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I recently had a conversation with an organic farmer. While he is able to pass on at least some of his increased costs for energy and fuel through direct sales
by sdoering 4y ago
I recently had a conversation with an organic farmer. While he is able to pass on at least some of his increased costs for energy and fuel through direct sales and cooperatively organized distribution channels, his conventionally farmed colleagues have a bigger problem. They have long-term purchase contracts that fix the prices for milk, meat or vegetables. In the case of milk and meat in particular, production costs, including purchased feed for the animals, now exceed the agreed purchase prices.
At the same time, however, prices for the end consumer are rising because, on the one hand, the processing companies themselves have higher energy costs, but on the other hand (without passing them on to the producers) the current climate allows price increases and thus an increase in margins. So the consumer and the farmer lose out. Only the processor, its shareholders and retailers benefit (at least in the short term). And the speculators who bet on rising prices.
Many conventional farmers see their livelihoods threatened. Which further endangers food security in the long term.
- bombcar 4y agoOne should never make long term contracts for delivery without long term contracts for supply, or at least something to hedge against supply costs.
- davio 4y ago“The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays the freight both ways.” — John F. Kennedy.
- usrn 4y agoHe might be our most underrated president.
- eatonphil 4y agoI don't think he was, at least based on what he actually did in life. He only barely beat Nixon in 1960, caused Cuban crisis through his own making by bad defense policy in the middle east, gridlocked congress. His people turned him into a legend after he was killed. LBJ did the real work in implementing the ideas JFK wanted (but couldn't implement). Yes JFK's death may have made some of this more possible but how much can you credit someone for dying when it wasn't even for a particular cause (other than anticommunism maybe). You may be able to tell I've read too much Robert Caro. https://nymag.com/intelligencer/2021/06/jfk-accomplished-little-but-his-historic-myth-endures.html https://nymag.com/intelligencer/2021/06/jfk-accomplished-lit...
- Der_Einzige 4y ago
- HideousKojima 4y ago
- TrispusAttucks 4y agoThe meat packing monopoly ties the hands of many cattle farmers.
- adra 4y agoMeat packing is a natural oligopoly, which could be disrupted any time by someone with enough bucks to do it. That's capitalism. Either live with the parasites or be ok with more intervention.
- drc500free 4y agoNegotiating against someone with more power than you leads to bad deals.
- dkjaudyeqooe 4y agoOr simply indexing them to inflation in some way.
- jillesvangurp 4y agoI'm less pessimistic. People in the US, and increasingly the rest of the world are on a diet that just isn't good for them: lots of low quality carbs with cheap fat and artificial flavorings and not a whole lot of nutritional value. Arguably, a large part of the population is eating way more than is good for them and not enough good quality food. And it's not just a money issue: it's a skill and knowledge issue. People literally pay extra for the privilege of growing fat on expensive junk food and they don't even know the basics of taking care of themselves anymore. So, low quality industrial food products getting more expensive isn't necessarily a bad thing. It might prompt people to spend their money more wisely. There are plenty of options for people interested in doing a bit of work to put together a healthy diet for themselves. Buy good ingredients yourself and learn how to use them. You'll save money and eat better. And if you source a bit responsibly, you actually help out some local producers and shops that are currently struggling. It's not that hard. A lot of us here are programmers. If you can put together code that implements a complex algorithm, you can follow a recipe and figure out how making food works. It's not hard. For example, I bake my own bread. I do that using flour that I buy online from a local mill here in Germany. Good stuff. Works out to about 1.60 euros per kg. The supermarkets here don't even sell this quality of bread flour. They mostly sell more processed flours that people use to bake cakes. The flour I bought is locally known as type 812. In the french system it would be T85 (approximately). All that means: lots of protein and other nutrients that you need to make good bread. Unlike the supermarket, I use no additives other than salt. I even make my own sourdough starter (flour + water, let nature do it's thing). So, literally the main ingredients that I have to buy are flour and salt. Works out to less than 1 euro per loaf of bread; including the power I consume to use the oven. And it tastes good. If I wanted to cut the price of this, I'm sure I could source both ingredients even cheaper. Sourdough bread works with all sorts of flour. Even with the cheap low quality stuff. You might be able to go as low as 50 cents per kg of flour. That works out to about 25 cents per loaf. And it will still taste great. Takes a bit of skill and some time. But otherwise it's cheap. People in poor countries tend to know a thing or two about making the most of cheap ingredients. That's why Italian food is so popular. It's quite literally what poor Italians came up with. A lot of their famous dishes are rooted in what poor peasants could do with what they could afford. Pasta is basically flour and water. You work it hard and you end up with the perfect vessel for some sort of stew. As for the stew: whatever cuts of meat cooked for ages with whatever you can pick around you. Plenty of examples around the world of great food traditions rooted in poor people making the most of what they have access to: India, Vietnam, Thailand, Cuba, etc. Almost anywhere you go, people have this rich history of doing great stuff with whatever is available to them. Mostly, it boils down to skill and time to use those skills.
- heartbreak 4y agoThose long-term purchase contracts (futures) are only one side of the hedge. We’re not getting the full story. https://extension.missouri.edu/publications/g603 https://extension.missouri.edu/publications/g603
- deleted 4y ago[deleted]
- ajsnigrutin 4y agoI find two things funny... it might be a local thing (i'm from slovenia) but yeah... 1) gas was ~1.5eur here, then it fell to 1.0eur during the plague, and there were zero price drops beacause of that, and when the price started rising to 1.1, 1.2, 1.3 eur, everybody (farmers, retailers) started complaining about increasing gas prices and how that will result in higher consumer prices (even before we hit the price a year before that). 2) farmers complain about low prices they get from processors (and retailers).. then you want to buy meat directly from them, and their price is usually a lot higher than in-store price (even though there are usually two or more middle-men between them and the store), and you cannot choose anything... want steaks? Want beef thigh? Hah, good luck.. you can only buy 10, 20kg+ of "mixed beef", where 90% is "meat for goulash" (hard, cheap cuts) and 10% bones for soup. So yeah... it's Aldi for me. Also, there were farmers complaining that they had a bunch of food that they had to throw away because of the plague (eg. contract with school, school closed, a few tons of salad had to be thrown out)... noone offered for people to come buy stuff directly from them at whatever cheap price,.. in the meantime in-store prices were relatively expensive for that same salad.
- daxfohl 4y agoSounds like the ideal is to frame the food system after the US medical system. You can't find out what something is going to cost until after you've eaten it. You have to have food consumption insurance to get things at reasonable cost. Food insurance companies charge astronomical rates unless you're part of some group plan.
- ajsnigrutin 4y agoOr regulate price transparancies... how much does the farmer get, how much the processor, how much the retailer, and how much goes to taxes.
- ThunderSizzle 4y agoThen the government will need to admit much of a price tag is taxes, probably 1st after taxes.
- roflyear 4y agoThis is how futures contracts are supposed to work. The times when these contracts made the farmers extra money at the expense of the consumer should make up for this time.
- bumper_crop 4y agoWe hope these are Futures; it sounded like GPs farmer may have Forward contracts. If this is the case, it would make more sense for the Farmer to bail on the contract if prices get too far out. (a.k.a. counterparty risk) That would be bad.
- colechristensen 4y agoIf you sold futures for your outputs and didn’t buy futures for your inputs, the results are on you. These are the kind of complaints you get from people who make market bets and end up wrong. You can use futures like insurance to insulate yourself from market fluctuations or you can use them like a casino.
- DarylZero 4y agoYou're spinning it like a matter of choice, but I would doubt that it is. The farmers probably can't sell their product any other way than as futures; and can't buy energy any other way than at the current market price. That would mean the actual choice involved is just the choice to go into the farming business. Not exactly fair to compare that to casino betting.
- colechristensen 4y agoUntrue on both counts. Source: generational small farmer in exile.
- mensetmanusman 4y agoDoes that mean this market is missing an entity that helps farmers buy energy futures?
- colechristensen 4y agoIt isn’t though this person is just guessing incorrectly that it does not exist. Like any business buying supplies, farmers can buy things ahead of time at fixed prices.
- vkou 4y agoIn theory, you are correct. In practice, hedging for increases in fuel prices means buying something like oil futures. Which requires you to be at terminal at some port city 6 months down the line to physically collect the oil/gasoline/whatever that you bought. And then store it for the months before you use it.
- anm89 4y agoThe bigger players hedge all of this in the futures markets. I think this is an understated reason why smaller players struggle to compete in modern agriculture. Maybe a cool startup idea? Managing agricultural hedging for owner operators?
- eszaq 4y agoInteresting idea! Reminds me of a podcast I was listening to: >...if we want to understand the economic geography and political paths and political stability of a country, we need to understand what commodities they started out with. What this led me to do, and how I got started on the path of studying war, actually, is by realizing that some commodities are just hugely volatile in price for various circumstances, and some are not. >So, if we wanted to understand long-term paths of development and why some places weren’t prosperous, it’s because they lost the commodity lottery, and they got a volatile commodity rather than a stable one. https://conversationswithtyler.com/episodes/chris-blattman-whywefight/ https://conversationswithtyler.com/episodes/chris-blattman-w... When I heard this, I immediately thought: "Why don't countries selling volatile commodities just hedge?" I wonder if "commodity hedging for the masses" could be one of those things like mobile money which has a transformative effect on the global poor. (Of course, you could also imagine the government of a country that exports something volatile hedge that commodity and buy the production of its people in lean times in order to keep things stable)
- actually_a_dog 4y ago> the current climate allows price increases and thus an increase in margins. I just want to point out and emphasize that this is literally saying "companies can raise prices right now because they feel like it." This is not how a "free market" is supposed to work.
- GekkePrutser 4y agoFree markets never work when the players get too big to fail. It happened for banks, it happened for tech and it's happening to food.
- actually_a_dog 4y agoRight. And that "when" is actually "always, eventually," because free markets create concentration of wealth (in practice, not in theory, which implies the theory isn't all that useful). So, you might as well modify this to "free markets never work in the long run."
- GekkePrutser 4y agoMaybe they will also go organic and stop being tied to big food though. That would be a good thing. This system sounds really skewed and the farmers will always get the short end of the stick until they get out of it.
- WalterBright 4y agoYou blamed the speculators, but when a farmer locks in long term prices, he is also speculating in futures.
- rfrey 4y agoIf you lock in both your costs and your profits, it's the opposite of speculation.
- WalterBright 4y agoYou're speculating that the price you "lock in" will be advantageous to you in the future. It's the same as buying options in the stock market.