Free trade numpties need a reality check

Image result for image bananas

I try to be a glass-half-full type of person – I really do. However, all too often I end up being ‘not happy, Jan’.

“Paying an extra $150 million a year to protect growers? That’s bananas!” boomed the headline on an article last week by an associate professor in economics at a respected Australian university.

The opening paragraphs saw my blood pressure rise …

“No international traveller can miss the impact of Australia’s quarantine restrictions. Loud posters at every international airport instruct you to dump your fresh produce or face large fines … These restrictions impose a cost not just on international travellers but on Australian consumers. Anyone who’d like to consume overseas fruit is not quite as well off as they would be if they didn’t have to comply with Australia’s quarantine restrictions … We estimate the banana import ban has a total annual welfare cost of about $150 million. That’s more than $250,000 per grower per year.”

And rise – to the point of apoplexy …

“Does the risk of not being able to grow our own bananas pose enough real danger to Australia that we should spend $150 million every year to fend it off? Or is there a subtler but larger danger lurking in our quarantine laws – the invisible siphoning of Australia’s wealth to a tiny group of protected mates, through policies sold to us wrapped in our national flag?”

Where to start?

First of all, there are no subsidy payments to farmers as this article would suggest. This is a notional allocation, developed from a theoretical model.

Abolishing quarantine laws – oh, yes, that’s a truly brilliant idea.  Let’s open the floodgates to imported bananas, apples – you name it – from anybody, anywhere. So all the years Australia has spent protecting our farmland from imported diseases will have been wasted, sacrificed at the altar of free enterprise.

If we were talking about the meat industry, would economists be advocating opening the door to imports that could carry foot and mouth disease, or BSE or any one of half a dozen other nasties we can all think of? Will they be lining up to support farmers when they have to shoot cattle or plough in orchards affected by imported diseases? I don’t think so.

Then there’s the proposition that growers might be profiteering and exploiting Australian consumers.

Textbooks tell us that any market is the result of supply and demand. In an ideal market, the balance between supply and demand is what sets the price. But most farmers are price takers. They don’t set the price that they are paid for their products – they have to take what they are given.

Economists should take a look at the usual suspects – middlemen and retailers – to see who is making profits. As the supermarket price wars demonstrate – think $1/litre milk – the major retailers operate under a different set of rules to the market. Their rules.

Just for a moment assume that I can play the game –  and accept the logic in this instance and remove biosecurity controls on bananas.

The inevitable outcome of this hypothesis is that the whole of our biosecurity framework would soon be dismantled. Sure as night follows day, we would end up outsourcing all food production to the cheapest source, regardless of safety and other societal expectations. Those who grow and produce food in Australia – and those who rely on them – should go on the dole.

Furthermore, this seems to be just another example of selective analysis. If we’re seriously going to have this discussion, then ALL costs need to be taken into account before making any assessment. So not only biosecurity, but also opportunity costs and economic impacts. That would include quantification of employment impacts, re-establishment costs if it is determined that it is feasible for banana farms to move to other activities, and flow-on economic effects from downtime in periods of re-establishment.

Economic theorists may well be happy if we shut down all those industries where we don’t have a comparative advantage. However, it won’t satisfy the people who work in those industries – who vote. And I doubt if they appreciate being called rent seekers.

We have had nearly 50 years of our politicians and community acting on the simplistic highly value laden advice of economists and it has created significant problems. We need to push back against the self-serving arrogance that has become a hallmark of modern Australian economic input.

 

 

 

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