Why are we gifting so much to farmers?

Despite announcing yesterday a plan that aims to eradicate mycoplasma bovis from New Zealand, there was no sign of the pro-active release of any background papers or analysis.   We don’t have copies of the relevant Cabinet papers, or the relevant advice from The Treasury or MPI.    Not that long ago, the incoming government talked of its commitment to open government, and now it plans to spend hundreds of millions of dollars of taxpayers’ money –  without, it appears, any additional legislation – without giving us, up front, any of the relevant papers.

Here is the extract from the Minister’s statement yesterday

The full cost of phased eradication over 10 years is projected at $886 million. Of this, $16 million is loss of production and is borne by farmers and $870 million is the cost of the response (including compensation to farmers). We expect to do most of the eradication work in 1-2 years.

Government will meet 68 per cent of this cost and DairyNZ and Beef+Lamb New Zealand will meet 32 per cent.

The alternative option was for long-term management. This was projected at $1.2 billion. Of this, $698 million is the loss of production borne by farmers and $520 million of response costs.

To not act at all is estimated to cost the industry $1.3 billion in lost production over 10 years, with ongoing productivity losses across our farming sector.

We don’t know how any of these numbers is calculated.  I’m not sure what the average price of cattle is, but even if it is $1500, compensation for the cull of 150000 cattle is a long way short of $870 million.  We also don’t know what reasonable probability to assign to the success of the eradication strategy.    That matters, a lot.

But what we can deduce is that given the choice between long-term management and eradication (or doing the nothing), the costs of which would be borne by the industry (farmers), while two-thirds of the cost of the eradication strategy is to be borne by taxpayers generally.    As there appear to be no foreign trade issues (and even if they were, they would be costs to the industry) or food safety issues, it isn’t clear why taxpayers should be expected to meet any material proportion of the costs, when all the benefits will accrue to industry themselves.  It has the feel of the classic line about people being keen, when they can, to socialise losses and capitalise gains.

I’m not unsympathetic to individual farmers (there are quite a few past or present dairy and beef farmers in my wider family) but why isn’t this just an industry issue, in which if the industry regard eradication as the appropriate option that strategy is funded by an appropriate levy collected, say, per head of cattle?   Most of the cattle aren’t any longer in small scale operations (even the average dairy herd size in now 400).  Between the stock and the land ($40000 a hectare, median farm perhaps 100 hectares) and the milking equipment, a typical dairy farm isn’t a small business and the typical owner isn’t poor by any means.  An increasing share of the cattle is in very large business operations.

$600 million here, $600 million there, and pretty soon you are talking serious money.   If there is public money to spend so liberally on health, I’d rather it was spent on human health.  I’m sure there are other pressing needs within the natural ambit of government.  And, of course, there is always the option of returning our own money to taxpayers in the form of lower taxes.

I also don’t purport to understand the politics of this.  Perhaps the government is dead keen not to alienate further the business community and “regional New Zealand”, but this appears to be almost wholly an industry issue, and I’m not sure that mending party political fences with elements of the business community is really a legitimate use of public money.

Perhaps there is a stronger wider public policy case to be made for this intervention?  But if so, it hasn’t been made to the public so far.  Instead, they are just taking our money and giving it to the farmers, to directly benefit the bottom lines of firms in that industry.

44 thoughts on “Why are we gifting so much to farmers?

  1. Of course farm businesses are taxpayers too – and so what I’d be keen to know is the amount of tax collected from these businesses last year as compared to the amount of tax collected from PAYE earners.

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    • “The average dairy farmer is paying less tax than a couple on the pension – raising questions about whether the sector touted as the backbone of the economy is paying its fair share.”
      http://www.stuff.co.nz/the-press/news/5017279/Dairy-farmers-paying-no-tax

      As farm debt is around $60 billion, I guess they do not really pay too much in taxes after paying for fertilizer costs to overseas companies, paying overseas chemical companies for washes to remove fleas and lice, paying overseas companies for antibiotics, paying overseas companies for secondary feed ie Palm Oil kernels and paying Australian and Dutch banks large interest payments etc.

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      • Those numbers were, of course, from a year in the depths of the recession (when dairy prices had plummeted, and there were some real looming financial stability concerns). It would be interesting to see comparable numbers for, say, an entire decade.

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      • Katherine, In the 2013/2014 year PAYE earners paid 41% of the taxes, GST was 33% and corporations which would include Dairy Farms only a small percentage of the 13%. In March 2018, corporations only contribute 17% of the tax revenue but of course they do employ the staff that do pay PAYE. Note that cows do not pay PAYE.

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    • Well Reading an article on interest. Co the other day it appears often the farmers are paying on average less tax than. A retired couple. Those figures would be for the run of poor year’s to be fair.

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  2. One potential reason, and I don’t know if this is what’s going on:

    Suppose the main ways that biosecurity problems can come in are tourists and meat imports. Suppose. I don’t know whether it’s true.

    The optimal biosecurity rules from the perspective of minimising biosecurity risk then contrasts sharply with overall welfare maximisation.

    If you need to pay farmers off for accepting more liberal biosecurity rules, one means of compensating for those rules would be with subsidy in the case that something goes wrong.

    Now I’ve heard absolutely nothing to indicate that m. bovis came in that way. And you could just as reasonably ask why the default isn’t to ignore biosecurity entirely and require that the farmers compensate us for stricter rules.

    But if the default is fairly strict rules, then we could imagine that government purchased a more lenient regime by promising some compensation for downside costs.

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    • Interesting possibility……although it only restates the argument for “let us see the papers, now”. Naively, perhaps, I just assumed this would be one of those cases where government would be keen to have all the material (options, analysis etc) out immediately, but apparently not.

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  3. Yes, although even if over time farmers are paying a fully proportionate share of income taxes, I don’t think it would change the analysis of the economic case for the govt funding this scheme. We didn’t, for example, bail out shareholders of Fletcher Building who were unfortunate enough to hire managers who couldn’t bid or structure a contract properly. Somehow in the NZ political psyche, farmers are perceived to be different.

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    • Not forgetting that the Kiwi Fruit industry was made to wear 50% of the costs when it was struck with the devastating bacterial disease Pseudomonas syringae pv actinidiae(PSA) which was an equivalent destruction of an entire farms vineyard. So why do Dairy farmers get to wear only 32% of the costs?

      Jacinda Ardern is again lying. Non disclosure is a lie. Or is Jacinda simply saying that the Labour is more generous in giving away taxpayer dollars than National was. She has zero respect for taxpayer hard earned dollars at all.

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  4. The compulsory costs (administrative and monetary) to adhere to the NAIT scheme were supposed to give farmers some assurance against such outcomes. As that time and money appeared to have not been spent preventing spread of disease, then the recipient of that cash and provider of false assurances should be fixing the problem.

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  5. DairyNZ publishes details farm accounts. Their average tax payments are in them. I don’t have it to hand right now but it’s online.

    I don’t think National has much of an argument about farmer support given their decisions on: Tiwai Point, South Canterbury Finance, The Hobbit, The America’s Cup, The Sky city Convention Centre and probably many more business subsidies that I’m not aware of…

    I think rent seeking behaviour from our oligopolistic large scale enterprises – and I’m thinking banks, oil companies, some large accounting firms, law firms, retail etc has been a key factor reducing competition, increasing offshore dispersion of profits and weighing on our nation’s performance.

    Is M Bovis any different?

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    • I don’t suppose National will be opposing this subsidy, given their farmer base. And, yes, this subsidy may be little or no worse than most of those you list (I take a slightly different view on SCF), which only goes to my longrunning point that National and Labour are two sides of the same coin, complicit in so many of our national failures.

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  6. quote: “We don’t know what reasonable probability to assign to the success of the eradication strategy. That matters, a lot” /endquote

    ‘Tis a far far better thing to try for 2 years and fail than not try at all

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    • And if the farmers were paying that would seem a perfectly reasonable choice. As it is, we are paying, and if it works it is the farmers who get all the upside. Rational farmers will favour that sort of allocation of costs/benefits. Rational taxpayers may not.

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      • quote: “I also don’t purport to understand the politics of this”

        Politically it is far smarter to at least try the eradication solution, first, and if it fails then fall back on “containment”

        Government has done the smart thing

        Just how big is the dairying industry? We know the export component is $16 billion

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      • $16 billion includes meat and milk. Milk by itself is $11 billion which is now smaller than the Tourist contribution to GDP. The difference is that the tax contribution by tourists is much larger through the collection of GST and PAYE by the flow on spending by wage earners in domestic GDP. Farmers costs go overseas and they pay very little NZ taxes.

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      • Given that corporations paid in March 2018 17% of the tax contribution, Dairy farms are likely only around 5% or less of the tax paid compared to 41% by PAYE and 35% by GST. Note that as most of the milk is exported, GST is zero rated. Therefore most farms would get GST refunds and 5 million Dairy cows do not pay PAYE.

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    • The $16 billion is the export component
      I’d like to know the size of the domestic component so I can get a sense of the total size of the dairy industry and to what extent it should be considered “too big to fail”

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  7. They haven’t covered themselves in glory

    At the outset of NAIT in 2012 …..
    Federated Farmers, a farmers membership organisation, opposed the NAIT system saying that it will impose extra costs on farmers and will not result in any benefits.[2] Farmers also fear that the NAIT scheme will be used to impose a greenhouse gas emissions tax under an emissions trading scheme. A Federated Farmers survey found that 2% supported NAIT and 80% opposed it

    https://en.wikipedia.org/wiki/National_Animal_Identification_and_Tracing

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    • The NAIT system was a dog at the beginning and administratively difficult. Farmers opposed it for many reasons. The tags were a problem and the scanning didn’t work properly. It didn’t help that farmers were suspicious that it was being used as a stalking horse for setting up an emissions trading scheme. Those fears were well based.

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  8. Um, why are taxpayers paying when surely dairy farmers should have insurance? If my house burns down accidentally can I ask for Government money? [ expletive deleted ]

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    • This is more like the government comes along and burns down your house because you have mildew in your bathroom. You would expect compensation in that case.

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      • I don’t have any problem with the farmers whose stock is culled being compensated. The question is who should pay for that. SInce the benefit is solely to the rest of the industry, it seems appropriate that the industry should pay for it ($100 a cow as a levy would raise something like $1bn).

        It isn’t like actions taken in a public health emergency, or a war, when the benefits are pretty widespread.

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      • Yes, health and safety does require you to practically burn down your home without any compensation. Look at the leaky home saga. The government has not been very forthcoming with any compensation. House owners have had to sue Auckland Council for issuing CCC on leaky mildew houses and unfortunately the courts have made Auckland Council responsible which has meant that Auckland Council Inspectors now have to deal with a legal heavyweighted building inspection process to prevent Auckland Council being made the last man standing.

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      • What about all this meth testing and p-labs? The government certainly does not compensate. Now that the threshold have been found to be ridiculously wrong. I would like the government to reimburse me for the thousands of dollars I have spent testing on Meth and P in my investment properties.

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  9. Steady on …. avoid the over-reaction … a cool-headed dairy farmer interviewed this morning said farmers who faced culling will receive a fairly handsome immediate cash payout, from the meatworks while the main costs or losses will be from mothballing their operation for 60 days

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  10. I don’t think it is a question of subsidising farmers.
    It is all about biosecurity.
    Somehow psa entered the country and was not intercepted.It was not growers fault that it arrived and allegedly appears to have arisen through pollen imported from China.
    It should have been intercepted but there has been no clear answer.
    Similarly M.Bovis may have been imported through infected semen. Again the argument is around biosecurity and behind the scenes I bet there is much investigation being carried out.
    The compensation is over the biosecurity question .it is not just a subsidy or handout to farmers.

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    • Biosecurity is a subsidy paid for by taxpayers. The question is why do we waste so much resources on Primary Industries and we allow great companies of the future such as Rocket Lab, NZ rocket technologies pass so easily from NZ ownership to US interests for a couple of hundred million when clearly the technology should be of NZ National interest to keep?

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    • Bad industries should be allowed to fail. That is how we get better industries. If we keep ploughing billions of dollars into subsidies for Primary Industries that contibute very little to productivity and profitability then how do we get to be leading edge and prosperous?

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  11. Even an initial look on Wikipedia shows there are some treatment options (some types of antibiotics apparently work).

    A head of cattle can be a sizeable investment for a farmer.

    It’s not clear to me why, if this disease is everywhere in the world, and causes no concerns about consumption of product, why we would take on this cost to remove the disease at all?

    If it’s just about the industry maintaining levels of production (because there is a production cost to the disease), then I think I agree with Michael that it’s an industry cost for an industry benefit (in terms of protecting production capacity).

    Surely we don’t need to cull herds though? I was listening to some scientist on RNZ this morning talking about it, and he was saying if there’s anything detected in the milk from a farm, go in and cull the herd. Does this mean there are no effective tests for the disease? Seems like a fairly heavy-handed response if most of the herd is not infected to just kill the whole lot.

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    • The PM pointed out two aspects to the option not to attempt eradication – one being animal welfare (i.e., viewing the pain/suffering of infected animals as being morally acceptable) and the other being lower productivity in the dairy and beef sectors in the long run as the bacteria spreads and becomes endemic.

      On the latter, if we are to successfully lower stocking rates (i.e., deintensify dairy production), we need to find ways to improve productivity in that sector. The added cost of managing this disease would have the opposite effect.

      The spread of M.bovis is a reflection of the degree of intensification that has occurred over the decades on dairy farms in NZ. So, deintensification is not only better for the environment but also better for farm systems. It’s a shame we didn’t move toward organic systems/methods years ago.

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      • Is anyone looking at options somewhere on the spectrum in between [a] do nothing, and [b] cull the herd?

        I agree letting the animals suffer with the disease is not justifiable from a moral standpoint.

        But killing infected animals if there is an effective treatment option seems also difficult to justify.

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  12. At last – thankyou Adrien de Croy- the first and ONLY respondent to even make mention of the suffering of the totally innocent animals in all this hideous debacle – it’s always all about the money isn’t it in our new money obsessed NZ culture – a miserable shame in this once proudly successful agricultural country that is now so reduced as to see every long-suffering and over-worked animal as merely ‘an economic unit’ – are these respondents aware that over the past 30 years we have ‘succeeded’ in halving the natural life-span of the average dairy cow – purely as a result of our greed and obsession with the almighty dollar – just saying – Pamela

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    • “In this once proudly successful agricultural country”. I will have to remind you that every nation on earth once had a proudly successful agricultural country but that probably harks back to the days of the Roman Empire for many. I think we must be one of the last 1st world country or even the last 3rd world country that would be claiming pride in remaining the last bastion of a proud highly subsidised agricultural country.

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      • My comment re NZ being a ‘once proudly successful agricultural country’ referred to our earlier high standards of animal husbandry and the fact that most farmers through until the 1970’s still recognised that even though many of their animals were ultimately and inevitably destined for the freezing works, each and every one deserved to live a healthy, stress free, natural life until then – ie: recognising that animals are living, sentient beings and as such, know and feel stress, pain, exhaustion and unnatural living conditions –
        In the end, ‘we reap what we sow’ and while we worship Money as our new God and reduce animals to mere ‘economic units’, we can expect to see the kinds of miserable results we now have – diseases like M. Bovis likely becoming endemic, animal rights groups loudly decrying NZ’s farming standards [to the great detriment of our image internationally],the public becoming shockingly aware of some of our current farming practices [sow crate farmed pigs, hens in battery cages, 3 day old calves kicked around before being sledgehammered to death on concrete floors, sheep transported on ships in disgusting and too often deadly conditions to countries in the scorching Middle East only to be slaughtered there in countries that have NO animal welfare codes at all – not to mention race horses and greyhounds routinely slaughtered if they fail to make enough profit in quick time etc etc – and finally I take real issue with your claim that NZ farmers are ‘highly subsidised’ – farm subsidies went out in the late 20th century – well before any other important agriculturally profitable countries – the USA, France and other European countries still heavily subsidise their farmers – to the rightly felt consternation of our own farmers – this in itself then creates a sense of ‘cut throat’ policies amongst our farmers – Cheers –

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      • Our farmers are also highly subsidised. We just call it by different names such as biosecurity or yield productivity research ie DSIR or irrigation or roading or even disease cull control. These are all subsidies to the industry that yield less than 5% of the Tax revenue but expect taxpayers to pick up 68% of the costs to cull a disease and 100% of the cost of biosecurity etc.

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  13. For ‘getgreatstuff’ – your listed so-called ‘farmers’ subsidies’ are actually normal Government spending for the good of every New Zealander – not just farmers – and as such can hardly be termed ‘farm subsidies’ – where would we all be were it not for bio security measures, DSIR Research, roading infrastructure and yes – disease control – be it human diseases or [inevitably human induced] animal diseases – this country is still an agricultural-reliant country whether you wish to accept that or not – and as such the industry needs as many safeguards as any other industry – these are not ‘subsidies’ at all – for real ‘farmer subsidising’, look at France and the USA’s agricultural policies which have in place subsidies protecting their farmers simply from international competition – ie countries like NZ – which as a consequence, has now become ‘overly efficient’ at the very real cost to the animals involved/used – Cheers

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  14. (A reader attempted to post this comment on the version of this post at Sciblogs. Given that this post has more readers, I’m reproducing it here.)
    Comment:
    I am unconvinced that eradication is even a possibility, let alone that MPI have the ability to oversee this imaginative endeavour. You’d have thought if it could be eradicated, which I don’t, that perhaps the European Union might have worked it out by now…Given it costs their industry over 500 million Euro every year, that is.

    And then there’s the scary reality that, despite MPI’s claims that this disease isn’t a health issue, published literature suggests otherwise. I.e. first isolation of Mycoplasma bovis in 1979, confirmation of transmission to a variety of other species, e.g. chickens.

    After that they might consider the potential human health impacts, given the serious conditions that a variety of other Mycoplasma species have been demonstrated, and/or are suspected to be, implicated in. MPI has confirmed that infected animals are entering the food chain, but refuse to say which slaughter facilities did the dirty work, citing economic concerns for the operations involved.

    I contacted Peter Gluckmann, he suggested I write to the MPI biosecurity board to discuss the issue. They have many board members overseeing this, and only one of them has a science qualification. It’s an undergraduate degree, in forestry.

    It’s sad, I expected more from Peter. Must admit I didn’t expect much more from MPI, on the other hand. Here’s hoping my eye sight is failing me, and I’ve read all of the published literature upside down, or something.

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