Farming a welfare scheme or viable business?

browned

America may continue to waste money but that is no reason for us to do the same.

however in the medium term prices will lower as the benefits of selling in Europe and America contribute to boosting these largely agriculturally based economies

unless america drops its subsidies and its import tarrifs on agriculture goods what good will come from europe dropping it?? america won't buy brazilian beef, they flood the market with milk and so on and so on.

DagneyTaggart

If there is agreement in the next WTO round tariffs will be lowered in all developed countries along the same measured timescale. Apologies I should have been clearer. America can of course continue to subsidise farmers but this will only mean that they waste more money and optimise inefficiencies.

browned

Growing demand in Brazil for sugar to be turned into ethanol, and a sharp fall in production in India are causing a world sugar shortage. Yesterday the price of sugar hit a 28 year high.
Sugar prices went up by 3%, to 21.55 cents a pound.
Sugar cane production in India is down by 45% year-on-year. Less rain during the monsoon there has damaged agricultural crops. It is also thought that November's crop will be inadequate.

India is the world's biggest consumer of sugar, and the second biggest producer.
Meanwhile wet weather in Brazil, which is the world's biggest producer, has also affected production there

just found this over in one of the other threads

The_Conductor

browned wrote: »

just found this over in one of the other threads

These are peak prices- the normal price for sugar on the world market is ~ 4-6c a pound. European sugar producers (not just the Irish) are incapable of producing sugar at these prices. Even allowing for the current stressed prices- can Irish farmers produce sugar at under 21c a pound (about 50c a kilo). Further this is totally ignoring the fact that Irish sugar have shut down their sugar processing and sold off the Irish quota to the French.......

So- we have an asset price bubble, are still unable to compete- and its going to collapse again (probably in 2-3 years time as more production is rushed into sugar)- so its not really relevant from an Irish perspective.

S.

astrofool

Brazil produces Sugar cane, whereas most of the northern countries produce Sugar beet, which costs significantly more to produce the same amount of sugar. The US is currently using tariffs to keep sugar beet farmers in production, despite sugar cane containing 5 times as much energy to be turned into ethanol.

browned

These are peak prices- the normal price for sugar on the world market is ~ 4-6c a pound. European sugar producers (not just the Irish) are incapable of producing sugar at these prices

don't get me wrong i'm not for 1 second saying that ireland can compete or even try to compete for sugar, my motives for posting that article are diferent. i ask the question what happen if brazil and india can't fill the gap, even if it became cost effective to produce sugar here, the basic infrastructure has been sold off, there would be nowhere to process it.

So- we have an asset price bubble, are still unable to compete- and its going to collapse again (probably in 2-3 years time as more production is rushed into sugar)- so its not really relevant from an Irish perspective.

suppose all food was produced in the cheapest area of the globe like india and brazil and then bought by the eu
what would happen if weather hit milk, grain and beef production lik it has hit sugar? they would produce their own price bubble and keep prices high for 2-3 years as more production is rushed to each area in yours own words.

my point tho is that when food producing region (for example the eu) fall under the cost of production for 3-4 year their facilities to process food (milk plants, beef plants etc) are more than likely to be converted for alternative use.

so when cap is scrapped and beef production is centralised in brazil/argentina, won't beef plants all over europe be converted for alternative use instead of lying idle? if there is a production problems in brazil/argentina, u'll be relying on these region making up the defecits as they will be the only regions with food processing capabilities. all previous food producing regions who were priced out of existance would have sold of their herds/processing plants instead of producing at a loss.

The_Conductor

browned wrote: »

don't get me wrong i'm not for 1 second saying that ireland can compete or even try to compete for sugar, my motives for posting that article are diferent. i ask the question what happen if brazil and india can't fill the gap, even if it became cost effective to produce sugar here, the basic infrastructure has been sold off, there would be nowhere to process it.

What would happen? Prices would rise until an economic equilibrium was reached. Some consumers would forego sugar as a basic commodity- others would forego confectionary- and some industrial users- such as the ethanol refineries, might convert to technologies that are not viable at normal levels (e.g. pentosans etc can be refined into ethanol- but with considerably more elaborate processes and at considerably more expense).

A new equilibrium would be reached (ultimately) where there is sufficient supply for those willing to pay the elevated price.

Unfortunately this ignores the cyclical nature of crop production- a bumper year one year, can be offset by appalling weather conditions (even on a global scale) that ruin crops the next. This is precisely what has occurred in the sugar producing countries.

browned wrote: »

suppose all food was produced in the cheapest area of the globe like india and brazil and then bought by the eu
what would happen if weather hit milk, grain and beef production lik it has hit sugar? they would produce their own price bubble and keep prices high for 2-3 years as more production is rushed to each area in yours own words.

They may be the cheapest producing areas of the globe- but India is a net importer of food, and Brazil an exporter almost exclusively of low margin primary foods (where Ireland was 15 years ago). Brazil is particularly sensitive to following emerging food trends- such as coffee- but has been hit badly on a number of occasions compliments of mother nature- and gone back to its roots (massive cattle farms, palm oil plantations, sugar plantations etc) to a large extent. Its current native unrest may have been temporarily quelled, but redistribution of many of the cattle ranches is inevitable in the long run.

India is a conundrum- given its population and the semi-command nature of its economy (despite the fact that its a democracy- it has a startling number of parallels with communism)- free market principles do not apply there. It depends on the particular region but many farmers will produce when they are given subsidised fertilisers. Other than that- many will simply elect to overstock their land with livestock, and collect their dung as fuel (despite the capacity of the land to grow grain or any of a number of other crops). Ownership rights- and the caste system, are also stumbling blocks.

browned wrote: »

my point tho is that when food producing region (for example the eu) fall under the cost of production for 3-4 year their facilities to process food (milk plants, beef plants etc) are more than likely to be converted for alternative use.

Not normally. Its not that simple to convert most food production/processing facilities to alternate uses. Certain facilities may be dual usage (such as freeze drying facilities or sorting lines for example)- but it normally takes several growing seasons to get a sufficient mass of primary producers converted (in mind as much as anything else) to supply a different commodity to a processor (who may also take a year or longer to convert processing facilities). More often than not- processing facilities may be mothballed- and uneconomic crops fed to livestock, or in extreme circumstances, allowed to rot.

browned wrote: »

so when cap is scrapped and beef production is centralised in brazil/argentina, won't beef plants all over europe be converted for alternative use instead of lying idle? if there is a production problems in brazil/argentina, u'll be relying on these region making up the defecits as they will be the only regions with food processing capabilities. all previous food producing regions who were priced out of existance would have sold of their herds/processing plants instead of producing at a loss.

What alternate use can you think of for vast abatoirs, processing facilities etc? You could go down the French route- where their largest abatoir (Parc de Villette) on the outskirts of Paris, has been converted to a massive science park for school kids- but this is removing its processing capacity wholly from the equation- and its conversion took almost 12 years.

Curiously enough- visit any McDonalds in Paris- they proudly proclaim that they do not serve Brazillian beef- all their beef is French or Irish in origin. At the end of the day- regardless of the relative merits of having a comparative production advantage (such as Brazil or Argentina have)- if consumers are not happy to buy their produce- they don't have a market. At present- that market does not exist.

browned

excellent reply carrick have to find the thinking cap

What would happen? Prices would rise until an economic equilibrium was reached. Some consumers would forego sugar as a basic commodity- others would forego confectionary- and some industrial users- such as the ethanol refineries, might convert to technologies that are not viable at normal levels (e.g. pentosans etc can be refined into ethanol- but with considerably more elaborate processes and at considerably more expense).

when one food group gets too expensive to puchase, populations would tend to move to an alternative cheaper product. would u not get a continous yo-yo effect with food products raising in price then taling off only to get replaced by a cheaper product which will get too expensive?? with growing demand in terms of growing population and deminishing acres of productive land something will have to give.

A new equilibrium would be reached (ultimately) where there is sufficient supply for those willing to pay the elevated price.

can a equilibrium be achieved when your relying on the weather to gaurentee supply?

Unfortunately this ignores the cyclical nature of crop production- a bumper year one year, can be offset by appalling weather conditions (even on a global scale) that ruin crops the next. This is precisely what has occurred in the sugar producing countries.

very true couldn't have put it better.

They may be the cheapest producing areas of the globe- but India is a net importer of food, and Brazil an exporter almost exclusively of low margin primary foods (where Ireland was 15 years ago). Brazil is particularly sensitive to following emerging food trends- such as coffee- but has been hit badly on a number of occasions compliments of mother nature- and gone back to its roots (massive cattle farms, palm oil plantations, sugar plantations etc) to a large extent. Its current native unrest may have been temporarily quelled, but redistribution of many of the cattle ranches is inevitable in the long run.

India is a conundrum- given its population and the semi-command nature of its economy (despite the fact that its a democracy- it has a startling number of parallels with communism)- free market principles do not apply there. It depends on the particular region but many farmers will produce when they are given subsidised fertilisers. Other than that- many will simply elect to overstock their land with livestock, and collect their dung as fuel (despite the capacity of the land to grow grain or any of a number of other crops). Ownership rights- and the caste system, are also stumbling blocks.

was only using both countries as examples not as likely possibilities. i applaud ur knowledge on both countries. impressive.

Not normally. Its not that simple to convert most food production/processing facilities to alternate uses. Certain facilities may be dual usage (such as freeze drying facilities or sorting lines for example)- but it normally takes several growing seasons to get a sufficient mass of primary producers converted (in mind as much as anything else) to supply a different commodity to a processor (who may also take a year or longer to convert processing facilities). More often than not- processing facilities may be mothballed- and uneconomic crops fed to livestock, or in extreme circumstances, allowed to rot.
What alternate use can you think of for vast abatoirs, processing facilities etc? You could go down the French route- where their largest abatoir (Parc de Villette) on the outskirts of Paris, has been converted to a massive science park for school kids- but this is removing its processing capacity wholly from the equation- and its conversion took almost 12 years.

but what would u do with facilities like the processing unit if there was no agriculture industry to supply them, let them rot? if its unprofitable for farmers to produce the raw produce, or if there isn't enough produce to make the plant viable they would have to close.

Curiously enough- visit any McDonalds in Paris- they proudly proclaim that they do not serve Brazillian beef- all their beef is French or Irish in origin. At the end of the day- regardless of the relative merits of having a comparative production advantage (such as Brazil or Argentina have)- if consumers are not happy to buy their produce- they don't have a market. At present- that market does not exist.

the french seem very protective of their beef industry. but would they still stock their shelves if the irish r french beef suddenly doubled in price.

as far as i'm aware (and am open to correction) brazilian beef was banned from europe due to safety concern raleted to foot and mouth being experienced in brazil. there doesn't seem to be any way of knowing if beef products being imported are from herd infected or not. infected imports of beef could could cause foot and mouth to spread to european herds

The_Conductor

The problem is that the yo-yo in agricultural production on an annual basis (or even a multi-annual basis) is on a far shorter cycle than changing production or processing techniques, or the rate of change in consumer demand/taste.

The advent of commodity trading was supposed to smooth out the annual swings in the prices of agricultural (and other) primary commodities. Sugar, coffee, wheat, rice - and many more staples can be traded via futures on several different exchanges (so too can oil, as Ryanair discovered to its cost......)

In theory- I can hedge my bets by offering to pay 2% on a contract to buy 1 million tonnes of sugar @ 15c a pound in 2010, without any knowledge of what is going to happen to production because my crystal ball doesn't tell me long range weather forecasts. If there is a massive shortage- I have a guaranteed supply @ 15c- which I can partially release on the general market at any price above this, but below the open market selling price- and I will presumably have a buyer.

This is supposed to be a mechanism for preventing wild swings in prices- obviously it would trend prices in one direction or another- based on the long term supply and demand of particular commodities.

This financial mechanism- becomes unstuck- because its run in parallel with production of the commodities, but wholly independent of the production- its entirely possible for me to purchase 10 million tonnes of sugar at 15c a pound for 2010, but if production is only 9 million tonnes- despite my legally binding contract- its all a bit meaningless.

We can store primary commodities- sugar, grains, meats- even dairy products, on a multi annual basis (remember the EU grain mountain, wine lakes, and butter mounds of yesteryears?)- with the intention of releasing them to maintain stability in times of market turmoil (failure of crops from bad weather or whatever). What happens though- if you have several years of good weather- and you fully utilise your capacity to store commodities- and reach the stage where you have to start offloading product that has passed its best before date (akin to the EU Butter mounds being sold to the Russians as axel grease @ 1c a pound- when it had gone rancid)........

There isn't a perfect solution out there. We either accept there are going to be market swings- which will destroy some farmers and impair some consumers ability to feed themselves- or we meddle in the market- which adds more red tape and bureaucracy- and inevitably leads to waste, sooner or later. The latter is generally seen as the most socially acceptable solution- but then we end up with farming being compared to a welfare state? FFS- what do people want?

It was wonderful that the EU intervention schemes were by and large wound up- there was great difficulty justifying them, and while it may have been fun getting our butter vouchers as kids, or the school milk scheme- or whatever other inventive ways the bureaucrats found to cycle the produce they held in intervention- at the end of the day all it ever was, was a colossal insurance scheme against swings in market prices- in main as a result of weather changes, disease or pestilence.

Consumers want ever cheaper food- along with security of production, choice and quality. Something really doesn't give here. In a never ending bid to cut the prices for goods for consumers- there are only so many cuts that can be absorbed at the various stages in the chain. Producers are producing at below cost, and subsidising their production with the likes of SFP and REPS payments (along with off-farm income). In many cases farmers would be financially better off, not producing anything at all- but this would be seen by everyone, including most farmers, as morally unacceptable. The processors of primary production by and large are very open about their costs (you can request the annual report of any of the larger cooperatives- interesting bedtime reading if you're that way inclined). There aren't many more cuts that can be made in their chains- other than perhaps amalgamating their facilities with their competitors- which in turn is a limiting factor in consumer choice. The opaque part of the chain- where no-one knows whats happening- is the retail or distribution point in the chain.

I can price a litre of milk at every point in the chain, and quantify the cost and profit generated by that litre of milk in all instances. Why should the lions share of the profit- be at the retailor when all the work has been put into that litre of milk in the production and processing stages?

Further- if it rains for 40 days and 40 nights- and the whole country is a sodden mess- a farmer is still expected to deliver liquid milk to a processor- who is expected to deliver it to a retailor at a contractually agreed price, regardless of whether it makes economic sense to do so or not. At present it quite simply doesn't make sense.

We are at the cross-roads faced by the dairy industry in England 10 years ago. They choose one path- with the result that 30-40% of all liquid milk retailed in England today has to be sourced from Eastern Europe. What path are we going to choose?

browned

well how does one follow that

There isn't a perfect solution out there. We either accept there are going to be market swings- which will destroy some farmers and impair some consumers ability to feed themselves- or we meddle in the market- which adds more red tape and bureaucracy- and inevitably leads to waste, sooner or later. The latter is generally seen as the most socially acceptable solution- but then we end up with farming being compared to a welfare state? FFS- what do people want?

i think this is prob the nut and bolts of this whole argument.

butterormayo

brianthebard wrote: »

Can you tell me how many farmers there were before and after ending subsidies? How pollution has changed? what the animals are being fed? Do you think that there could possibly be any difference in conditions in Ireland and New Zealand or do you feel the comparison is totally fair??

To be honest no, I don't have all (ok any) of the facts and figures, just seems odd that a first world country on the other side of the world can get their produce into our shops. If you've any stats let me know, plenty of other industries get subsidies so I'm not agin the concept per se.

DagneyTaggart

The number of farmers in NZ in the free market system was 15% lower that the number pre-free market.

The environment improved. Fertilizer was something that was being subsidised and this ended. Meaning that it was now less affordable. Farmers responded by cutting back on it's use, however their yields didn't suffer as they used the fertilizer they bought more efficiently. This reduced use helped the land and the enviroment.

The comparison with feed I'm not up to speed on but why assume that it should be much different from here in how we fed animals in the 1980's when the changes where introduced.

The reason the New Zealand example is important is because the same arguement being used for the past few decades here were being used there. The same projections of poverty were being proclaimed there as here. Despite the lobbying power of farmers the government introduced changes: they had too as they couldn't afford the alternative. However, people got on with life and did their best they could. As it turns out their best was good enough to becoming one of the world leaders in the farming that they do. They specialised in certain types of farming.

This is what I'm saying is possilbe here. I am not saying that we will follow NZ in the same type of farming - although we might. I am not saying that our industry will decrease by the same numbers. Afterall, I believe we have a larger proportion of older farmers now/less of the younger generation coming into farming and so we might have a greater decrease. However, protection and subsidies limit our potential as well as being a waste of money a lot of money (money going to farmers isn't wasted - it's inefficient; however there are deadweight costs involved meaning that the removal of subsidies would create more money some of which could be used to educate and re-train people changing careers.)

Remembering the world we live in though. The E.U. is huge and can't move as swift as New Zealand, even if it wanted to. The gradual steps we see now, like removal of quotas, is our equivalent of the reforms in NZ. So to all those for reform: it's on the way. And to all those opposed to them: the writing is on the wall. Make a decision now to become more efficient at the farming you do or to look for a change in profession. Good luck.

astrofool

Our problem there is that being part of the EU, it will really be the French farmers who decide how things get run with regards the CAP, and I don't see Sarkozy standing up to them.

The_Conductor

astrofool wrote: »

Our problem there is that being part of the EU, it will really be the French farmers who decide how things get run with regards the CAP, and I don't see Sarkozy standing up to them.

In all fairness- he has a very good reputation for standing up to the various interest groups (unlike his predecessors). The French though are fond of their industrial and civil actions- and are even giving the Greeks a run for their money in this respect........

astrofool

He does, but he's seen his popularity dip in the last 6 months or so, which will make it harder to push through more reforms.

irish_bob

DagneyTaggart wrote: »

The number of farmers in NZ in the free market system was 15% lower that the number pre-free market.

The environment improved. Fertilizer was something that was being subsidised and this ended. Meaning that it was now less affordable. Farmers responded by cutting back on it's use, however their yields didn't suffer as they used the fertilizer they bought more efficiently. This reduced use helped the land and the enviroment.

The comparison with feed I'm not up to speed on but why assume that it should be much different from here in how we fed animals in the 1980's when the changes where introduced.

The reason the New Zealand example is important is because the same arguement being used for the past few decades here were being used there. The same projections of poverty were being proclaimed there as here. Despite the lobbying power of farmers the government introduced changes: they had too as they couldn't afford the alternative. However, people got on with life and did their best they could. As it turns out their best was good enough to becoming one of the world leaders in the farming that they do. They specialised in certain types of farming.

This is what I'm saying is possilbe here. I am not saying that we will follow NZ in the same type of farming - although we might. I am not saying that our industry will decrease by the same numbers. Afterall, I believe we have a larger proportion of older farmers now/less of the younger generation coming into farming and so we might have a greater decrease. However, protection and subsidies limit our potential as well as being a waste of money a lot of money (money going to farmers isn't wasted - it's inefficient; however there are deadweight costs involved meaning that the removal of subsidies would create more money some of which could be used to educate and re-train people changing careers.)

Remembering the world we live in though. The E.U. is huge and can't move as swift as New Zealand, even if it wanted to. The gradual steps we see now, like removal of quotas, is our equivalent of the reforms in NZ. So to all those for reform: it's on the way. And to all those opposed to them: the writing is on the wall. Make a decision now to become more efficient at the farming you do or to look for a change in profession. Good luck.

new zealander farmers are a very practical people , in 1984 , when the smaller farmers saw subsdies going , they knew thier busniess was no longer viable and simply sold their land to bigger farmers and in many cases subsequently went to work on theese larger farms , now , spending your whole life working on a huge farm is seens a perfectly respectable and resonably well paid career , im not so sure such a transition would happen so smoothly in ireland , the connection to land in ireland is almost like no other country , most farmers would beg , borrow or steal and certainly go hungry before they would sell out and even they were forced to eventually sell , they would be too proud to go work on someone elses farm as working on a farm is not seen a great career in this country , our problem is as much cultural as anything else , thier are simply far too many small farmers in this country

DagneyTaggart

What you say is true Bob and the truth in that has been highlighted to me in a stark context in recent times. So I understand where you're coming from.

That said, if it was known and clear as day to all in those sectors of farming that they have a choice of starve or sell and that most of their neighbours were in the same boat I could that easing the emotions of farmers into selling land, if not working on larger farms. Retirment to the local is more of a likelihood.

I also believe that most of what we see around us is how people act and less so how Irish people act. Human nature is the same all over the world. Although in certain places people do value some things a little or a lot more than other people and in our country the attachment to land locally is where we, the rural folk, tend to keep our value. It's said though that the older generation hold this in higher regard than the younger and incoming generations.

At the end of the day nobody likes to be seen to go backways.

butterormayo

DagneyTaggart wrote: »

The number of farmers in NZ in the free market system was 15% lower that the number pre-free market.

The environment improved. Fertilizer was something that was being subsidised and this ended. Meaning that it was now less affordable. Farmers responded by cutting back on it's use, however their yields didn't suffer as they used the fertilizer they bought more efficiently. This reduced use helped the land and the enviroment.

The comparison with feed I'm not up to speed on but why assume that it should be much different from here in how we fed animals in the 1980's when the changes where introduced.

The reason the New Zealand example is important is because the same arguement being used for the past few decades here were being used there. The same projections of poverty were being proclaimed there as here. Despite the lobbying power of farmers the government introduced changes: they had too as they couldn't afford the alternative. However, people got on with life and did their best they could. As it turns out their best was good enough to becoming one of the world leaders in the farming that they do. They specialised in certain types of farming.

This is what I'm saying is possilbe here. I am not saying that we will follow NZ in the same type of farming - although we might. I am not saying that our industry will decrease by the same numbers. Afterall, I believe we have a larger proportion of older farmers now/less of the younger generation coming into farming and so we might have a greater decrease. However, protection and subsidies limit our potential as well as being a waste of money a lot of money (money going to farmers isn't wasted - it's inefficient; however there are deadweight costs involved meaning that the removal of subsidies would create more money some of which could be used to educate and re-train people changing careers.)

Remembering the world we live in though. The E.U. is huge and can't move as swift as New Zealand, even if it wanted to. The gradual steps we see now, like removal of quotas, is our equivalent of the reforms in NZ. So to all those for reform: it's on the way. And to all those opposed to them: the writing is on the wall. Make a decision now to become more efficient at the farming you do or to look for a change in profession. Good luck.

Thanks for the info, I've relations who are farmers and don't want it to go as a way of life, but I get sick of the constant carping from the IFA etc a lot of farmers seem stuck in a rut, bit of diversification wouldn't go amiss.

SkepticOne

smccarrick wrote: »

Consumers want ever cheaper food- along with security of production, choice and quality. Something really doesn't give here. In a never ending bid to cut the prices for goods for consumers- there are only so many cuts that can be absorbed at the various stages in the chain.

But isn't this the same in any business? Prices get pushed down to the extent that no further reductions are possible without some producers leaving the market.

I don't think the consumer cares about security of production to be honest. I've mainly heard farmers themselves using that argument. Maybe if there was to be a war this would change but at present I don't think this is a huge concern.