Chapter 531: A Turmoil Begins
Chapter 519 The Beginning of a Turmoil
On March 22, 1872, Britain and Russia signed the British-Russian Bilateral Trade Agreement, the British-Russian Grain Mortgage Agreement, and the British-Russian Financial Mutual Credit Agreement ……
Apart from the absence of an alliance, it became a fact that the Tsarist government was economically close to the British.
By the terms of the treaty, the Russians were already a member of the sterling-gold system, and the international monetary supremacy of the pound was formalized.
As a price, the British were to provide the Tsarist government with an interest-free loan of £150 million over the next five years, with the Russians repaying the debt entirely in agricultural products.
Anyone with a discerning eye knows that the so-called loan is just a pretext. The loan, issued annually, was exactly equal to the value of the agricultural products exported by the Russians, and was essentially a contract for a huge order.
It was nothing more than the fact that these agricultural products from Russia were cheaper and the London government exempted them from import duties. By the low prices, the market of other countries exporting agricultural products to Britain was captured.
The first to bear the brunt was Austria, which, as the world’s number one exporter of agricultural products, undoubtedly suffered the most. Sixty-five percent of the total amount of agricultural products imported by the British each year came from Austria, and now this piece of the market can almost be declared to have ceased to exist.
“Free trade”, just listen to it, if you take it seriously that will be the end of it. The British slogan shouted a shocking, when it comes to the specific interests, or decisively thrown to the side.
If Austria wants to keep its market in the UK, the prices of agricultural products will have to be cut at least to survive the competition.
As a result of the Anglo-Russian treaty, the international agricultural market has taken a big dive since April. Capitalists have been de-stocking and selling to build up their cash flow for fear of freezing to death in the ensuing agricultural winter.
As the protagonist at the center of the maelstrom, Franz, on the contrary, was not so nervous. Although he did not expect the British to make a sudden move, but the international agricultural market was hit, the Vienna government had expected it.
In the last annual work conference, the Vienna government has formulated a plan to reduce grain production, mainly focusing on wheat, corn, beans, these agricultural products with large capacity of the Russians.
In the Vienna Palace, at the special economic conference on agriculture, Franz took the baton and drew a curve on the world map.
“With the Russians coming on strong and the British pushing, the agricultural winter is upon us. This is a challenge for Austria, and we must do everything we can to prepare for it. Hols, start with the plans of the Ministry of Agriculture.”
Minister of Agriculture Hols stood up from his seat, straightened his coat, and put on a serious and tense expression, it was obvious that this topic was heavy.
“Since two years ago the Ministry of Agriculture has been preparing for the return of Russian agricultural products to the international market.
To this end we have taken a variety of measures, including restructuring the agricultural industry, cutting production of staple grains, liquidating stocks, developing animal husbandry, and so on.
All of these measures can only reduce our losses, but they cannot cure the problem at its source. The international market for agricultural products is so large that it is impossible for us to weather the crisis by cutting production capacity.
There is no need for us to pay for the outbreak of an agricultural winter, which is not good for all countries.
The collapse of prices in the agricultural market this time is mainly caused by the Russians, in that case we will go along with it and let the crisis come more violently.
The Ministry of Agriculture plans to make international food prices fall by half over the next three years, washing out agricultural production in European countries.
Russia’s agricultural production capacity is large, but they lack the ability to resist risk. The Tsarist government had limited financial resources and was unlikely to be able to offer guarantees to the peasants.
Once the food price bloodbath occurs, it will inevitably lead to a wave of peasant bankruptcies. With any luck, we can also hit the Russians’ agricultural production system hard.
In order to compensate for the losses of the domestic peasantry, the Ministry of Agriculture proposes to suspend the agricultural tax, the grain transaction tax, the tariff on the export of agricultural products, as well as to prohibit the church from levying tithes. At the same time set a guaranteed minimum price for food to ensure that farmers don’t lose money.”
Destroying the agricultural production system of European countries, in addition to the fear of being taken advantage of, but also the Vienna government does not want to pull this hatred.
Austria are getting the largest share of the international grain export market, anyway, have taken the largest piece of the benefit, why should we do things to the extreme?
Now it’s a good thing that it was the Russians who jumped out, and with a bit of random propaganda, they can dump the black pot on the Czarist government, and by the way, blacken a wave of the British. Their reputation is already stinking anyway, so they don’t care about pulling in an extra amount of hate.
The Anglo-Russian agreement is the best evidence of this, they discounted the price of grain exports by 70% straight away, and exempted them from tariffs. The two governments were directly involved in the trade, destroying the free trade system, which is the root cause of the European countries losing money together with their grain production.
Proper low price dumping, no one can wash their hands of it. Some people take the lead to reduce prices, the back of the followers will be inconspicuous, accidentally broke out the price war, the selling price to kill a little lower, that is not a way out of things.
Britain and Russia joined forces to combat Austrian food exports, rather than let the domestic food stagnation, it is better to hit the price to the lowest point.
Once the international grain prices are cut to the waist, I don’t know if the British grain merchants will still fulfill the contract, this kind of money-losing business, there is no like. In case the British break the contract, then there will be a good show.
Seemingly only in the impact of the countries food production system, in fact, this is also in the destruction of the British and Russian countries close together. Nothing is more capable of disintegrating an alliance than a conflict of interest.
Moreover, Britain and Russia are not allies. Simply for the sake of interest only close together, once the two sides of the conflict of interest exceeds the interests brought by the partnership, want not to go their separate ways are difficult.
The crowd fell into deep thought and began to digest what Holes had just said.
“How big of an impact will a halving of food prices have on the country, will it lead to massive bankruptcies of farmers? Will it involve the entire agricultural product system? How much money would need to be invested?”
The one who asked the question was Prime Minister Felix, agriculture has always been Austria’s pillar industry, and the Vienna government could not afford not to pay attention to it. In case if the game collapses, the aftermath can be very serious.
“Mr. Prime Minister, please rest assured. Our Ministry of Agriculture has conducted a special assessment, and after the suspension of agricultural taxes, tithes, food transaction taxes, and food export tariffs, international food prices have been cut to the bone, and the impact on the country has been minimized.
Reacting to the grain purchase market, the grain purchase price will fall by about twenty percent. The Ministry of Agriculture will monitor the situation, and if the market moves more than that, we will intervene directly in the purchase.
It is not possible to generalize as the cost of food production varies from place to place. In the plains of Wallachia, where natural conditions are favorable, there is even a slight profit. In some provinces with poorer natural conditions, I’m afraid that we will have to lose money.
Farmers’ bankruptcy will certainly happen, and with the development of the times, the small-farm economy is bound to be destroyed; this primitive mode of production is too costly to compete with mechanized farms.
Domestic farmers have a high per capita land area, usually people are planting a variety of crops in parallel, with a certain risk-resistant ability, large-scale farmers bankruptcy wave will not break out in Austria.
The investment required to complete this program is still relatively large, at least 120 million guilders will be needed, while the finances will have to be reduced by about 21 million guilders per year, and education will require the government to fill another 15 million guilders of the hole.”
The problem, at the end of the day, was still the word money. Once this program was underway, the era of relying on agriculture to make up for industry and education was over.
In fact Austria’s agricultural taxes have always been very low, as low as a paltry 5%, the lowest bracket among the major agricultural producers on the continent.
The export tariff on grain is as high as 15%, but the export tariff on finished grain after finishing is only 3% to 5%, adjusted according to the actual situation, with a minimum of 1% levied.
As a result of this policy, Austria basically exports finished grain and rarely exports directly.
Other related taxes are also very low, grain transaction tax of 5%, vehicle and ship transportation tax directly exempted, a variety of additional taxes are almost none.
Even so, these taxes also occupy an important position in Austria’s fiscal revenue, which has declined in recent years and is still a significant figure.
Franz fell into a reckoning, invested 120 million guilders in operating funds this good, a one-time investment squeeze will be there, really can not also bank loans, or the issuance of bonds, this amount of money has been difficult to fall Austria.
Trouble is the reduction of fiscal revenue, education spending increased, this 36 million guilders is not a one-time, but lost forever.
“Temporary exemption”, in fact this temporary is permanent, after the dividend period on agriculture is over, it is time for industry to subsidize agriculture.
This means that Austria’s revenues have shrunk by 8.3 percent straight away, and fiscal expenditures have increased by another 6.1 percent.
Listened to the plan of the Ministry of Agriculture, the Minister of Finance Karl frowned tightly, silent for a while, put down the hands of the glass of water.
“Too radical, to knock down the European countries agricultural production system, there is no need to engage in such extreme. As long as the international food prices to the point where the farmers of the countries are unprofitable is enough, there is no need to go one step at a time.
In the field of agricultural production, we have the advantage, the cost of food production in the European continent is the lowest. We also have a complete industrial support system, which allows us to get more profits.
European countries farmers are beginning to lose money, in fact, domestic farmers still have a certain amount of profit, as long as we drag on, they will not be able to hold out.
Extrapolating from economics, the Russians will probably be the first to hold out. Unless the Czarist government pays out money to subsidize agriculture, the high cost of doing so will make Russian agricultural products uncompetitive in the marketplace.
As long as we get this right, we don’t have to pay much at all. Now it’s just a matter of lowering tariffs on grain exports and exempting agriculture from taxes to withstand the first shock.
The Russians have not yet exported their grain to Britain, now put our reserves out first, shock the international market to hit the price to the Anglo-Russian transaction price for a bit, and then see if the British will comply.
If they don’t, the Russians are going to be out of luck. I don’t know if the Tsar’s government’s wallet can handle it, and the consequences of piles of grain that can’t be sold can be very serious.”
I have to say that professionals are just tough enough, it’s not the price of grain that will be crushed, it’s the Tsarist government’s finances. Once there is a large-scale stagnation of grain sales, Alexander II is going to be out of luck.
There was no way around it, the peasants were left with the grain in their hands. Either the government directly levies the grain, and then rot in the warehouse; or it can only be tax-free.
Once the market was filled, even if it was cheap, no one would dare to take it over. Every time a major economic crisis breaks out, there are capitalists pouring milk into the river just because the market is saturated.
Now Karl’s plan was to take the first step in crushing the price of grain in Britain before the Anglo-Russian deal was finalized.
Naturally, international grain prices would not be spared, and Austria would lose heavily. But as long as the British default, then the heavy losses of the Russians will not be willing to let go, perhaps can not help the London government, but the withdrawal of the pound – gold system is inevitable.
At that time, the tsarist government, even if it is no longer willing, can only be forced to join the Shield – gold system. Losses in the grain market can be recovered in the financial market.
Holes frowned and questioned, “What if the British fulfill the contract? The benefits of monetary hegemony are not just a star, it doesn’t make sense for them to give it up like that.”
Karl smiled frankly, “It would be nothing more than all the grain exporting countries, together, having a hard time this year. Even if the international food price is discounted by 70%, the impact on Austria, which exports refined food, is not that big.
Don’t forget, the food refining industry itself still has more than ten points of profit, these enterprises can also share part of the loss.
Overall, with a seventy percent drop in raw grain prices, domestic agricultural production could still manage to cover its costs. That’s enough, and I don’t think Russian farmers can make money at current grain export prices.
The only price the government would have to pay would be a portion of the grain reserves and a cut in revenues of eight to ten million shillings.
If it was a direct hit to the European countries’ agricultural systems, using the Russians to take the blame would only fool the average person, and the politicians would still know all about it.
If they take countermeasures and artificially raise tariffs on food imports, what else can cheap food do but increase their fiscal revenues?”
This is reality, and it is common to flip the table in the face of profit. In order to protect their own agriculture, the adoption of trade barriers that is normal.
(End of chapter)