By Mark Jurkevich
European dairy farmers used more than 1,000 tractors and milk transport trucks to gridlock Brussels on November 26 and 27. They were protesting low milk prices. Using high pressure hoses, the farmers sprayed with milk the European Union Parliament Building, as well as the riot police trying to keep order.
The European Milk Board (EMB) claims 157,000 dairy farmers have gone out of business since the 2009 dairy regulatory reforms came into effect.
Under those reforms, production quotas are raised 1% per year for each country. They define the maximum amount of milk farmers can produce. By limiting supply, government kept prices artificially high. Government also makes direct payments to farmers in return for accepting production limits. In short, the consumer gets hit twice: with higher milk prices, and by paying additional taxes to finance the direct payments to the farmers.
As production limits are gradually raised under the 2009 regulatory reform, and farmers continue producing to the higher limits, the supply has begun to exceed demand. Thus, prices for milk began to go down.
In short, the 2009 reforms are gradually phasing in free-market principals. As the milk market was freed, it exposed the obvious fact that there are far too many dairy farmers with far more capacity than demand can absorb.
The EMB would prefer to go back to the good old days when its members got paid by the government while they tended to cows and enjoyed their farms without having to think about how much milk the consumers really wanted to buy or how much they were willing to pay.
“Our message today is that we need new market regulations to ensure prices that cover costs of production. Milk prices are far too low. Farmers can’t make a living and are closing their businesses,” EMB President Romuald Schaber said in The Daily Telegraph.
Cleverly, the EMB gives its proposed new quota regime a free market sounding name – “Flexible Supply Management.” Under Flexible Supply Management, the farmer would have no flexibility in deciding on how much product to produce; that would be strictly dictated by the government, again.
Currently more than 25% of the total EU budget is spent on the Common Agricultural Policy, or CAP. Of course, government distortions of agricultural markets are not unique to the EU. The United States has its own regulations that match the EU in complexity and market distortion.
The farm lobbies on both sides of the Atlantic have been among the strongest for decades. Having created a narrrative of family farms being a part of cultural heritage, they enjoy strong public support. On this basis, the lobbies argue that farmers must be protected, regardless of the economic merits.
Boiling down this argument to its essence, the farm lobby argues that society should finance tens of thousands of family farms because they’re living museums that display our cultural heritage.
Neither the EU, nor the U.S., can afford so many duplicate museum pieces to a bygone era of rural farming life. Yes, phasing out agricultural subsidies will reduce the number of farmers, who will have to find a way to make a living in industries that are more in demand today.
After all, we used to have a lot more blacksmiths, lamp lighters and elevator operators than we do today. Thank God their lobbies didn’t convince governments that their profession is a cultural heritage necessary to preserve. Although, it should be noted that “Smith,” and its translation in other European languages, rather than “Farmer,” is the most common last name in the U.S. and Europe.
As budget cuts are being negotiated in Brussels and Washington D.C., there can be no sacred cows that are off the table. Farm quotas, subsidies and tariffs block the efficient allocation of resources and are a large burden that taxpayers in Europe and USA can no longer afford.