C_steam

But surely if other states subsidise their product to protect their industry, then the net result is a rise in imports and a fall in exports - balance of payments (IMHO, maybe one of the top three economic indicators) goes INTO phpbb_deficit in a big way.

Not to mention the effect on our industry. At this current point in history, with global markets and emerging economies, there is very little which cannot be imported at a lower price from other countries.

Paul Birch

No, the net effect is a movement in the exchange rates, which keeps imports and exports in balance. The other net effect is a real transfer of wealth from them to us.

That isn't - and cannot be - true. Overall, we export just about as much as we import (if we define imports and exports precisely enough and on an appropriate base they are equal by definition - that is what is called the balance of trade). In fact, most by far of what we consume is produced domestically.

C_steam

In other words, about 60 BILLION a year - admittedly balanced to a great extent by 'services' but as a nation we cannot rely on services - we must be a manufacturing and producing nation.

The current fashion for low consumer prices is underpinned by buying from abroad at prices our own industries CANNOT match - for goodness sake, even supermarkets buy in milk from Poland!!

Anthony Butcher

I don't see cheap food in the Supermarkets. The vegetables, especially, seem quite pricey to me.

The key to reducing the use of unneccesarily imported food is better labelling. If you give people a choice of British or Polish milk, many will choose British. If you tell people how far the food has travelled (foodmiles) many will choose a local product.

Bluemerle

We are only allowed to produce about 85% of milk we need, the rest has to be imported from the EU.

Farmers are fined if they produce more than their quota, and how can we compete with Eastern Europe on prices?

So there at last it was being admitted - that the real reason for the scrapping of the board [Milk Marketing Board] was that it was found to be in breach of EU law, because it protected Britain's dairy farmers against competition from their EU rivals. Under other EU rules, of course - namely the milk quota system - Britain is forbidden to produce as much milk as she consumes, while other countries such as France, Germany and Ireland are allowed to produce a lot more than they can use. The resulting surplus of milk elsewhere in the EU has enabled Britain's supermarkets to buy in cheap, imported milk from abroad, which means they can present British dairy farmers with a knock-down price, take it or leave it, knowing that the Milk Marketing
Board is no longer there to protect them.
--------------¬
New light was recently shed on what has become perhaps the greatest puzzle in British agriculture - the disaster which in recent years has engulfed our dairy farmers. How is it that the most efficient dairy industry in Europe could have been brought to near-terminal collapse, with thousands of farmers forced out of business every year (numbers have halved since 1997, to below 20,OOO)? How is it that supermarkets can squeeze down the going price for milk to below the farmers' cost of production, but then charge their customers more than twice what they pay for it?
It does not usually take long for any discussion of these mysteries among farmers to get back to the black day in 1994 when a Tory government abolished the Milk Marketing Board, which could use its monopoly clout to ensure that milk was sold on to the supermarkets at prices which gave farmers a fair price for their product. One of those most active in lobbying the then-agriculture minister William Waldegrave to scrap the board was Chris Haskins, then running Northern Foods, a major milk-buyer. Another, rather more oddly, was David Naish, then president of the NFU. The reason given at the time for bending to their pressure was that it was simply time for milk production to be opened up to the free market, which would benefit everyone, consumers and farmers alike.
But on a recent BBC Farming Today, Haskins came up with a fascinating new slant on why the MMB was abolished. Asked by the ineffable Anna Hill whether he would like to see an end to the "state aid rules" which prohibit 'monopolistic organisations' (she actually meant 'competition rules', but no matter), Haskins replied "no, because if they are monopolistic within one state that is against the rules of the single market. That is why the Milk Marketing Board had to go ten years ago, because it was a national monopoly, which could use its powers to undermine competition coming in from outside Britain - that is the spirit of the single market".
So there at last it was being adm itted - that the real reason for the scrapping of the board was that it was found to be in breach of EU law, because it protected Britain's dairy farmers against competition from their EU rivals. Under other EU rules, of course - namely the milk quota system - Britain is forbidden to produce as much milk as she consumes, while other countries such as France, Germany and Ireland are allowed to produce a lot more than they can use. The resulting surplus of milk elsewhere in the EU has enabled Britain's supermarkets to buy in cheap, imported milk from abroad, which means they can present British dairy farmers with a knock-down price, take it or leave it, knowing that the Milk Marketing Board is no longer there to protect them.
But the news isn't all bad. That keen Europhile Chris Haskins has of course been elevated to the peerage as Tony Blair's chief adviser on agriculture. He moved on from Northern Foods to become boss of Express Dairies, and when he stepped down from that, he was succeeded by his old friend Sir David Naish, who was able to see the firm eventually taken over by the Danish giant Aria. So everyone it seems has come out well ¬except those 20,000 dairy farmers who have been forced out of business.

This was an e-mail sent by a friend in April.

Our youngest daughter
brought back 42 tonne lorry loads of cartons of milk from France, all marked Sainsbury - and heaven knows where it came from. We know at that time the French were buying milk from East Europe at 7p a litre, and selling it on to us at 11p a litre. In case anyone doesn't know no UK farmer can produce milk profitably at less than 18p a litre, which is just above the break even point for the largest and most efficient farms.

Courtesy Private Eye 14th April

Until now the biggest robbery in British history was the £26m stolen by the IRA from the Northern Bank. But this has put Rosa Klebb (aka Margaret Beckett) and her officials at the Department for the Elimination of Farming and Rural Affairs (Defra) on their mettle. They have now determined to snatch the record with a cunning plan to steal no less than £600m from England's dairy farmers.

In September 2003 he EU's farming commissioner Franz Fischler unveiled his much vaunted reform of the Common Agricultural Policy (CP). Instead of subsidizing production, farm payments would in future be based on the size of the land a farmer owns. This took a step further the changes begun under the previous much vaunted reform of the CAP under commissioner McSharry. Under this earlier reform, Brussels drastically cut back on subsidies given to arable farmers and others by intervention schemes, but compensated them for what they had lost under various new forms of subsidy such as the notorious IACS (for "integrated administration and control system").

One sector not included in McSharry's 1992 reform was the dairy industry,
which continued to operate under a scheme based on intervention prices. So when Fischler came up with his plans in 2003, it was decided to bring dairy farmers INTO phpbb_line with other recipients of subsidies by ending their
intervention scheme and compensating them by means of a special new
arrangement known as the "dairy premium".

Under this, according to the new regulatory law promulgated by Brussels,
the dairy farmers of England would be entitled to a total of 600m between
2005 and 2012, based on the amount of milk quota they held on 31 March
2005. But when Rosa and her officials saw this £600m specifically
earmarked for dairy farmers, the temptation was too much. Unlike their
counterparts elsewhere in the EU, including those in Scotland and Wales,
they decided to ignore the law laid down in Brussels and simply add the
£600m to the general EU farm subsidy pot. Thus most of the money could be handed over to the barley barons and other arable farmers who have always got much more out of Brussels subsidies than anyone else.

When the dairy farmers cottoned on to this daylight robbery they were so
angry that, through Charles Hold, a Lincolnshire consultant, they took
legal advice. This confirmed that Rosa's refusal was a clear breach of the
law. So on 14 January, through the Bristol firm of Burges Salmon they sent her a copy of the QC's opinion, suggesting that if she didn't change her mind, they would apply to the courts for a ruling.

Rosa still hasn't bother to acknowledge receipt of their letter. But on 26
January Brussels issued an amendment to the original regulation which the lawyers fear may give Defra the power to do with the money whatever it likes. In other words, having been caught breaking the law, Defra may have been retrospectively let off the hook by its friends in Brussels, making a mockery of the original purpose of the dairy premium and leaving England's dairy farmers £600m the poorer. But they are still expected to compete with their Scots, Welsh, Irish and other EU counterparts, who will receive the special dairy subsidy as planned. yet another nice one, Mrs. Beckett.

Muckspreader.

Paul Birch

Not merely "to a great extent". Trade balances. It cannot do otherwise. That's what trade means. Foreigners buy our goods and services. That gives us the money to buy goods and services from them. But there's no reason goods and services have to balance separately. Why should they? Why should we knock ourselves out trying to be a "manufacturing" nation if we can make more money selling services? Services are productive no less than manufacturing.

Probably, if we had a free market in this country (and free trade externally) the balance of domestic production would shift back towards manufacturing (especially the manufacture of capital goods). But whatever the final balance, it would be that which gave us the best deal overall.

It is absurd to point to the workings of a "market" distorted by massive intervention, coercion, over-regulation, politicised inequity and downright robbery as if that could somehow be an argument against free trade.

C_steam

I don't follow that Paul. I would have thought that it is perfectly possible, if unacceptable, to have a net inflow or outflow of trade.

Aren't all the strongest economies manufacturing economies? Surely services are volatile and in fact are a diminishing part of the UK.

But I don't see how if the UK became a 'free market' that the "Coercion, over-regulation, politicised inequity and downright robbery" on our supermarket system and in the systems in place in suplier countries suddenly go away.

I still have not seen anything that answers my concern - specifically, that becoming a 'free market' country suddenly waves a magic wand for our agriculture, fisheries and manufacturing industries.

Paul Birch

No. It's logically impossible. A trade is the exchange of one economic good for another. Trade can't be one way (a one way transfer isn't trade, it's a gift or a theft). Anyone trading goods or services is getting in exchange something he values correspondingly. That something may include all sorts of intangibles and "invisibles", like goodwill, security or liquidity, but those are still economic goods and rightly part of the balance of trade.

The balance of trade is like the balance sheet of a firm; if the double-entry book-keeping doesn't balance at the bottom, the accountants have made a mistake. It has to come out square.

No. Oh, they engage in some manufacturing (and Britain too has a large manufacturing sector), but they don't have to make a fetish of it.

No. The opposite is true. The more advanced an economy the less it tends to rely upon primary production (mining, farming) in favour, first of secondary and tertiary production (construction and manufacturing), then later of the more sophisticated services. This economic trend is well documented, though I believe exaggerated by the growth of the welfare state, which provides "services" at a cost far in excess of their market value and thereby distorts the statistics (this is why we might expect some shift back to manufacturing on replacing the welfare state with a free market).

The absence of such things is the definition of a free market. And what happens in "supplier countries" is none of our business.

Whoever said it did? There is no magic wand. There is, however, a hidden hand. In a free market everyone is thinking about how to make mutually beneficial trades without wronging any third parties; the net effect is Pareto optimisation of the economy; that is a gradual re-arrangement of holdings, capital and labour utilisation, and consumption and investment, for so long as any such rights-respecting re-arrangement can make anyone better off. In the Pareto optimal limit, to which the hidden hand (actually the resultant of the individual efforts of every player) naturally draws the free market, there is no way of improving things any further.

I don't know precisely how our industries would end up in a free market (nor does anyone else) and I don't really care. All I need to know is that they would tend to end up in whatever arrangement proved best, the market being the only procedure by which sound information on such matters can be generated.

C_steam

Thanks Paul, you've been very helpful - can you point me to any good texts on this subjetc?

Paul Birch

I strongly recommend Henry Hazlitt's Economics in One Lesson. Everyone should read it. David Friedman's Hidden Order, which is more recent, is good too.