The Supply Chain and Agriculture Struggle Under Government Interference

The supply chain and agriculture affect every order, demographic, and level of society, and they are suffering under the weight of government interference.

January 29, 2024

By: Bobby Casey, Managing Director GWP

supply chain As we start to approach the nearly two year anniversary of the Dutch farmers protests, it’s important to note that more countries’ farmers have since joined in. French, Belgian, Polish, and German farmers all are furious. The Dutch were initially outraged at the EU calls for elimination of up to 70% of their livestock in an effort to achieve some “net-zero” climate goal.

But many more issues belie the frustrations of farmers in this region. The high costs of diesel fuel caused by throttled supply from the sanctions on Russia. The preferential tax relief given to Ukrainian farmers which prices EU farmers out of the market.

The governments the world over are heavily involved in the farming and energy industries. The last farm bill to come out of the US legislature was in 2018 to the tune of $867 Billion. That just sunset in 2023 and will likely get a new appropriation bill this year.

The EU has its own structures for agricultural subsidies called “The CAP” or Common Agricultural Policy. Here is how the EU explains it:

For many years, the common agricultural policy (CAP) was financed from a single fund, the European Agricultural Guidance and Guarantee Fund (EAGGF), which on 1 January 2007 was replaced by the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD).

If you look at the CAP allocations for 2021 to 2027, here’s how things broke down:

The EU budget for 2021 contains a total of EUR 168.5 billion in commitment appropriations. The CAP accounts for 33.1% of the 2021 EU-27 budget (EUR 55.71 billion). Direct payments and market measures represent 76.8% of agricultural appropriations (EUR 40.4 billion), and rural development measures 23.2% (EUR 15.3 billion.

The share of the EU budget accounted for by agricultural spending has been steadily declining in recent years. Whereas the CAP represented 66% of the EU budget in the early 1980s, it accounted for just 37.8% of it in the 2014-2020 period and accounts for 31% for the 2021-2027 period.

The austerity measures over the years is already a sore spot, but now look at the shift in allocations coming out of 2023. In particular, notice how many times environment, climate, biodiversity, and redistribution are mentioned:

  • higher green ambitions: each EU country is obliged to display a higher ambition on environment and climate action compared to the previous programming period (no “backsliding”) and is required to update the plan when climate and environmental legislation is modified;
  • contribute to the Green Deal targets: the CAP recommendations set out how this contribution is expected;
  • enhanced conditionality: beneficiaries of the CAP have their payments linked to a stronger set of mandatory requirements. For example, on every farm at least 3% of arable land is dedicated to biodiversity and non-productive elements, with a possibility to receive support via eco-schemes to achieve 7%. Wetlands and peatlands are also protected.
  • eco-schemes: at least 25% of the budget for direct payments is allocated to eco-schemes, providing stronger incentives for climate-and environment-friendly farming practices and approaches (such as organic farming, agro-ecology, carbon farming, etc.) as well as animal welfare improvements;
  • rural development: at least 35% of funds are allocated to measures to support climate, biodiversity, environment and animal welfare;
  • operational programmes: in the fruit and vegetables sector, operational programmes allocate at least 15% of their expenditure towards the environment;
  • climate and biodiversity: 40% of the CAP budget has to be climate-relevant and strongly support the general commitment to dedicate 10% of the EU budget to biodiversity objectives by the end of the EU’s multiannual financial framework (MFF) period.
  • redistribution of income support: EU countries have to dedicate at least 10% of their direct payments to the redistributive income support tool, to better address the income needs of smaller and medium-sized farms;
  • social conditionality: CAP payments are linked to the respect of certain EU labour standards and beneficiaries are incentivised to improve working conditions on farms;
  • supporting young farmers: EU countries have to distribute at least 3% of their direct payments budget towards young farmers, in the form of income or investment support, or start-up aid for young farmers;
  • improving the gender balance: gender equality and increasing the participation of women in farming are – for the first time – part of the objectives for CAP Strategic Plans. EU countries must assess these issues and address the identified challenges.

This is basically how the US landed where it did on manufacturing. It got so environmentally regulated, and the unions kept demanding more, and the costs became unsustainable, which led to offshoring the labor in countries that were less regulated with cheaper operational costs.

Now we have more government employees than manufacturers. The major props supporting manufacturing jobs in the US is the massive infrastructure and CHIPs bills coming out of the government. Otherwise, manufacturing would be even more abysmal than it is.

The Bureau of Labor Statistics reported government jobs grew by 49,000 while manufacturing grew by 28,000. There’s something moribund about the fact that the top three job growth industries were healthcare, government, and leisure. It’s some late-stage amalgam of Brave New World and 1984.

Politicians love to talk about how the stock market is surging, and point to all the government jobs as economic growth. But the same statistics from the BLS shows a drop in retail jobs.

Some major heaps of dirt being swept under the rug are:

  • The steady rise in foreclosures: In Q3 2023, there were 100,546 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — up 3 percent from the previous quarter and 9 percent from a year ago. A total of 36,684 U.S. properties with foreclosure filings in September 2023, up 8 percent from the previous month and up 15 percent from September 2022.
  • The steady rise in bankruptcy filings: the third straight quarter of bankruptcy filings have increased. Annual bankruptcy filings totaled 433,658 in the year ending September 2023, compared with 383,810 cases in the previous year. Business filings rose 29.9 percent, from 13,125 to 17,051, in the year ending Sept. 30, 2023. Non-business bankruptcy filings rose 12.4 percent to 416,607, compared with 370,685 in September 2022.
  • The number of people working multiple jobs: The U.S. Labor Department just announced that the number of people working a second job has reached a post-pandemic high of 8.4 million

The area no one is talking about, but absolutely should be, are the participants of the supply chain:

Data analyzed by CarrierOK says that nearly 88,000 trucking companies have closed their doors in 2023, alongside 8,000 freight brokerages.

According to a FreightWaves analysis of federal data, an estimated 35,000 new trucking companies shuttered in the fiscal year ending Sept. 30. For the 10 years before that, the average number of out-of-service orders was 15,585.

The two year backlog of ships at the west coast ports in the US drove a lot of this. It was an unnecessary jam created by Covid hysteria. But with the need to get the freight moving, a lot of people took to starting up trucking or brokerages to solve for that. Once it cleared out, work dried up.

This is a similar phenomenon to when interest rates dropped and people were relocating to work from home. Real estate agents started cropping up everywhere. Now that interest rates are over double what they were in 2020, many of the fair weather agents have retreated back to a regular day job. That’s been a fairly predictable pattern.

The supply chain does see cycles that tend to ebb and flow with the economy. That is predictable. But the irrecoverable crash of the supply chain was avoidable. One-third of US imports come into California; but California is on a “green” kick which didn’t help the truckers one bit:

Starting Jan. 1 [2023], diesel trucks with engine model years older than 2010 and weighing at least 14,000 pounds can’t be registered with the Department of Motor Vehicles, according to a California Air Resources Board rule.

At some point, people are going to be pushed too far, and it’s not going to go well. At the end of the day, we all need the food that comes from farms. We all need stuff to get shipped to and from us. And these two areas that affect every order, demographic, and level of society are suffering. Keep an eye on the numbers behind the numbers in the coming months.

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