By Chris McClure Contributing Editor
“How does the soybean harvest in Iowa affect the price of eggs in China?”
If you have never heard that question or one similar, you probably didn’t take any classes in agricultural economics. That question has stuck with me all these years, and it serves to remind us that we live in a global economy. As much as we like to think in isolationist terms, the laws of economic advantage always drive the distribution of goods and services in a global economy.
Tariffs are a great tool for international commerce. They can serve to balance national security against the competitive advantages some countries may have in critical products. They also are a funding mechanism for government that, if managed properly, can be a more equitable approach than the income tax or some of the other fees that are forced upon us lowly taxpayers.
At heart, I am an advocate of free trade. If a business can compete in the marketplace, they shouldn’t have to face artificial barriers to entry, and they also shouldn’t be subsidized if the value of their offering is less than the market is willing to pay. Today’s economic playing field is one in which subsidies, tariffs and taxes have been structured to favor those who have taken advantage of the political system that allows “sponsorship” of candidates who will introduce and support legislation that favors specific economic interests. I personally prefer the NASCAR model where sponsorship comes in the form of patches and decals that identify funding sources.
Most major corporations today encompass this globally structured economy. They place facilities around the world in locations that provide some advantage – labor, tax laws, raw materials, major markets. Production agriculture is unable to do that because it is typically “deeply rooted” by location to limited opportunities. Yet it is still subject to those same constraints of labor, tax laws, raw materials and proximity to major markets.
Perhaps a specific example is in order. I worked for a company that owned cows scattered from East Texas to western New Mexico. Those near the eastern end of that vast stretch of land typically had plenty of forage and water, while those far to the west were frequently faced with drought conditions that strained both of those resources. Interestingly, the cost to produce a pound of weaned calf on those resource-scarce western ranges was significantly less than required to produce that same pound on the lush grasses of the eastern part of that stretch of country. The nutrient density of those western ranges was far more favorable for producing fast-growing, high-percentage calf crops than was the lush eastern forage that required significant supplementation.
You must know your costs and you must understand your resource constraints to maximize your profitability. Most feedyards are proficient in this art of balancing the local costs of required nutrients between various sources. Sometimes they drive their consulting nutritionists a bit crazy with some of the challenges. The challenges are global. Much of our mineral supplementation comes from other countries. We need to understand the grain markets in South America, the droughts in Australia and the wars in eastern Europe to balance the costs of those critical inputs in a way that allows us to maximize profits.
Tariffs are a great tool for international commerce.
At the bottom of that resource pyramid is energy. Oil, ethanol, solar and wind all impact our costs of operation. Subsidies? Yes, every single energy source is impacted by subsidies, taxes and tariffs. It may be as subtle as the steel that goes into the drill stem for new oil production or as blatant as a per-gallon subsidy on ethanol.
There are times when we must close our borders to trade. The New World screwworm is a prime example. It is a threat to our ability to produce. Most of the time, however, closing borders or restricting trade puts us at an economic disadvantage. We couldn’t maximize our production of high-quality steaks without the lean beef imported to mix with the fat trimmings from those steaks. The primary audience for this column knows that, but just a short distance up the supply chain and that message is lost. That needs to be corrected. This is a subject on which I could go on and on. Unfortunately, I’m limited on space. …
