Liberty Alone

Iain Dale asserts that supermarkets don’t operate in a free market and that the poor little farmer suffers because of it (its a familiar argument).

Taking a step back and looking at this, the argument is not one of free trade, its one of sentiment and so-called fairness.
The charge is that the supermarkets use their buying power to screw the little farmer and that somehow this means its not free trade (Why? Because the farmer cannot set the price at will?). Then of course the argument of ‘fairness’ comes in and apparently its unfair for the farmer not to get a better price (but isn’t it also unfair if the poor consumer has to pay more for their food because the farmer gets a higher price? Won’t that have a negative effect on obesity since fresh produce will be too expensive for the poorest?)

This is not an argument based upon economics, it is one based upon appeals to the emotion and sentimentality.

Lets look at the facts:

• Supermarkets are not in a monosopy position - there is not one buyer. There are several supermarkets, there are also other buyers for much produce, small shops, producers of processed food etc.
• Supermarkets do not collude with each other. The competition is too fierce to allow that. Tesco knows that its market position is not permanent. It used to be Sainsbury’s who were the biggest supermarket. In a few years it may well be someone else. If supermarkets were to collude then someone would break that collusion, either for getting goods outside the cartel or for good publicity by exposing it and getting one over on the competition. Every time there’s an investigation into practice there is no evidence of illegal activity.
• Supermarkets do not use force to get the prices they do. They don’t threated people’s lives or health, they don’t go round breaking legs or shooting people
• Market distortion comes at the other end of the market with the subsidies granted to farmers - This distorts the market, it keeps farmers who’d otherwise go bust in business, it encourages over production which results in low prices for produce. Granted, in terms of this market, the distortions are probably less now that the CAP is paid on the basis of land rather than production, but it still distorts the market massively. It still encourages low efficiency and productivity which reduces profits.

So, whilst I’d agree that free trade doesn’t exist, that is because of the subsidy farmers receive. Instead of targeting the supermarkets we should be targeting the waste of tax payer’s money that goes into subsidies.
It will be hard going for some farmers (hence the policy of gradual reduction which I believe is supported by the Liberal Democrats), but that is the way the market works. Those who are inefficient, don’t produce a product people want to buy and are unproductive will go bust. Those who are efficient and produce goods that people want at a price people will pay will do well.

Why we spend so much time and money on a tiny proportion of the population and economy I don’t know. It seems to be some sort of sentimental view of the farmer as custodian of the countryside and lifeblood of the country. It should be treated as any industry and left free to engage in the free market.

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