Farming and the depression

Is it too early to call it a depression? Difficult to tell, but all the news this month is pointing in that direction. So it is timely that over at the CAP2020 blog, Martin Farmer has written a lengthy post on the impact of the global economic slowdown on farming. In many respects, it’s a case of swings and roundabouts. Commodity prices are down, but so too are key input prices like oil. Consumers have less money to spend, but they still need to eat. Recent spikes in profits provide new money for investment, but bank loans have never been more costly. Governments have less revenue for costly handouts to farmers, but there is talk of a new wave of trade protectionism.

One the biggest casualties of the global downturn is the bioethanol industry, which was built on the prospect of oil prices in excess of $60 a barrel. Bioethanol was profitable for a short time when oil prices were spiking at above $90 but with oil down to around $40 a barrel for the forseeable future, the US bioethanol industry is now entirely dependent upon government subsidies and gasoline blending mandates. The political lobby around bioethanol is so powerful that it seems unlikely politicians will remove these subsidies and the effect of a continued production of corn-based ethanol is to set a global floor price for most arable crops. A similar though somewhat less dramatic story can be told about the EU biodiesel sector.

Farmer concludes his analysis with a call for a “Green New Deal”, defined as additional public spending with the twin aims of jumpstarting the economy and investment in new technologies to reduce greenhouse gas emissions and address the depletion of increasingly scarce natural resources like water. I think that the biofuels boom and bust should warn us against such an approach, especially where agriculture is concerned. I am naturally skeptical about governments picking winners in the field of future green technologies and would rather see a more classical approach to the problem of GHG emissions and resource depletion, such as a carbon tax or a market in emissions permits and the pricing of water use. Any revenue raised but these policies could be used to offset taxes elsewhere in the economy. The effect of such a tax shift would be to stimulate an energy efficiency revolution but would not risk the dangers of powerful lobbies scooping the Green New Deal money and offering very little benefit in terms of climate change, as has happened with biofuels. Farming, as a major contributor of GHG emissions, must not be given any exemptions from emissions control policies. It is regrettable that in most countries (with the notable exception of New Zealand) this is exactly what is happening. Agriculture accounts for 10 per cent of EU carbon emissions yet it has been granted a blanket exemption from the EU Emissions Trading Scheme.

Read The Economic Downturn – The Challenge for Agriculture

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