Just mad about agriculture

26 Sep, 2001 10:00 PM
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THE discovery of the first case of BSE (mad cow disease) in Japan can be good news for Australia, as it will encourage the locals to demand beef from countries like ours that have a clean, green product.

But then it's also possible that the advent of BSE into our Northern Asian neighbour will be bad news, because the consumers may decide that all beef is suspect and shift their preference to fish, whale or vegies.

Modern consumerism is a product of affluence, with the cost of food becoming a less important part of the budget, but regardless of fads or fashions, the lowest price in the market still gets the business.

I have just read an article in an English magazine which canvasses the proposition that Britain should give up the unequal struggle and close down its agricultural sector and import all the nation's foodstuffs.

The catalyst for the view is the current state of agriculture in the UK, with the belief that economic pressure on the nation's farmers has forced them to increase output by cutting corners, causing the outbreaks of BSE, Foot and Mouth (FMD) and Swine fever.

Ministry of Agriculture, Fisheries and Food (MAFF) figures state that the average net returns for British farmers has dropped from $240,000 five years ago to a current $24,000 (all figures in $A based on $A3 to £1).

In 1945 the average wheat yield was 2.6 t/ha, rising to 8.01 t/ha currently and, while the dairy herd has dropped from 2.7m to 2.1m during the same period, milk production has risen from 8.1 billion litres to 14 billion pa.

Yet in the last 12 months, farm incomes have dropped 28pc, with the cost of production now being generally above, or approaching, the prices received for most farm commodities.

They quote the actions of farmers (Australians have been there, done that) of increasing production to compensate for lower prices, exacerbating the supply/demand equation that caused the problem in the first place.

Pre FMD prices quoted by the National Farmers' Union in Britain, without any margin for the farmer or return on capital, make very interesting reading to an Australian farmer. See table 1

The governments response? They have banned fox hunting, abolished MAFF and incorporated it into the new Department for Environment, Food and Rural Affairs and advised farmer to produce for niche markets and to open B & Bs.

One of the options mentioned in the article concerns the tourism industry which suffered a $15.6 billion reduction in income from the FMD outbreak, with the suggestion that it would pay the community to subsidise country dwellers just to keep the countryside looking at its peak.

While retailers claim that their customers want only food that is safe, fresh, nutritious and free from disease and chemical residues, they still source their stock from anywhere in the world in search of a cheaper product.

While acknowledging the foolishness of subsidising farmers to produce surpluses, the possibility of letting the market sort out the mess is rejected by the Royal Agricultural Society because it would "bankrupt 40pc of the nation's farmers overnight."

British farmers are generally seen as being closer to the market than the rest of Western Europe, so it is hard for an Australian farmer to imagine the fate of the EU if the UK is in such trouble.

It is also hard to comprehend the cost structure that says a wheat crop that yields eight tonnes per hectare could also cost $2640/ha to produce, making the farm gate income of $1800/ha uneconomic, which not even the application of the current $90/tonne subsidy could bring into profit.

One of the reasons for avoiding subsidies is that the benefits are soon appropriated by others, generally into the cost of production or added to the value of assets.

At UK land prices, the economist's challenge to "get big or get out" would probably leave only the latter option as a viable one, particularly with the demand for rural retreats from city and town dwellers.

But when an Australian farmer looks at the returns available from UK farmland, it seems that it must be possible for very good profits to be made with greater economies of scale.

A former President of the NFF once studied the effects of subsidies on US and EU farmers and concluded that "they just fell off higher cliffs," showing that market forces can be delayed, but not avoided.

The problems of British agriculture seem to have their origins in the post-war intervention in the market, with government money being used to reduce competitive pressures, delay adjustment and inflate the cost of land.

Paying farmers to become land caretakers instead of food producers must surely be the ultimate intervention in a marketplace, an indictment on a series of governments over a long period.

Because the market has not delivered the result desired by a group of politicians does not necessarily mean a failure of market forces; it could just be that the market is smarter than your average polly.

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COMMENTS

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