I have been perplexed/amused by this picture for a couple of days now (via Gawker):
Hehe, the title of the post is “Weapon of Mass Lactation,” and the comments contain some awesomely bad puns. But I digress. The caption on the photo reads “A farmer sprays milk on police forces during a protest against falling milk prices outside the European Union headquarters yesterday.” Being one who is inclined to think in terms of free markets, I had to think about this for a good long while. In a free market, prices are driven down either by decreased demand or increased supply, and supply and demand are in turn influenced by factors such as income, prices of substitutes and complements, tastes, input costs, technology, etc. So who exactly are these protesters supposedly upset with? Are they upset with customers for not wanting (or being able to afford) more milk? Are they upset with their fellow farmers for crowding the market? These grievances, while unconventional, would at least make sense. But no, they were instead mad at the government, of course…
Wait, what? How is this the government’s fault? Did it impose a new tax on milk that drove down the prices to the milk producers? Clearly I needed to do some more digging. Obviously this wasn’t terribly difficult to do, since searching for “projectile milk protest” did in fact give me what I was looking for. This article from the WSJ sums up the situation:
BRUSSELS — Hundreds of dairy farmers and tractors clogged traffic outside European Union headquarters to push for EU aid Monday, as agriculture ministers met for a “milk summit” to discuss how to relieve the stress that dropping prices have put on small farms.
Ah, so they weren’t protesting the low prices directly, they were protesting the potential lack of subsidies in the face of falling prices. And this was the result of the milk summit:
The ministers decided to allow up to €15,000 ($22,000) in emergency cash relief for each dairy farmer, in addition to existing subsidies, and to set up a committee to study the problem. Earlier this year, the EU reintroduced some temporary export subsidies.
Wow, a committee. That’s going to be exciting…I wonder if they can figure out the situation with American cars while they’re at it. Export subsidies are also fun…basically, if the government is paying you to ship your product to other countries, it makes the product harder to get (read, more expensive) in the home country. I am guessing that a lot of people don’t realize this, since otherwise lactating moms would be protesting by….oh, never mind.
The reality of the situation is that there are market forces driving down the price of milk. If the force is demand-driven, i.e. people don’t really want as much milk as they used to, then it makes sense that some of these farmers should shift to doing something else. If the force is supply-driven, it’s because some producers figured out how to produce milk more cheaply and thus could profitably enter the market even though they knew they were going to drive prices down. In this case, shouldn’t the lower cost guys win?
Apparently logic can’t compete with “but I have these cows, and I am therefore a dairy farmer. As such, I am entitled to be a profitable dairy farmer, regardless of whether the circumstances in my industry have changed.” Compounding the problem is the fact that these farmers have been getting generous subsidies that are now being cut back:
Mr. Grain is building a €1.5 million barn with a robotic milking system and plans to expand his herd to 150 dairy cows. They currently get €43,000 in EU subsidies but expect that to fall to €36,000 by 2020. “We will have to produce more to make the same amount of money,” says Mr. Grain.
(Sidenote: I wonder if it has ever occurred to Mr. Grain to shift to producing wheat, or rice, or, I don’t know, some other sort of….grain?) See, it’s probably easier to not give a subsidy in the first place than to give a subsidy and then take it away, since loss aversion kicks in and people get really cranky. The beauty of free markets is that prices serve as the incentive to direct reseources to their best uses. The downside of free markets is that these “best uses” don’t stay constant over time and people (and organizations) have to learn to adapt to changing conditions. Luckily, the upside usually wins out- otherwise we would be driving around very heavily subsidized horses rather than cars, for example.
Maybe these farmers would be better off if they named their cows, since apparently this makes cows happy and happy cows are more productive. (No, I’m not kidding. I swear that is what the article says.) I’m not sure that I quite buy the conclusion of the study, since I would prefer instead to think that even cows are subject to the Hawthorne effect.