12 September 2007

2 minute read

Europe

The coincidence of cheap food, cheap energy and low mortgage rates has left consumers in the West with a comfortable and expanding surplus of spare cash, which has been funnelled to Asia, where it has fulled a manufacturing explosion of consumer goods for export.

The pincers on our wallets will provoke a painful adjustment, made worse by the coincidence of a high oil price, itself a contributing factor in the rising farm gate prices. It will mean fewer toys at Christmas and layoffs in the Asian sweatshops.

Not everyone will suffer. Food surpluses in rich countries have been a curse for farmers in emerging markets. The continuing row over the world trade talks in Geneva is in part about the residue of protective tariffs and subsidies that prevent farmers in poorer countries from exploiting their cost advantage by selling us their food surpluses. Yet these barriers have already been substantially removed. Europe’s butter, wheat and barley mountains have been eaten away, the lakes of surplus milk have been sucked dry. There is, finally, an opportunity for efficient food producers to seize an opportunity.
Who will profit? The price of wheat and skimmed milk powder has more than doubled over the past year, but not all producers have been able to take advantage of the dizzying ascent of soft commodities.

To win in this game you must have access to global markets, and British milk producers have been stymied, punished for being stuck in an island market, organised in myriad small cooperatives and locked into contracts with giant retailers. When the world was awash in milk, dairy farmers had no choice but to accept Tesco’s price for their fresh product, which sold at a premium to the global market for milk powder. That has now changed and British farmers have two potential markets: the domestic doorstep and the world - meaning the Middle East, the Indian sub-continent and the Far East, where diets are shifting to include more animal protein.

Source: Times Online