The laws of supply and demand should work to stabilise our economy and provide employment and prosperity. Interventions without thought to the future threaten this.
In our region supply, demand and price signals have affected many commodities, but pears, milk, energy and water are instructive examples.
Pears have been a key crop in our region since the early 1900s, and the Goulburn Valley produces more than 90 per cent of the nation’s supply.
A challenge with pear growing is the time it takes to get a crop after trees are planted, so decisions must be made well in advance.
The problem has been lately, that retailers with excessive power in the marketplace have been selling the commodity close to or below the cost of production. The signal being sent to the growers is to pull out their trees, which will cause a supply issue down the track.
Given the time taken to re-establish a high yielding pear orchard, that could take many years to fix. Wouldn’t it be better for retailers to work with industry and ensure consistent supply with returns that encourage growers to continue to grow?
Milk has suffered from a similar issue. The consistently lower prices to dairy farmers with little regard for the increasing inputs and pressure from drought caused many to leave the industry.
Now we have a supply issue.
Prices have risen, and that is a positive thing for farmers, but some of those that played it hard with price a decade ago might have been better to look to the long-term future of Australia’s dairy export industry and ensured that farmers were given the means to continue farming.
Last week the Federal Government imposed a price cap on wholesale gas. This will be politically popular in the short term and may even provide temporary relief (we are not sure yet).
But the message it sends to global gas companies is that this government will intervene, with little or no consultation, to alter the price and therefore the economics of gas exploration.
What will gas companies do? They might cease exploration in Australia, seeing it as a risky proposition. The government could have worked with industry to increase supply therefore stabilise the price in the long term.
The worst market interventions for our region have been in water.
Governments, with very limited understanding of basin communities and economies that drive them, bought significant parcels of water for the environment. The new Federal Government is promising to do it again.
What happens? A large amount of the means of production is gone — pushing prices up of what is left and making it harder to be profitable in agriculture.
These issues are complex — I have argued for and against the pure free market in this piece.
But long-term thinking and collaboration while ensuring competition are necessary for our collective economy to serve us into the future. We are all in it together.
Sam Birrell
Federal Member for Nicholls