How to create mega-farms in 2 easy steps

Crikey has an excellent perspective running on the recently announced plan for our government to under-write, with our money, the getting-out by farmers of a game with moving goalposts.

The Murray River irrigation system was installed to maintain a constant supply of water to a huge agricultural area to maintain crops, orchards, dairies, and to drought proof agriculture in the region. And it worked, up until now.

Initially water quotas were hopelessly over-allocated to everyone in the system by a burgeoning bureaucracy keen for income from each unit traded and in which the bureaucracy determines the costs. The idea is that the “most efficient” would have the capital to buy water in lean times and they would yield the most dollars profit per unit of water.

The corporate sector was drawn to higher catchments in Queensland where allocations could be caught and stored from reliable wet season rain. In dry years this leaves little for downstream, and now every flow is captured by a complicated system of lochs, weirs and dams in an effort to sell water to customers, some of whom also capture water for resale.

Any water savings made by piping water do not go back into the river – they have to be traded. That brings us to the package announced by the federal government this week, aimed at buying out “inefficient farmers on marginal land” — it will see even these farms put into more intensive production.

This runs with the same logic that “if you make guns criminal, then only criminals will have guns.”

This, by the by, is another contributor to the crops actually grown – this idea that financial yields are the big payoff. Crikey writer Lionel Elmore comments on the land/water ‘problem’ being a fault of government, rather than farmers. I still think farmers have a responsibility to use resources wisely. Amongst other things, profitable crops do not prepare one for purchasing water during bad times, if those same crops require tonnes of water more than others.

The fault of the government lies in the fact that the current system of water allocation was set up to maximised government revenue, at each level, while taking advantage of the irrationality of individual agents in the market. Eco 1 students, this is Bad Government: government’s intervene to correct irrationality in a market for common resources, not secure money and votes (this is what comes of replacing government with politics).

So to the point of the government’s two recent moves which, embarassingly, I had not connected myself: first, cut off all water allocations to zero – including, along the way, left-over allocations that farmers had thought they’d paid for and secured; second, start offering cash and other incentives to self-identifying ‘inefficient’ farms – those who see into their own future, and see they will not manage to keep their heads above the water they won’t be getting anymore.

Result? Instant horizontal integration. After a fashion. Because ordinary farms will not have the capital, either, to start expanding out over farms far downstream, to which they can apportion the water they’re taking upstream. Who, one wonders, would have that sort of clout? Corporations. The bane of Adam Smith and sensible economic markets everywhere.

With reasonable food prices, it is unlikely that family farmers, with diversified and existing infrastructure, will not be automatically replaced by the corporate sector.

Yet the Victorian and Federal Governments are looking to severely cut water allocations to accelerate this “reform” with zero allocations. It will kill off orchards and vineyards established over decades. This “economic reform” in the form of cash payouts is precisely what taxpayers are being asked to subsidise.

Yes, mega-farm corporations, foreign or existing, or any other corpoation, foreign or existing (or, God help us, Private Equity), can probably anticipate a few deals handing them enormous, horizontally-integrated agri-businesses, in a few months. Economics implications?

First: farms fall into fewer but larger and wealthier hands. Political power also increases. The result will be not less burden of these enterprises on our taxes, but greater. This time, though, our money will given, like the increases in your water and electricity bills this year, to shareholders, banks, etc. Enjoy.

Second: out the other end, will food prices decrease? No. For a start the margins demanded by a family farm are far less than those demanded by fascist suits in air-conditioned offices in Sydney or New York, or their silent partners or shareholders. Half of the reward for a farmer is being on the farm.

Will water allocations become more sensible? Also no. They will appear to become more lucrative, and more efficient, when in fact they will also, like military aid to countries who buy our gunships, be under-written by our tax money. Will ‘the land’ be safer, or used more sustainably? Also, probably, no. Political power of ordinary re-election-chasers, in the face of large agri-businesses, will not be sufficient to halt, or even lessen, the tragedy of our commons (again – this is why Adam Smith did not want corporations ruining his invisible hand).

Which is efficent, if you think about it. Just not, really, in any of the ways we would choose, if given the choice.


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