As
far back as 12 August, 2013, writing on the milk contamination debacle, and before
the announcement of Fonterra’s historical peak pay-out, I wrote
the following:
… leading to that vertical cliff of farm debt too
much of our dairy industry is built on. The view from the top of that cliff is
scary, because conscious of economist Tyler Cowan’s great stagnation thesis, which I shall post specifically on
at a later date, applying it to our dairy industry, we might hypothesise the
major productivity gains, the low hanging fruits of profit, have been made
already by this capital intensive agriculture, noting as proof there’s a
ballooning $82 million plus, beyond schedule irrigation scheme being built not
thirty minutes drive from where I’m writing this. I believe it will be dubious
when interest rates are in double figures again, whether return on the asset
will outweigh the cost of debt, and when Labour get in and start taxing equity, the party is definitely
over. Given the dairy debt cliff, an
alarmist could forecast a bust coming, given the right circumstances, to rival
1987. Milk is a commodity, and commodities follow cycles, and even on these
historically high payouts, many corporate dairy farms are still hurting: before
moving to the contamination scare, that's the major alarm bell in this
industry. So, if or when such a bust
happens, and everyone will be, as in this debate, blaming free markets,
remember you read it here: Fonterra was stillborn of crony capitalism which is
to capitalism as sea horses are to horses - which is not the same at all, in
case I need to make that clear. Fonterra is not a beast of free markets at all,
but a beast of burden.
And:
This is what I know. A government messes with the
resource allocation of a free market with peril. Given the size of the numbers
involved in the dairy industry, then as we have gleaned with even this
contamination hiccup – and that’s all it was actually – extreme peril. So,
think about this: the monopoly given Fonterra gave it an edge over other land
use that the banks with their fiat money and cheap credit were then given the
confidence to bankroll, and bankroll it they certainly did, even as the cost of
conversions rose ludicrously, as did underlying land values unrealistically.
Thus dairy grabbed a bigger allocation of resources than it could have under
free markets, which would have allocated resource, land, capital, et al, in a
far slower manner. That’s one thing the spontaneous order arising from markets
is relatively good at: coordination. We have all seen the price of this too
rapid expansion …
And,
pertinently:
Dairy’s quick and artificial growth - artificial
because government initiated and protected - looks to have done harm; real
harm. It has led to an allocation toward this single agriculture at the expense
of diversified land use by a range of complementary, biodiverse agricultures
that couldn't catch the banker's eye, given they were so smitten by the big sad
bovine eyes of the large herds. Dairy has outpaced its resources of capital and
skills …
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