Holy Roman Empire - Chapter 516

Chapter 516: Chapter 89, A Storm Arises
 

On March 22, 1872, Britain and Russia signed the “Anglo-Russian Bilateral Trade Agreement,” the “Anglo-Russian Grain Mortgage Loan Agreement,” the “Anglo-Russian Financial Mutual Trust Agreement” …

Apart from not forming an alliance, the Tsarist Government had economically gravitated towards the British, which had become a fact.

According to the terms of the treaty, the Russians had become a member of the British Pound—Gold System, and the international dominance of the British currency was officially established.

As compensation, the British had to provide the Tsarist Government with interest-free loans of 150 million pounds over the next five years, all of which the Russians would repay with agricultural produce.

It was clear to the perceptive that the so-called loan was just a pretext. The amount of the loan disbursed each year corresponded precisely to the value of the agricultural produce exported by the Russians, essentially being a sizeable purchase contract.

These Russian farm products were priced even lower, and the London Government had exempted them from import tariffs. By offering low prices, they’d seized the market from other countries that exported agricultural products to Britain.

Austria was the first to bear the brunt, being the world’s largest exporter of agricultural products. Austria’s losses were undeniably the greatest. Out of the total annual imports of agricultural products by the British, sixty-five percent had come from Austria, but now that market share could almost be declared non-existent.

“Free trade” was something to be taken with a grain of salt, as taking it seriously could spell doom. The British shouted slogans that shook the heavens, but when specific interests were involved, they decisively cast them aside.

If Austria wanted to maintain its market share in Britain, it had to at least halve the prices of its agricultural products to have a chance of surviving the competition.

Influenced by the Anglo-Russian treaty, the international agricultural product market had begun to plunge steeply since April. Capitalists had been selling off their stocks en masse and liquidating assets to amass cash flow, fearing that the impending agricultural product winter might freeze them out.

At the center of the vortex, Franz remained relatively calm. Although the British’s sudden move was unexpected, the Vienna Government had anticipated an impact on the international agricultural market.

During the last annual work conference, the Vienna Government had developed a grain reduction plan, focusing mainly on wheat, corn, and legumes—crops in which the Russians had high production capabilities.

In the Vienna Palace, during the special economic conference on agriculture, Franz picked up his baton and drew a line across the world map.

“The Russians are coming on strong, and the British are adding fuel to the fire. The agricultural winter has arrived. This is a challenge for Austria, and we must take all possible measures. Hols, begin with the plan from the Ministry of Agriculture.”

Minister of Agriculture Hols stood up from his seat, straightened his attire, and put on a serious and tense expression, clearly the topic at hand was a weighty one.

“The Ministry of Agriculture has been preparing for the Russian agricultural products to re-enter the international market since two years ago.

In light of this, we’ve taken several measures, including adjusting the agricultural product industry structure, cutting back on staple crop production, clearing inventories, and developing animal husbandry, among others.

These measures can only mitigate our losses but cannot solve the problem at its root. The international agricultural product market is only so big; we cannot overcome this crisis by simply cutting production capacity.

With the outbreak of the agricultural winter, agriculture in all countries will suffer; there’s no need for us to bear the entire burden alone.

The crash in the market price of agricultural products was mainly caused by the Russians. If that’s the case, we would let the crisis intensify.

The Ministry of Agriculture plans to reduce international grain prices by half over the next three years, toppling the agricultural production of countries across Europe.

Although Russia’s agricultural production capacity is vast, they lack the ability to withstand risks. The Tsarist Government has limited finances and cannot offer protection to the farmers.

When grain prices plummet, a wave of farmer bankruptcies is inevitable. If we are lucky, we may even deal a severe blow to the Russian agricultural production system.

To compensate for the losses suffered by domestic farmers, the Ministry of Agriculture suggests suspending the collection of agricultural tax, grain transaction tax, agricultural product export tariffs, as well as prohibiting the Church from levying tithes. At the same time, set a minimum grain price guarantee to ensure that farmers do not operate at a loss.”

Destroying the agricultural production systems of countries across Europe, aside from worrying about others reaping the benefits, the Vienna Government did not wish to attract such resentment.

Austria had already obtained the largest share of the international grain export market; with the largest piece of the pie already in hand, why push things to the extreme?

Now the situation was more manageable—the Russians had stepped forward. With a bit of propaganda, the blame could easily be shifted onto the Tsarist Government and, in passing, tarnish the British. Their reputation was already foul; they wouldn’t mind being saddled with a little more hatred.

The Anglo-Russian agreement served as the best piece of evidence. They’d slashed the export price of grain by thirty percent and eliminated tariffs. The two governments were directly involved in trade, disrupting the free trade system. This was the root cause for grain production across Europe being unprofitable.

Blatant dumping at such low prices was indefensible. With someone leading the price cuts, the rest that followed didn’t seem too conspicuous. If a price war accidentally broke out and the selling price was driven even lower, it would be an unavoidable consequence.

With England and Russia jointly attacking Austria’s grain exports, it was better to bottom out prices than to let domestic grain sit unsold.

If international grain prices were cut in half, it remained to be seen whether British grain merchants would uphold the contract. No one liked doing business at a loss. Should the British breach the contract, there would be quite a spectacle.

It seemed to be just an assault on the various national grain production systems, but it was also undermining the rapprochement between England and Russia. Nothing could dissolve an alliance more effectively than conflicting interests.

Moreover, England and Russia were not allies; they had only drawn closer for mutual benefits. Once the conflicts of interest exceeded the benefits of their partnership, it would be hard to avoid going their separate ways.

Everyone fell into deep contemplation, digesting what Hols had just spoken.

“With the grain prices falling by half, how great is the impact domestically? Could it lead to a large number of farmer bankruptcies? Could it involve the entire agricultural product system? How much funding is required?”

The questions were raised by Prime Minister Felix. Agriculture had always been a pillar of Austria’s economy, requiring the Vienna Government’s full attention. If the situation went awry, the consequences could be severe.

“Your Excellency the Prime Minister, please rest assured. The Ministry of Agriculture has conducted a special assessment. After suspending the collection of agricultural tax, tithes, grain transaction tax, and grain export tariffs, the impact of halving international grain prices on the domestic market has been minimized.

The response on the grain procurement market would result in a decline in grain purchase prices of approximately twenty percent. The Ministry of Agriculture will monitor and intervene directly in the procurement if market fluctuations exceed this margin.

Since the cost of grain production varies from region to region, it cannot be generalized. In the fertile plains of Wallachia, there can even be a slight profit. However, in some provinces with less favorable natural conditions, losses are likely to occur.

It is certain that farmers will go bankrupt, and as time goes by, the small farmer economy will inevitably be destroyed. This primitive mode of production is too costly and cannot compete with mechanized farms.

Domestic farmers have a higher average land area per capita, and when planting, they usually grow multiple crops concurrently, giving them a certain ability to resist risk, so a massive wave of farmer bankruptcies will not break out in Austria.

To complete this plan, a relatively large amount of capital is required, at least an investment of 120 million shied, while also having to reduce the fiscal input by about 21 million shied annually and the education sector needing the government to fill a shortfall of 15 million shied.

In the end, the issue still boils down to money. Once this plan is implemented, the era when agriculture compensated for industry and education will be over.

Actually, Austria’s agricultural tax has always been very low, merely 5%, which is among the lowest compared to the major agricultural product producing countries on the European Continent.

The grain export tariff is as high as 15%, but for processed grain products, the export tariff is only 3–5%, adjusted according to the actual situation, and sometimes as low as 1% has been collected.

As a result of this policy, Austria exports mostly processed grains and rarely exports raw grain.

Other related taxes are also very low, with a 5% grain transaction tax, directly exempting vehicle and vessel transport taxes, and almost no added taxes.

Even so, these taxes still occupy an important position in Austria’s fiscal revenue. There has been a decline in recent years, but it is still a significant figure.

Franz fell into calculation, the operating capital investment of 120 million shied was easy to handle; a one-off investment would suffice, and if push comes to shove, bank loans or bonds could be issued. This sum was no longer a challenge for Austria.

The trouble lies in the reduced fiscal income and increased educational expenses. That 36 million shied is not a one-time loss but gone forever.

“Temporarily exempt” in reality means permanently. Once the agricultural bonus period ends, it will be time for industry to subsidize agriculture.

This means that Austria’s fiscal revenue will shrink directly by 8.3%, while fiscal expenditure will increase by 6.1%.

After listening to the Ministry of Agriculture’s plan, Finance Minister Karl frowned deeply and after a moment of silence, set aside the water glass he was holding.

“It’s too aggressive. There is no need to destroy the agricultural production systems of European countries to such an extreme. It’s enough just to lower the international grain prices to a point where farmers across the countries make no profit; there is really no need to go to the extreme in one step.

In the field of agricultural production, we have an advantage, as the cost of grain production is the lowest on the European Continent. We also have a complete industrial support system from which we can earn more profit.

Now that farmers across Europe have started losing money, our domestic farmers still have a certain profit margin. As long as we drag this out, they won’t be able to hold on.

Based on economic principles, it’s very likely that the Russians will be the first to cave in. Unless the Tsarist Government subsidizes agriculture, the high costs will destroy Russia’s market competitiveness for agricultural products.

As long as we control the extent, we don’t need to pay too high a price. Now, we just need to reduce our grain export tariff, exempt agricultural taxes, and we can withstand the initial shock.

The Russians haven’t exported grain to the United Kingdom yet. Let’s release our grain reserves now, shock the international market by driving the price below the England and Russia transaction prices, and then see if the British fulfill the contract.

If they don’t fulfill it, the Russians will be in big trouble. I don’t know if the Tsarist Government’s wallet can withstand the severe consequences of not being able to sell the mountains of grain they’ve accumulated.”

It must be said that professionals can be ruthlessly efficient. What’s being knocked down here isn’t the grain price, but the Tsarist Government’s finances. Once a massive grain surplus occurs, Alexander II will be in trouble.

There’s no alternative, the farmers only have grain in their hands. Either the government directly requisitions it, letting it rot in the warehouses, or the taxes must be exempted.

Once the market is flooded, even if the grain is very cheap, no one will dare take it over. After every major economic crisis, there have been capitalists who have dumped milk into rivers just because the market was saturated.

Now, Karl’s plan is to crush the British grain prices before the England and Russia transaction is completed.

The international grain prices will, of course, not be spared, and Austria too will suffer heavy losses. But as long as the British breach the contract, the heavily-losing Russians will not let it go, and even if they can do nothing against the London Government, exiting the British Pounds – Gold System is inevitable.

At that time, even if reluctantly, the Tsarist Government will have to bite the bullet and join the Divine Shield – Gold System. The losses on the grain market can be recouped in the financial market.

Hols furrowed his brows with doubt, saying, “What if the British honor the contract? The benefits of currency hegemony are not trivial; they have no reason to give it up so easily.”

Karl smiled calmly, “Then, it just means that this year all the grain exporting countries will suffer together. Even if the international grain price drops by thirty percent, the impact on Austria, which exports processed grain, is not that severe.

Don’t forget, the food processing industry itself still has profits of more than ten percent, so these enterprises can share some of the losses.

Overall, even if the price of raw grain drops by seventy percent, domestic agricultural production can still break even. That’s enough; I don’t believe the current grain export prices are profitable for Russian farmers.

The government only needs to sacrifice some of its grain reserves, and cut fiscal revenue by 8 to 10 million shied.

If we were to directly attack the agricultural systems of European countries, blaming the Russians could only cheat the common people, but politicians would still see through it.

If they take countermeasures, artificially raising the grain import tariffs, what could be done with cheap grain other than adding to their fiscal revenues?”

This is the reality. It’s common to flip the table in the face of interests. It’s normal to implement trade barriers to protect national agriculture.