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One rule for farmers, another rule for everyone else

Cow - CC / Flickr

Cow - CC / Flickr

I managed to avoid the milk-farmer chaos in Brussels on Thursday and Friday – hundreds of tractors driving slowly to bring protests about low milk prices to the European Council. But what exactly are the farmers whingeing about, and what should be done about it?

This piece from EUObserver has more – it costs €33 to produce 100 litres of milk on a Belgian farm, and wholesalers are buying milk for just €19 per 100 litres. The farmers would ideally like a price of €44 per 100 litres. In any normal sector of the economy the high-price producers would go out of business, and those that can produce at a lower price would get the business, profiting from economies of scale or better technology. Look at how OPEC works – reduce production to drive up prices. Sorry to put it bluntly, but if the prices are too low, then some cows are going to have to be slaughtered.

Another alternative would be to appeal to customers that might be more inclined to buy local rather than imported milk, and pay a premium for the privilege – some equivalents of the British Farm Standard scheme might do to the job.

But what do the farmers do instead? They come complaining to the European Commission, and governments in each of the Member States, whining that something should be done to help their plight. It’s the EU’s plan to phase out the quota system for milk that is to blame they bleat – the very quotas that were introduced in the 1980s to prevent over-production of milk and were detested by milk farmers at that time. Keep the quotas, keep our prices up!

The EUObserver piece quotes a farmer: “It’s not a problem of the stores, it’s a problem of a regulation by the states and overall by Europe” – no. The problem is with the farmers who cannot except the logic of simple market forces. If the price of milk is too low, then produce less. Don’t produce at a loss and then go begging for assistance from the EU.

(Apologies if this article is really wide of the mark – I’ve scoured the web and cannot find anything except hot air and hollow rhetoric from farmers on this – if I’m missing some fundamental point to the economics behind this then please do tell me in the comments)


14 Comments

  • Frank Schnittger |

    I live on my brother-in-law’s dairy farm and the economics are a good deal more complex than you suggest. Production has been going down, many farmers are retiring and not being replaced, but the costs of production keep going up because of very stringent regulations governing animal testing, milk testing, anti-biotic use, vet care, animal husbandry, design of silage pits, slurry pits, milking parlours etc. Most of this is very good – but it results in EU farmers incurring costs not incurred by farmers outside EU. Some of the regulations are idiotic or keep changing. My brother-in-law has had to replace very expensive equipment long before its lifespan because of regulations changing without much logic or aforethought.

    The consequence is that the EU will increasingly be importing dairy products from relatively unregulated external sources – with risks to food quality, consumer safety, and security of supply – not to mention carbon footprint/energy costs associated with transporting goods long distances. Once farmers retire a lot of knowledge and culture is lost – it is a largely irreversible process – there are virtually no new entrants into the business. Thus unless t is managed carefully, the EU will create an irreversible dairy produce dependency on external suppliers with little by way of animal care or product quality control in source countries.

    I’m not suggesting that farmers be subsidised hugely and indefinitely – subsidies have been declining gradually on a long term basis in any case. But we don’t want to turn our countryside and rural population structure into an arid depopulated agribusiness wasteland either. What works for large Tory held estates doesn’t necessarily work for small family held farms. The call to eliminate subsidies is also a call to eliminate competition from small farmers so that the larger estates have control of the countryside to themselves.

    Food production is an issue worldwide, and we shouldn’t necessarilly be forcing third world economies to provide for first world food requirements when their own people are starving. The Irish famine 1845-8 led to 2 Million deaths and the same number of forced emigrations at a time when Ireland was a grain exporter for the British market. Small producers can’t always survive the exigencies of climate and market price fluctuations. So providing some stability is a laudable CAP objective – as is control of GM crops and habitat destruction.

    Unregulated markets haven’t worked in the financial sector, and neither did they work in the agricultural or fishing sectors. The difficulty is that farmers have very little bargaining power compared to “too-big-to-fail” banks and are thus always going to be at the end of the gravy chain – even though they are at the very beginning of the food chain. Long term, the farmers are fighting a losing battle, and the family farm is dying. However I think we won’t appreciate what they contributed until they are gone.

  • Jon |

    Nice try Frank, but there are 2 serious problems with this:

    (1) Seriously, how much milk could possibly be imported from anywhere outside the EU to – say – Ireland? OK, if it’s cheese or yogurt perhaps, but I would like to see some stats on that. And if there are major (sub-standard) exports, then the farming lobby needs to push for more stringent rules on those imports, rather than whining about the situation.

    (2) The farming lobby in Brussels has been immensely strong for years and years, massively out-weighing the total impact for farming on the European economy. There’s no way farmers are rolling over in a pliant manner.

    I agree that the family farm is dying, but as far as I am concerned, so be it. I do not seen any further justification for protection of farming than for any other sector.

  • Frank Schnittger |

    1. Farmers have been pushing for greater (level playing pitch) regulation on imports for years. See recent Irish farmers delegation to Brazil.. The problem is GATT often doesn’t permit such regulation (= trade restrictions) and may even force GM products into the EU.

    2. If farmers have been so powerful and successful, why have CAP price supports been declining for years, and why is the family farm dying? You confuse highly visible street protests with really effective insider lobbying such as that carried out by the City or large corporations.

    3. Why is it that urban “socialist” are all for regulated markets and state intervention and provision when their direct interests are concerned – healthcare, education, housing, social welfare – and suddenly all for free markets when farmers are concerned? In reality, differential taxation/government supports means that very few sectors are not subject to varying degrees state intervention/subvention.

    4. The reality is that primary food production is largely uneconomic in western Europe – we don’t have the huge land mass and scale of US farmers, and even they are heavily subsidised. The EU has long had a strategic policy of supporting a degree of food self-sufficiency in Europe, and preserving a degree of small scale craft production of produce as part of the social structure. I find these to be laudable objectives – no less so that providing good state education/healthcare for all, social welfare for some, and policies to support industry and enterprise in other sectors. It also makes sense that these policies are enacted at an EU rather than a state level.

    5. Instead of whining about farmers, why don’t you work for better and more consistent health, education, and social welfare services throughout the EU?

  • Trooper Thompson |

    “I agree that the family farm is dying, but as far as I am concerned, so be it. I do not seen any further justification for protection of farming than for any other sector.”

    The family farm may be dying, but not from natural causes. The cost of regulation that your beloved EU has introduced has fallen disproportionately on small farmers. I’d rather subsidise food production than the criminal bankers.

  • Jon |

    1. At the instigation of Irish farmers the EU banned Brazilian beef imports – see this. The idea the farmers have no power on these sorts of matters is folly.

    2. It’s completely right that CAP price support has been declining. Price support is what gave us milk mountains, excess supplies of sugar, Italian farmers dumping excess tomatoes on the world market. Pay farmers to stay in business, fine, but don’t mess up world trade while doing so. There are 2 things wrong with the CAP: that it takes a huge slice of the EU budget, and that is messes up world trade in agricultural products, especially for producers in the developing world. The latter is the one that most importantly needs to be sorted out.

    3. There is a difference between setting up the rules for a market and making sure it operates fairly, and handing out subsidies – they are not the same thing. Yes, farmers should be paid a fair price for milk, just as a steel worker should get a fair wage too. But if either of those industries takes a hit, so be it, government has to step in and help support and re-train the people made redundant.

    4. There are 2 aspects to what I stand for with regard to the EU – one is to make the EU use the powers that it has better, and the second is to work out ways to do new things. CAP is a relic of the 1950s, there’s never been a proper discussion of its role, and it does not benefit farmers, consumers or developing countries in its present form. That’s the reason I’m critical of it.

  • James Burnside |

    If the CAP was maintaining “family farms” in Europe, it would be worth the money. But – as recent moves to publish the beneficiaries prove – too much of the budget is going to rich landowners, large farming companies and agrifood businesses (sugar refiners, for example). In 50 years, CAP has – at best – slowed down the process of consolidation in farming, as commercial interests seek to maximise economies of scale. The introduction of the sorts of regulations/costs Frank mentions above have been a major driver of that consolidation.

    The other problem has been, and is, the buying power of the (consolidating) small numbers of supermarket chains which supply ever-larger proportions of the total food consumption of the increasingly urban population across Europe. They drive the prices down for foreign suppliers, just as much as EU-based suppliers, so while farmers giving up in the EU will increase the proportion of food we get from the developing world, it certainly doesn’t mean they will be guaranteed a better price.

    Yes, the CAP takes the biggest share of the EU budget, but the proportion’s fallen a lot; and would have fallen further if the Union had increased its budgets to the GNI share agreed in previous financial perspectives. CAP needs to be reformed significantly, but the answer is a lot more complex than simply slashing agricultural spending in the EU budget and letting the markets decide the fallout.

  • Frank Schnittger |

    CAP is a relic of the 1950s, there’s never been a proper discussion of its role, and it does not benefit farmers, consumers or developing countries in its present form. That’s the reason I’m critical of it.

    But you do not need to repeat Tory talking points to be critical of the CAP. Farming is as susceptible to a class analysis as any other sphere of economic activity, and as James Burnside has pointed out, the problem is not the existence of the CAP per se, but that its has been too largely tilted towards large landowners and agri-buisness rather than small workers earning a precarious wage. (My brother-in-law works 12 hour days, 6.5 days of the week, 51 weeks of the year, with no public or bank holidays. He has never married partly in consequence, and his income, never large, is subject to huge fluctuations in price and costs – e.g. the EU has just mandated a new slurry pit at a cost of 40K and his silage harvester (14K)has just broken down). It is unlikely that his farm will survive him as a working farm and the countryside is being taken over by scattered suburban development, “gentlemen farmers”, land bank investors, roads and developers.

    I would share your concerns about product dumping to the detriment of third world producers, but the butter mountains et al of which you complain have been much reduced in recent years and it is generally multi-national agri-businesses operating in the third world which are effected by world commodity prices, not small indigenous producers producing for their local market – which are much more effected by local supply and demand in response to poor harvests/climatic conditions, and the general healh of the local economy. Overall, not enough food is being produced, so policies which encourage quality, stability and security of demand and supply are to be commended from both a producer and consumer perspective.

    I have no doubt that agriculture in advanced high cost European economies would have long died out were it not for the CAP. Rather than repeat Tory talking points on the one area of policy where the EU has been somewhat effective – operating out of a declining cut out of a budget of c. 1% of GDP – why not campaign for more effective EU action and a larger budget where greater EU expenditure and coordination is needed – harmonisation of health care, education, social welfare, working conditions, consumer/patient/worker/child/and human rights etc.? The working hours and conditions of farmers would not pass any “Working Time Directive” test and yet socialists are peculiarly blind to the rights of farm workers invoking market mechanisms they do not accept in the public employment sphere or many private industries.

    Part of the reason socialism is in long term decline in Europe is that they have often gratuitously alienated the self employed in many spheres of economic activity when those self-employed – increasingly dominated by near monopoly capitalistic concerns – have far more objective interests in common with industrial workers than they have with their multinational suppliers/customers who are gradually squeezing them out of business through a combination of higher costs and lower prices. You are confusing urban hubris and alienation from primary production with socialism. Get your hands dirty and work on a farm for a few days to appreciate its importance in social, economic and environmental terms – and don’t mortgage our future to the chiquitas of this world.

  • Jon |

    Moving slightly beyond the farming points… I agree with you that policies for small enterprises and self-employed people are vital if the left is ever to rejuvenate itself. I am after all self-employed (although in web design and not in farming) so I know what it’s like, especially in Belgium where ludicrous rules and systems predominate.

    As for how small business can prosper in farming – it is surely through value added, rather than simply being a smaller version of the big guys – i.e. by producing better products for niche markets.

    Then for the other things you raise… I think you wrongly interpret the extent to which I in any way agree with socialist or social democratic parties anywhere, and I for sure have very, very little influence or impact on any of them. I have been a member of the UK Labour Party for a long time, but that’s more due to what the party might be rather that what it actually is. I’m very much a believer in Nordic ideas of flexicurity, wealth redistribution through the taxation system, but also simple systems to allow individuals to create companies and become entrepreneurs.

    The issues of social policy, healthcare etc. are in my mind too much lost causes at EU level at the moment that I don’t deal with them on this blog. At least with CAP, esp. when it comes to matters of international trade, there could at least be some movement in the coming years.

  • Frank Schnittger |

    Jon Worth

    As for how small business can prosper in farming – it is surely through value added, rather than simply being a smaller version of the big guys – i.e. by producing better products for niche markets.

    My daughter works on a neighbouring dairy farm producing high quality ice cream for shops, restaurants and festivals using only natural fresh ingredients – she is the sole employee in a family enterprise.

    I’m very much a believer in Nordic ideas of flexicurity, wealth redistribution through the taxation system, but also simple systems to allow individuals to create companies and become entrepreneurs.

    How is this inconsistent with helping family farms to survive? – ref:
    Jon Worth

    I agree that the family farm is dying, but as far as I am concerned, so be it.

    Jon Worth

    The issues of social policy, healthcare etc. are in my mind too much lost causes at EU level at the moment that I don’t deal with them on this blog. At least with CAP, esp. when it comes to matters of international trade, there could at least be some movement in the coming years.

    Must we always let our agendas be set by the neo-cons and neo-libs? The only movement their has been in recent years has been in line with the “market liberalisation” agenda you also seem to espouse. Isn’t that what is wrong with “New Labour”? It has become more free market orientated than the big businesses it claims to regulate and control. (Having worked for 24 years in the world’s largest alcoholic drinks business, I can assure you that free markets are for the little guys. We aimed to dominate and control markets).

  • Jon |

    The Nordic flexicurity model operates – broadly – on the basis of the state stepping in with re-training and re-skilling, rather than propping up enterprises that are no longer competitive. So the statements I’ve made are consistent. The state should not step in to save family farms, but it should assist with helping communities to adjust.

  • Frank Schnittger |

    According to this article on the Nordic Model, Ireland and the UK rank more highly than Iceland, Norway, Finland and Sweden on the ease of doing business index. It didn’t stop us being hit disproportionately hard when “light touch regulation” capitalism crashed in the past two years. Neither did it stop us bailing out banks and car industries etc. to the tune of (potentially 90% of GDP) and the only re-training/re-skilling of bankers we have done is to ask them to go easy on the bonuses for the next year or so.

    The CAP is a pittance by comparison, and is aimed at sustaining a level of agriculture in an environment where costs have inflated sky high because of the dominance of financial “services” and other industrial monopolies. I would feel more comfortable in a society where at least part of our productive effort is devoted to making real things for real people and we have some security of supply if the whole system of world trade goes belly up.

    There is no guarantee that world food prices will come down if Europe stops producing but we can be sure that our food supplies will be increasingly dominated and controled by a smaller and smaller oligarchy of global food businesses. An Oil crisis has nothing on the social crises that would follow on a food crisis, and as Naomi Klein has shown, disaster capitalism feeds on such artificially induced crises to produce an entirely new playing pitch and price levels for essential foods.

    We need a domestic food industry for strategic survival reasons – as much if not more than as we need a defence industry, and a sustainable energy industry. Leaving energy to the free markets merely hastens the day when the the oil will run out and energy prices become unaffordable for all but the wealthy. If we don’t ensure a strategic and sustainable supply of food for the world’s population more pwople will end up starving. It’s as stark a choice as that.

  • Frank Schnittger |

    Thanks Jon, for giving me the opportunity to try and clarify some rather inchoate thoughts I have had on this topic for some time I’ve taken the liberty of posting our conversation on the European Tribune in the hope of getting a more expert critique of the CAP there, as I am not fully confident in either my argument or yours. Sometime – but not always – you get a good conversation there on what should be a core European topic.

  • Jon |

    You’re very welcome! :-)

    That’s the joy of blogging after all – other that chatting this through face-to-face it’s possible to have a civilised discussion on blogs about the EU, better than EU discussions more generally.

So, what do you think ?