Federated Farmers Is The Farmer’s Union

Over at Whaleoil Cam Slater links to a piece about the Japanese farmers who can’t compete in the global agriculture marketplace.

In New Zealand, Federated Farmers is the farmer’s union. They can compete in the global agriculture marketplace:

A) As long as they get propped up when there is a drought

B) As long as they get their water for free or cheap

C) As long as there is relatively low levels of anti-pollution enforcement

D) As long as one big co-operative has special privileges for the Most Special Farmers (dairy farmers)

Because we live in Bailout Nation, special interest groups can position themselves for bailouts whenever the market or the weather doesn’t work out in their favour.

That doesn’t do much for under-employed graduates, laid off factory workers or people who work part-time who desperately want to work full-time but that’s their own fault! If they had full-time lobbyists in Wellington / could deliver rural electorates for the blue team they’d get bailouts too!

Do Farmers Deserve Bailouts?

The dry weather around the country has been impacting the races. I read in the latest issue of Truth that fewer runners have been entered into the gallops over the past few weeks because of the hard tracks due to little or no rain around the country.

When there are fewer horses entered in a race, it’s a hell of a lot less interesting to watch. Turnover at the TAB will be lower and the racing industry will suffer because less turnover at the TAB means less money circulating around owners, trainers, bloodstock agents and jockeys. The old days of rugby, racing and beer are definitely in the past.

So it’s a good laugh to read farmers complaining about the drought. Now, drought really sucks for farmers, but that’s the nature of the business they are in. They run the risk of the weather ruining their livelihood and reducing their families to penury.

But does the government really need to do anything more than emergency food assistance? I don’t think so. Farmers have been on a hiding to nothing for a long time. Farming for capital gains has been the most rewarding activity in the agricultural sector. The myth of value-added agriculture hasn’t panned out and agriculture is a small percentage of GDP.

The problem with farming is that we never get a detailed drill down of how farmers manage their finances. How many are carrying insurance? How many have used high commodity prices to pay down debt and move towards a “no cash, no purchases” mentality? How many operate without overdrafts?

If farmers can’t manage when the going gets tough, their “business” needs to go through and be put into liquidation. There is nothing special about family farms, agriculture or droughts. The farming industry already gets a lot of support behind the scenes including special treatment from Inland Revenue – giving them more won’t encourage them to stand on their own two feet while farming for capital gains the taxpayer will not receive anything from.

Farmers don’t deserve bailouts anymore than South Canterbury Finance investors or coal miners on the West Coast. But we are living in Bailout Nation, and if a bailout can be arranged for your special interest group it is hardly surprising that The Most Privileged Special Interest Union In New Zealand is leading the charge.

Solid Energy Performance 2001 – 2012

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This chart clearly shows that Solid Energy has been a dog since 2001. I had a look through their annual report and calculated that they had ~40% payout ratio to the government. They paid out ~$220 million in dividends and had after tax earnings of ~$550 million.

But look at the trend in liability growth! Starting from 2008 they had high dividend payout goals of $100 million but never met them due to volatility in the coal price. Solid Energy did not hedge against coal price risk because they were prepared to take the market price.

The most disturbing thing I noticed while quickly compiling this chart was the rapid growth in employees paid over $100,000 – how many of them were paper pushers as opposed to mining engineers capable of delivering lower cost coal extraction and increases in efficiency?

At 1200 FTE, Billy Bunter our Finance Minister isn’t ruling out a bailout. That’s a lot of jobs! They’ve already shut down one mine and have been laying off staff at head office. CEO Don Elder, a Rhodes Scholar, hit the road last month from his $1.1 million dollar a year job.

Solid Energy should not be bailed out. It should fail. This National government has no brains or balls, they have been hoodwinked by the banksters with nonsensical stories of “systemic risk” and “too big to fail”.

The best thing for Solid Energy is to be placed into administration and miner Brent Francis drafted to recover as much value from Solid Energy’s mining assets as possible over a 5 year period. So what if the banks take a bath on their short term loans to a state owned enterprise.

The problem with state owned enterprises is that bankers will always lend money to dogs when they know that the likes of Bill English and Tony Ryall will hold scaredy-cat press conferences and pay them in full.

Taxpayers be damned – we must not let the banksters lose one dollar in writedowns on loans to state owned enterprises!

Oh and for the Green MPs saying this invalidates the need for asset sales, do not pass GO and do not collect your $200,000 in parliamentary salary, benefits and expenses.

Solid Energy would not have been able to borrow so much and get into this position if it was a private company.