The farmers’ share
Federated Farmers have just released an interesting report on the share of profit that farmers get from the retail price of food.Â
[T]he farm price for wheat in 2008 was 16 percent of the cost of a loaf of bread. Of a 20-slice loaf of bread the farm share accounted for around three slices. In this year the farm price for a two litre bottle of milk was 35 percent or around three cups. Cheese is one commodity that has recently increased substantially in price at the supermarket. However the farmer only receives 5.3 percent or 56 cents of $10.47, the retail price for cheese.
Farmers are clearly feeling the downstream effect of the political pressure to do something about rising food prices. Federated Farmers has rightly identified though that farmers are the wrong target if we want to reduce food prices. One of the major influences is our link to the global food economy:
In the year ended September 2007,
New Zealand imported $2.8 billion of food and live animals. This proportion of imported processed food is one of the highest in the western world. This reflects the New Zealand climate (which limits the foods that can be grown domestically), seasonality of production, and economies of scale in the production of pre-processed foods. With the size of the domestic market it is relatively difficult for New Zealand to sustain manufacturing plants that service only the domestic economy.
I disagree that
Indeed, as the 2006 Food and Beverage Taskforce noted, globally the emergence of powerful supermarket chains has tipped the balance of negotiating power toward the retailer and against the producer.
Federated Farmers’ conclusion is that farmers should not take a cut in income as a response to rising food prices.
Given the significance of these international factors, addressing increasing domestic food prices requires a response broader than simply targeting the returns to
New Zealand farmers. Lowering domestic farmers’ returns may depress the domestic supply of food, and simply increase both dependence on imported foods and food prices further.
I agree, but this does mean that we need to look further along our food chain at the big businesses that are controlling what farmers earn and what consumers pay.
May 15th, 2008 at 9:47 pm
“but this does mean that we need to look further along our food chain at the big businesses that are controlling what farmers earn and what consumers pay.”
You mean like Fonterra? The one dairy farmers own? The insinuation is “big business evil profit taking”, the truth is more a factor that there are costs beyond the farm gate from transport, storage, processing, packaging, marketing, distribution - remarkably it works and people have an incredible array of choice at their local stores. Nothing stops farmers setting up their own companies to do this, many have, many of the “big businesses” started just as that.
Note also that NZ’s high importation of food also reflects its open market, something that it doesn’t share with most agricultural producers. The biggest interference with what our farmers get (and consumers pay) is the grossly distorted effect of subsidies and protectionism in Europe and the USA.
Confront those two and you’ll make a worthwhile difference, but that DOES mean supporting WTO trade liberalisation talks and confronting your local comrades in the Green movement in Europe, who happily cheerlead the Common Agricultural Policy, food miles and trade protectionism which impoverishes farmers in developing countries AND in NZ, Australia and other efficient producers. The simple point is that as long as inefficient producers in Europe and the USA live off of subsidies, get protected in their big domestic markets and subsidised to dump their produce elsewhere, then the sector will have shockingly poor price signals - that on the one hand suppress what efficient producers can get, but also disincentivise greater production by efficient producers as a result.
May 16th, 2008 at 8:31 am
The answer to both is in the producer and the consumers hands.
Simply bypass the wholesalers and supermarkets and deal direct.
Very easy for the consumer. Simply shop at indepedent retailers (of which there are any number, in all catagories).
Veges, meat, milk, bread for example are much cheaper in the local independent retailers (in South Auckland anyway) than the supermarket. The quality is far better IMHO.
For the producers it may be a bit more difficult but they have done it in the past with cooperates. They need to go back to that concept of being in charge of their own produce from farm gate to the independent retailer.
Problem for them is the cooperates (like fonterra) get so big that they lose control. Cooperatives need to be kept lean and mean.
Having as producers and consumers given away our power to interact together, we have a simple solution to take it back.
Sell and buy without using the wholesalers and supermarkets. Very simple really.
It is a sad reflection on the society we have become that we would moan about this when the answer is obvious. Has years of spoonfed socialism (by Labour and National) led us to this?
Has the fiercely independent streak of the early settlers and the Maori tribes been bred out of us?
May 16th, 2008 at 12:08 pm
I’d also like to disagree with the assertion that our climate limits what can be grown here. Beyond some obvious things like tropical fruits, most other food items can be grown here. The issue is that the cost/scale of production may not be able to compete with overseas growers. Some places are “better” at growing some crops than NZ, but if NZ wanted to be self-sufficient in food production it could do so easily - and with a very diverse range of very good food products.
May 16th, 2008 at 12:14 pm
Good point, Gerrit.
We used to do this in Italy. Get most of our food from the once-a-week farmers market that set-up on the high street. Very desirable….
May 16th, 2008 at 1:17 pm
Wow, Gerrit & BP! Buy Local - a Green solution. There’s hope for you guys yet!
May 16th, 2008 at 1:25 pm
Toad
When it makes sense to buy local, people will do so, not because some fool in a box on a TV commercial instructs them to do so. Still awaiting the data on the “Buy Kiwi Made” campaign, BTW…..
It’s all about creating the right incentives, rather than legislating “choice” from on high….
May 16th, 2008 at 1:31 pm
“…creating the right incentives…”! BP, isn’t that phrase usually interpreted by those on the right as implying distortion of the market. Maybe there really is hope for you yet!
May 16th, 2008 at 1:40 pm
BP said: Still awaiting the data on the “Buy Kiwi Made� campaign, BTW…
You could always OIA the Ministry of Economic Development BP. Why should I do your research for you - for free at that?
BTW, down in the vege patch, this toad is wondering why there are still no curds on his cauliflowers. Not cold enough, I’m told - suspect it’s something to do with climate change.
May 16th, 2008 at 1:57 pm
toad
BP and Gerrit are talking of the classic “invisible hand” metaphor that Adam Smith described in his Wealth of Nations.
“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
Note he was talking about PERSONAL preferences doing this NOT the visible hand with a gloved fist that is government intervention.
Geepers I agree with LibertyScott. I’ve been turned to the Dark Side. lol
May 16th, 2008 at 4:46 pm
Odd though it is for me to agree with LibertyScott:
Fonterra is the biggest of the big corporates in the dairy-food supply chain.
Fonterra is 100% owned by the diary farmers. So the FoF talking about how farmers get “53cents” of a $10 block of cheese is hard to swallow - since they’re ignoring Fonterra’s dividend.
But the farmers do have a point. We live in a world where humans have become very efficient at manufacturing goods and producing food: which means raw costs at the factory gate and farm gate are quite low compared to the downstream costs at the shop and supermarket. Modern agriculture is very efficient - efficient enough to start paying for its externalities.
May 16th, 2008 at 5:26 pm
Icehawk is right. I’d actually thought of that days ago. Most of the costs are in processing and distribution and a large portion of that is labour costs I’d imagine and as I have advocated before, farmers should be able to afford to internalize the costs of their farming operations.
May 16th, 2008 at 6:05 pm
The “invisible hand” works here there is genuine competition.
But where there is a monopoly (as in Fonterra) or a cartel (as in the oil industry) there is no genuine competition.
Fonterra’s domestic prices for dairy products are set according to what they can get on the global market. If New Zealanders cannot afford to pay for dairy products at that cost, Fonterra will just export more and supply less to the domestic market.
So New Zealanders on low incomes, who cannot afford the global market prices for dairy products, don’t buy them.
Result - poorer nutrition (not that you cannot be well nourished without dairy products, but that understanding of nutrition is not part of mainstream NZ culture) among low income New Zealanders.
The invisible hand will superficially deliver the best option to the economy, until you count the cost of poor nutrition.
Unfortunately, the invisible hand doesn’t deliver the money to pay the medical fees to the person who is sick through poor nutrition. So it ends up being a charge on the public health system, to which the invisible hand doesn’t deliver either.
Essentially, the invisible hand is the hand of strangulation where food is concerned.
Adam Smith wrote in a different era, when monopolies and cartels were not envisioned. His economic theory was spot on for that era, but globalisation and monopolisation have changed all that.
The State must intervene to protect is most vulnerable citizens, and maybe domestic price controls need to be part of that intercention where there is a monopoly situation.
I have to say that I am still at a loss as to how the Commerce Commission allowed the amalgamation of dairy companies that resulted in Fonterra to occur, but I didn’t follow that very closely at the time.
May 16th, 2008 at 7:44 pm
toad,
Yes it was before the modern government subsidised transport infrastructure, corporate personhood, limited liability, government trade subsidies, international capital markets infrastructure, government underwriting of “development� (development of flood and fire prone areas, utilities, mining, logging) etc etc. Precious little to do with free markets there. All due to the actions of the visible hand clenching a gloved fist (government).
Adam Smith was only too aware of the reprecussions of cartels and monopolies and vigouriously denounced them and the governments they were dependant upon for legitamacy and existence.
“Smith believed that the primary purpose of the corporation was to secure special privileges. “The policy of Europe occasions a very important inequality . . . by restraining the competition in some employments to a smaller number than might otherwise be disposed to enter into them.”
http://www.onlinejournal.com/artman/publish/article_499.shtml
Without government intervention monopolies (Fonterra/Dairy Board) and cartels (Standard Oil) it can be argued wouldn’t have formed in the first place.
Why do social democrats insist that only governments can solve problems?
I’m afraid that Gerrit is right that the Welfare State has resulted in a population that is completely and utterly dependant on government to meet their needs. What would our forebears who lived through the Great Depression and World War II think of us?
May 16th, 2008 at 8:31 pm
Yeah, SleepyTreehugger. But we cannot just hark back o the “old days”.
Now we have monopolies, duopolies & cartels that are ripping off our people and degrading the environment.
And I can’t see anything other than Government and internationally agreed action that can stop that.
You’ve quoted Adam Smith - I’ll quote Karl Marx: “from each according to his ability, to each according to his needs…”. And monopolies, duopolies, and catels will never deliver that.
Now I’m no Marxist (any more, I once was), but I think we need to let go of doctrine and start to develop a new economic theory based on the finite nature of natural resources.
The thing neither Smith or Marx understood was that the planet’s resources are finite. Oil, which has dominated the last century’s economic development, is suddenly a scarce and expensive resource, and no-one in business or government anywhere has managed to address that issue, other than to profiteer from that fact.
May 16th, 2008 at 9:29 pm
toad
“But we cannot just hark back o the “old daysâ€?.”
Thats the thing. We can. Government’s are sovereign entities so they can rescind the undeserved privileges of “personhood” and limited liability that corporations were illigitimately given in the late 19th Century and thats the only thing that can do what you desire.
Governments NEED crony capitalists. Do you think that the United States would be able to fund the budget deficit in order to pay for their invasion of Iraq? Whats in effect kept the U.S. economy afloat is recycling of capital from American consumer’s pockets to Gulf State owned oil companies back to the Federal Reserve and United States Financial System to be loaned at interest to the American taxpayer.
“Bush needs the Saudis to charge us big bucks for oil. The Saudis can’t lend the US Treasury and Citibank hundreds of billions of US dollars unless they first get these US dollars from the US. The high price of oil is, in effect, a tax levied by Bush but collected by the oil industry and the Gulf kingdoms to fund our multi-trillion dollar governmental and private debt-load.”
http://www.scoop.co.nz/stories/HL0801/S00144.htm
Why are the Gulf States willing to recycle money back into the black hole of the United States economy? Well they can’t eat oil can they?
“In Saudi Arabia, a country of 28 million people, water depletion is a serious problem. Estimated recoverable water reserves are now less than 10 years and falling rapidly. For that reason, the Saudis have decided to wind down their domestic agricultural industry. Historically, the Saudis have been self sufficient on food. They now say that they will import 100% of their food requirements by 2016.”
http://www.marketoracle.co.uk/Article4711.html
http://www.oxfordbusinessgroup.com/weekly01.asp?id=3858
May 17th, 2008 at 2:14 am
Don’t forget that in Adam Smith’s day the Landlords dominated the British parliament and actively promoted import tariffs as the government’s main source of revenue. That meant that not only was income exempt from taxation but locally grown food was protected from cheap competition from cheap imported grains which ensured the peasant farmers would think twice before walking off the land and heading for the burgeoning industrial towns. At least it did until enough landlords became industrial capitalists to tip the balance of power in Parliament away from the traditional landlords.
May 17th, 2008 at 9:22 am
federated farmers etc. are doing a major p.r./spin offensive..
because they are well aware of the (growing) swell of anger out here..
..at/over that (unswallowable) ‘dead rat’ of the ag sector being subsidised by the rest of us..
..to poison our land..
..untill 2013..
(”our rivers are brown..
but out hearts are green’..
d’ya know what i mean..?..)
phil(whoar.co.nz)
May 17th, 2008 at 3:41 pm
Kevyn,
Perhaps you’re right in that the landlords did not wish their labourers walking off the land to work elsewhere, because their remaining workers would be in a better position to demand higher pay. Although I think most would have prefered to stay and work the village commons rather than work in the “Satanic Mills” or the workhouse at least whilst they had a choice. That is before the Enclosure movement when the landlords made sure they didn’t.
“a body of men who earn their subsistence by working for others.” There would, “perhaps, be more labour, because there will be more compulsion to it.” Sir Richard Price
May 17th, 2008 at 8:43 pm
Sleepy, Contrary to popular myth the economy in Smith’s day was hardly laissez fare. Government intervention in the economy may have been even greater than in many socialist states but for the benefit of the voting landowner’s rather than for the benefit of the huddled masses.
May 17th, 2008 at 10:28 pm
Precisely Kevyn. Contrary to what the vulgar libertarians say, free trade advocates like Adam Smith and John Stuart Mill were contrarians who attacked the system of privilege and favour of their day and Britian nor the United States didn’t advocate lessiaz faire trade policies until they had competitive advantage on the commodities that they traded.
“Free trade should mean just that: free trade, with all goods admitted without duties, quotas, or restrictions. That was not British policy. They removed most tariffs but mostly on items in which they had a comparative advantage.”
http://www.econlib.org/library/Columns/y2003/Nyefreetrade.html
May 18th, 2008 at 11:57 am
it’s definitely to do witih seasonality. it seems we insist on eating fresh summer vegetables all year - (and some winter items in summer).
i put this down to the dietary & lifestyle revolution which has occurred within our lifetime in this country away from the traditional roast towards the mediterranean diet & quick-to-prepare meals
May 19th, 2008 at 4:58 pm
In some areas you can grow some things pretty much all year round (here in Northland we grow most greens and herbs throughout the year); there are fruits that ripen in every month and it is possible to freeze and preserve the surplus. We can have a pretty good diet year-round, vegan, vegetarian and omnivore, without very much importing at all.
That said, I’m happy to buy Fair Trade bananas, coffee and chocolate when I can get them - seven million third world farmers now grow for Fair Trade and are able to support their families and their communities because of it.