Food for thought

It was great to spend some time with the Gilman Scholars this week, over from the US and hosted here in NZ by Rural Leaders. The topic was food security and having been involved in discussions on this topic in my previous roles, I had a bit to get off my chest. My experience is that it seems to attract people who want to promote central planning “strategies” lots of regulations, and my favourite of all... the need to “educate” farmers. So, my talk was from the basis of someone who had worked the land for 28 years, and less so about steering a ministerial desk for 9 odd months. 

I hope the one message from me was: the market works, we don’t need a “strategy” we have the law of supply and demand. Governments intervening in supply and demand signals will only drive food insecurity. Removing trade barriers, and trade distorting supports, will in the long term benefit all farmers through less volatility in the market. 

I had a few other messages too: read on. 

Firstly, what is food security, a 1000 years ago it was one of my ancestors stabbing away at another of my ancestors, who was trying to make off with some piglets. That is literally the meaning of my last name. These days in most of the world thankfully it’s a little less violent.  But the modern definition seems to be that food must always be:

• affordable and accessible. 
• in steady supply.
• safe to eat.
• ample and nutritious. 
• environmentally sustainable; and
• meet cultural needs.     

I happened to be involved several years ago in the UN discussions around Food Security. A couple of thoughts I took away from that process were – firstly the conspiracy theorists are wrong, the UN can barely organize zoom calls let alone a global takeover. But seriously I was truly shocked at the almost disregard and naivety towards the role of the free market, that I experienced in those forums. I realize that capitalism, market-based economies, and free trade can be dirty words for many that would attend such events. But seriously some of the views on offer, which seemed to be all focused around having food strategies, and having lots of regulations being forced on farmers, and my personal favorite of “we need to educate farmers”. In my view such ideas are probably at best going to achieve nothing, bar waste money, at worst lead to greater food insecurity.   

 So, let’s look at those principles, and I will try to channel my inner Milton Friedman, and make a bit of case as to why a little less intervention is a good thing.  How do we ensure food is affordable and accessible. In my mind affordability is achieving market equilibrium were supply equals demand. If through lots of regulations and imposts on farmers you reduce the ability to supply then you will force prices higher, and unaffordable to many. Put in price controls, then the farmer see’s little value and looks to do something else with their land, or just walk off it, thus reducing supply. If demand for food increases, the price goes up, the farmer sees that signal, looks to increase production to meet that demand. 

Likewise, if demand for a food type is low, farmers will switch to producing another type of food that is paying more because there is more demand for it. It’s called the LAW of Supply and Demand for a reason. it’s not the theory of supply and demand. Trust me this is a far better way of ensuring food supply, than leaving it to a planning committee to decide how many hectares of crop to plant. Stalin, Mao, and Kim Jung Un have all tried the planning committee route and it didn’t work out so well. 

Now you might argue that for the lowest paid they still find it challenging being able to afford food. True, but is that an issue with the market, or more about the need for social welfare, and other supports for those individuals.

Another aspect of affordability and accessibility is ensuring that you don’t have barriers in the way of growing things were there is a comparative advantage in growing them. New Zealand has a comparative advantage in pastoral agriculture, there are some things we cannot grow well here. 

This is where free trade comes in. By removing barriers to trade, those that are most efficient at production will do more, meaning globally food will be more affordable and accessible. Removing barriers to trade will also have other positive impacts in those other principles but I will cover those of with each one. 

 In steady supply is the 2nd of those principles, well this is where free trade is so vital, food production is often very seasonal, so being able to tap into production in a different hemisphere is critical. Another possibly often forgotten part of steady supply, is the infrastructure, particularly cool chains. Having transport and electricity function well is the difference between crops making it to market or spoiling in the fields or warehouses. The often-quoted figure is 1 third of all food produced in the world is wasted. In the western world, it occurs in our fridges, in the developing world, it occurs on the farm or the way to market.

Finally, once again Market principles will also help to drive that steady supply, by having higher prices during those low seasonal production times, it drives the farmer to look at ways to shift their production across more of the year, and drives investment into cool chains, and other infrastructure to meet those needs. I see lots of well-meaning but ill-informed activists often idealizing subsistence agriculture, and arguing against technology improvements, if they truly wanted to help, it would be with improving infrastructure in these developing regions. 

Safe to eat – this is the principle that does require regulations to ensure that people have confidence in that what they buy is safe to eat, this is an area where market failure can occur, but in creating these market regulations we need to ensure that we have the problem definitions correct, we are targeting what we need to target. Because if we go overboard then this can add challenges around affordability and supply. So, balance is critical. But it’s not to say that there are not plenty of market drivers for the production of safe food. Brands take years or even decades to build trust, that trust can be lost within 24 hours, if you were to sell food that wasn’t safe. But mistakes can happen, and systems can slip over time, that’s why having standards, and auditing processes can ensure that systems remain robust. 

One risk I see, is the dilution of auditing processes by bringing in more and more factors not directly related to food safety, be it sustainability or other such factors. I have seen on farm a change in my 28 years of the annual audit being 100% laser focused on plant hygiene, to now having a huge wide gambit of things that must be considered. Whilst these are all also important in this day and age, its important to ensure that the systems for farmers to record their activities are effective, and don’t require multiple data entry, this is definitely a bug bear of mine. I currently have to run 3 different systems of recording for animal treatments, 2 are necessary to ensure we get the right outcomes, 1 is just to keep the auditor happy. 

The 4th principle was ample and nutritious, now I feel like ample has already been covered by steady supply, the same points I made there I would make again. Nutritious however, well that delves into a bit of a culture war minefield of should certain foods be taxed, should we be forcing plain packaging labelling on certain foods, not allowing them to advertise, not allowing labelling claims even if technically correct as it may create a Halo effect. Personally, I would argue that everything in its raw form that leaves a farm has a nutritional value to it. How people put them together in their diet is their choice as an adult.         

Finally, we land at sustainability and fulfilling cultural needs. With cultural needs, well if there is a demand for something, the market will provide. A large number of food processing facilities in New Zealand are Halal certified, it’s not because we need to supply a large number of Halal consumers here, it’s because we have a large number of international Halal customers.

Once again Demand equals Supply.        

Now with sustainability, the assumption for many will be environmentally sustainable, I would argue who has more interest in a farm being able to sustain its level of production without harming the water and soil resources that enable that production, than the family that has farmed it for 4 or more generations and looking to continue that legacy, or the committee in town, that changes it make up every 3 years. Farmers know their land, I look at many of the things I do right now on farm, it will deliver little benefit to me, but plenty to the generation that follows me on that land. In the food security debate, I have heard of many talking about the challenge of climate change and the need to transition from animal agriculture to crops. I would question is that really helping food security, especially nutrition at a global level. 

I would encourage you all to look at the work being done here in NZ by the Riddet Institute on what they call the Delta model, Professor Warren McNab, and Dr Nick Smith (not the Nelson Mayor) though I hope you may have heard from them already. Yes, a switch to a plant-based diet might be able to provide the planet with enough calories, but it won’t provide the nutrition required, and it won’t be as affordable as a diet with the recommended intakes of animal product in them. 

The sustainability that I feel most farmers are concerned by is that of financial sustainability. Globally many farmers would be appalled at my ideas of free trade, and no govt interventions, they would think it would be the ruin of them. In New Zealand, the experience is far from ruining us, but more liberating us. I always recall a discussion over morning coffee with my Canadian boss, back in 1996. “New Zealand farmers could only farm without government support because you’re efficient ehhh” was his view. We got efficient because that govt support sent signals to do things that the market didn’t want. The government paid us to keep ewes on our farms. So, we had 70 odd million skinny ewes on our farms. The market wanted milk powder and lamb chops, we now have around 25 million ewes, and we export nearly us much lamb meat as we did when we had nearly 3 times that number of ewes. 

One of the big financial sustainability challenges for farmers is that of market volatility, and it effects nearly all farmers around the world. End of the day all domestic prices will reflect global prices, there was some good work done by the International Farm Comparison Network back in 2015, around the time of the previous dairy downturn that showed how open your market was just reflected how quickly you followed international prices. In New Zealand it was instantaneous, In Europe it was a lag of about 18 months. The problem when you have lags, combined with calls for govt support, it drags out slumps, it in affect creates more extremes to that roller coaster ride that can be international commodity prices. When you don’t have a lot of free trade, this also adds to that volatility. Consider the example of Dairy, it is one of the most protected food products globally. New Zealand can access around 13% of global dairy consumption at tariff rates less than 10%.

So roughly you might say 13% of the market is roughly the tradeable market that sets global price. Picture the global consumption market as a jug of beer nearly full, and the tradeable portion as a shot glass of schnapps, you can probably picture the setting I was in when I first came up with this example, now let’s say globally production is up by 2%, try pouring that into the jug, might be a little spill, nothing too serious prices will correct a bit. Try it in the shot glass, and it’s all over the floor much like the milk prices will be.      

Likewise, production is down 2%, well the jug still looks very full, might be slight price increase, with the shot glass there will be panic in the market, prices will go up dramatically, you will likely see a huge over correction, and the roller coaster ride goes nuts.  

This is the volatility that makes life difficult for farmers, and when you have a good number who attempt to isolate themselves from that with govt support, they instead just add to it, through delays to market correction. 

In conclusion I just make this plea, Markets work, the freer the better, leave the committees and their strategies to organising Christmas parades. Think long and hard about what might the unintended consequences of market interventions in terms of food security. Will those well-meaning ideas actually make things better or worse in the long term?