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.

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


18/12/2014 8:44:00 AM

My friend Charlie is a multigenerational grazier. He told me his grandfather sold a bullock and paid a man's wages for one year. His father sold a bullock that paid a man for one month. Charlie sells a bullock and can hardly pay a week's wages. It's easy to say "accept the things we cannot change" how are we are expected to live on the same income as we did in 1980, yet the consumer price of beef and lamb has followed the CPI. My inputs are tags, inoculations and transport. Weaner sales $327 per head. You hold the balance of power. Is this fair? What do you plan to do other than pontificate?
Bushie Bill
18/12/2014 9:44:24 AM

He could suggest Paddy, that you firstly stop whingeing and secondly, decide to get on with it or get out of it. That is exactly what every other business operator has to do in tough times. Why do you think you are somehow in a more "worthy" occupation that requires other people to make sacrifices and solve YOUR problems? You are no different to the corner store operator or the factory making widgets. If you can't survive alone, you should be allowed to fail alone. Markets should be supreme and agrarian socialists should be squashed and embarrassed out of existence at every opportunity.
18/12/2014 9:52:49 AM

You talk slave labour but in other posts you have as much admitted that you support it through your cheap imported purchases that are undoubtly made in sweatshops by children.
Bushie Bill
18/12/2014 10:02:12 AM

Do watch your blood pressure, eh FFS? We don't want you trussed up in hospital recovering from a twitching uncontrollable anxiety/stress attack (a la the straight-jacketed Chief Inspector Charles LaRousse Dreyfus of Pink Panther fame) at Christmas, do we? Come over to my 15th floor Bellevue Hill penthouse for a nice soothing scotch eh? Bring the dogs if you wish.
18/12/2014 10:11:23 AM

Who has ever said anything about wanting to introduce slavery? That is just emotive union crap made up by monumental failures afraid of raising a sweat.
Rob Moore
18/12/2014 11:08:40 AM

Spot on Paddy! Charlie and I know this is the "Root cause" and so do all the other posters here that ARE Actually in this crazy game. Ag products/produce are in demand - domestic and Export companies are minting money. David L - for a consultant you don't seem to have learned much accept to find where the trough is. I expect better from you! Get Max to explain my PPP bill to you. Competition will transfer the power balance back to even and THEN we will get a fair and open price which may be good or bad.THEN we will be in a position to make truly commercial decisions for our future-ring me up.
18/12/2014 12:28:18 PM

What's the address? No lying now.
18/12/2014 1:31:40 PM

Cam, that is a sore spot with Bushie Bill. You are right, the dope is always supporting slave labour by the overseas countries from which he demands the right to buy at the lowest global price. Maybe he is too stupid to work out that it comes much cheaper from there than Australia because they do not have our inflated welfare based labour regulations. So when he derides others for not allowing the market to determine success or failure, he only means that, when it is better for himself. The rest can go to hell!
Bushie Bill
18/12/2014 1:39:22 PM

Nothing new in what Paddy says. The terms of trade have been trending against the primary producers for over a century. You are slow learners if it has taken all this time to wake up to this. It doesn't change the decision-making process though. As always, those with the problems should be the ones leading the charge to find solutions. Agsoc dirt scratchers simply want to whinge about how things are not as good as when daddy and grand daddy were dirt scratchers. Tell me, what industry is the same as it was a century or a generation or a decade ago, or even last year?
Bushie Bill
18/12/2014 1:46:42 PM

You are a very imaginative reader, aren't you Cam, to be able to interpret all that from my posts? Show me a post, Cam, where I "have as much admitted support (for) child labour". Show me some evidence that supports you claim that imports are "undoubtedly made in sweatshops by children". You are not very bright Cam, and this is readily evident from you posts and your sloppiness with the English language. Do try harder, eh? English for Dummies would be a good start.
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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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