Blackfriday ympäri vuoden tuottajahinnoissa?

Blackfriday all year round at producer prices?

Have you ever wondered how a one-liter bottle of spring water can be more expensive than a one-liter can of milk? This is despite the fact that the bottling and transportation costs are the same for milk and water, but to get the milk you also have to feed and care for the cows?

​According to MTK calculations, the farmer's share in the retail prices of food products is smaller the further the product is processed. For the malting barley that the consumer pays for a litre of beer that costs three and a half euros, the producer receives 4 cents, and for the oats that make an oat drink that costs 1.75 euros, the farmer receives seven cents. For eggs and milk, about a third. The disparity is often greatest for organic products: for organic rye bread that costs more than five euros, the producer's share is twenty-one cents. Even if the producer price of grain doubled, few consumers would notice it in their shopping bags.

Producers in distress

Many farms are in an acute economic crisis because producer prices have not been increased appropriately, even though the prices of fertilizers, feed, electricity, fuels, machinery and construction materials have risen rapidly over the past year. The situation is made worse by the fact that producer prices have not been increased appropriately for many years and the harvest years have been challenging. Over the past twenty years, farms have invested enormous energy and effort in optimizing production and minimizing the cost structure. This card has therefore been played, and in addition, many farms have already had to take out loans to compensate for the temporary market disruption and the resulting cash flow problem.

In discussions and decision-making, long-term contracts and the world market price level are increasingly being invoked, with which we have to compete in small Finland. For the past twenty years, Finnish food production has chosen a strange self-evident fact that raw materials are purchased at a price that is based on the world market price. This is justified by EU membership. However, the same EU membership enables Austrian producers to cultivate in the challenging conditions of the Alpine country.

Mercedes Benz and Toyota Yaris!

We have one of the world's most challenging climates for growing food, we have the highest standards and expectations for the environmental friendliness of farming and of course animal welfare is extremely important, but still the agricultural producer is paid according to how it is sold elsewhere. If the same logic were applied to other sectors, Mercedes Benz cars would be sold at the price of a Toyota Yaris. That would undoubtedly be great for consumers and the cars would certainly sell well, but the Mercedes Benz story would end quickly. Although every financially sound production sector can survive for a short time with production prices that do not correspond to the cost structure, it is clear that in the long run only those productions will survive where the sales price covers the production costs and also produces a suitable surplus, the so-called profit. Without profit, there are no resources to develop operations, nor a safety buffer with which to react to weaker years, weather or world surprises.
In non-food production, it is self-evident that a demand spike or other challenges justify a price increase. We have seen this in many and very surprising places during the pandemic years. When we have just seen how important domestic production is through the pandemic lockdown, how is it possible that primary production prices are not allowed to follow the upward pressure on costs?

Initial production comp

One reason is probably that there is a strong political will for low food prices. For an understandable reason: low food prices ensure that everyone has something to eat, regardless of income level. Another advantage is that low food prices free up money for other consumption, which keeps the economy going.

For the store, on the other hand, low purchase prices enable better margins, which can be used to finance renovations and large discount campaigns. It goes without saying that the store has a built-in mechanism to buy as cheaply as possible. This applies to all product groups, of course. The biggest difference between primary food production and production in the rest of the world is that other production can simply close its doors if the trading conditions are not good enough. This is unfortunate at the company level, but ethically straightforward. This way, demand and supply are balanced. If the store wants a certain product, it is clear that it must find at least one manufacturer whose production cost structure matches the liquidity of the store and its customers. If the product is in demand and is needed a lot, the store will only benefit from it if several manufacturers are able to manufacture it within the cost structure.


When it comes to agricultural production, the situation is different. You can't just stop producing agricultural products. That would mean producing hunger instead of food. Producing hunger is ethically almost unthinkable.

The final conclusion is that since primary producers bear a great ethical obligation, effective trade with primary production would require new ethical starting points. In addition to a state of will, a culture of agreement is needed in which a known cost structure forms the minimum level of producer prices.


​When does the new ethical agreement period for food production begin?

Sources:

https://www.mtk.fi/-/reiluskotimaista
https://www.maaseuduntulevaisuus.fi/maatalous/artikkeli-1.1642021

 

What is our future? Photo: Tiina Salminen.

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