When the price is right

Most farmers will never be able to influence the price of their product

SOME farmers yearn for the power to set the price of their products. It’s a yearning that leads to calls for subsidies and forced collectivism. And by distracting farmers from the task of cutting costs, it can become a paralysing addiction.

So taking a cue from the 12 Step Program of Alcoholics Anonymous, let us recite the words: "God, grant us the serenity to accept the things we cannot change, the courage to change the things we can, and the wisdom to know the difference".

Most farmers will never be able to influence the price of their product. Their product is produced by their neighbours, by strangers in distant states, and by foreign producers. Any attempt to independently raise their prices will see their sales evaporate, to be readily replaced by these neighbours, strangers and foreigners.

“Australia’s lack of long term price-making power in agriculture and mining is not something to lament”

Some farmers dream of colluding with their neighbours on pricing. Some also dream of persuading governments to enforce such collusion, perhaps even on a national scale. But even then, there would remain competition from foreign producers.

A quick look at the imperfect data from the Australian Bureau of Agricultural and Resource Economics and Sciences indicates why Australia lacks the potential to set the prices of its products.

Australia’s share of global production is around 5 per cent for skim milk powder, 3pc for wheat and sugar, and less than 2pc for cotton, meat, butter and rice.

And while Australia accounts for around a third of global wool production, fierce competition from other fibres means that any attempt to raise wool prices, even if successful in the short term, would falter over the longer term. The collapse of the reserve price scheme provided compelling evidence of that.

Given this foreign competition, there is scant evidence that Australia’s history of single export desks has ever succeeded in capturing price premiums in world markets by exploiting market power.

Our miners face similar foreign competition as, contrary to what many think, Australia does not dominate global mineral production. Geoscience Australia data suggests that while Australia produces most of the world’s mineral sands and much of the world’s lithium and bauxite, we play a more minor role in iron ore (although we do enjoy freight advantages into China), and we are just bit players when it comes to coal.

Australia’s lack of long term price-making power in agriculture and mining is not something to lament. It is a reality for countries across the globe. Even the OPEC countries are aware that they only influence oil production and prices within a narrow range and over the short term, and that their influence is undermined by poor coordination amongst member countries and significant oil production by non-members.

“Instead, we are prosperous price-takers in a global market”

It is possible to have price making power if a product is not readily traded. Fortunately, most of our agricultural produce is tradeable. Were it not for the non-perishability of wool, the advent of refrigerated cargo ships and other developments in bulk transport over the last century-and-a-half, Australian agriculture would have price-making power in a tiny and stagnant domestic market. Instead, we are prosperous price-takers in a global market.

It is also possible to have price-making power if a product is unique and well branded. Some farmers are pursuing the option of such niche marketing, many in conjunction with willing partners. Government intervention is unnecessary here, as farmers will voluntarily collaborate in such marketing if they consider the prospects to be good.

“It is always possible to focus on driving down costs rather than wishing up prices”

But above all, it is always possible to focus on driving down costs rather than wishing up prices. Getting cheaper labour is within our power; we just need to rid ourselves of government regulations and immigration restrictions that hold back hiring. Getting cheaper capital is within our power, if we rid ourselves of government restrictions on foreign investment that belong in the era of 'White Australia' and the 'Yellow Peril'.

And getting cheaper land and other inputs is also within our power if we rid ourselves of government handouts to inefficient farmers who are tying up agricultural resources.

So a final thought: there are farmers who yearn for government intervention to somehow conjure up a sustained price-making power for their export commodities. But if, by some miracle, the government somehow generated such a power for one of our export commodities, then - as sure as night follows day - that same government would find a way to tax the hell out of it.

Perhaps the yearning farmers might find some solace in this.

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FarmOnline
David Leyonhjelm

David Leyonhjelm

has worked in agribusiness for 30 years and is a Senator for NSW representing the Liberal Democrats.
Date: Newest first | Oldest first

READER COMMENTS

Bushie Bill
17/12/2014 2:56:52 PM

Fair enough, LTF. Let those who want and demand irresponsible handouts to agsocs pay for it. Let it be a strict inter-RARA transfer, not involving the productive industries and individuals of the economy.
Bushie Bill
17/12/2014 3:12:26 PM

m2, think, if you are intelligent enough (it might also involve some concentration powers, if these are not also beyond you) of the benefits that apply to this country continuing in the same philosophical vein we adopted more than a century ago. You want first world services, technology and infrastructure, and first world rewards for farmers, but hypocritically (probably because you are not intelligent enough to recognise your own hypocrisy) want to introduce slave labour, like some ultra right-wing Latin American or African tinpot illiterate dictator. Move offshore if you wish. I'll help you.
Bushie Bill
17/12/2014 3:24:52 PM

A question for those honourable citizens hell-bent on introducing slavery to Australia; where is the political support for your quest, are the Liberal in favour, is it in the Nationals Manifesto, does the ALP think it is a good idea? How about the Greens, the PUPs, the DLP, Where do they stand on introducing slavery to this country? Have you had a word with the League of Rights or perhaps the Australia First Party? Maybe you should chat with Gina, and Angry Bolt, or perhaps the squawing Parrot? You blokes haven't being trying, have you? You know you are talking illogical unacceptable crap.
Bushie Bill
17/12/2014 3:31:39 PM

If you are referring to me, FFS, I repeat (for the obvious very slow learner you are) I am not now and never have been a member of a trade union and certainly never a union official. What are you going to do now, FFS? Come up with some more lies for the benefit of your fellow ignorant redneck dirt scratching mates to swallow? Like all sections at the rear end of the social structure, rednecks need to have someone to look to to make believe they are not at the bottom of the social structure. Believe me, FFS, you are clearly right at the bottom. Good news; the only direction for you is up.
Very Woolly Thinking
18/12/2014 6:33:16 AM

David is a shill for the tobacco and gun industries. His shameful comments after the tragedy in Sydney - suggesting everyone should carry concealed weapons - show he is an appalling opportunist. He should move to the USA where he can wallow in handguns and leave Australia to be the peace loving nation that it has always been.
mark2
18/12/2014 6:51:03 AM

careful you don't choke on your own bile, BB
FFS
18/12/2014 7:35:45 AM

You have also repeated many times that you live in 15th floor penthouse in Bellevue Hill, Bellevue Bill. Is that the honest truth? If it's not then you are a bald faced liar and everything else you say is clearly made up hypocritical crap. Shonks like you should never be believed or trusted at any time by any one.
Frank Blunt
18/12/2014 7:44:17 AM

A peaceful loving nation is it, Wooly ? What part of Australia is peaceful? Martin Place where unarmed victims are at the mercy of armed nut jobs or rural Australia where citizens are armed and the nut jobs stay away because there are easier targets in Martin place where the victims go unarmed and vulnerable?
Bushie Bill
18/12/2014 8:00:58 AM

Not smart enough o respond to the content, eh m2? No surprise in that, is there?
LTF
18/12/2014 8:29:15 AM

Obviously Bushie Bill is not aware that the biggest democracy and economy in the globe has no minimum wage system in the vast majority of states. The few US states which do have a minimum wage have it set at $10/hr, which is way below the level in Australia. Most of the countries we trade with of course have open market rates which turn out to be way below ours. Yet most of those countries have growth rates well above Australia's. Hence they are now moving in here and buying up all our wealth creating assets. So our system is failing fast.
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Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

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