In recent months, milk farmers in Europe have been loudly complaining about the low price they receive for their milk. The problem is a combination of oversupply, fostered in part by years of government support for the milk industry, and the power of the small number of milk processors and grocery stores who buy the milk from farmers and put a great deal of downward pressure on farm-gate milk prices.
Just this week the EU agreed to a new set of payments to farmers to help them survive this period of low prices, but is this the right solution? Farmers would like to see a reduction in quotas, to reduce supply. Is this a better solution? Or should we let the invisible hand of the market reduce supply on its own?
How much and what kind of intervention is right in the EU (or any government's) milk industry? Should there be any intervention at all?
Due to the fallen milk prices, which have drastically decreased in 2009, farmers are complaining loudly and making usage of their political power by protests and dumping millions of litres of milk down the drains. Many farmers state that they are unable to cover their production costs and might even have to go out of business if the government doesn’t reduce the quota so that milk is made scarcer and increases milk prices. This would results in an increase in unemployment. It is difficult to say to what extend the government should have an intervention in the milk market, since helping farmers by subsidizing them means that the taxpayers will have to suffer, the government would waste its resources and the problem would not be solved. However, if the government would decrease the support given to farmers, this would lead to problems such as the hopeless maintaining of important rural areas once the farmers are gone and the dependence on other countries due to exports leading to food safety problems since different countries have different food security checks. However, maybe the government could try to increase the demand for milk by programmes such as the school milk programme, where young children learn about balanced diets and how important dairy products are. On the other hand, it is questionable to what extend this will actually increase the demand for milk. In spite of this, there is a chance that the market will balance itself out, without any intervention of the government. It is most likely that the market will recover.
ReplyDeleteI think it is important to look at the big picture. If the government continues to support the milk industry, the problem will only get worse. Government intervention should only be short term to help different sectors out of sticky situations (famine, disease, war, etc.). Continuing to pump money into a forsaken industry is a complete waste. It would be a lot cheaper to import milk from neighboring countries because they too have more than enough and can sell it cheap. I think that not many jobs would be lost, because import creates jobs due to transport, storage, etc. Milk is not important enough to be essential to be independent from other countries. After all, milk is not like oil where countries start wars over shortages. The only flaws I see with stopping subsidizing dairy products are a short term (max one generation) loss for dairy farmers. As they make up only a tiny fraction of the economy, this is hardly a problem. The money used to buy all surplus milk might better be used to finance education for the farmers and help them find a new job. This way, no (or few enough for an equilibrium market to exist) new people will become dairy farmers and the problem will soon solve itself. If the government continues giving farmers support, the problem will only become worse and a future regime will have to clean up an even bigger mess. I am Moritz Sturm and I approve of this message.
ReplyDeleteThe milk prices is a big issue at the moment in Germany. The milk farmers, who are critical to any dairy produce at all in general, are complaining about too low prices, and their overproduction. THe government has repeatedly dug themselves a deeper hole by subsidizing, then that resulting in overproduction since demand isnt rising, and then buying off the milk the payed for to produce. The problem is - raise the quotas, and subsidize, or just leave it and do nothing? The government wants to raise the quotas, but the farmers are against that too, as it just results in even more surplus! That is the last thing the dairy producers need right now, as milk does go bad quickly, and by storing it/exporting it, that is just more money being used. Lower quotas could also potentially help the surplus problem, as the farmers would be striving to produced less than before. More subsidies arent a great idea, since that just harms the taxpayers because to get the extra money the Government would need to turn towards the citizens, and the Government would only be wasting yet more resources on what is honestly a small part of the German economy. My conclusion is that the Government should not continue giving the farmers such vast financial help - but not stop it suddenly as that would only do more harm than good. Instead, they should gradually lessen the money support given to the farmers so that they can adjust themselves to different budgets over time. This will bring the surplus hopefully down, and raise the prices again of milk, resulting in a healthy economy once more.
ReplyDeleteI agree with Moritz and Vivian that the government interventions would not help the falling milk prices, as we can see from what has happened in the EU. Although the government has set quotas to limit milk production, the packet Ms. Brandsberg provided us states that the supply of milk was "4 percent below the maximum allowed quota this year", which shows that using quotas is not the solution to this problem. The problem is the surplus,where the quantity supplied is higher than the quantity demanded, which makes it difficult for dairy farmers to cover their production costs. Even though the government might implement other measures such as buying up the excess product of milk for storage or later use, this would be too costly for tax payers. Furthermore, Moritz has stated that exporting milk might be a solution, but I disagree because this would harm the dairy farmers in those countries, since exporting milk might create a surplus in those economies due to the over abundance of milk, which would lower milk prices. Since "only 10% of all milk produced in the EU is sold to consumers for drinking", the fundamental solution for the government is to increase consumer demand as Vivian has said above, through projects such as The School Milk Programme, which would bring an increase in the demand from D1 to D2,thus making it possible for farmers to cover their production costs. The government should not intervene in any other way, as "dairy farmers are going out of business at a rate of three to five percent each year". This means that the government should let the invisible hand of the market reduce supply on its own. This would mean that if the demand continues to increase, (by the enforcement of governmental programs and increase in demand through population increase), demand for milk would rise from D1 to D2 and the supply would gradually decrease from S1 to S2, which would mean that the price of milk would rise from P1 to P2, with there would be a decrease of quantity supplied from Q1 to Q2. Although it would take a long time for the problem to be solved in this way, it would at least help solve the situation without the government having to enforce further policies, which would make it even more strenuous for the gov. to solve in the future.
ReplyDeleteComment by Jung Hyun Kim
Presently Europe's farmers are suffering from the sharply undervalued prices of milk. To express their pains of this problem, the farmers went on milk dumping as well as a milk strike, which they refused to deliver milk to companies that use it as a main ingredient for other food. As the Belgian Milk producer mentioned "We can't make a living. If politicians don't help us, we won't have a European dairy sector anymore.", the producers are really confronted to a massive hardship, and anticipating the government's aid. To fulfill the farmer's expectations, the E.U. attemped to set an annual milk quota which restricted the over-production of milk or making export subsidies on milks so that Europe's milk can be more competitive in terms of price in the global market. However, I personally consider that limiting the amount of milk that can be produced may be harmful for the economy, since the price of product will go up when there isn't enough production compared to the quantity demanded. Therefore production quota would not be a reasonable selection, as well as subsidizing the farmers, which may stop the farmer's strike however the tax payers may suffer as a result. This indicates that the intervention of the government in the dairy sector, such as milk, will seem to bring short-term effects, however derive even more complicated problems. Adam Smith mentioned that the economy should be left alone under control of the invisible hand, and I strongly agree with this point due to the satisfying outcomes it will bring in the end. Many people may be related to a industry, milk production for example will affect the producers, consumers, the conglomerates and so on. However, if the government simply tries to solve the plights of the farmers by supporting them financially or with regulations of laws, it may seem to be temporarily solved however actually potentiate extreme problems. Therefore, the milk industry should be left untouched and it would go on track with the natural fluctuations of the economy.
ReplyDeleteThe dairy market has grown very unlucrative in the last two years for milk farmers, since prices have been falling far too drastically. This causes the farmers to complain loudly to the EU and protest by dumping their milk into the drains. The EU has responded to this by donating a set of payments to the milk industry, which in my opinion is a total waste of money, since a subsidy will furthermore cause the prices to push down even further. Importing it from other countries, as Moritz said, is also a complete squander, since first of all it would ruin the total dairy market, by flooding cheap milk into the cycle, causing a lot of farmers to go out of business, and since there is already an oversupply in the good, additional milk would incise a deep wound to the whole economy.
ReplyDeleteA reduction of quotas would also injure the dairy market, since as Jung Hyun Kim stated: "The problem is the surplus". Decreasing the amount of quotas would cause the farmers simply to increase their milk production to the permitted limit, and therefore not solving the problem of the surplus but rather worsening it even more. Additionally this would decrease the prices even more, due to the excess milk this is being produced.
In conclusion, I think that it is wisest to gradually cut off governmental intervention to a minimum, and leaving the economy to repair itself. This causes the dairy market to root out its weak links, which aren't able to survive this period of drought. Diminishing the farmers to the circle of survivors would not only solve the problem of the surplus, since much less milk is produced, but it would additionally urge the prices to climb again.
While I think Moritz is correct on some points, such as reducing government interaction, I believe that he does not totally 'get' the real big picture. Think about it in this way: if a country, for example Germany, stops producing milk entirely, as Moritz suggests, the countries which import milk to Germany will undoubtly take advantage of this situation, raising prices to ridiculous heights. In order to get the farmers mobilized again, it will take quite a while, if we follow Moritz's plan, as new farmers will have to be trained from scratch without benefiting from the knowledge and expertise of the experienced farmers.
ReplyDeleteI think that the market should be left well alone so that the 'invisible hand' can lower milk supplies by itself. The milk surpluses will eventually flatten out, as less milk is being produced through the government payments. I think there has been enough government intervention.
Being such a powerful entity the government should be able to resist these downward price pressures that this number of small but “powerful” grocery stores and milk processors exert. Yes these lower prices make this group of milk consumers happy, but the fact that the milk farmers are forced to suffer because of it hardly seems a fair trade. Instead of always lending a “helping” hand, the government should stop babysitting the milk market when it should be learning to stand on its own feet, and let it reach its equilibrium again.
ReplyDeleteThese new subsidies may help farmers survive this period of low prices but in the end it won’t help reduce to quotas as supply will rise due to the ability to produce increasing. Thus the problem of oversupply remains and prices will continue to be low, if however an equilibrium price would be allowed it would balance out these two weights; price and supply. In my opinion the government should not implement subsidies, instead they should lift the price ceiling they have induced and let the market recover on its own account, seeing as past government intervention has always worsened the economic wound rather than mending it.
I agree with Moritz that the government should intervene only in the worst case scenarios, for instance during war or after a terrible earthquake but not when there are too many businesses all wanting make the most profit in an overpopulated market. The main problem is that there are just too many milk farmers due to the attractive government support system. Less farming in that domain and more focus on scarcer producer substitutes on behalf of the farmers would solve this problem. The only way farmers can be driven to do so, is if the government stops luring in new farmers by putting an end to monetary aid in this particular sector. It may be a hassle for the farmers to switch products but in the long run it would be the best solution.
Astrid V.
Simply stopping the intervention of the government in the market for milk would be too big of a shock. The supply for more than just milk will be affected. However, I agree with astrid and moritz that the government intervention should come to an end, but it should happen gradually. The slow decline in government support would get rid of the excess of farmers that the very generous subsidies have caused, and left will be the farmers that are able to stay in business without a "babysitter"(astrid). If the supply happens to be too low when subsidies are stopped, there is still the possibility of importing dairy products, which could possibly be financed by the money saved from not having to store and get rid of the surplus of milk and other dairy products. That way, the governments that decide to do so, would also help the other governments that have a surplus of goods that they are willing to export. I’m sure that my method will draw other problems with it, but anything will be better than what is going on right now. In the end when the market for milk acts without any intervention, the farmers will learn how to handle the situation and then hopefully the market will act just like any other market.
ReplyDeleteI agree with Astrid in that the government should not intervene in the milk market. The main problem in my mind is that the milk market is too attractive to farmers, thus increasing the amount of farmers willing to switch over to milk farming, simply to receive the government assistance. I think that a good solution would be to have the government slowly and consistently release their grip of control on the milk market, but at the same time start to subsidize producer substitutes of dairy farming. This would give milk farmers the incentive to consider their options and maybe gravitate to other markets. Slowly but surely the government could lower subsidies and eventually come to a point where all the farmers are self sufficient. None of them would swayed by the possibility that the government is going to carry them on their shoulders. This would allow the market to regulate itself once and for all, without any government intervention.
ReplyDeleteIn my opinion, the government should intervene in the market for milk.
ReplyDeleteThe government should give the farmers a subsidy, so that they still can cover their costs. The money they would get, should only be for themselves, not for the production.
If it would be for the production, another problem would be caused, because at the moment there is a overproduction of milk and if they would produce more and more, the problem would not be solved. The farmers even dumb millions of liters of the milk down the trains.
If the government would fire some of the farmers, because of the overproduction, the situation would not get better, because therefore the unemployment rate would rise and then there is another problem. Then the farmers can not cover their costs, because they have nearly no money, the first have to find a job they like to do.
In general, milk is a necessary good, everyone needs it, and therefore it should be at a price that everyone, also the poor people can afford it.
To earn more money for themselves, the farmers should expand their production around the milk, for example bio-products.
To control the oversupply of milk, the government should reduce the power of the milk processors not to act like a monopole.
The government should reduce the quota, so that the farmers can produce less and sell this at a higher price.
Personally, I think the government should not help the farmers. The substitues to the farmers will not help them. After the payment, farmers will still suffer from the low price. The whole problem is the over production of milk and the number of farmers. Not helping the farmers might be the best solution. Many farmers will suffer from it and lot of them have to close their business. It sounds cruel, but from this the price of milk will rise again. As a result, the few farmers who survived will be happy.
ReplyDeleteDaigoro Kato
An important point is not being considered. What Julia said about gradually reducing government intervention in the milk industry would work, and perhaps result in a stable economy, but as there has already been so much intervention in the past, it would probably be a long time before equilibrium was reached, and dependence on other countries' milk production would grow immensely, maybe so that individual countries' milk industries could completely vanish, being replaced by imports while economies are adjusting to the governments' changes in policy. But government policies and help in the economy isn't necessarily bad. It's just that the changes being imposed now, and many of the policies which have been used before, aren't helping. Subsidies are lowering prices which farmers want raised, and the EU has not been consistent with quota policies. If the government resumed the quotas which the farmers were satisfied with, prices would rise again, and the government would not need to spend any money on subsidies (making tax-payers happy, and increasing efficiency as farmers will then need to worry about efficiency to not waste money), and could let the natural workings of the market then take care of itself. If the government also restricted imports, competition would decrease and countries could be self-sufficient, and it would ensure that each country's milk industry survives, as long as there is demand (which demand should be promoted with advertising, and programs like the school milk program). Thus, if the government planned ahead, making gradual changes, the milk industry could be stable and efficient.
ReplyDeleteI agree with most of the comments made by my fellow students that the government should not intervene with the milk market. Just in Germany there are over 4million cows which produce 27,809 tons of milk each year. Large Farms that hold over 10.000 cows find themselves in no finical problem at the moment as they are much more sufficient and often side farm other products to subsidies milk farming. However this cannot be long term solution to the problem. Fundamentally the issue is that there is simply too much milk! A reduction in quotas would reduce supply however it would result in an even higher surplus, which harms taxpayers. Government intervention is not a long term solution and will cost tax payers. I believe that the market should be left to the “invisible hand of the market,” which will decrease supply! There is no large increase of demand to expect in the future. The Milk market has got to decrease supply without taxpayers because quotas and subsidy’s are not the long term solution to the high supply.
ReplyDeleteLeonard Gorbach
In the past, the EU, and previously European governments, have given milk farmers large amounts of subsidies, or government payments to firms designed to lower the cost of production. These subsidies have caused the milk farmers to simply look to the government for hand outs whenever they cannot deal with the current prices using their current methods of production. With the current decrease in prices, partially due to the global economic downturn, milk farmers are just doing what they have been trained to do, which is simply ask for more hand outs instead of attempting to become more efficient. This becomes a serious problem problem because, as I discussed in my last blog post, almost all government intervention in a market causes serious volatility, and when the market becomes very volatile the farmers will ask for increased subsidies every several years when the price of milk drops below their production cost. Because, primarily of political reasons, but also because of tradition, the government increases their subsidies which only encourages inefficiency on the part of the milk farmers and causes a greater burden on the taxpayer.
ReplyDeleteIn the case of the final consumer of milk, a slight price increase in milk will make very little difference as the average milk consumption is low and is, for most prices, relatively inelastic in demand. Therefore, in the case of milk, if the government had never gotten involved by giving out large subsidies to farmers, milk price would be slightly higher, however the volume of milk sold would be similar. Also, the added burden on the taxpayer would be gone and the market volatility would be much lower, which would mean the milk farmers would not have to deal with the constant price fluctuations which push them to request subsidies in the first place. Therefore, when viewed from an economic standpoint the government involvement in the milk industry is foolish and should never have occurred.
However, when looked at from a political perspective the government's involvement in the milk industry makes sense, primarily due to the amount of favor with the people the farmer carries. This favor with the people can cause serious political repercussions when the government does not appease the farmers, and when the farmers put their problems in the media. Also, it makes sense that the government makes locally produced milk more appealing to consumers as it is easier to regulate and therefore much safer for the end consumer.
I agree with most people about the government not intervening with the market of milk, and i also agree with constantin that it should happen gradually. If the government stays out of the milk industry, then the Economy will sort itself out, by decreasing the supply of milk. If there is a surplus in milk, and milk farmers protest by dumping it, then the production of milk will be cut down to the point where only the amount of milk demanded will be supplied. I completely agree with Daigoro on this point. Yes, some farmers will have to discontinue their jobs, but that is the best way to solve the milk problem. If the government intervenes in the market then only more problems will arise.
ReplyDeleteMartin Paul
I agree with Anselm that the import for milk should not increase when the local farmers are overproducing. Why ruin another countries economy when we need to save our own? By importing milk from third world countries the market within their country gets destroyed by ridiculously low export prices, therefore I believe mingling with other countries is not a good idea. However I do not think that the government should subsidize the German farmers either because this just causes them to overproduce even more. If what we have discussed in class, that people have a 'soft spot' for farmers, is true then by arousing awareness and sympathy about this issue amongst the public might be of help. People like helping others and instead of donating money to animal shelters for example (not saying that animals are not as important, because cows are animals too) perhaps helping the milk farmers would be a better deed. If this issue was advertised more in the media people would have sympathy for the farmers and would be willing to buy some extra cheese or yoghurt. I do not believe that this would solve the overproduction issue but it is a better way to help than pouring loads of money (which taxpayers are giving) into the farming business which doesn't get used efficiently.
ReplyDeleteSwitzerland has already done this and called it "Milking sympathy" as can be seen in the link:
http://www.swissinfo.ch/eng/multimedia/picture_of_the_day/Milking_sympathy.html?siteSect=15095&sid=11289746&cKey=1254339552000&ty=in