Holy Roman Empire

Chapter 488: Franz's Dilemma

As the economic conference concluded, the electric power industry was designated as a new pillar industry for Austria over the next decade, alongside heavy industry.

To date, the scale of Austria’s heavy industry has reached astronomical figures, involving industries such as steel, metallurgy, coal, machinery, and chemicals.

From a classification standpoint, electricity can also be considered a type of heavy industry due to its close connection with these sectors. However, because it is just starting and has a very large scale of its own, it has been listed separately.

The number of pillar industries cannot be too many. Since electricity and heavy industry have become new pillar industries, naturally, some industries have been removed from the list of pillar industries.

Unquestionably, the one being replaced is “railroads.” This does not mean that railroads are no longer important, but after more than twenty years of hard work, most of the railroads in Austria have been completed.

The railroad industry has begun to become saturated, and in this state, what is needed is steady development, without the need for the government to invest too many resources.

In addition to railroads, agricultural development has also reached its limit. Domestic agricultural growth rates have long since slowed down. The market for agricultural products is only so large, and growing more crops does not necessarily mean earning more.

Currently, the growth rate of agriculture is roughly the same as the population growth rate. Austria already occupies 70% of the international agricultural export market, and this share is almost impossible to increase further.

In fact, it will not be long before Austrian agriculture faces a resurgence of competition from Russian agricultural products, making it very difficult to maintain the current market share.

To ensure the healthy development of agriculture, Austria has made multiple adjustments to its agricultural sector, moving from the initial export of raw agricultural products to the export of processed agricultural products.

During this period, efforts included promoting silk production in Lombardy and Venetia and developing the silk industry, as well as promoting grape cultivation in the Balkan Peninsula to develop the wine industry.

These measures were deliberately aimed at reducing grain production to ensure stable grain prices. With the outbreak of the Russo-Prussian War, the absence of Russia as a competitor in the international market has made recent years more prosperous.

However, these good times are about to end. The Russian government is negotiating with various countries to offset previously defaulted debts with grain.

This is a form of coercion. If the creditors do not accept, the debts will never be repaid. Franz knows that Alexander II’s plan will succeed.

Russian debts are notoriously difficult to collect. Even if creditors have to accept a discount, recovering part of the debt is better than losing all of it. Even if governments object, financial interests will force them to compromise.

The only issue at stake now is how to divide the profits, which will eventually be resolved through negotiation. Alexander II had now cleared the diplomatic obstacles that prevented Russian grain from entering the international market.

The market is only so large. If one country sells more, others will naturally sell less. Although there are many places lacking grain during this period, only Europe has the purchasing power.

If it weren’t for the logistical constraints of the Russian Empire, which hindered their grain exports, international grain prices would have already collapsed.

Franz has never doubted Russia’s grain production capacity, especially with Alexander II’s aggressive land reclamation efforts, which have been highly disruptive.

The fact that Alexander II has faced over twenty assassination attempts in recent years demonstrates how much his reforms have provoked animosity.

Even the most dim-witted nobles have realized what’s happening. Unfortunately, the momentum has already been set, and the land has already been cultivated. It’s too late to turn back.

Franz has no interest in getting involved in the Russian government’s internal conflicts. He is also skeptical about Alexander II’s plan to use grain to offset debts.

No matter how good a policy is, it depends on execution. The grain within the country is not directly owned by the Tsar. To use it for debt repayment, it must first be collected and then transported.

Aside from the financial pressure this would bring, simply collecting the grain requires someone to execute the task. In the face of such interests, who can guarantee that these officials won’t be tempted?

It’s important to note that during the period of large-scale land reclamation, despite Alexander II’s strict oversight, there were still instances of officials embezzling the farmers’ rations, which even led to revolts on more than one occasion.

If the grain is collected in the form of taxes, there’s a risk of officials collecting extra or coming up with a term like “fire loss (huǒ hào/火耗)” to legally siphon off some of it.

(TN: “火耗,” also known as “火耗银” (silver fire loss), originally referred to the loss incurred when fragmented pieces of silver were melted down to cast into silver coins or yuanbao. Later, the term came to refer to an additional tax levied on top of regular taxes on grain or money in ancient China during the Qing Dynasty.)

If the government tries to buy grain directly from the populace, the officials might still manipulate the process. They could forcibly buy the grain from farmers at low prices, sell it to capitalists for a profit, and then leave a small amount to report back to the Tsar.

Unless the Russian government sets a high price, higher than the market price, providing greater benefits to the officials, it won’t be able to collect much grain.

Although the Russian government’s plan might not be realized, the impact of Russian grain on the market will still be significant. As long as there is profit to be made, capitalists will find a way to transport and sell the grain.

Franz strongly suspects that Alexander II is doing this on purpose. First, he uses the grain-for-debt strategy to coax various countries into opening their markets.

The Russian government symbolically allocates some grain each year to offset debts, then allows capitalists to transport the grain for sale.

Although it appears that the Russian government does not profit from this, in reality, selling off the domestic surplus grain is highly lucrative.

Even if other countries become aware of Russia’s plan, they are likely to go along with it. For grain-importing countries, obtaining cheap grain is always a good thing.

The real losers are the current grain-exporting countries, with Austria being the biggest victim. While politically there is no direct opposition, economically, Russia and Austria are now in conflict.

Austria has few options left. Austria could leverage its advantages in transportation and agricultural technology to drive down grain prices, making Russian grain exports unprofitable.

However, this strategy would be pyrrhic, effectively harming Austria’s own interests almost as much as Russia’s. It should be noted that Austria now dominates the international agricultural export market, gaining huge benefits every year.

Even if they win the price war and occupy a larger market, it will still lead to a decrease in profits due to the decline in grain prices. In the end, not only will they not be able to gain greater benefits, but they will also pay a considerable price.

Russia, as the challenger with nothing to lose, stands to gain considerable benefits if successful, while failure simply returns them to the status quo.

In the original timeline, when Americans played the price war game, they knocked down all competitors and dominated grain exports, which was to achieve their strategic goals.

Austria can’t emulate this now. Aside from consuming a lot of financial resources, the key is that it’s now the era of colonial empires, and both Britain and France have a large number of colonies.

If there is insufficient domestic grain, it can be supplemented from the colonies. Others having control over international grain exports won’t scare them at all.

Otherwise, Franz would have already created a grain export alliance, drawing in several grain-exporting countries to manipulate the international grain market for greater profit.

Unable to achieve strategic goals and facing challenges from many competitors, it can be said that after completing the basic accumulation of capital, the importance of agriculture diminished.

However, a decrease in importance does not mean it can be abandoned. In reality, agriculture remains one of Austria’s most critical industries. The agricultural production chain accounts for 38.6% of Austria’s gross national product.

Although this proportion is decreasing yearly, it does not detract from its importance. Faced with Russian competition, industrial adjustments are now imperative.

Austria’s agricultural industry system is already well-established, from the primary production of agricultural products to the end sales of agricultural products, pushing product-added value to its limit.

For example: from wheat to flour and biscuits, from fruits and vegetables to canned goods, from grapes to wine and raisins, from potatoes to fries...

In this era, all agriculture is ecological, with no fertilizers or pesticide additives, so there is no concept of green food. The populace is too poor for branded agriculture to have much of a market.

A complete industrial chain increases risk resistance, but it also means that economic impact is more significant when faced with disruptions.

These industries have very low technical content. European countries are not devoid of agriculture, and they also have these industries, but they are limited by raw materials and therefore not on a large scale.

Once large quantities of cheap raw materials become available, capitalists will surely not hesitate to expand production. Austria is, in fact, the largest buyer of Russian grain as capitalists’ integrity is always low in the face of profit.

The low tariff system between Russia and Austria indeed created opportunities for Austria’s industrial and commercial product exports, but it also brought challenges.

Faced with cheap imported grain, these agricultural processing companies will certainly make choices that align with their own interests. The government cannot force them otherwise, as businesses need to survive too.

To this day, the profits of agricultural processing enterprises have significantly decreased, from the initial 30-40% down to the current ten-odd percent.

This is gross profit, and the net profit is even lower. Under harsh market competition, agricultural processing enterprises have entered an era of slim profits, relying on volume to make money.

The relatively higher profits are found in snack processing companies. However, competition among these companies is even fiercer, with almost every type of snack having dozens or even hundreds of similar products on the market.

While the profit per item is decent, the problem is the low sales volume. There are very few companies that can create a brand and make huge profits.

Currently, Austria’s agricultural industry technology has reached the top level of the era, becoming a defender of the arena.

Fortunately, Russian agricultural products are relatively simple, mainly potatoes, wheat, and corn. Fruits and vegetables, unless processed into canned goods, will rot before they can be shipped out.

Clearly, Russia’s industry has not kept up, and these industries are underdeveloped. The products they produce cannot even be sold domestically, let alone in the international market.

At this point, it is imperative for Austria to adjust its agricultural industry, such as reducing the production of agricultural products that will obviously be impacted and switching to other economically scarce crops on the market.

This is easier said than done. With so many farmers in Austria, it is not a task that can be accomplished with just a word to change their planting habits.

Due to the lack of market information transparency, even Franz cannot accurately predict which agricultural products will be scarce in the future.

Not knowing what the market will be short of makes it impossible for the government to guide agricultural planting effectively.

Unless it’s a planned economy, there will be chaos in agricultural planting for a long time in the future.

This is an unsolvable problem. Agricultural products that are in short supply this year might rot in the fields next year, with no one interested.

Farmers are also adjusting their planting directions based on their own judgments. With so many people involved, it is simply impossible to coordinate.

Franz got a headache.