Shall We Kill the Hay Exports or the Cows?

Yves here. An example of neoliberalism gone mad from Down Under. Getting hay to Asian buyers is now putting domestic farms at risk.

By David Llewellyn-Smith, founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Cross posted from MacroBusiness

Via the ABC comes another little microcosm of the mismanagement of Australia’s collapsing borders:

Exporters are hitting back at calls for the Federal Government to seize hay supplies destined for Japan and China, saying it will bring about the end of a $500 million industry.

Many drought-stricken farmers have taken to social media calling for a halt to hay exports as demand on domestic supplies reach unprecedented levels.

CEO of the Australian Fodder Industry Association, John McKew, said there has been an extraordinary turnaround in demand as an oversupply in 2017 turned into a shortage.

“We’ve hit this situation where demand has just gone unbelievably strong for fodder products,” he said.

“There’s always going to be hay in the system, but in terms of what’s available commercially, we’re about as low as you’d want to go.”

‘Oversimplification’ that could kill industry

With almost 1.2 million tonnes exported, 2017 was a record year for the industry, but Mr McKew said exports represent 10 to 15 per cent of the total supply.

He said the export industry has taken three decades to build, and that major competitors in north America are ready to step in should Australian exports stumble.

“The relationships that have taken this long to build, you cannot just turn export markets on and off, so if we were to turn our export fodder industry off at anytime, it’s gone — we won’t get it back,” Mr McKew said.

Mr McKew said a seizure of hay exports now would mean the collapse of the domestic hay market once the drought finally breaks and supplies return to a significant surplus.

“We get to the stage where we’ve got a lot of stock available in the industry, what do we do with that?”

“If we use the 2017 figures, that’s 1.2 metric tonnes extra fodder into the domestic market in a good year … the prices will go down even further and we’ll have fodder growers who are going to be in desperate situations,” he said.

Social media and drought stoke fears of shortage

Northern Victorian hay grower, Luke Felmingham, said calls for a seizure of hay exports are short-sighted and “farcical”.

“It’s a bit of a storm in a tea cup, people taking a shot at an industry that’s been around for a very long time,” he said.

“It’s people forming an opinion before they have the information.”

Sentiments about hay exports seen on social media group include comments like “it should not be being exported, it should be sent to our farmers! Another example of our government looking after other countries before our own!”

But Mr Felmingham said while most farmers he has spoken to understand the need for a strong hay export industry, a minority opposed to it are finding a strong voice on social media.

“It’s hurting all the east coast which is really exhausting hay supplies, which is making a lot of people nervy and a lot of people upset as well,” he said.

Mr Felmingham said hay growers have their own contractual commitments and are being unfairly singled out.

“A lot of hay growers and suppliers are farmers too, they have their own stock, they want to be able to meet their market requirements, whether it be domestically supplying the dairy farmer up the road for the next six months, or the exports supplying their contacts.”

An idea worth exploring, says hay broker

Managing Director of Haylink Marketing and Logistics in South Australia, Alister Turner, said with new crops of hay still growing, export supplies should be used to help farmers in the short term.

“It’s something we’d have to manage very carefully because to alleviate a short-term domestic crisis, we in no way want to damage our very valuable and established export hay industry,” Mr Turner said.

“It’s a little frustrating to see carryover of contracts of export hay still sitting in sheds with the new crops almost upon us, when we desperately need hay for our drought regions in particular, and our dairy farms.”

While Mr Turner said a seizure of export supplies would be a draconian measure, exporters and governments need to come to some sort of an agreement.

“The exporters don’t seem to be interested and obviously they have their overseas contracts and things they’ve got to fill … but if we could work together to redirect some of the supply and help short term crisis that would be an ideal situation,” he said.

“Hopefully the new season will provide enough tonnage for us all, but I still think at this point we haven’t had any relief from the drought and it is worsening, so going forward we’re going to ask the exporters to help out.”

The Federal Government would be required to declare a state of emergency in order to seize any export hay supplies.

Minister for Agriculture David Littleproud said the government has no plan for the forced compulsory acquisition of hay.

I don’t want to see the exports collapse. But, likewise, who could have known that Australian farmers would need extra hay from time-to-time? I mean, jeez, droughts are so rare in Australia.

The entire management of Australian resources from milk powder to gas is now managed exclusively for the benefit of North Asian consumers while Australians suffer.

This is not what exports markets are supposed to do for a country.

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  1. Tuber Revolutionary

    Bulging warehouses, desperate people. France 1789. Ireland 1845. Australian livestock farmers offered their very own “let them eat (cattle) cake” moment. Go tone deaf neoliberalism!

    PS. I see I still have to teach Google keyboard the word neoliberalism.

  2. PlutoniumKun

    Leaving to one side the environmental insanity of shipping such a low volume low value product (hay) around the world, there is a key issue here worldwide that the re-engineering of agriculture is leaving the world extremely vulnerable to food shortages.

    Here in Ireland, there is also a dire shortage of fodder this year, thanks to an unseasonably cold spring and very dry early summer. Of course, the key problem is not a shortage of grass, its too many cows. Once upon a time, farmers grew their own fodder and swapped with their neighbours to carry over unexpectedly good/bad years. Now they are more and more dependent on long supply chains for all the inputs (feed, fertiliser), and outputs (local milk to markets is now milk as a raw material product for sending all round the world). Farmers once had some control via their local co-operatives, but thanks to neoliberal infestation most of these have been corporatised and sold off, so a few monster companies control everything.

    For now, this is all very profitable for many farmers. I don’t begrudge a mid sized farmer who is now earning a good living from dairying, where his parents maybe struggled with the same size farm. But this is creating a highly dangerous situation where climate change is potentially enormously disruptive. Long supply chains lower resilience, and this effects the food on the table for all of us.

    This is something we can all do something about. Cut down buying food in your supermarkets, join a local food co-op and support local farmers, especially organic farmers. For a little more inconvenience, you get better food for the same money (and sometimes less).

    1. vlade

      The cost of hay soared everywhere – a guy I know has a few racing horses and his feed costs doubled this year, and will likely go even higher come winter.

      At the same time he’s telling me more horses die of heat exhaustion after the races or suffer heat problems as this year’s summer in Europe was extraordinarily hot and dry.

      1. Friend of the Devil

        I cowgirl I know told me that horse food in Sonoma County, California started to get crazy expensive 4-5 years ago. She wound up driving a truck & trailer to Sacramento and bringing a back a few tons. The price of hay was more than the cost of the gas.

        The fires came last year.

        Expensive hay is an early warning sign of drought.

    2. Jeremy Grimm

      The long supply chains you point to depend on diesel, which is not available in infinite supply and like so many other critical commodities depends on long supply chains feeding small inventories. Combined with ever smaller inventories the long supply chains guarantee that even small disruptions can have very large impacts on mega-cities where there aren’t local food producers and what food producers there are stand more and more remote from the point of food consumption.

      I live in farm country but almost all the farms here grow feed corn or soybeans as a consequence of the peculiar tax codes in my State. There are few truck farms around but much of the produce I’ve seen at local road stands doesn’t fit the local season as well as it fits the local tastes and much of the fruit appears well-waxed. I have found a few little stands where people sell tomatoes from their gardens and there is a local peach orchard that also sells some melons and a few other vegetables they grow.

    3. lyman alpha blob

      I really had no idea that hay was shipped globally like this, and yes it is insane. If you don’t have enough local fodder to feed the livestock you’re raising, then you shouldn’t be raising the livestock there in the first place.

      My family grows most of their own fodder and buys some hay for their dairy cows, but as you mention it’s from other nearby farmers or fields that were once pastures for farms that have gone out of business. They basically take their machinery down the road a little bit to the other guy’s field, hay it themselves, and pay the field owner an agreed price per bale. I’m sure they sell a little from time to time too if they have extra. Sometimes I think it’s just a trade for mowing services – they’ll mow your field for free if they can keep the hay.

      Shipping hay across continents is one of the craziest and stupidest things I’ve ever heard.

  3. vlade

    TBH, Australia has a different problem – that it’s the dryiest inhabited continent (Antartica is the dryiest), but it is essentially in the business of exporting water. Both mining and agriculture are water intensive (a ton of coal requires between 800-3000 gallons of water to extract, iron ore is between 600 and 7000 etc. etc).

    The South Australia wheat growing region was described to be as ‘the largest hydrophonic farm on Earth’, as I was told it’s pretty much watered sand + fertiliser.

    Australia is running a fundamentally unsustainable economy, and the question is not whether, but when it will collapse if it continues like that.

    1. Yves Smith Post author

      Yes, and on top of that, they liberalized immigration so that the population increased from a not-sustainable 20 million (but at least with a less than replacement birth rate) to 24 million.

      1. The Rev Kev

        People down here went ballistic not that long ago when some elites suggested that Australia should go for a ‘Big Australia’ with a population of 100 million people. That idea got dropped real fast and it seems that the immigration levels are getting lower and lower over the past coupla years as excess immigrants are feeding into weak wage growth locally.

    2. ChrisPacific

      There has been a general realization in New Zealand that much of the pastoral sector is in the business of turning water into dollars. This has presented challenges as utilization intensifies, since water has historically been a common and assumed to be in infinite supply.

      Attempts to quantify its value, set quotas etc. are similarly complicated. Water doesn’t stay neatly inside lines on a map the way other commodities do. It filters into ground water, runs down rivers to the sea, evaporates, falls as rain across the country and especially in high country and mountainous areas, then flows back down from there and so ad infinitum. People can, and do, intercept it at various points in the cycle, which can have major environmental and business impact on anyone further on. The existing legal framework for water management is not a lot of help as it has typically been based on property rights, which don’t capture any of this dynamic.

      Figuring out who should rightfully have precedence when there is not enough to go around is not a simple problem to solve, even before you get into the issue of trying to balance incommensurable outcomes, like dairying profits and stream conservation. There’s also the small point that all of us need relatively large amounts of it on an ongoing basis to live, and any attempt to treat it as a market good and put a price on it will naturally lead to all the usual side effects like scarcity, stockpiling, boom/bust cycles, and so on. That can be expected to create water poverty in some circumstances, or make it worse if it already exists. But if you don’t do that then you end up with multinationals exporting billions of litres of water (literally, in bottles) for which they essentially pay nothing, as is already happening. Some kind of sensible regulatory framework is obviously called for, but we are still working on figuring out exactly what it is.

      1. Wukchumni

        In the white heat of the drought here in 2015, legislation was passed regarding well water in California, which will be regulated starting in 2020, although nobody knows the exact details of, it’ll be a surprise.

        So, I noticed something curious, in that there was a great rush to plant huge commercial orchards in the worst drought in living history, as the thinking is that if your trees are in the ground, they’ll be grandfathered into the new aegis.

        A good example of this was in the area surrounding the
        Visalia dump, all of the sudden there were in excess of 10,000 fruit trees planted, where there were none previously (and will those dump-adjacent peaches be sold in a L.A. farmers market as organic?) and so on, all over the Central Valley.

        I’m reading about soybean farmers as of late in the USA running out of storage space for their ripened crop, as China isn’t buying.

        Might we have the same thing here, in particular with perishable fruit, which doesn’t have that long of a shelf life?

  4. The Rev Kev

    On the face of it the author has a case to make but it is not so simple. The drought is biting hard and we have noticed some grains getting hard to source such a millrun and copra and we have also seen good bales of hay going for $30 (US$21/€18). Historically? Just recently I was reading a history book of an Australian outback town and droughts were a common thing even back then. When one hit, the excess cows were rendered down as tallow to sell onto the cities. Of course this was an opportunity to do a bit of culling too based on factors like temperament and production which would have improved the overall health of the herd when rain came back again. They would also spend the time during droughts digging dams as deep as they could to increase capacity for when the rains returned again. And now?
    I am seeing a political angle to this drought. At the moment Australia is run by a Coalition of the Liberal and National parties with the National party supposedly representing the interests of those that live in country regions. For now the Coalition is hanging onto power by its fingernails and facing political oblivion in the next election within the next nine months. So there is a concerted effort to not lose political support from those country regions and throwing whatever money that they can such as fast tracking a billion dollars in loans, doubling the current $1 million cap for low-interest loans with the first five years being interest only, giving thousands of dollars to farming couples to help them out, etc. Anything not to lose political support at the next election whatever it costs the nation.
    This may be unfair comment but I have the suspicion myself that a lot of farmers are not culling their herds but are hanging onto as many as they can until the rains come again while depending on the government to back them up feed wise. Apparently other farming regions around the world are coming under the gun with drought conditions so our farmers may be seeing a chance to cash in big after the rains arrive. Sorry, but that is my own opinion. Another factor is climate change which is now here whether we like it or not. Some farmers will simply be have to be told that the regions that they are in are changing now and will no longer support the sorts of crops and livestock previously raised in those regions. Some farmers though have got the word and are adapting (
    But to cut to the chase, I see no sense sacrificing smaller industries to save the profitability of larger industries. It is far better to keep a larger ecology of multiple profitable industries going for the sake of building in resilience. If hay exporting is destroyed and the drought continues, what will be the next sector to be sacrificed for these farmers? Citrus growers perhaps? Australia is going to have to get smart about what farming practice it allows and this is a good place to start. Sorry but it is time that Bessy got the chop.

    1. Synoia

      When one hit, the excess cows were rendered down as tallow to sell onto the cities.

      Would appear to be a useful process for the excess politicians, and many of the extremely wealthy.

      It probably would be their first positive contribution.

  5. vlade

    I just re-read this, and I don’t get on one thing on this. Is the problem that the farmers don’t want to pay what the exporters have, or that the exporters don’t have any ‘spot’ (i.e. not under contract) hay left?

    I don’t get either TBH, as in the first case, it’s a tough luck (people on the street don’t get breaks either), and in the second case, asking to break contracts, well, would the cattle farmers long-term break contracts if Australians were clamouring for more meat?

    (that is all aside why should it make economic sense to export hay from Australia in the first place).

  6. Michael Fiorillo

    It’s not only Australia where this is taking place. In August the NY Times had a piece about a family that had moved from eastern Kentucky coal country to southern Arizona, looking for a better life. However, not long after they arrived, their well and those of their neighbors started drying up.

    Why? Because local Saudi-owned farms were mining underground water to grow alfalfa (in southern Arizona!) to ship (!) to Saudi Arabia (!).

    It’s often said on the pages of this blog how the rural regions of the US are essentially colonies for extractive industry, but the economic/environmental/thermodynamic/political insanity of using water that is replaced on a geological time scale to grow hay in the desert, in order for it to be shipped to another desert is criminally insane.

    1. Lord Koos

      I live in central WA where the climate is semi-arid — sagebrush, rattlesnakes, etc. The valley uses both the local aquifer and water from irrigation dams on the Columbia river to grow hay, which over the last 40 years has become the primary crop locally. Most of the hay is exported to Japan. Previously a variety of food crops were grown, corn, potatoes, fruit, etc. Growing hay over food crops has always seemed like a colossal waste of resources to me (especially the drawing down of the aquifer) but you can’t mention that around here, and water continues to be used as if the supply will never end.

      1. Michael Fiorillo

        The wastefulness boggles the mind, and multiplied across the economy makes the political differences between Republicans and Democrats seem petty and inconsequential.

        It also makes me think that, as large parts of the country become hotter and drier, it might become profitable to farm hay in the endless, well-watered stretches of unused farmland in upstate NY and elsewhere…

  7. johnnygl

    This reminds me of the similar situation of australian rice growers a few years back. It wss another question with an obvious answer. “no, australia should not really be growing much rice.” But, once again, you heard from farmers who valiantly defended their horribly flawed business model.

    I’m sympathetic to the idea of raising beef in aus, as long as there’s well-regulated and managed herds that help to restore the quality and productivity of grasslands, but only limited amounts as aus should feed itself, first, and make sure they do no harm with their approach.

    I suspect they can feed the 24M or so inhabitants, sustainably, but they’re going to need to implement some major changes in how agriculture is managed…and lay off the exports and mining.

  8. a different chris

    Ah, capitalism. You can’t farm w/out futures contracts, especially now when you aren’t even allowed to retain your seed. Big farms don’t really want to anyway, they are just factories with inputs in/outputs out.
    But they have the weird problem that their main “employee” is Mother Nature, and they can’t pay her enough to crank out hay year round, they can’t bring in a more desperate version of her from across the border, she is the real boss and she works solely at her own whims. So it isn’t making widgets for sure, no matter how much ConAgra like to tell themselves.

    I’m not saying our Ag policies aren’t a mess, but the free(dum) market really causes a lot of problems as above and it really needs the people’s input and $$ support to smooth things out. And exporting should be a luxury, not a necessity.

    BTW, 21 bucks a bale!!??!! We would eat our horses.

  9. diptherio

    The entire management of Australian resources from milk powder to gas is now managed exclusively for the benefit of North Asian consumers…

    Um…excuse me? Does he really believe that? Since when have capitalists organized their affairs in order to benefit their customers as compared to, say, themselves? That would be a real first.

    1. drumlin woodchuckles

      Well, favoring their higher-paying customers would be benefiting themselves. Predictably keeping to their contracts so as to keep the contracts predictably coming would be benefiting themselves.

  10. Daniel A Lynch

    I would have more sympathy for the Aussie ranchers if they were raising livestock for domestic consumption, but chances are most of the Aussie livestock is sold to Asians, so either way, Australia is Asia’s farm (and mine).

  11. drumlin woodchuckles

    ” This is not what export markets are supposed to do for a country.” It’s not? Actually, it is. This is the price and the purpose of Free Trade. If you want to avoid problems like this, you have to abolish Free Trade. At the very least you have to abolish Free Trade in agri-bulk or mine-bulk commodities. You have to limit your domestic raw materials production to supply your domestic raw materials consumption needs strictly and only . . . as much as bio-geo-physically possible. The domestic foodgrowing capacity you destroy today is the zero food you get to eat tomorrow when the foreign food stops coming.

    Otherwise you will be relegated to the role of Banana Republic for powerful metropoles.

    And you will harvest a future of Irish Potato Famines, Great Bengal Famines, etc.

  12. kk

    Australia has had a charmed existence for decades, at least when the water runs out they will be as miserable as everyone else.

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