KEY POINTS:
This week dairy farmers were in clover, pocketing their second record pay-out of the year because a world shortage of grain has pushed up the prices of farm products. Next week those prices are likely to appear on local supermarket shelves and many consumers will ask, is this fair?
A popular fallacy persists that goods should be cheaper in the country that produces them. It is as though the nation was a farm and the local supply was a beast or a bucket put aside for the house.
New Zealand is not a farm, it is a developed economy built on the division of labour and open to global trade. We sink or swim on world prices. When export prices are low we do not subsidise farmers lest they see no reason to adapt to the real value of their produce or switch to one that is paying more.
Likewise, consumers do better to shift their consumption priorities in response to real prices rather than shield themselves from those prices with subsidies paid from their taxation.
That said, the nation can have some reasonable expectations of the farmers who stand to receive an extra $250,000 on average this season. This is a $3 billion windfall for the dairy industry and is in large part a happy consequence of global warming. It is the grain now grown in the United States for biofuels that is leaving a shortage of feed for farm animals.
The dairy industry should see that it uses this golden opportunity to invest heavily in research and development of new feeds and fertiliser that might reduce emissions of methane and nitrous oxide, our main contribution to global warming.
Agriculture will not face emissions regulation until 2013 under the cap and trading system adopted by the Government this year. It must start investing in solutions now.
