David Richardson: An economic conundrum

I had a debate with an economist the other day. It was civilised and we were still friends afterwards, for he seemed to have the best interests of farmers at heart. But, like most members of his profession, his views, honed in the academic circles in which they train, differed from my more practical approach.

The theme of our discussion was the volatility of cereal prices. I explained that I expected to make a reasonable return this year. I had established crops at 2007 costs and sold most (with an element of good luck in timing) at 2008 values. But I deplored the fact that crops just planted, established at 2008 costs, of course, would, if nothing significant happened to raise prices, make a thumping loss. There was no current evidence to the contrary.

I predicted that if that happened, world grain plantings next year would drop like a stone to levels much lower than were drilled in 2006 which, after a number of years during which consumption exceeded production, finally led to last year’s shortage. That, in turn, would create another shortage in 2010 and prices would rise again. Plantings for harvest 2011 would respond, producing another surplus and low prices, and so on until such time as rising world demand absorbed every grain, even in years of high production.

The economist replied that this showed markets worked and production could be controlled by price. I could not disagree, but pointed out that the result was acceptable only if people were content to eat one year and starve the next.

That’s not an issue, he said. You import from abroad in years of shortage. But, I countered, if you agree that demand for food is likely to double over the next 40 years because of increased population and other well-documented reasons (and he did), we would soon reach the point when world supplies would not be available.

Further, even in the short term, with the value of sterling dropping because of the credit crunch, importing could become prohibitively expensive. Was this not a reason to intervene in the domestic market to bring about greater stability of price and production for the benefit of producers and consumers?

Moreover, the EU planned to remove the safety net (which was not supposed to be one when it was introduced) of the single farm payment in a year or two and farmers would then not have the confidence to grow potentially loss-making crops.

But he didn’t believe farmers would stop producing. He’d heard all the arguments before and, in any case, subsidies had been discredited and rejected by taxpayers for raising the cost of food and inflating the value of land. Politicians wouldn’t reintroduce anti-volatility measures, he concluded, but would rely on market forces.

So, should we grow grain for sale in years when we calculate prices are high and leave land fallow when they are low? We might be able to make a kind of living, but pity the poor consumer.

More from David online

  • I ran into John Torode, presenter of MasterChef, restaurateur of Smiths of Smithfield and president of the RASE at the Farmers Weekly Awards last week. In my view, he’s an inspired choice. In his own words, he’s a rough, tough Australian, so different from many of the toffs who’ve preceded him and at the sharp end of the food trade. His huge four-storey restaurant is, by all accounts, highly successful using only home-grown ingredients. And his blunt, uncompromising approach might well shake up the RASE more than its organisers realise.
  • Read David Richardson’s blog

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