugar, processors can sell it to the world market and help relieve the global shortage…

What could be more sensible? Global prices would come down a bit, the EU sugar industry would earn a bit and consumers the world over would save a bit.

But that’s not the way Brussels sees it. It maintains that “it is not possible to export out-of-quota sugar in excess of the WTO limit” and suggests the only option is to carry over any surplus into next season.

The EU could make a request to the WTO to lift the export ceiling.

 It certainly seems unlikely that the likes of Australia, Brazil and Thailand would complain, since their consumers are feeling the impact of high sugar prices too.

The more likely outcome, however, is that the EU will do nothing. As a result, each member state will have to put its extra sugar into storage this winter, with all the cost that involves, and carry it forward to next season.

And that will mean further reductions in EU growers’ 2010/11 contract tonnages – even though prices are sky high and the world is crying out for sugar.

I presume the reason the WTO is involved is because the sugar beet production is subsidised.

The market might not be perfect and it means accepting the lows which inevitably occur but this illustrates how silly subsidies are when they prevent producers from benefitting from the highs.

It’s not good for consumers either. They’ll have been taxed to pay for the subsidies when demand was low and now there’s a sugar shortage they’ll be paying higher prices.

EU removes dairy subsidies


Break out a celebratory bottle of milk, the European Union has removed subsidies on dairy products.

Trade Minister Tim Groser said:

“International dairy prices have shown a marked improvement across the board in the last three months, reflecting a more positive outlook in international dairy markets.

“In response to this market improvement, the European Union has been gradually scaling back its export subsidies since late October. The removal of remaining export subsidies sends an encouraging message to the international dairy market and I welcome that.

“I will continue to make the point in my international contacts that it is important not to revert to subsidies as a response to market conditions.

“All countries with dairy industries have an interest in a healthy international market. This is a positive development toward that end,” Mr Groser said.

That is very good news. However, let’s not forget the dairy produce which the Eu stockpiled when prices fell.

Releasing it will increase the supply which could dampen prices.

Phil Clarke sees this from the British point of view:

One thing that will be crucial is the rate at which butter and skimmed milk powder stocks are released from intervention in the EU. Last week the commission only went so far as to say it was following things closely and would not do anything to hinder recovery.

But EU dairy body Eucolait is worried that, if the commission leaves it too late, many food processors will switch out of dairy fat and into vegetable oil – and the opportunity to reduce stocks will be missed.

It’s a difficult balancing act, but one the commission has to get right if the dairy sector is to enjoy any kind of stability.

It’s tempting to say the sooner they get rid of the stockpiles the better, but flooding the market with dairy produce which has been stockpiled would depress prices.

Dairy subsidies to cost NZ $122m


Federated Farmers president Don Nicolson got a lot of attention for his piece in the Wall Street Journal on milking trade subsidies.

Perhaps he should follow that up with an invoice because the New Zealand Institute of Economic Research has calculated that the subsidies on dairy products introduced by the EU and USA will cost the New Zealand economy $122 million.

New Zealand’s dairy output may fall by around 5% and the value of milk, butter and cheese exports could decline some 8% as American and European subsidies create an oversupply of product, according to the NZIER’s latest Insight newsletter. The think-tank predicts the global economy will be worse off by around US$41 million, although countries such as Japan and Korean would benefit from lower world prices.

The prospect of lower dairy prices “will cause kiwi farmers’ incomes to fall below where they would otherwise have been, through no fault of their own,” said the institute’s deputy chief executive John Ballingall. “The risk of ongoing retaliation between the U.S. and EU, and potentially others, could lead to larger increases in subsidies, tariffs and other trade barriers over time.”

The immediate impact of the subsidies was partially responsible for the decrease in Fonterra’s forecast payout for the new season.

The threat of ongoing retaliation, bigger subsidies, tariffs and other trade barriers is even more concerning. It will hinder the recovery and hamper progress towards freer trade.

The NZIER Dairy Insight newsletter is here.

Government intervention isn’t the answer


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.

Milk too expensive or people too poor?


Otago University researchers have found the price of milk is beyond the bugets of low-income families and they want the government to intervene.

Researchers Louise Signal and Moira Smith want the Government to bring in price controls to make milk more affordable.

They are also advocating that milk be included in the new “breakfast in schools” programme in low-income areas.

. . . The researchers say the Government contributed to rising milk prices by removing subsidies and control from the milk industry, applying GST to food, and by the linking of retail prices to international commodity prices.

Including milk in breakfast in schools programme might be a good idea but the other suggestions have no merit.

Price controls are simply a tax on production and if they were imposed on farmers they’d stop supplying the domestic market in favour of exporting or change from dairying to something more profitable.

Argentina put export taxes on beef and dairy produce last year to keep domestic prices low. Farmers then turned to other more profitable produce leading to shortages and the possibility of needing imports to satisfy demand.

Removing subsidies was painful at the time but it has made the New Zealand dairy industry the most efficient in the world.

Reintroducing subsidies would not only cost taxpayers and consumers it would sabotage our exports and the slow progress we’re making towards freeing up world trade.

A good tax may be an oxymoron but a simple tax is better and GST is simple. Removing it from food would add to compliance costs, make business much more complicated and more costly for retailers and require raising tax elsewhere to compensate for lost income.

Linking retail prices to international commodity prices is nothing to do with the government. It’s simply the market. If farmers could get more for producing for export than for the local market that’s what they’d do.

The problem isn’t that milk is too expensive, it’s that people are too poor and that’s because of our poor record of economic growth.

Feds deliver WSJ barracking to Obama


Federated Farmers President Don Nicolson has not just delivered a barracking to US President Barack Obama, he’s done it in the Wall Street Journal.

The government has to be diplomatic, but Nicolson pulls no punches in an opinion piece headlined Milking Trade Subsidies.

Less than six months into his new administration, President Barack Obama has already managed to spark a trade war with Mexico over trucking. Protectionist measures like quotas on Chinese tires could be on the cards, too. Now, newly expanded milk subsidies also threaten both America’s reputation and its trade leadership.

Last month the U.S. Secretary of Agriculture, Tom Vilsack, implemented the Dairy Export Incentive Program, or DEIP. Under the program, re-authorized by Congress in last year’s Farm Bill, the U.S. Department of Agriculture pays subsidies — euphemistically described as “bonuses” — to cover the difference between American farmers’ cost of production and prevailing international prices.

While DEIP is legal in the U.S., its implementation is a political decision. In the past, annual dairy export DEIP “bonus” values have ranged from about $20 million up to $140 million. While these are miniscule figures for the U.S., the payments distort the international price of dairy products. The first post-DEIP auction price for whole milk powder, conducted earlier this month, fell by 12% — the biggest price reversal since February.

Nicolson explains the negative impact subsidies have on consumers everywhere.

In the U.S., DEIP means American families pay higher taxes to support subsidized dairy farmers, wiping out any savings they might enjoy from lower dairy prices. As in other countries, subsidies effectively shield farmers from true competition. Higher prices always result, and this price increase is passed straight onto consumers. There’s nothing inherently “fair” about any form of subsidy.

Just as relevant, especially given Mr. Obama’s stated desire to improve America’s image abroad, is how unfair this subsidy is to dairy farmers in countries like mine, New Zealand. We’re the world’s second-largest dairy exporter, after the EU and ahead of the U.S. And we’ve reached that market position without any farm subsidies whatsoever.

Nicolson explains how subsidies were dropped in New Zealand in 1985 and while painful at the time, the agricultural sector is stronger now its standing on its own feet and has bettered productivity growth in every other sector in all but two of the last 27 years.

Now programs like DEIP are punishing us for our hard-won success.

Nicolson is justifiably proud that the WSJ accepted his column.

“Writing a letter to President Barack Obama was one thing. Getting wider attention on this most important issue is another.

“That’s why the Wall Street Journal was the logical choice. It’s the trade paper of American commerce and one of the most respected newspapers in the world. It has genuine gravitas with U.S. policy makers.

“It’s an honour and a bit of a coup really that Federated Farmers has had such a topical piece accepted. The timing is ideal, given it coincides with the Cairns Group meeting being attended by U.S. trade representative, Ron Kirk and the World Trade Organisation’s Director-General, Pascal Lamy.

“New Zealand and its farmers are up against a powerful U.S. dairy lobby that’s only interested in keeping its subsidies. Hopefully this opinion piece will give U.S. policy makers time to pause, think and reconsider what folly it really is. . .

“Federated Farmers is acting proactively to protect farm viability and the returns that New Zealand’s dairy farmers receive. Unless subsidies and protectionism is nipped in the bud, history tells us they’ll expand and morph into other areas. 

This more than justifies the subscription Feds charges its members and any farmer who isn’t a member should sign up because of this.

Feds has leapt gumboot deep into the slugde of growing subsidies and need our support to carry on the fight.

Hat Tip: The Bull Pen

Who wants to be a subsidy millionaire?


A website dedicated to shining daylight on subsidies,,  has published a list of the agrimillionaires from 2008,  the 710 businesses or individuals who received more than 1 million euros from the European common agriculture policy.

An Italian sugar company received the most – nearly 140, million euro. The smallest subsidy millionaire was an Austrian cheese company which received a relatively modest million euro.

These are large sums of money. However, Phil’s Business Blog  reckons that demonising companies and individuals receiving large payments is misdirected.

For a start, it’s little surprise that sugar processors currently top the CAP payments league table, since they are involved in a major restructuring scheme designed to cut EU production and comply with WTO rules.

And at farm level, there has never been any logic to subsidy caps. Since decoupling, direct payments to farmers are supposed to be about the delivery of public goods, and it is often large farmers that are doing the most.

It is also the case that large farmers tend to employ more people, both directly and indirectly. Furthermore, restricting subsidy according to farm size can only act as a disincentive to efficiency.

That may be right but it still doesn’t justify taking money from taxpayers, giving it to producers and manufacturers who then compete unfairly with other more efficient producers elsewhere and increase costs for consumers, most of whom are taxpayers who funded the subsidies.

It’s just a giant money-go-round supporting a giant bureaucracy and handicapping free trade initiatives.

New Zealand farmers were forced into the real world when subsidies were taken away more than 20 years ago. It wasn’t much fun at the time, but it’s made us much better at what we do and much more attuned to the market than we ever were when farm incomes went up and down by government whim.

Free trade is better for consumers and, while the transition from subsidies to standing on your own feet isn’t easy, it’s also better for producers.

GlobaldairyTrade price down 12%


Prices fell 12% in this morning’s globalDairyTrade auction.

That’s not surprsing in light of growing stock piles of milk powder and the subsidies which the USA reintroduced last week.

The rising value of the New Zealand dollar won’t help Fonterra’s returns either.

Better standing on our own feet


New Zealand farmers’ anger at the USA’s decision to subsidise its dairy exports is well founded.

Federated Farmers dairy section vice-chair John Bluett says:

“It’s a serious concern. The US is going to subsidise 92,000 tonnes of export product. In perspective, New Zealand only produces 105,000 tonnes, so it’s the equivalent of almost subsidising all New Zealand’s production.”

In the Waikato alone it could cost farmers $180 million and it is likely to mean a lower payout next season.

There may be a small benefit to consumers if the subsidies result in lower international commodity prices because that could flow through to lower retail prices here. But any gain will be more than cancelled out by the pain imposed on the wider economy.

However, angry as farmers are, none are calling for a return to subsidies. Hard as it is in the real world at the mercy of markets, it beats the days which Rob describes when farmers’ incomes went up and down at the whim of the government.

There’s another reminder of how bad that is at Phil Clarkes’ Business Blog:

In France, for example, some 81 dairies have been blockaded and dairy farmers have threatened a national “milk strike” if an ongoing “mediation process” fails to deliver a meaningful lift in prices.

In Germany, meanwhile, six women have gone on hunger strike, while around 6000 dairy farmers took to the streets of Berlin to demand a national milk summit.

And this week the protest headed to Brussels, with a claimed 2000 farmers from 10 member states clashing with riot police outside the EU Council building, while farm ministers discussed the market situation.

Taking what the market offers isn’t always easy, but standing on our own feet beats going cap in hands to governments as they do in Europe to find out not only what they’ll earn but also how much they can produce.

Hat Tip: QuoteUnquote

But they did it first


The USA is reintroducing export subsidies for dairy products in a tit for tat response to the EU which reintroduced subsidies earlier in the year.

But they did it first is no way to win an argument, but that’s the excuse they’re using.

US Agriculture Secretary Tom Vilsack says the move is in direct response to the European Union’s introduction earlier this year of export subsidies. It will allow American exporters to compete fairly, he says.

His idea of fair isn’t quite the same as mine.

At the same time, Mr Vilsack says the Obama administration remains strongly committed to a pledge at the recent G20 summit to refrain from protectionism.

He says every attempt will be made to minimise the impact on countries that do not subsidise their dairy producers.

If he wants to give up his day job he could find another writing ads for Tui.

Trade Minister Tim Groser isn’t impressed.

Dairy farmers the world over are under pressure, but this is a short-sighted response when the international dairy market has recently been showing signs of stabilising. The decision is a setback, and will be damaging to world markets.

“Export subsidy assistance will have a relatively small effect on income for US dairy farmers, and may even prove counterproductive by creating uncertainty and depressing international dairy market prices. Unsubsidised producers, like those from New Zealand, will bear the cost of these trade-distorting measures.

“I am disappointed that the United States should have followed the poor example set by the European Union when it reintroduced export subsidies in January.

“While the US and the EU may consider they are both acting within their current WTO commitments, this sends a very negative signal to other WTO members. . .

Groser says it’s not whether these measures are legal but the bad example the EU and USA are setting.

 “The long term solution is clear: we need to complete the WTO Doha Round in order to secure the elimination of agricultural export subsidies. In the meantime, restraint is needed, not a resumption of retaliatory subsidisation.

The recession will provide excuses for increased protectionism which will do little, if anything, to help producers, increase costs for taxpayers and consumers and hamper the eventual recovery.

Who benefits from subsidies take 2


In Saturday’s post on who benefits from subsidies  I wrote that Anti-Dismal’s post who gets what from agricultural subsidies said it was landowners.

Paul Walker pointed out in a comment I’d got that wrong and the study he referred to said 75% of the subsidy went to the farmers and 25% to land owners.

In New Zealand most farmers own their own land and I think even more would have before the mid 1980s when farming was subsidised so the difference is academic. However, no mention is made of those who work for, service and supply farmers and process what they grow and as I said in Saturday’s post the removal of subsidies hit them hardest which suggests they got the greatest benefit from them. 

There are two forms of agricultural subsidies – those on production and farm welfare which isn’t related to production.

When New Zealand farmers were subsidised it was for production which not surprisingly led them to produce more than markets wanted which depressed prices so farmers needed higher subsidies  . . .

Increased production not only resulted in produce domestic and overseas markets didn’t want, it also inflated land values and distorted the employment market, increasing demand and inflating wages  because it required more staff on farms and along the production chain.

When subsidies were removed farm incomes, production and land values all fell. The financial and social impact of that through decreased spending and job losses moved from the farms through rural communities to provincial towns and eventually into cities.

It was pretty grim for everyone and I don’t know any farmers who remember that who want a return to subsidies.

Producers in some other countries haven’t learned that yet. Some still get subsidies based on production and others receive welfare payments which are made to keep farmers on the land and unrelated to what and how much they produce.

Welfare isn’t as bad as subsidies on production because at least it doesn’t flood the market, but it still means farmers’ income depends not on their skill, hard work and dependable variables such as the weather and markets; but on the very undependable variable of politcal whim.

But whether it’s a subsidy on production or welfare, it’s very expensive for taxpayers and consumers.

Subsidies might be good for bureaucrats who administer them but any other benefits escape me.

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