Tractors are rolling through the streets of Brussels again, disgruntled farmers are pelting the police with eggs and butter is piling up in European warehouses.

Only a year ago we thought it was all over — Europe’s interminable agri-agony. Gone were the export subsidies and milk powder mountains. A coincidence of droughts in the Antipodes, weak harvests elsewhere and a new generation of Asian children reared not on rice and pulses but on the fattening fodder of burger, shake and fries would transform agricultural markets, make British farmers richer and our taxes lower.

Recession has ended an all too brief farm holiday. Food commodities plummeted in 2008 as quickly as they soared in 2007. On world markets the price of milk powder and butter has halved. Farmers ploughed and planted worldwide, in a hurry to grab the glittering price. Costs went sky-high — fuel, fertilisers, pesticides — but as quickly as it came, the boom in soft commodities has vanished.

In Europe, dairy farmers vote and the Commission has reluctantly restored the discredited tool of market intervention, spending €600 million (£515 million) so far this year in propping up milk and butter prices. About 80,000 tonnes of butter and 180,000 tonnes of milk powder are piling high in warehouses, waiting for buyers at the “right price”.

Five years ago, the Commission came to its senses (with the help of prodding from export rivals) and began to dismantle the Common Agricultural Policy regime of market-rigging. Instead of protectionist quotas and price intervention, there would be direct grants to farmers.

Dairy quotas are still due to end in 2015, but cracks have appeared in the European Union’s new wall of fine principles with this bout of interventionist price-rigging. It benefits no one, least of all the consumer, who is paying higher prices for milk, butter and cheese even as the wholesale price falls. The retailer’s margin has tripled over the past decade from 6p to 7p per litre to 19p. As the supermarkets tax us with their inflated profits, the government tithes us to support the rural lobby.

Does anyone in Brussels or in Westminster or at the National Farmers Union understand commodity markets? Tesco and Wal-Mart understand, hence the 50 per cent gross retail margin on a pound of butter.

If you are a small unprotected player in a commodity market, you are unlikely to survive. No matter how efficient your operation, bigger competitors will always claim an advantage. Even the largest and most aggressive monopolists can be undone by the violent swings in commodities.

Look at the global gas market, where prices have fallen so far that liquefied natural gas (LNG), a fuel once regarded as exotic and expensive, is now so cheap that it is forcing coalmines to close. The gas glut is hurting Gazprom, a company that only two years ago was boasting of its domination of Europe’s markets. Today, it is fearful of a floating pipeline of LNG ships carrying frozen gas from the Gulf and North Africa into European ports. These violent swings and roundabouts in the price of commodities cause trouble and can damage the unwary, but, overall, they are a good thing. Price volatility forces sellers to achieve greater efficiency. It encourages new market entrants and it thwarts the complacency of monopolists, such as Gazprom, a company that is always the first to promote regulation and the old-style, long-term gas contracts that minimise price fluctuation but enforce dependency on the supplier.

We don’t want to regulate the price of natural gas and nor should we try to regulate the price of food. Milk is a global commodity market and Britain’s dairy farmers struggle to cope as it widens and deepens. The peculiarity of the British demand for daily liquid milk deliveries to doorsteps has insulated farmers from the need to combine, to diversify and to develop higher-margin businesses.

The NFU, however, has a different vision, one of dependency, which is revealed in its strategy for the dairy industry. Cloaked in a Union Jack, the NFU Dairy Survival Plan calls for the end of imports, notably foreign cheddar cheese, and a commitment by retailers to buy British produce. The second pillar is a demand that big food retailers establish long-term dedicated supply chain links to farmers.

This is naive — retailers will support producers up to a point. They are not guarantors of a price that supports the rural lifestyle; what retailers want is a guarantee of supply efficiency. Far better to build real efficiency and sell it on a wider market.

British dairy farmers need muscle and pricing power. Without clout, they are at the mercy of retailers. However, the evidence suggests that they will not or cannot work together effectively. The collapse this year of the co-operative Dairy Farmers of Britain is a sad testimony of failure.

There is an alternative and it is to get out of commodities altogether. Not long ago in Turin, I was given a brief lecture on the manufacture of Parmesan cheese by traditional methods. About 500 litres of milk are used in the manufacture of two standard Parmesan cheeses. However, the highly prized vacche rosse (red cow) Parmesan uses special milk from a different breed of cow. Without a trace of irony, the salesman said that “red cows” produced less milk, therefore fewer cheeses per cow and less efficiency. The solution: vacche rosse Parmesan is more expensive.

carl.mortished@thetimes.co.uk

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