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Dairy Farmers Ruined: Free Markets Versus Corporate Dictatorship

Thathcerite conservatives in the UK and Reaganite Republicans in the USA love to talk of free markets and the utopia they create. But do fre markets ever exist. In response to one free market enthusiast and proponent of globaliation, the daily stirrer and ian thorpe show that what looks like a free market from above is anything but when viewed from the ground.upposed to protect the efficient has actually been hijacked by a cartel of food retail chains.Dairy Farmers are being driven to bankruptcy because the "free market" in milk in which market forces are s UK

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Free Markets Versus Corporate Dictatorship

In an article titled Dairy-farmers-dont-need-to-make-a-fair-profit-the-falling-price-of-milk-is-a-sign-that-some-of-them-need-to-quit
, corporate CEO and proponent of globalism argues that the plight of dairy farmers is a result of their incompetence and failure to understand market forces.

I am no fan of either the left or the righ in politics and certainly no fan of globalisation and the kind of corporateism that is marching in lockstep with the political elites twards a neo Nazi New World Order so I feel a duty to demolish Worstalls blinkered view of how trade works in the modern world and his typically corporatist distortion of the meaning of "free market."

Here is what he wrote:

How much is a fair price for a pint of milk? ( see - The Guardian) The answer is: whatever price allows everyone in the supply chain farmer, dairy, supermarket to turn an honest profit.

You can see what they're saying there. Farmers are not making a profit producing milk and thus we the consumers should be paying more so that they do. A very silly mockery of the entire free market argument but one that is being seriously advanced.

The stupidity of this argument becomes apparent when we apply it to other producers of various things. Royal Bank of Scotland is still making losses. By definition this means that we are paying less than the cost of production for the banking services we get from RBS. If we apply the same logic for farmers, then we should all pay more for our banking services.

Worstall is wrong here and I suspect he is being deliberately disingenuous. The Royal Bank of Scotland is making losses not because it's customers are paying less for services than it costs to provide them; it is making losses because of the huge debts run up by its traders who played the derivitives markets with such abandon in New Labour's pseudo - boom before 2008.

He goes on to say this is a mockery of the entire free market argument. We should allow the guy a bit of leeway here, he is after all a scientist like another person who was intellectually incapable of discerning the difference between a free market and corporate Naziism, Margaret Thatcher. Then he compounds the impression that he still wanks over a picture of Mrs Thatcher by piling over - simplification on top of oversimplification:

Another way of putting this is that profit is the sign that you are adding value. That is the consumer puts more value on the cost of production than the cost of input (the cost of production). That's simply what profit is, the difference between costs and revenues. When it exists it shows that you are adding value to this world, making it a richer place. When profits do not exist (those sad losses), then equally your input costs must be higher than your revenues. This is subtracting value from the world, making everyone poorer. We'd really rather like you to stop doing that. The loss is your hint.

Specifically with dairy farming, the statement that we are making aggregated through the market is that we don't value the milk being produced at the cost of producing it. Therefore, less milk should be produced, probably by fewer people, thus curtailing supply. This is how the system is supposed to work. Too many dairy farmers producing too much milk? Some should go produce something else: that loss is the stick with which to beat them into it.

Now Worstall is really out of his depth because he totally ignores the fact that the gap between what it costs to produce a pint of milk and what shoppers pay in the supermarket goes into the Dairy Farmer's pockets. Yes he really is as stupid as Margaret Thatcher who, when waging her war on the working class always talked as if the retail price of an item went right into the pockets of producers. Had neither she nor Tim Worstall heard of middle - men? How naive.

The latest provisional figures from Defra show a 4.7 per cent (331 litres per cow) increase in the average yield per cow from 2009/10, to 7,406 litres per cow in 2010/11. Is this a one off, a single year's blip? No: The average yield in 2010 was 22.4 per cent (1,336 litres per cow per annum) higher than ten years previously when the average stood at 5,979 litres per cow per annum.

Assume that milk demand stayed static: a 22 per cent rise in output per cow means that we need 22 per cent fewer cows. Not that the maths works quite like that but this is good enough: the reason we have fewer cows and fewer cow farmers is because each and every cow, thus every cow farmer, is producing more now than they did in the past. We simply require fewer farmers. Not that there is anything new in that either the efficiency of farming has been increasing since the Neolithic period. It's the very thing that has allowed civilisation.

If, instead, we'd had the same number of cows and cow farmers, but each was producing more as a result of this efficiency gain, then there would be more milk on the market than we wanted to consume. Thus the price would fall, some farmers would be making a loss and would thus withdraw from production. We'd end up exactly where we are. Fewer cows and fewer farmers as a result of the increase in the efficiency by which we can produce milk.

There was a time when near 100 per cent of the people had to be growing food to feed that 100 per cent of the population. The increased efficiency of farming has meant that gradually we've reduced the percentage of the people that must spend their lives ankle deep in cowpats. It's around 2 per cent now and falling, leaving the other 98 per cent of us to do ballet, build libraries, run the NHS, construct the Shard and become diversity advisers. All those things which make up the civilisation we couldn't have if we were all still standing in fields.

What is happening to farmers today is simply the latest iteration of an 8,000 year old process. As we get better at farming we simply need fewer people doing it. Their making a loss is the signal that some of them should indeed be doing something, anything, else. And no, there is nothing special about farming either. We do not say that a loss at a bank or a newspaper is evidence that we are underpaying banks or newspapers. We say that it is evidence that we do not value what they are doing, so perhaps they should stop doing it.

So how do we solve this problem? Simples. Market forces indicate we have too much milk so we let some farmers go to the waqll and produce less milk until supply is balanced to demand. A convincing argument if you forget we are actually importing milk to meet domestic demand so if we let dairy farmers go to the wall and produce less milk we will have to import more from the inefficient, lazy, flatulent peasant farmers of the EU whose product is subsidised by the E U Common Agricultural Policy with our effing tax money.

My first response to T6im worstall was: Just because you read something in the Guardian Tim, that does not mean it is wrong. I understrand your devotion to "free markets" but the retail cartel is nothing to do with freedom or markets. And while any sensible person would avoid trying to define what "a fair profit" means, dairy farmers do need to make a living. Or should we, for the sake of your free market principles, import heavily subsidised milk from Europe in order to put our independent small businessmean out of work.

Tim Worstall replied: "Dairy farmers do need to make a living."

No, that's the underlying point. Dairy farmers will make a living if they are providing us with what we want at the price we are willing to pay.

If we're not willing to pay the price they "need" then we don't want them doing it and they shouldn't be making a living doing what they do.

Now here we see that the man is either stupid or dishonest (I don't think he is stupid.) What we can be sure of is that he has an overly simplistic view of how business works.

Dairy farmers cannot supply us with a product we want at a price we are willing to pay because the retail crtel controls the market. Thus farmers can only sell to the cartel's agents and we can only buy from cartel members. The price we pay for a pint of milk in the supermarket has only a tenouous relationship with the price a farmer can sell his milk for.

There is no free market in milk, the supermarkets dictate the price,take it or leave it,most contracts supplying dairies stipulate that you have to give a years notice to leave,all the while they can change the price as much as they like,the only way out is to quit. As for the comment that there is too much milk, the proccessors are all looking for more product to put through their plant,some plants are only at forty per cent capacity.When we look at the price paid in the supermarket the share going to the supermarket remains the same whatever the consumer pays

What's the markup for supermarkets, a minority clique of distributors, on a pint of milk? A quick look at readily available statistics shows that four supermarkets control 80% of retail food sales in the UK.

In 1997 supermarkets were buying a litre of milk for about 25p and selling it for roughly 44p - a markup of about 175%, now they're paying about the same but selling it for about a 1, a profiteer's markup of about 400%. So the supermarkets are sucking up all the marginin milk production, causing hardship to producers who can't get a decent price for their product and hardship for consumers who are being ripped off. In 1997 gross margin per unit for the supermarkets was about 43%, now it's 75% - for every pound they're getting a return of 75p - even Fagin would have been impressed, so they're sucking up all the margin

Supermarkets can do this because of their financial clout and near monopoly on food distribution, so it isn't necessarily the case that milk has become economically unviable, it's more the case that prices per unit have been browbeaten by the big chains, something they can do because of their market position. Recently we've had the Grocer's Adjudicators Bill that places a farmers Ombudsman to ensure reasonable payment of invoices, something which in the past has allowed the big chains to badger their suppliers. Do you think that's the right course of action?

Government regulation over the past 40 years has favoured the cartel and created a situation in which efficient British farmers are punished for their efficiency while inefficient foreign peasant farmers have been rewarded for their inefficiency by the CAP (partly with our tax money).

I can go to a farm shop and buy better quality milk more cheaply than I can get it from the supermarket. but it's a 20 mile round trip and when I add half a gallon of petrol to the cost of four pints of milk it isn't cheap. but the cartel have squeezed independent retailers out of the towns centre.

When we start to look at the big picture globalisation, which may suit Tim Worstall's business international business very well (he runs a firm that supplies vital components for streetlighting so may be though of as The Man Who Stole The Stars), is actually killing free markets at local level.

How oo supermarkets distort the relationship between demand and supply?

Because of collaboration on prices paid to producers by a small group of (a cartel) of buyers, producers dont feel the benefits of increased demand due to the price competition, instead they feel a magnified effect from a drop in demand because of the cartel's price fixing mechanism.

It is a classic corporatist distortion of a free market isnt it. If the premise that a 'free market' exists or would ever be allowed to exist, then it would be hard to disagree with Worstall's case. However, there is no free market, there is a cartel run by major suppliers (Tesco, ASDA, etc) who screw the profits from the farmers to boost their own profits by selling milk, bread etc as loss leaders...Any fule kno' that! So his article is nonsense.

A Golden Orwell award for for tireless campaigning against real freedom goes to Tim Worstall

Golden orwell award RELATED POSTS: Nanny Orwell
Food Crisis Control Freakery Food fascists plan meat free diet - by law
Alcohol and health fascism
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Food Is A Human Right Says U N
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Vertical Farming - the craziest idea yet for saving the planet
Ice Cream and Chips - the milk of human kindness turns sour

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