Blog: Milk Price Interventions & Market Manipulation (2015-07-27)

I've just read a telling story about the Austrian ministry of agriculture. (In German, but similar stories in English exist as well.) Roughly speaking, farmers producing milk are not pleased by recent decreases in price. The ministry wants to intervene to support the price. This is nothing new, and in fact a long-standing EU policy. It effectively creates a lower floor for milk prices.

Or, put another way, this is manipulation of a market away from equilibrium. Probably due to my interest in Bitcoin and the associated community, I think such a policy is inherently a "bad thing". However, in this particular case, I think the situation is even worse: While I'm not vegan (yet), I admire anyone who is and fully believe that this is a very good and ethical choice to make. Particularly in recent years, the number of vegetarian and vegan people seems to have risen sharply. (I do not have any empirical research to quote here without looking anything up, but that's what my gut feeling combined with the number of vegan recipes and entire channels on YouTube tells me.)

Remember talk about "voting with your dollars (Euros)" and consumer sovereignty? Well, aparently it only works as long as politics agrees with the consumers. In the case of meat and milk products, it seems that this is not the case. Consumers turning increasingly to vegan alternatives leave the market out-of-demand, but instead of acknowledging the vote, owners of animal factories and politics scream for intervention to keep the status quo instead. This basically means that I have a choice to buy whatever I deem worthy of my money, but politicians will, in the end, use my tax money to support whatever they deem worthy. Welcome to our brave new free world!

Nevertheless, there is something good in this developments as well. Just as with a completely idiotic series of tv spots promoting the consumption of meat (in direct contrast to serious research suggesting definite health benefits of a vegetarian and vegan diet), this tells us that consumers turning increasingly to vegan products have the animal industry up in arms and fighting for their survival. I think this is a sign that they won't be able to win that fight long term, not even with government support and intervention in the markets.

Oh, and one more thing before someone says that supporting local milk producers in the EU is better than leaving them to starve and import products from countries with even lesser production standards instead: First of all, it is definitely debatable whether or not Austrian animal factories are actually any better than those somewhere else. But this argument is also nonsense from an economic point of view: Microeconomics 101 about supply and demand tells us that if the demand and/or price of some good is decreased or increased, then this mostly affects suppliers producing at the highest marginal cost. In other words, assuming that local animal factories with supposedly "good standards" have the highest production cost, it is true that those will go out of business first when the price falls. Consequently, they are the ones that benefit most from price interventions. However: This does not reduce demand for cheaper goods from foreign, "worse" animal factories! Their production is unaffected. So all that the market manipulation achieves is increasing the total number of "used" and suffering animals (in local factories) due to artifical demand. Sounds like a good deal for wasting tax payer money, including that of people who actually want to avoid supporting such industries at all (if they could).