Sunday, September 13, 2015

13/9/15: Irenomics101: No One's an Island...


Remember all the jubilation over the EU milk quotas abolition? Ah, what a difference a few months and basic Economics 101 make...

And that Economics 101 lesson is: remove restrictions - supply goes up. Unless demand goes up as much, prices will fall. And demand... oh, that demand...
But, of course, Irish dairy farmers are 'cautious' and 'wise' and 'will gradually increase supply in response to demand'... And then there's another lesson to be learned: there is no such thing as 'collective caution' when it comes to commodities producers... so in July 2015, milk for human consumption supply in Ireland rose 8.4% y/y and butter production rose 20.8%. And in January-May 2015 (latest data available for EU-wide comparatives), milk intake by pasteurisers and creameries fell across the EU 0.1% and rose 6.3% in Ireland (second largest increase after Hungary, which has an intake of 638,000 tonnes of milk over that period against Ireland's 2,516,000 tonnes). In reality, things were even more 'cautious' on the side of Irish farmers - domestic (as opposed to imported) milk production rose 8.6% y/y in January-July 2015.

Just as domestic milk output prices fell 24.5% y/y in July 2015...

Which neatly brings us back to that original argument from the Irish industrial farming lobby - the one about 'cautious' increases being a buffer against price collapse... it is about as good as late Brian Lenihan's unfortunate argument that bank runs can't happen here, "Ireland being an island"...

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