eBusiness Weekly
Clifford Shambare
Part One.
Yes and no; it depends on the circumstances. The major ones of these circumstances are the location of the farming operation. And this location has two aspects to it — that is the economic environment and the geographical location.
As can be expected, there is a whole matrix in which these locations are related and/or intertwined.
To clarify the matter here, let us give examples. Crop production in a developed versus an underdeveloped economy is one.
The other is the production of the same crops in different climatic conditions, for example growing wheat in an extensive versus intensive conditions in the same climatic regime, growing the same crop under arid and wet conditions of the same temperature regime, or one where the differences are temperature, and not soil based, and so forth.
Theoretically therefore, these computations can be almost inexhaustible.
In this article let us divide our environments based on the developed versus under developed economies. In the former the farmer’s challenges are quite different to those of the latter in a number of ways.
For example, he has largely developed from the peasant to the commercial farming stage. But of course, in practice, this is not a clear cut condition. (For example, in some parts of Europe — specifically Eastern Europe there are still remnants of peasant farming conditions).
So he is generally better capitalised. In fact, in some cases he is over capitalised. Here let us continue to analyse the challenges of over capitalisation.
This condition arises from an economically advanced environment in which there are many farm machinery manufacturing firms each vying to beat the others in terms of sales numbers, technological innovation and the like.
Under such conditions, the farmer is inundated by salesmen trying to sell him their wares.
Under those same conditions, it is easy to end up with heavy and/or sophisticated machinery that is more than the farmer’s requirements. Under those conditions the farmer is faced with high depreciation costs that play havoc with his profit and loss account.
In such a case the area tilled or the yield per hectare becomes too small to justify the capital costs, thus rendering the whole farming operation unviable.
Under those same conditions, the matter of economies of scale becomes relevant and paramount.
In the extreme of circumstances, such conditions can become quite stressful to the farmer, sometimes even resulting in farmer suicides. The dairy industry is one where this is common, especially in North America.
Under those same conditions, it becomes logical for whoever is in charge, to devise remedial measures. But in this same process, a number of challenges can crop up. Examples here are over — or even under-production, market gluts, dumping, either locally or elsewhere.
Interestingly but sadly, everyone along that value chain — the middleman, the grain dealer, the miller, the wholesaler, the retailer — is always trying to pass on their losses to the farmer. This is where the government should come to intervene, but how? Is the challenge.
Logically, since the different categories of produce differ in terms of shelf life and therefore storage, and conveyance aspects — each of them requires appropriate handling techniques and relevant equipment for same the intervention strategy should take these requirements into account.
But here there is another aspect that needs to be addressed by the authorities first. This is one of classifying the produce into the relevant categories in terms of strategic importance, and so forth.
For example, cereals cannot be placed in the same category as tomatoes and the like, except in unique cases where the latter have assumed a strategic importance in a given economy.
Looking at the history of the agriculture industry in the (developed economy) environment, we find it assuming a role that is critical to economic development in an all encompassing way.
For example, it forms the base and basis of the whole capitalist system through land/property and the stock markets. Furthermore, a good proportion of the derivatives market — that is, the futures markets of wheat, maize, wool, pork and the like — is based on farm produce.
Then there is the matter of the manufacturing industry and that of the food market(s) in general. So clearly, governments cannot sit back, or as the saying goes — fiddle while the agriculture industry burns. In this respect, developed economy governments have over the years made it their business to be involved one way or the other, in the business of farming.
But because they thrive in an environment in which private capital has assumed a pivotal position in matters of economic growth and development, they have devised intervention methods/strategies that do not overly interfere with the workings of the latter.
Farmer subsidies are the major intervention strategy here.
So it pays us here to look into this creature called (a) subsidy? This is money given to a farmer to keep his operation viable since if he goes broke he will quit farming. Here, imagine a scenario in which there are no farmers.
No food and therefore, no life. But the story does not end with food. There are other farm products in the form of cotton, wool, hemp, rubber, leather, medicines, and so forth.
Then there is the link between farming, land/ property values and the stock markets. Under the capitalist system property values have been known to play havoc with even major economies; witness the dotcom bubble of 2009, the Japanese and the Eastern Tigers’ cases.
In Zimbabwe today, the challenges in the matter of agricultural funding (therein) has its roots in the land reform programme of 2000 in which mortgage bonds were virtually rendered null and void.
On the other hand, the South African capitalists, having taken note of the challenges that could crop up in their economy from a fallout of the Zimbabwean situation, are doing their best to sort out their land ownership disputes with minimum disruption of that (capitalist) system.
Back to the matter of farm subsidies. In today’s world, no farmer could survive without a subsidy. But why and how so?
You see, because of the advanced stage of the world economy, every country trades with every other country.
The range of the goods/products of that trade is enormous. In those circumstances, farm products have somehow become the prime victims of the distortions that occur in that market.
The reasons for this state of affairs are rather complex. So here, it may be reasoned that the criticality of this matter arises from the connection of farm products to Maslow’s hierarchy of (man’s) needs — that is food, shelter and clothing.
It is most probably for these reasons that (that) market has become everyone’s concern. As a result, every government on earth wants to be involved, one way or the other, in the process of determining the prices of the goods traded there.
And by the way, this is not a market that is physically located at some specific point on the planet Earth, so the goods concerned can be stored in warehouses positioned all over the globe, most of them in developed countries.
The latter fact is the point at which the developing countries begin to lose the game. For example the world tea is traded at the London market. And most of the world grain trade is controlled by three American companies vis a vis Arthur Daniel Midlands (ADM) , Cargill and Dreyfus.
It is for this reason that one smart African woman — Eleni Gabre Melani, an Ethiopian, has founded a warehousing company based in Africa — that is Addis Ababa. Whether she will succeed or not, is anybody’s guess. I say this since on this continent, it is quite easy — and it has actually happened in many cases — that some corrupt African leader is paid to disrupt such endeavours.
Naturally, this is a scenario in which the super powers would want to assume a pivotal/ controlling position.
And naturally, politics becomes the medium of conveyance of power in that realm. In this position the latter have drawn up lists of products for inclusion in the subsidy lists in that market. These lists are what are called boxes with the colours blue, green and amber.
As expected, third world countries become the underdogs in that environment. Although there are no directly discriminatory rules against the latter subsidising their farmers, they are closely controlled using some methods that are unsavoury, for lack of a more appropriate expression.
In the New African Magazine Issue No. 441 of June 2005, Stella Orakuwe a Ghanaian journalist and activist details how the manipulation of third world trade representatives is done in what are called green rooms at “unholy” hours at the WTO centre in Geneva, Switzerland.
In this same environment some third world countries, led by India, have gone on to defy those actions by the super powers. In Africa, Malawi and Zambia have dared to take the same stance at some point in time, sometimes with devastating results in which food aid was withdrawn, thereby returning the populace to the begging bowl status.
Interestingly, the food production capacities of those countries improved dramatically after those subsidies were effected, thereby revealing the negative — almost evil — impact of such strategies on the victim countries.
Whenever prices have fallen below a certain level due to the negative forces operating in the said market, the result has been that of a domino effect in some economies, specifically those in the developing world.
Hunger, depressed economic conditions, low employment levels, a reduced capacity (for) governments to support their agriculture industries, and so forth have led to even harsher economic conditions for those economies, hence the domino effect.
Meanwhile, the developed economies may be facing a completely different set of challenges.
This is an environment where, in some cases, their governments may even pay their farmers to stop the production of some products because of gluts in same in the market — a situation that results in food rot, storage challenges and a concomitant rise in storage costs.
So from this discourse it becomes clear that farming is a capricious occupation in which the bigger fish — the grain merchants, will continue to make all the money while the grass roots farmer under peasant or commercial conditions, may only manage to survive for most of the time.
That said, usually the farmer’s fortunes are directly linked to his environment. This is where the separation of the developed and underdeveloped environments comes into the equation.
Up to this point of our discourse we have covered a sizeable part of what happens in the developed economies as well as in the general environment, covering the world market of agricultural products. In the next part of this article we shall direct our focus on our world — the developing world.
Shambare is an agriculture economist reachable on 0774960937
