Wednesday 21 August 2019

Ceteris Paribus

From here

Me: "[famers] can put up greenhouses anywhere (as long as it's not too steep). Mushrooms grow underground."

Bayard: "You still have to grow plants in something. If it was more economical to grow fruit and veg in polytunnels, everyone would be doing it already."


Well not necessarily.

The point was that dairy farmers claim to be worried about Brexit, for some reason they say milk prices will fall if they can't export it as easily, ignoring the fact that the UK might well be importing less milk and milk products as well, so it would largely cancel out and might even go in their favour.

But let's assume they are right.

The economics is this:

At present, with milk prices as they are, the most profitable use of a certain field is dairy. Putting up polytunnels to grow fruit and veg is less profitable. More income but more expenses. So the rational thing to do is dairy.

If milk prices fall sufficiently, dairy will less profitable or even loss making. At which stage, polytunnels and fruit and veg is the more profitable alternative. Probably not for Welsh hill sides used for insanely unprofitable sheep farming, but the best use for those hill sides is just let trees grow on them (or whatever grows naturally on Welsh hill sides).

Plus I'm not sure Bayard is even right. Take a train across the Netherlands and the entire countryside (the small gaps between towns) appears to be covered in polytunnels. And, despite being such a small country, the Netherlands is the second largest food exporter in the world (the article has a photo of the one single field not covered in polytunnels or surrounded by housing).

34 comments:

Bayard said...

The Netherlands is mainly, if not entirely, drained river delta, the best and most fertile soil there is.

From Wikipedia: The agricultural area used (in the UK) is 23.07 million acres (9.34 million hectares), about 70% of the land area of the United Kingdom. 36% of the agricultural land is croppable (arable), or 25% of the total land area.

So unless you import the growing medium, which is much more expensive, you cannot grow fruit and veg in polytunnels on the 64% of agricultural land which is used for grazing animals.

Mark Wadsworth said...

B, you are still missing the point. Look up Ricardo's Law of Comparative Advantage.

Whether Dutch soil is better or not is by the by (if it's so great, why the polytunnels?).

Point is, polytunnels would be more profitable (relative to dairy) if dairy becomes less profitable.

Dinero said...

Greenhouse crops are not grown in soil see these kinds of operations.
https://www.youtube.com/watch?v=rWKAY9mI0xc
https://www.tangmere.co.uk/pepper-production-process/

Also relevant is that market economics don't easily apply to agriculture, as it is a government policy and is deliberately isolated from market effects by the CAP.

https://fullfact.org/economy/farming-subsidies-uk/

Mark Wadsworth said...

Din, thanks for links. Brilliant!

Dinero said...

Not grown in soil, i.e. not planted in the ground.

Mark Wadsworth said...

B, you did another diagonal comparison.

Don't compare British soil with Dutch soil. Compare Dutch fields with Dutch polytunnels. Which is more profitable/ productive?

mombers said...

Milk is an interesting sub story in the clusterfeck of the agriculatrual 'market'. It's in secular decline as more and more people go vegan and more and more discover low level lactose intolerance. I love milk but two of my kids definitely have a slight intolerance. Cheese and other more processed dairy is fine but take out milkshakes, cereal, tea/coffee and milk demand is on a downward trend and we should not be trying to hold back the tide.

Mark Wadsworth said...

M, poor kids. Do they take tea and coffee black or do you buy them soya-almond-whatever milk?

Bayard said...

Din, I realise that if you are not using the soil, then all you need for growing things in polytunnels is land, any land. As I said in my comment above "So unless you import the growing medium, which is much more expensive, you cannot grow fruit and veg in polytunnels on the 64% of agricultural land which is used for grazing animals".

"Whether Dutch soil is better or not is by the by (if it's so great, why the polytunnels?)."

The polytunnels improve the microclimate, not the soil. You don't have to import the growing medium in the polytunnels if you have good land to start with. This makes polytunnel growing a lot cheaper.

Also, the Netherlands lie to the south of the UK and so enjoy more sunshine than we do. Thus polytunnels are more effective there.

"Point is, polytunnels would be more profitable (relative to dairy) if dairy becomes less profitable."

Well yes, but that doesn't necessarily make polytunnels profitable. Again, if it was that easy, everyone would be doing it and the south of the UK would look like the Netherlands. Farmers aren't making tiny to no profits doing dairy out of some hidebound sense of tradition. Farmers tend to grow whatever they think might make them money, hence the Pork cycle https://en.wikipedia.org/wiki/Pork_cycle . If the south of England isn't covered in polytunnels, that probably means that there isn't any money in polytunnels and if dairy becomes unprofitable, there still won't be any money in polytunnels.

Bayard said...

"Ricardo's Law of Comparative Advantage."

Yup, the Netherlands have beer soil and a better climate than us, so, as you would expect from the Law, they grow lots of vegetables and export them to us and we grow lots of milk and, presumably, export it to them. However that doesn't mean that if they decide to get their milk from somewhere else and our dairy farmers all go bust, then we can then grow vegetables at less than the cost of importing them from the Netherlands.

Dinero said...

> Bayard

Just because you don't see something that does not mean a country is no good at doing it.

Bayard

"If the south of England isn't covered in polytunnels, that probably means that there isn't any money in polytunnels and if dairy becomes unprofitable, there still won't be any money in polytunnels."

No that does not explain the incidence of polytunnels.

The word comparative in the phrase comparative advantage does not compare one country to another country it compares one production to another production in the same country. The country does what it is best at regardless of its efficiency compared to another country.
If the conditions change , including the cost of exporting then that calculation changes.

In summary just because you don't see something that does not mean a country is no good at doing it.

Mark Wadsworth said...

Din, thanks for back up.

Bayard said...

"The word comparative in the phrase comparative advantage does not compare one country to another country it compares one production to another production in the same country."

Is that why it says in the Wikipedia entry :"David Ricardo developed the classical theory of comparative advantage in 1817 to explain why countries engage in international trade even when one country's workers are more efficient at producing every single good than workers in other countries. He demonstrated that if two countries capable of producing two commodities engage in the free market, then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that there exist differences in labor productivity between both countries." ?

"In summary just because you don't see something that does not mean a country is no good at doing it."

I never said it did. I was saying that if you don't see something then that suggests there is no advantage in doing it. In our case, there is no advantage in us producing fruit and veg in polytunnels when the Dutch have better soil and a better climate. They have the comparative advantage. Either that or all British farmers are too stupid to see a money-making opportunity when it is in front of them.

Dinero said...

" In our case, there is no advantage in us producing fruit and veg in polytunnels when the Dutch have better soil and a better climate. They have the comparative advantage. "

No that scenario is not a case of Comparative Advantage that is called a case of Absolute Advantage.

What a country does best is not affected by what other countries do best.

Under the current conditions British farmers do something, when they change they do something else under the new conditions. That is what Marks post was pointing out. -

"At present, with milk prices as they are, the most profitable use of a certain field is dairy. Putting up polytunnels to grow fruit and veg is less profitable. More income but more expenses. So the rational thing to do is dairy.

If milk prices fall sufficiently, dairy will less profitable or even loss making. At which stage, polytunnels and fruit and veg is the more profitable alternative.

Comparative Advantage.
The wikipedia description is correct up until the words "provided that there exist
differences in labour productivity between both countries" which is completely wrong.

The correct statement would be "Provided that the hierarchy of productivity for different products within a country, is different to the hierarchy of productivity for different products within a different country.

In summary -

The comparative advantage of producing product A compared to B = (international price ratio A/B)/(domestic price ratio A/B)

Besides that, the quotes in the original post said that farms produce milk because the milk price is high, which is outside of the analysis of Absolute Advantage or Comparative Advantage.

Bayard said...

"If milk prices fall sufficiently, dairy will less profitable or even loss making. At which stage, polytunnels and fruit and veg is the more profitable alternative."

That statement is true even if both dairy and polytunnels are a loss-making use of the land, so long as dairy is will make an even greater loss than polytunnels. However, if both are loss-making, it makes no sense for British farmers to switch to polytunnels, if they cannot make money from dairy, when dairy becomes loss-making. The comparative carries no adjectival weight. The absence of polytunnels across southern England rather suggests that this is the case, i.e, that dairy is not just more profitable than polytunnels, but that polytunnels are not profitable at all, especially when they are not placed on arable land and the food medium needs to be imported.

I'm not going to argue about Ricardo's Law of Comparative Advantage, because I only looked at it when Mark suggested I do so. If you think the Wikipedia entry is wrong, perhaps you should edit it so that is correct and people like me are not misled.

Dinero said...

You do not see cows all over southern England either.

The Netherlands are not South of the UK they are North of Southern England, Kent etc, and South of Manchester.

There is polytunnel farming in the UK

This operation is in Kent.

https://www.youtube.com/watch?v=rWKAY9mI0xc

Sobers said...

You can't grow fruit and veg in heavy clay soils, or ones with lots of stones, or ones that are too thin. Fruit and veg growing usually takes place in places with deep, fine, fertile soils, regardless of whether its in a polytunnel or not. So the limiting factor is the soil type (and the climate - fruit particularly needs areas not prone to frosts). So no, you can't just whack up a polytunnel and expect to start growing fruit and veg, you'll go bust pretty sharpish if the soil and climate aren't right. As fruit and veg growing is relatively profitable, pretty much all the areas suitable for it are already doing it, or growing something else even more profitable (such as heavy yeilds of arable crops/potatoes/root crops etc). The areas that are grassland are doing that because there's not much else the soil and climate will allow.

Bayard said...

"You do not see cows all over southern England either."

So? I didn't say you did. The point is that you do see polytunnels all over the Netherlands.

"The Netherlands are not South of the UK they are North of Southern England, Kent etc, and South of Manchester."

Fair enough, then it will be the soil, then.

"There is polytunnel farming in the UK"

Again, so what? Not to the extent there is in the Netherlands. Some of the UK's soil is as good as that in the Netherlands, but very little of it and what there is is already used for growing fruit and veg, not grazing cows.

Sobers, don't you just love it when townies tell us country folk we're doing it all wrong.

Dinero said...

If on the international market the prices are apples 8 pence, tomatoes 6 pence and domestically the production cost is apples 10 pence, tomatoes 11 pence then the country grows apples and sells apples to buy tomatoes. Therefore the fact that it is observed that the country does not grow tomatoes does not mean the country cannot grow tomatoes.

Mark Wadsworth said...

S, B, for sure, farmers are doing their best. But if demand for and price if milk fall, surely they won't just leave the fields idle? That's the point. Plenty of dairy farmers have gone out of business over the years, what happens on those fields now?

Din, ta for back up.

Bayard said...

"Therefore the fact that it is observed that the country does not grow tomatoes does not mean the country cannot grow tomatoes."

Correct, but the fact that it is observed that the country does not grow tomatoes does suggest that the country cannot grow tomatoes profitably.

Bayard said...

"Plenty of dairy farmers have gone out of business over the years, what happens on those fields now?"

I was wondering that, too. Is the Set-aside scam still in operation?

Mark Wadsworth said...

B: "... but the fact that it is observed that the country does not grow tomatoes does suggest that the country cannot grow tomatoes profitably."

Wrong on all counts. Look it up and think about it. A few things spring to mind...

1. The only thing you can infer from Din's scenario is that the country is more efficient (or less inefficient) at growing apples than anything else, including growing tomatoes.

2. Is the country growing apples 'profitably' at all? Arguably not, but as the choice is abandoned fields and rural unemployment, the country makes the best of a bad job. At least it gets something, and something is better than nothing.

3. People in the country need/want apples and tomatoes. They have a choice - make a 2p loss on apples or make a 5p loss on tomatoes.

4. What happens if world price of apples falls to 2p and world price of tomatoes stays at 6p? Even though costs have not changed, farmers in the country would the probably start growing tomatoes instead of apples. Better to make a 5p loss on tomatoes than a 8p loss on apples.

Mark Wadsworth said...

B I was wondering that, too."

Maybe they are doing set aside. Just a likely, they are putting their fields to some other use.. something that was less profitable than dairy before milk prices fell but now is more profitable than dairy. What that 'something' is, depends on where in the country and what the fields are like.

I said "grow fruit and veg" as an example of something that wasn't "dairy" and you decided to get bogged down in the intricacies of relative soil quality in the UK and NL, which was a complete waste of all our time. This is about economics, not soil quality.

Sobers said...

"Plenty of dairy farmers have gone out of business over the years, what happens on those fields now?"

A large amount of ground, especially in the south of the UK has either been removed from agricultural production entirely (for example my immediate farming neighbours are a farm visitor centre, several solar farms, a sports ground and 2 farms turned entirely over to equestrian uses) or are what I would call marginally farmed - ie maybe have one crop of hay or silage taken off it just to tidy it up but no animals ever use it. Even my farm has large areas that are not used for food production as I grow grass to make hay for horses. All farms also have to have what are known as EFAs, or Ecological Focus Areas. This basically means for every 100 acres of arable land you farm, 8 acres much be removed from production, left fallow. So given there are I think about 8m arable acres in the UK, that means approx 600k acres are being removed from production. But its done via lots of very small areas, field margins etc, so you don't see whole fields left bare.

All of this means that while lots of farms have stopped production, other factors have meant there isn't large amounts of land just slowly reverting to scrub as its not being used for anything.

Lapsed Agnostic said...

Apologies for coming late to the debate. As I understand it, Mark is saying that dairy farmers can easily switch to arable / fruit & veg but don't because currently it would be less profitable for them to do so, but if we leave the EU on WTO terms it might become more profitable; whereas Bayard is saying that they can't do so because of land issues.

My view is that most of the worst performing dairy farms could profitably make the switch to arable (in the absence of issues such as land being too steep / access roads not being wide enough for combines etc) - and perhaps to fruit & veg provided they can acquire sufficient minimum-wage labour - whether we're in the Single Market or not. This is because, despite getting similar farm-gate prices for their milk (roughly 30p/litre), the worst performing dairy farms are loss-making without government handouts.

Whilst the average dairy farm in a UK sample - which may be slightly skewed towards the most profitable producers - made around £380 profit per cow (before subsidies) in FY 17/18, there's huge variation among them, ranging from profits of £925/cow for the 10% most profitable farms to losses of £330/cow for the 10% least profitable ones, which must only be commercially viable with (huge) subsidies - probably higher than the average sheep-based hill farm.

However, looking at the figures (see: https://www.fwi.co.uk/business/business-management/high-costs-push-down-dairy-profit-forecasts - fairly easy to follow for the non-accountants) I reckon most of the bottom 10% could become profitable without subsidies simply by reducing their feed and energy costs in line with those of the top 10%: there should be easy arbitrage opportunities if you can work out where the best farms are buying their feed and are able to transport it to the worst ones - and/or know where to find a business-aimed version of Uswitch.

So all in all, if the less profitable dairy farms don't appear willing to take simple steps to increase profitability by themselves - or in the worst cases even make any profit at all - preferring instead to eke out a living on subsidies, they're hardly likely to change their entire type of farming at the drop of a hat - even though as Mombers says, dairy, and large livestock farming generally, is almost certainly in secular decline in the West, not least due to the AGW theory/em (delete according to preference) currently gaining traction. They might be more inclined to consider it though if you were to substantially reduce their subsidies - or even take them away altogether. If we do leave the EU - whether or not we leave the Single Market - at least the government has that option.

Hope reading all of the above has been of some vague interest.


LA

Bayard said...

"This is about economics, not soil quality."

The point about soil quality was that it determines the economics of what you grow. Time was wasted because you and Dinero seemed incapable of hoisting that point on board. As Sobers points out, the alternative to dairy is often not using the land at all.

Mark Wadsworth said...

S, thanks, makes sense.

LA, agreed, but let's not get bogged down in arguing over soil types :-)

Dinero said...

"Hydroponics is the growing method of choice in a modern Dutch greenhouse."
https://dutchgreenhouses.com/technology/hydroponics

For those who are interested, Netherlands, which is north of South England and exports tomatoes, does not use soil, they use hydroponics in Greenhouse growing. According to the site https://dutchgreenhouses.com/technology/hydroponics.

Bayard
"..fact that it is observed that the country does not grow tomatoes does suggest that the country cannot grow tomatoes profitably"

That is wrong.
A country could be the best country in the world at growing tomatoes but choose not to, because they are even better at growing something else or , because they choose to grow something else, because of international market prices, absolute or comparative.

Dinero said...

"Hydroponics is the growing method of choice in a modern Dutch greenhouse."
https://dutchgreenhouses.com/technology/hydroponics

For those that are interested, Netherlands , that are north of South England and export tomatoes do not use soil, they use hydroponics in Greenhouse growing. According to the site https://dutchgreenhouses.com/technology/hydroponics.

Bayard
"..fact that it is observed that the country does not grow tomatoes does suggest that the country cannot grow tomatoes profitably"

That is wrong.

A country could be the best country in the world at growing tomatoes but choose not to, because they are even better at growing something else or , because they choose to grow something else, because of international market prices, absolute or comparative.

Lapsed Agnostic said...


Thanks for your sentiments Mark. The point I was trying to make is that in the UK there seems to be massive variation in profitability amongst farms that are essentially doing the same thing, so concepts like comparative advantage are pretty much for the birds in that instance. I'd imagine the same is true of most other agricultural sectors - in which case, in general, either you're farming efficiently and profitably, or you're not and relying on subsidies.

I'll leave it up our generous host whether or not to publish the following:

In my view, soil quality and crop yields might be of some interest to LVTers because the higher the yields that farmers can get from a given area, the less home-ownerists can justifiably assert that land shouldn't be taxed and/or built on since it's needed for the nation's food security. (I know that under YPP proposals farmland either wouldn't be taxed or only at a lower rate than for residential property, but see how the powers-that-be deliberately attempt to confuse and scare people about LVT with repeated references to "a tax on your garden!!" etc).

Anyway, as regards Bayard's & Sobers' land quality issues, if you're a farmer with a vague idea of what you're doing like Tim Lamyman in Lincolnshire and Rod Smith in Beal, Northumberland, with a bit of help from your agronomists, not only can you grow arable crops in the UK on medium-to-poor (Grade 2-3) land - at altitudes of nearly 500 feet on stony chalk and latitudes of nearly 56 deg N on heavy clay respectively - you can grow world record breaking yields of them (e.g. 16+ tonnes/hectare for feed wheat - as compared to average annual UK wheat yields in the best years of ca. 9 tonnes/ha).

The secret is largely to do with making sure that sufficient trace element nutrients (iron, zinc, boron, manganese etc) are available for the crops, not that that's actually been a secret since von Liebig's Law of the Minimum was discovered in the 1820's (note for pedants: that was really the work of Karl Sprengel) - plus, generously, rather than putting up large screens around their fields and making their farmhands sign non-disclosure agreements, Messrs Lamyman & Smith appear happy to inform rival growers, and indeed anyone who's interested, about exactly what they're doing via a well-known video-sharing site (see https://www.youtube.com/watch?v=960rAjMRrKc & https://www.youtube.com/watch?v=taYVlhW2vMo - warning: contains plenty of agro jargon). As Tim points out in the vid, increasing yields by just a couple of tonnes per hectare can send your margins "through the roof".

Lastly, with regard to the polytunnels, since crops undercover are generally more profitable than ones grown outdoors, I think that the main reason that you don't see large polytunnels all over the Home Counties etc is probably that, as with houses, it's difficult, if not impossible, to get planning permission for them. If polytunnels can be profitable for soft fruit in Herefordshire (where, in view of importance of agriculture to the local economy, the council generally turns a blind eye to the many that don't have the requisite permissions) - albeit with mostly Eastern European labour - they'd almost certainly be even more profitable in Hertfordshire: closer to big markets; easier to recruit a young, foreign workforce who can enjoy exciting times in the capital at the weekends, rather than being stuck in the back-of-beyond etc. But then I'm just a townie, so what do ah know.


LA

Sobers said...

As an example, in my area, there used to be lots of small dairy farms, indeed one of mine produced milk within my lifetime. But there's hardly any left now, and the one or two that are probably produce as much milk as all the little ones for several miles around used to combined, but from a massively smaller area due to increased production per cow.

Also dairying is probably one of the best placed farming sectors to survive in a post Brexit zero subsidy world, the stats show that subsidy is a very small % of dairy overall profits. Whereas livestock production is entirely unprofitable without subsidy, with arable somewhere between the two. And you certainly can't put polytunnels on the welsh mountains and other marginal land where livestock production is pretty much the only game in town due to lack of soil/topography for growing anything other than grass.

Bayard said...

LA, thanks for pointing out that the main reason why farmers aren't growing fruit and veg already instead of dairy is that they are too stupid or stick in the mud to make the change.

Lapsed Agnostic said...



Thanks for your reply Bayard. The main issue I have with you and Sobers is your contention that it's not possible for farmers to profitably grow crops on dairy pasture in the UK without importing vast amounts of topsoil from the Fens or the Polders - even though in most cases it would make no economic sense for them to switch to arable, as dairy is on average much more profitable at the moment (although there's huge variation). Indeed, perhaps the question to ask is why haven't more arable farmers - even those producing record-breaking yields - turned to dairy? Besides a reluctance to completely change the habits of a lifetime, there could be other reasons for that, not least them not wanting to take the not completely insubstantial risk of being seriously injured or worse by their livestock (see this blog passim).

If we leave the Customs Union as part of a no-deal Brexit, it's possible that arable will become more profitable than dairy, but only in the unlikely event that we significantly reduce or scrap external tariffs (and non-tariff barriers) on dairy produce, giving low-cost foreign competitors access, whilst keeping them in place for grain. On a longer timescale, another way that this situation might arise is if large numbers of people in the UK decide to go vegan in an attempt to mitigate putative AGW, since by my back-of-fag-packet calculations, despite what official figures say, methane (much of which is produced by cattle) is responsible for almost as much greenhouse gas emissions as CO2 on a 20-year basis. Lactose intolerance (real or perceived) isn't so much of an issue as lactose can be fairly easily removed from milk.

On a related note, if our generous host will again grant me the indulgence, I'm sure loss-making sheep farmers can grow fruit & veg profitably on many (ideally south or west-facing) Welsh hillsides, since tractors are generally much more powerful these days - which is why a lot of potato growing has been able to move to undulating Herefordshire from eelworm ridden East Anglia, case in point Tyrells crisps - and it appears to be perfectly possible to grow veg profitably outdoors at 2000 feet up and 62 degrees N where not a month goes by without frost - and with only minimal start-up grant from the authorities. If you don't believe me and have an idle hour available during the weekend, you could do worse than have a look at this inspiration from the (usually) frozen north - https://www.youtube.com/watch?v=ylvnyls0pdQ

I believe the average age of a European farmer is around 60 now, so some of them can perhaps be forgiven for being not entirely on-the-ball with regard to overheads, or a bit stick-in-the-mud. According to an article I read in the Funday Times magazine a few months ago, in the next 10 years an area of EU farmland the size of Italy will begin to revert back to nature - I'm sure the likes of Monbiot will be pleased, though perhaps not all of the projected extra billion people in the world who'll be sitting down for dinner at that point - because unfortunately we don't seem to have millions of Sofias willing to take their place.

Hope most of the above makes sense - been drinking on Friday night.