You’ve been saying grain would be short and prices would go up and stay up, said a rather truculent farmer I ran into recently. He clearly felt if my forecasts weren’t more reliable I should keep my mouth shut.
I tried to explain that I had never said what he alleged and that within the trend towards general shortage I have always predicted volatility. I’m not sure he took the message on board. I suspect he was peeved he had failed to sell wheat forward when prices were high and was looking for someone to blame.
He went on to complain that current values against higher growing costs were making next year’s grain crops look marginal. Further, that rather than drill his usual acreage this autumn he was considering putting land into environmental schemes to save spending on fertilisers and sprays and reduce risk.
I sympathised, for the same thought had occurred to me. But in a free market, without controls, the events of the last year or so were predictable. Low world prices over a period of years led to less production and then a shortage. This pushed up prices and persuaded farmers everywhere to plant more. It’s the classic economist’s model of how free markets should work. Except that it creates severe difficulties for producers and ultimately consumers.
Some might retort that they would rather have stability and predictability. Unforeseen crop failures and cost increases apart it would mean fewer problems along the food chain. But that’s not how politicians and their economic advisers see it. They believe the tensions created by such market forces lead to greater efficiency and lower prices. And they take no account of the primary producers who must either absorb increasing costs or leave the industry.
That is why I was rather pleased WTO negotiations collapsed a few weeks ago. In theory, they were designed to free up international trade over a wide range of industries and to do the same for services.
But the reality was that agriculture was virtually the only thing seriously debated, with Trade Commissioner Peter Mandelson trying to double the reductions in commodity tariffs that had been previously agreed in the Uruguay round. Then he added insult to injury by proposing that they be implemented in three years instead of six. Thank goodness the French stood up to him in defence of their farmers and we benefited.
But it was India and China that really put the kybosh on any agreement because they feared losing control of food security in their highly populated countries. Since then the Russian government has announced it will take charge of grain trading in and out of the country – also to ensure it controls domestic supplies and prices. Australia’s Wheat Board has done the same for years and America stabilises production through government aid.
Such actions set the tone for what most major powers will do in the wake of WTO failure. The sooner the EU realises it and follows suit the better.