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Its most definitely NOT about modernization and optimization. Its literally exactly as I describe it. Here is how it works: If you have a small number of cows

Its most definitely NOT about modernization and optimization. Its literally exactly as I describe it. Here is how it works: If you have a small number of cows, you receive a small subsidy. If you have more cows you have greater subsidy. Therefore you increase number of cows to give yourself larger subsidy to support yourself through declining profit margins. You can only increase animal density so far. After that you need more land, i.e. you need to expand. If you expand (i.e. buy up all the smaller farms - please go back and reread the article), then you have more cows, and therefore get greater subsidies. You invest that "profit" into buying more farms (that are desperate to sell as their profits are too small for them to survive, but capped as they cant increase their density/estate), get greater subsidies, etc. That is not "out-competing" smaller farms. UNPROFITABLE large farms are literally being paid by the government to put the smaller farms out of business. This is exactly what the article is about, although the author does a poor job of explaining this - in fact, he doesn't even mention the subsidies, but I assure you that this is the case. Like I said - it's disgusting.

sonnyblarney 8y ago
That's a good point - but I don't see how there's any 'economy of scale' to the racket. An individual cow has a certain cost, produces a certain amount of milk, and as you say, yields a certain subsidy. The unit costs of that scale up and down fairly linearly - i.e. it doesn't explain why it's better or worse for smaller or bigger farmers. Now - if there was some sort of 'economy of scale' in this kind of farming, i.e. if you can reduce the overhead of each cow by scaling up, well, then it's possible that the profitability threshold is somewhere near a large amount of cows, in which case, smaller producers go out of business. That said, in the later case ... well it is all about efficiencies and optimization - not subsidies. In short - unless the 'big farms' get some kind of special subsidy due to their size, then this actually is about optimization, not about subsidies. If the subsidies are 'per cow' then it doesn't seem that smaller farms are worse for wear than bigger farms. Instead of subsidies, imagine if there were simply higher demand for milk, and the gov. stopped the subsidies. Imagine that the revenue per cow increased to the exact amount of subsidy. Well, in this case, the economics would be net neutral, totally the same situation, financially. Well, the smaller farmers are going out of business in this situation, and not the bigger ones. Ergo - this is about scale and optimization - not about subsidies.
- supermatt 8y ago
  Although the profits are the same, it is to do with volume. For example, both you and I sell "widget X". The profit on each item for us both is $10. If I sell 10, I make $100. If you sell 1,000,000, you make $10,000,000. We are both have the same profit margin (i use this word lightly, as its only because of the subsidy that there is any profit), but I cant live off my small share. You, however, can afford to invest to expand your business - in a market which is NOT PROFITABLE (this is the point I keep trying to drive home, but you and GP just don't seem to get this point). These large companies are growing their businesses in an unprofitable market, driving down the margins where it has become unsustainable for small players to exist. It's not a fair playing field as, due to the way the dairy industry works, all milk is equal. They aren't making better milk, or cheaper milk, they are making MORE milk - these large farms were specifically established for and driven by the ability to earn guaranteed "profits" in a UNPROFITABLE MARKET. You can call that optimisation if you like, but its still about the subsidies! So thats the economy of scale, and it's been driven by subsidies. The larger you are, the more money you make. Id like to also point out that these larger farms are able to secure funding to further drive their growth, based on them being so "profitable". If the government stopped the subsidies, you are correct - that is exactly what would happen - and it would happen faster. The problem is that this entire situation has been caused directly BY the subsidies. Ergo, it's about the subsidies. Of course, now these large farms exist they are able to reduce costs (primarily on feed) so there is certainly economy of scale in that regard - but they shouldn't exist in the first place - they were created out of subsidies, are supported by subsidies (they are still unprofitable!!!), and have made the market untenable for smaller farms. Normal Behaviour: Widget X loses $10 per sale. Large company sells 1,000,000 widgets = -$10,000,000 Small company sells 1,000 widgets = -$10,000 Small company is more 'profitable' than large company. Subsidised Behaviour: Government subsidies widget X sales by $12 a unit. Brings profit margin to $2 per sale Large company sells 1,000,000 widgets = $2,000,000 Small company sells 1,000 widgets = $2,000 Nothing has changed other than the government creating an artificial profit margin. The large company can use these assets to expand, and create more widgets for sale. The price of widgets goes down. Im not an economist, so I cant explain this using some fancy formula, but all the literature is available for you to read if you are so inclined.

sonnyblarney 8y ago

That's a good point - but I don't see how there's any 'economy of scale' to the racket. An individual cow has a certain cost, produces a certain amount of milk, and as you say, yields a certain subsidy. The unit costs of that scale up and down fairly linearly - i.e. it doesn't explain why it's better or worse for smaller or bigger farmers. Now - if there was some sort of 'economy of scale' in this kind of farming, i.e. if you can reduce the overhead of each cow by scaling up, well, then it's possible that the profitability threshold is somewhere near a large amount of cows, in which case, smaller producers go out of business. That said, in the later case ... well it is all about efficiencies and optimization - not subsidies. In short - unless the 'big farms' get some kind of special subsidy due to their size, then this actually is about optimization, not about subsidies. If the subsidies are 'per cow' then it doesn't seem that smaller farms are worse for wear than bigger farms. Instead of subsidies, imagine if there were simply higher demand for milk, and the gov. stopped the subsidies. Imagine that the revenue per cow increased to the exact amount of subsidy. Well, in this case, the economics would be net neutral, totally the same situation, financially. Well, the smaller farmers are going out of business in this situation, and not the bigger ones. Ergo - this is about scale and optimization - not about subsidies.

supermatt 8y ago
Although the profits are the same, it is to do with volume. For example, both you and I sell "widget X". The profit on each item for us both is $10. If I sell 10, I make $100. If you sell 1,000,000, you make $10,000,000. We are both have the same profit margin (i use this word lightly, as its only because of the subsidy that there is any profit), but I cant live off my small share. You, however, can afford to invest to expand your business - in a market which is NOT PROFITABLE (this is the point I keep trying to drive home, but you and GP just don't seem to get this point). These large companies are growing their businesses in an unprofitable market, driving down the margins where it has become unsustainable for small players to exist. It's not a fair playing field as, due to the way the dairy industry works, all milk is equal. They aren't making better milk, or cheaper milk, they are making MORE milk - these large farms were specifically established for and driven by the ability to earn guaranteed "profits" in a UNPROFITABLE MARKET. You can call that optimisation if you like, but its still about the subsidies! So thats the economy of scale, and it's been driven by subsidies. The larger you are, the more money you make. Id like to also point out that these larger farms are able to secure funding to further drive their growth, based on them being so "profitable". If the government stopped the subsidies, you are correct - that is exactly what would happen - and it would happen faster. The problem is that this entire situation has been caused directly BY the subsidies. Ergo, it's about the subsidies. Of course, now these large farms exist they are able to reduce costs (primarily on feed) so there is certainly economy of scale in that regard - but they shouldn't exist in the first place - they were created out of subsidies, are supported by subsidies (they are still unprofitable!!!), and have made the market untenable for smaller farms. Normal Behaviour: Widget X loses $10 per sale. Large company sells 1,000,000 widgets = -$10,000,000 Small company sells 1,000 widgets = -$10,000 Small company is more 'profitable' than large company. Subsidised Behaviour: Government subsidies widget X sales by $12 a unit. Brings profit margin to $2 per sale Large company sells 1,000,000 widgets = $2,000,000 Small company sells 1,000 widgets = $2,000 Nothing has changed other than the government creating an artificial profit margin. The large company can use these assets to expand, and create more widgets for sale. The price of widgets goes down. Im not an economist, so I cant explain this using some fancy formula, but all the literature is available for you to read if you are so inclined.