US woes could hit North East farm economies

Farming and our methods of food production are open to political decisions. Neither the EU nor US systems are perfect and are subject to political manouvering. Bruce Jobson provides an insight

Dairy cattle
Dairy cattle

by Bruce Jobson

Once upon a time, in a fairy-dairy land, farmers worked hard, grew lots of bountiful crops, sold their wares at market, made money and everyone was happy. Today’s agricultural world is different, more complex and we are part of an EU as well as a global economy.

EU law enforces policies and restrictions on what, how and where farmers grow their crops, in many cases oblivious too reality. However, an ever-expanding EU now has demographic borders that stretch far beyond the original northern European state boundaries that formed the Common Market and thereby the basis of the Common Agricultural Policy (CAP)

It’s something akin to the Eurovision song contest. Many years ago, the likes of Sandy Shaw, Lulu, Cliff, Dana and Brotherhood of Man offered a common popular music consensus. The more entrants that have joined have resulted in nationalistic self-interest, enforced by regional block votes.

EU agricultural ranges from sophisticated northern European large-scale modern businesses to, with the greatest respect, far-flung peasant-style self-sufficiency and even subsistence farming. Reconciling a common agricultural policy (perhaps that should be “relevant” common agricultural policy) between diverse farming systems is an economic pipe dream.

The Euroland CAP gravy train and Euro singalong are symptomatic of the same. In among all this, the prospect of the Scottish Question arises. The answer is a simple yes or no. But whether Scotland would remain within the EU or have to renegotiate her entry remains unclear at this stage. As do the terms of negotiations, should a yes vote result in 2014. Scottish agriculture, food and drink is a global brand leader and essential to its rural economy.

Opinion is therefore polarised, depending on Scottish viewpoint.

This varies between a modern-day prophet leading his five million people into the promised land, after 300 years of building an economic base pyramid for the pharaohs of Westminster, and a Scottish Through the Looking Glass world where the Mad Hatter offers a Utopian tea party enshrined with a gilt-edge menu promise of jam tomorrow.

Thankfully, we have the US to bolster the global agricultural economy or perhaps not. The US system is complex and suffers from political intransigence, this being the result of the US two-tier system of government, the Senate and the House of Representatives. The current impasse is the result of the US farm bill being hampered by the deep divisions between the Republican-controlled House and the Democrat-controlled Senate.

The issue at the crux remains the Senate wish to cut $4bn from a food support programme for the poor (food stamps) while the House wishes to cut the programme by $40bn. The farm bill has been in negotiation for the past three years and agreement has failed to be reached over the $36bn divide. The US government was last year forced to extend the previous outdated 2008 bill.

The farm bill is the legislation that provides government support for farmers, food exporters, food processors and food aid programmes. If Congress fails to pass a new bill, a further extension will result. Inevitably, US consumers will be the biggest losers as retail prices will increase.

Given the current impasse, this could be the last ever farm bill, ending 80 years of US government policy designed to protect farm income and price structure, according to North American agri-expert Bob Lang.

He said: “There are discussions that a two-year extension may lead to concerns about the food bill issue possibly running into an election year.

“If food stamps for the poor and nutritional programmes are taken out of the legislation, it is estimated this will remove 80-90% of the United States Department of Agriculture (USDA) budget. It seems unlikely that USDA would be able to survive on such a small-scale budget. Unless an agreement is reached, there is also the possibility the US may have to resort to permanent legislature.”

The severe consequence of failing to implement or reach an agreement on US farm policy, whenever that may be, will result in defaulting back to 1949 permanent law, signed by US President Harry Truman. This would result in the introduction of a price parity mechanism, which sharply led to higher guaranteed crop prices. In the past, the mechanism ensured Congressional food bill compliance.

US farmers are currently receiving $18-plus per cwt for milk. Going back to the 1949 legislation will result in farmers receiving $52 per cwt, adjusted to 75-90% price parity, resulting in a price of $39-$47.

However, the archaic system is based on an economic agricultural relationship between market prices and cost of production between the years 1910-14.

The formulae may have worked 100 years ago, but does not bear relevance to modern farming methods and efficiency of production nor international food markets influences in food market prices.

The US system, a 1910-14 purchasing index, would also result in increases in corn, beef and other agricultural food commodities. The US Department of Agriculture would be required to purchase milk in order to store as cheese and powdered milk, and remove enough supply from the market to allow prices to increase to the $39$47cwt level.

The shortage of available milk on the market would therefore be expected to increase US consumer milk prices from $2-$3 per gallon to $6-$8 per gallon.

The archaic law will force the Federal Government to spend billions of dollars it cannot afford to buy and store dairy products to help raise the price of fluid milk for dairy farmers. The US government will have to keep spending until it is able to raise the price of fluid milk by 60% or 70%.

As commodity marketing years expire, the 1949 law will continue to raise prices as the government is forced to impose production quotas in order to keep enough food commodities off the market to allow prices to rise to established levels thatare two to four times above current market prices. If that occurs, expect US food exports to collapse on the global market.

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