Monday, October 21, 2013

Have we met the enemy?

There has been a fair bit of talk about monopoly lately with Murray Goulburn's bid to take over Warnambool cheese and butter. The media, both agricultural and mainstream have been quick to point out that farmers all over this country constantly find themselves at the mercy of multinational corporations and that any less diversity and competition in within our food system will be detrimental to farmers and consumers.

These days it's hard to find a farmer or rural reporter  with a nice thing to say about Australian supermarkets and I myself have often called for the government to step in and break up Coles and Woolworths or to rein in Tey's and Swifts and so on. Monopoly has become the boogieman of modern agriculture, the root of all the evils that farmers suffer and the cause of our friends or family's going out of business.

Surely we have met the enemy! Or have we?

Across the kitchen table it is very, very easy to get wrapped up in defining the problems that face modern agriculture but it is whole different ball game to thrash out workable solutions. When we see an animal sold for $1.80 a kilogram at the saleyard only to find meat selling for between $10 and $30 a kilogram in the supermarket it is hard not to feel like someone, somewhere is making a killing at our expense. I would wager a dairy farmer feels the same when they go to buy milk and a wheat farmer feels no different when they purchase bread.

So the first solution often suggested is to create more competition for agricultural produce by breaking up the large corporate monopolies that overtly or covertly seem to collude to drive down the price paid to farmers for their produce. Such policy's were a feature of Katter's Australia Party's election campaign and have been mentioned in the past by politicians from many other parties. Political proponents of such legislation often cite American anti-trust and competition legislation as a blueprint for similar laws to make the business landscape in Australia fairer. They often neglect to mention that American farmers still need to be heavily subsidized despite the increased competition these laws provide.

Fact is the American and the Australian experiences only prove that you can have a monopoly with more than one company. We have a duopoly with our supermarkets and our abattoir sector is rapidly heading the same way while many of our American counterparts suffer under what could be described as a 'quantopoly' as competition laws prevent many companies from holding any more than 25% of any market. Either way, the effect is the same, thousands of farmers are forced to reach millions of consumers through the bottle neck of a few companies that often reduce farmers to a "take it or leave it" negotiating position and squash the ability of the free market to work. 

This is where the ACCC is supposed to step in and ride to the rescue of the agriculture sector but despite a lot of noise from the National Party, the ACCC remains a toothless tiger. The ACCC has no power, even when it caught Coles misleading it's customers about the origin of some fruit they were fined a paltry $61,000.

So the next solution we often come to for farmers to increase their profitability is to market directly to consumers and cut out the middle man or to develop other markets overseas.

This is where the bodies are buried. 

Cost is a big factor in this equation but lets assume for a minute that finance for this type of venture is available, why don't more farmers do it? The short answer is "regulatory disadvantage".

If a farmer wants to sell his sheep to someone overseas, all he has to do is send them on a boat or a plane right? No!

He needs an export license for that and a raft of government approvals and accreditation's that force him into dealing with a corporation that specializes in live export who passes on the costs of meeting that government regulation back onto the farmer. Escas is making this problem worse, not better. 

If a dairy farmer would like to sell his milk directly to consumers they are forbidden by government to sell that milk unpasteurised, despite the fact that many of them drink it that way themselves.  So the farmer has to invest hundreds of thousands of dollars, maybe a million into a special pasteurisation and bottling facility. He might even partner with his neighbors to introduce some economies of scale. This sounds feasible until the EPA places waste conditions on the equipment and the local council takes twelve months to approve the extension to the milking shed, the health department want to inspect every inch of his facility, worksafe turns up etc etc.

If your local fruit and veg shop wanted to bring frozen vegetables in from China via New Zealand to get around all those pesky inspections you would expect regulators to run them out of business but it's in the national interest for voters to have cheaper veggies (as long as they don't see the residue tests). The government doesn't bat an eyelid when the big supermarkets bring in vegetables sprayed with chemicals that are highly illegal in this country. 

When the big corporations want to build a milk factory or an abattoir they often receive government assistance with compliance problems such as those listed above, often they even try to hold the government to ransom like AA Company did  over road upgrades around the desperately needed Darwin abattoir. If a government bureaucrat oversteps the bounds of his authority, the legal team is brought in to straighten things out or phone calls are made to friends in high places.

When normal people have the audacity to take on government entities like this, they often find themselves pursued through the courts for years by teams of lawyers with a bottomless supply of taxpayers money. A farmer cannot afford to have a lawyer on hand every time a government official makes an inspection, nor can he afford to fight lengthy court battles.

In short, monopoly can only exist when it is sanctioned by the government.

Don't expect this to change anytime soon.

The fact is, self interest is present in all forms of government. I don't blame corporations for acting in their own self interest and with government being as powerful as it is, they are serving their interests by keeping the government on side. Politicians too will always act in their own self interest and at the moment that interest is better served by keeping their donors happy at the expense of taxpayers who are none the wiser. Does anyone really believe that the head of a corporation pays $30,000 to sit next to a politician at a fundraising dinner because they enjoy their company?

The solution to this problem is remarkably simple. Government power has to be reduced to the point that it is so feeble, so weak, that all the political donations in the world cannot buy a result. A government that can be "drowned in a bathtub" so to speak. Only then will large and small business operate on a level playing field where the business that is best able to bring consumers the product they desire at the most appropriate price will survive. In some cases that may well be large corporations but they will at least be kept honest by the ability of small business to react swiftly as soon as it becomes viable for them to compete and undercut those corporations. Government has to come back to respecting the right of property owners to do with their land what they see fit and to grow their crops or handle their livestock however they wish instead of imposing unnecessary burdens to appease special interest groups. Government has no business shutting down abattoirs or live exports to other countries on a political whim, experience has already shown that this power has been repeatedly abused. It is also up to us as farmers to earn the trust of consumers by delivering products of such a high standard that government regulation becomes unnecessary and to run our businesses in such a way that no government assistance is ever needed or asked for. We cannot expect the taxpayer to bail us out if we are campaigning against corporate welfare.

The future is bright for Australian farmers and food production looks set to become the next boom industry for our country. I can see a future where automation and robotics pave the way for a renascence in our rural and regional areas. Imagine a world where animals are killed on farm, packaged and sent direct to the supermarket with the farmer keeping most of the profit. Imagine a world where cows are milked straight into the carton to be delivered fresh and natural to the consumer and the wonderful effect of our farms employing scores of local young people who choose to stay and thrive where they grew up in an industry they love instead of being forced into the city to find a meaningful future. 

We can make this future come true, but we have to find politicians that are willing to give their power back to the community and sadly, they are in short supply. 



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