Market Forces

The assertion that “the market will decide” issues of supply, demand and pricing is widely accepted but the blunt truth is that free markets rarely exist, and the “decisions” they make often result in market failure, usually with undesirable consequences for society in general and the disadvantaged in particular. When these markets are being supported with public finance these consequences are also often extremely expensive.

Farming is a good illustration of this issue. Extreme weather has had a drastic impact on global wheat production with shortages and dramatic price rises anticipated. Unfortunately the UK has not been affected significantly by these weather patterns and thanks to decades of public subsidy it is approximately 130% self sufficient in wheat.  

Why “unfortunately”? Because, despite the public financial support they receive, our farmers will sell their crop on the international market to the highest available bidder resulting in either shortages or price increases for their loyal, subsidy providing domestic customer base.

Surely there needs to be a better reconciliation between public support and public benefit?

Sadly timber markets have similar issues. For decades our timber processing industry has been based on a secure state sector timber supply. Owing to the financial incentives provided for woodland establishment and management the private sector is now rapidly displacing the state sector despite being both unable and unwilling to say how much timber it has, or when it will bring it to market. Uncertainty over timber availability discourages long term investment in skills and machinery and undermines Scottish Government policies on renewable heat, carbon and sustainable construction.

Uncertainties over raw material supply seem to be a major constraint on wood fuel market expansion. FCS is increasingly concerned that its timber is all committed and I am told that the private sector are delaying felling until the Renewable Heat Incentive is in place as the wood fuel sector will then be able to pay a higher price. Meanwhile government policy is stalling and important economic development in rural areas has been postponed because a publically subsidised timber supply is unavailable.

We could ensure a better understanding of the timber supply and give better guarantees of its availability simply by extending the life of a forestry grant for the lifetime of the crop, and include felling periods which must be adhered to, and only amended by prior agreement. However, one of the reasons why the private sector holds out for a price improvement is because it has often had the rough end of the stick in terms of the distribution of added value throughout the supply chain and this issue must also be addressed at the same time.

In the future real raw material shortages will pose real challenges. The last thing we need is to create artificial shortages through a combination of inappropriate market structures and public support systems. If you have an interest in stimulating debate on alternative market mechanisms to promote a more equitable added value distribution and a closer alignment of public support and public benefit we would love to hear from you.