No more single desk

Despite angry farmer protests and a raft of Senate amendments, Australia’s 60-year-old monopoly system of selling bulk wheat overseas has ended.

The lower house on Monday accepted the opposition-controlled Senate amendments, bringing in to law the new wheat marketing arrangements.

Full article here.

The most disappointing thing about this reform is that we didn’t use the initiative to get a better deal during bilateral trade negotiations with the USA.

40 thoughts on “No more single desk

  1. Yet another nail in socialism’s coffin. Long overdue, although it’s not exactly a free market yet. You still need a licence to export wheat.

    There’s a few remaining koalas (ie protected species) surviving in agriculture. Along with the car industry, it is the main beneficiary of corporate welfare.

  2. My Parents are farmers and despite 4 years of arguing I still havent been able to convince them that this is a good idea.

  3. Did anyone see this comment in the article ?

    “NSW grower Jock Munro said the new system would see the volume of wheat grown each year halved to 10 million tonnes within three years.”

    Errr…. What the heck is he on about ? And the article leaves this nonsense unchallenged. How will more competition result in lower output ?

  4. The interesting point is that a lot of farmers seem to want one wheat board. As a libertarian, I would encourage them to get together if they want to, but not to force all farmers to sell through one agency.
    On a brighter note, it was because of rationing that Hutt River Province was formed! One person didn’t want to be impoverished by quotas set by Perth, and discovered he had a right to secede in international law, and that the original settlement had some irregularities which he could exploit.

  5. I’ve seen farmers get very emotional either way. I’ve seen some very uspet that they got punished for being productive.

    We don’t need a monopoly exporter. It simply paid monopsony supply prices to 100% of the Australian wheat producers (that is, it was screwing prices down that were paid to farmers), while earning no monopoly profit with 4% of the world market. Australian wheat earns high prices because of good quality and other monopolistic advantages, not because of the (in)ability of the AWB to earn monopoly profits as a price setter (which it never was).

    Farmers will be better off.

  6. As for Jock:

    Given the supposed shortages of grain elsewhere around the world, I can’t see grain production fall except on account of the weather.

  7. How will more competition result in lower output

    The agrarian socialists argue that farmers will compete with each other so fiercely that prices will be seriously reduced.

    They always seem to know someone so stupid they’ll sell it for less than the market price, or who is so susceptible to huge multinational corporations that they can be shamelessly exploited.

    It never happens to themselves, of course. Always someone else.

  8. It’s difficult to convince many farmers about the virtues of the free market. They’re often not good at marketing and negotiating prices for their products, so tend to rely on co-ops and monopoly buyers like AWB for this.

    In another industry a monopoly exporter would be called a cartel and investigated by the ACCC

    Also they are often dependent on a single commodity for their livelihood, and don’t like being exposed to market price fluctuations. Their perception (rightly or wrongly) is that a monopoly buyer or co-op will be acting more in their interest than competing on the open market.

    Lastly it’s harder for farmers than others to adapt to fluctuating supply and demand issues. If they grow avocados or wine grapes for example, it takes 10 years from tree planting to a decent crop, in which time the demand may have changed. I noticed a lot of farmers in Sunraysia pulled up their citrus orchards to grow wine grapes

    Then there is always the weather – droughts, cyclones etc which can ruin a crop for several years.

    Of course, there are free-market solutions to all of this – crop insurance, commodity hedging etc, but most farmers aren’t that financially sophisticated. There are exceptions of course, especially premium and niche producers.

  9. Farmers can isolate themselves from market fluctuations by using forward contracts with speculators. There risk will be reduced and their ability to plan for other fluctuations like weather that impact their production will be improved. One motivation behind farmers favouring a government backed monopoly is that it is easier for farmers to go cap in hand to the state when things go wrong.

    Environmentalists should be happy at this news, because farmers cultivating poor soils or using poor practices are more likely to become uneconomic, unable to hide their poor quality and expensive produce behind their more efficient neighbours’ efforts. Land under cultivation may well reduce, but only to the market sustainable level and farmed only by the competent. Good farming techniques use less fertilizer, produce more grain per square metre and manage water better.

  10. It’s a common urban myth that farmers are not sophisticated. In reality, the majority of them are fairly clever and certainly as smart as the average city business owner. They are quite accustomed to managing risk and making production decisions in an uncertain environment.

    Those who are not so smart can be compared to the deli owner who doesn’t shave or wear clean clothes. They are an embarassment to the decent deli owners, who want them to go broke and leave the industry as quickly as possible.

  11. There’s also a lot of tacit knowledge some people from non-farming backgrounds may not realise existed.

    Come on. Farmers are smart enough to cope without the AWB. Like I said, it is more likely it was screwing them over than it was helping them.

    Crop insurance etc already exists. Let the market work.

  12. So now Australia has zero competitive advantages and zero bargaining chips in international trade. Unless you count the current new car construction subsidies but that’s hardly a booming industry.

  13. Individual Australian farmers have competitive advantage. Collectively they can only win advantage through coercion.

    Australian Wheat Board, a deal farmers can’t refuse… until now.

  14. Why do we want bargaining chips anyway? 90% of the gains from trade liberalisation arise from internal productivity gains.

    The Australian PMV market is a worthwhile object of loathing for foreigners and Australian consumers alike. I would prefer the subsidies gone rather than putting up with cars 30% more expensive than they should be in order to try and get America to drop steel tariffs.

    The idea of having “bargaining chips” lead to the retaliation after the Smoot Hawley tariff act that arguably was the catalyst that tipped the world into the great depression.

    Australian farmers do have competitive advantages. That’s part of the reason why their grain can get good prices, and why Australia does not suffer from fluctuations in exchange rates so much, as a small, open economy normally would. Grain quality allows monopolistic prices to be set independent of a single desk. The desk only ever had 4% of the world market, but it had 100% of Australian supply.

    Just who was getting screwed down on prices?

    The farmers.

  15. These farmers will now have to sell their product to someone. Someone will be in the form of a world market place where farmers will now have various competing offers and a whole world full of customers. They now have an incentive to constantly have a higher grade product and more efficient techniques.

    @14. Australia does have something which is a serious advantage (even topping my home of the USA). Economic Liberty. There are many nations around the world with more centralized systems, more government involvement with production, more rules, more regulations, more trade restrictions, and in just about all cases none of these institutions act as long term competitive advantages. Economic Liberty is what matters in the long run and eliminating a monopolistic production system is a step to more economic liberty.

  16. Mark – In principle there is no harm bargaining with a chip that you intend handing back anyway. What you are willing to do for nothing in return, and what you openly say you are willing to do for nothing need not align.

    Although such bargaining games rarely justify a delay to worthy reforms. If the price of such a tactic is delay, then there is harm in playing the game. Unilateral trade liberalisation is more expedient than any other form of trade liberalisation.

  17. There’s a difference between what might be good for the Australian farming industry as a whole, and what might be good for individual operators.

    The abolition of single-desk will likely be a boost for agriculture. But it will only hasten the demise of the farming family.

    Protection of agriculture serves very well to support the national party’s idea of what a farm should be: Mum, Dad and the kids running a family business at a level enough to support a large extended family.

    Getting rid of protection like the single desk will certainly make farming more efficient, or at least force efficiency on farmers. Unfortunately the realities of economies of scale means one thing above all: Consolidation of sole operators into corporate farming entities.

    Specialisation of labor exists for a reason, There comes a point where a sole business owner can only contract out so much of what he used to be able to do himself before he becomes not much more than a wage-earner.

    The future of farming is corporate. Farming currently is where mining was 100 years ago, where sole operators would mine their own plots.

    Today mining is done solely by massive corporations and hires workers on a fly-in, fly-out basis to perform the labor in the remote areas it is needed.

    Farming will be the exact same in the decades to come, sole operators like my brother will be the last generation to farm in the traditional way.

    Now in the end everyone will be better off. But that’s cold comfort for the traditional farmers who (quite rightly) think that things like this spell the end of their unique way of life.

  18. Yobbo – the demise of the family farm has been predicted for a long time. In a way more and more farms are corporate these days however a big factor is simply that many families have incorporated. So it is still often Mum, Dad the kids along with an ACN number. I don’t think that ending the single desk will have a lot of effect either way. We don’t have a single desk for most other agricultural products and I doubt that wheat is really so special.

  19. You can’t have it both ways, Mark! IF the average Farmer is smart, and lots of farmers want something like the AWB, then they must have been getting some advantage from it! Otherwise, why would they want an arrangement which screwed them? Not very smart, is it?

  20. They aren’t economists though. Everyone has bounded rationality and a degree of rational ignorance. Likewise, a lot of intelligent people are taken in by empirically debunked Keynesian economics or mathematically impossible Marxism.

    I suspect the advantage, if any, may be purely perceived or an implicit guarnatee for wheat farmers.

  21. The abolition of single-desk will likely be a boost for agriculture. But it will only hasten the demise of the farming family.

    The demise of the family farm is a myth.

    Although corporate farm numbers have increased by 55% since 2001, they still represent just 1.5% of all farms. That includes large family farms that trade as a company for tax and succession reasons.

    Only 3.3% of grain and/or cotton farms are corporate, versus 10.7% of pig farms.

    There is definitely a trend towards larger scale enterprises, but it is mainly family farms that are leading the charge. The successful farmers who know how to manage risk without the government’s help are buying out their neighbours.

    More details here:
    http://www.neilclark.com.au/img/Corporate%20Farming%20in%20Australia.pdf

  22. Family farming will continue to exist… but like all lifestyle choices, it may involve sacrifices. While big-earning small-scale family farms may be on the way out, I suspect there has been a growth in “hobby farms”.

    This is the path my old man took. When he came over from Rhodesia about 30 years ago he couldn’t afford to be a farmer in Australia. After 20 years of work, he could finally afford a hobby farm, but he didn’t leave his job. The farm earns a bit of money, but I suspect my old man would happily pay for the privilege of ridding around on his tractor every weekend. 🙂

    He is a libertarian and disagrees with farm protection. He not alone too. Many farmers are against farm protection and see them as a bit embarassing to their industry and there only to support the bad farmers. While not the majority opinion, there are enough farmers out there who still hold to the old style mentality that is instinctively hostile to government, including government “help”. In some ways, this group has more of a libertarian instinct that city-based “liberal”.

  23. When I was at university I used to take some joy in returning home on holidays and riding around on the tractor slashing tussocks and paramatta grass on the flood plain. I doubt it served any useful long term purpose but it was fun and it made the paddocks look nicer.

  24. I doubt it served any useful long term purpose but it was fun and it made the paddocks look nicer.

    Making the paddocks look nicer is one of the aims of the EU agricultural policy. They don’t really care how much is produced or how efficiently the farm is managed, just that it looks attractive as you drive past. Here in Australia it’s referred to as landscape gardening.

  25. Can anyone here the faint voice of “Hyacinth Bucket”? “I don’t want my milk coming from any old cow, but a cow of distinguished breeding and high esteem”. Now that sounds like EU ag. policy.

  26. Sounds like there could be a good market in false farm props! Sell hollow haystacks, painted golden yellow! Carpet that looks like really green grass- but keep the real cows away! Robotic live-stock, mooing and oinking on the hour and half-hour! The farmer can recoup the expences by charging for photos! Any agrarian enterpreneurs out there?

  27. Yes I think landscape gardening is what most hobby farms are about. A passtime I have continued with, all be it on a smaller scale, now that I own a small patch in the city.

    Nicholas – real cows are pretty cheap. And if you buy a bull they multiply.

  28. John Humphreys, Jason Soon and Peter Whelan have all seen my back yard. If they’re reading then I’d like them to know that since they saw it last we have upgraded from clay to lawn. Now I can slash grass again. 😉

  29. But, TerjeP, then the cows will eat the grass, so it doesn’t look as pretty. And real cows require more maintaining than an animatronic creature would. And you can have the fake haystacks out in all seasons!

  30. Nicholas – but how will you keep your feet warm on those cold winter mornings?

  31. I’ll buy milk from the supermilket, just like everybody else, and heat it, and put my feet in the warm milk. How do you keep warm?

  32. There is definitely a trend towards larger scale enterprises, but it is mainly family farms that are leading the charge. The successful farmers who know how to manage risk without the government’s help are buying out their neighbours.

    Well that’s really what i’m getting at David. You can only buy out so many of your neighbors before you end up with something too big for 1 family to manage.

    Most of those big farms (my family’s is becoming one of them, we’ve bought out 2 neighboring properties in the last 10 years) operate much less like family enterprises now and much more like corporations.

    When you are outsourcing 60-80% of your work is it really a family business or a corporation? Pretty much all my dad does now is drive around checking that no sheep are dead and sign forms.

    The only time they are truly busy is it at harvest because the labor pool is too small to employ anyone else to do it all.

    He’s bored out of his brains, he started out life as a farmer and is finishing life as a CEO wearing blundstones.

    Perth’s biggest construction companies all started life as Italian family businesses too. They still retain the names but I think it would be difficult to refer to them as “family businesses” even if the CEO is a member of the founding family.

  33. I guess what I am referring to is that as more farms get consolidated, less farmers are business owners and more are employees.

    There are still plenty of farmers hanging around town that no longer own their farms because their best mate bought them when they went broke. They are basically farm managers and draw a salary. Which is exactly the situation I was referring to in my earlier post.

  34. Socialism comes in various guises.

    The Citizens Electoral Council has issued a press release about the single desk issue.

    In summary, protectionism is the order of the day; anything else will lead to genocide and Rudd is responsible.

    <b<Dismantled single wheat desk damns family farmers, starving millions

    Labor and the Liberals joined forces in parliament last week to pass the bill to scrap the Australian Wheat Board’s single marketing desk, over the protests of 80 per cent of Australia’s wheat farmers.
    (The AWB’s single desk pooled, marketed and shipped all of Australia’s export wheat, thereby getting the best possible average price for all growers; now, wheat growers are at the mercy of the multinational grain cartels.)
    At a time when farmers are being slaughtered by the explosion in the costs of their biggest inputs like fuel, fertiliser and water (fertilisers that cost $400 per tonne in 2006 are now $1800 per tonne; water that was recently $40 per megalitre (ML) is now anywhere from $1000 to $5000 per ML), when their debt burden has grown to $48 billion, from $27 billion in 1998, and when farmers from one end of the country to the other fear that as many as 50 per cent of them could be forced off the land this year?this act will drive thousands of wheat growers out of business.
    Worse, it comes at a time when 850 million people worldwide could starve to death, because of the global food shortage.
    The Rudd government’s action in the face of this is tantamount to genocide.
    The Government should watch itself, because by actions like this, Australia is becoming increasingly isolated.
    We are now one of a handful of countries, including Britain and the Bush administration, which is sticking with a free trade agenda, whilst most other countries in the world are in revolt against British free trade.
    Even the right wing President of France, Nikolas Sarkozy, is choosing the importance of food production, over free trade: “Every thirty seconds a child dies because it’s hungry,” Sarkozy said in Brussels on June 19, “and we would go and negotiate a 20 per cent reduction of the European agriculture production in the framework of the WTO? There is only one person in favour of this, and that is Mr Mandelson [British EU Trade Commissioner]. It is not the position of France.”
    Australia won’t have a future as an industrial economy, unless we too dump our suicidal free trade fetish, and return to the protectionist measures which made us a great industrial nation, and which most of the rest of the world are once again embracing.

  35. ‘tantamount to genocide’ – are they for real?

    Because of its emotional impact, that word gets pulled out a lot, often completely inappropriately, and this is probably the most inappropriate use I’ve seen.

    It’s an insult to those who have been real victims of a systematic and deliberate attempt to eliminate thier racial, religious or political group.

  36. Press releases from the Citizens’ Electoral Council could be called the same as Disneycide- putting Disney out of work in the realm of Fantasy! (Fantacide, maybe?)

  37. The CEC are whackos. Food production is encouraged by free trade. There isn’t a choice between food production and free trade. Free trade would allow more efficient third world nations to produce more of the global supply and earn valuable income for development.

    I expect a lecture in La Rouchian “economics” any time soon.

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