Australian farmers are being taken for mugs, treated like mushrooms by being kept in the dark and fed a load of crap.
This year farmers have been hammered by a combination of soaring fertiliser costs, increasing fuel costs, and difficulties sourcing labour.
Now it’s flooding, so if a farmer’s crop is ruined it is likely they have already invested a high price in it that they will lose.
Currently farmers cannot get a published price on fertiliser. They don’t know the price, nor can they compare the price between sellers. It is the most opaque market I can think of.
This lack of transparency encourages an imbalance of market power between farmers and fertiliser importers. That is good for importers, particularly in a market dominated by big players.
And the more farmers are squeezed, the greater chance of higher prices flowing all the way through to the consumer.
Economics 101 tells us price is the key thing that drives a market. Markets of all types operate most efficiently and fairly when participants have equal access to market information.
Take currency trading. After the Australian dollar floated in 1983, access to price information was limited and the large trading banks held the balance of power over the average punter.
If you wanted to exchange Australian dollars into foreign currency, you nipped off to the local branch and asked for an exchange rate, but you had limited ability to compare prices across banks as exchange rates weren’t openly published.
When I began working in foreign exchange a decade after the dollar floated, price discovery was becoming a little easier for the customer.
But the internet was in its infancy and mobile phones could only make voice calls. So there were still plenty of unsophisticated and poorly informed players in the currency game that could be taken advantage of, without them even realising that the rates being offered were pretty uncompetitive.
Now it is pretty easy to jump on a mobile phone to get a live update of where the Australian dollar is trading against a multitude of offshore currencies. Currency market prices, like most commodity prices these days, are readily accessible, transparent and competitive.
The most notable exception is fertiliser pricing in Australia.
There is no publicly available pricing information for fertiliser in Australia. The fertiliser sector does not publish pricing data, so there is limited ability for farmers to do a quick and easy search for the most cost effective fertiliser purchase.
The industry is quick to claim that due to different transportation and cost structures of fertiliser imports, it is difficult for them to publish their prices. However, the same argument could be used for livestock prices in abattoirs or grain deliveries into the grain merchant’s silo.
During periods of falling international fertiliser prices, farmers are often told the reason why local prices aren’t reduced is because there is still old fertiliser stock to clear that was imported at the previous higher price.
However, it doesn’t seem to happen when the fertiliser market price is rising. I’m yet to hear of a farmer being told to buy up cheap fertiliser that is old stock and before the more expensive new stock arrives in at port.
Imagine if it worked that way for farmers. If a farmer held some grain in storage from last year’s harvest and the price goes down in the current year, is he able to sell it at the higher price because it’s an old crop?
I think not. That’s not how an open and transparent market works. The grower just has to accept the current market price, irrespective of how much it cost him to produce or what his transport costs are to get the grain to port or the silo.
Meat works and grain aggregators publish daily or weekly price lists so the farmer has an idea of what they can expect to achieve on the delivery of their produce. Why can’t the fertiliser industry offer the same level of price transparency?
The Australian Competition and Consumer Commission took a look at the local fertiliser market in 2008 because of concerns over anti-competitive behaviour, price gouging and the record high prices being paid by Australian farmers.
The ACCC fertiliser report analysed global fertiliser pricing, imported fertiliser pricing and wholesale/retail fertiliser pricing. The ACCC noted that it was a relatively simple process to ascertain the global and imported pricing levels, but the domestic wholesale/retail pricing was incomplete and problematic.
Perhaps it is time for the ACCC to take another look at the domestic fertiliser market, with a particular focus on the price discovery, price transparency and market power perspective.
More than a decade down the track since they last looked, it is still a problem.
