Nemesis of the Guaranteed Prices Scheme

Press, Volume LXXIV, Issue 22511, 20 September 1938, Page 8

Nemesis of the Guaranteed Prices Scheme

No very close reading of the Hon. Walter Nash's speech announcing the guaranteed prices for dairy produce for the coming season is required to show that the Minister found himself in an acutely embarrassing position. The new Guaranteed Prices Advisory Committee, established as a result of negotiations between the Government and the. New Zealand Farmers" Union, recominerided Unanimously payments of 163 d per lb of butter-fat for-butter and 183 d per lb of butter-fat for cheese; the Government has decided to pay ,15.88 d and 17.88 d. For rejecting the committee's recommendation the Minister advances two reasons. The first is' that, in the Government's opinion, the-committee has not given sufficient weight to !' the central feature of the order of reference," which is the clause requiring that the guaranteed prices shall be related to "the general "standard of living,of persons engaged in the " dairy industry in comparison with the general "standard of living throughput New Zealand." Mr Nash says that .if this consideration is not given its correct weight " a disparity will "arise"; but he does not indicate what sort of disparity -he is contemplating. That is, he does not say whether, if the committee's, recommendations were, accepted, the dairy "farmers would be over-paid in relation to other farmers or to the community generally. ■ Pre-

sumably, however, what is worrying' him is the possibility that the guaranteed prices will cause a diversion of capital and labour from other ! branches of farming to dairying. His second arid more important reason for not adopting the guaranteed prices recommended by the committee is that to do so would involve too large a deficit in the Dairy Industry Account. The committee estimated that, payment of the prices it recommended would involve a deficit for the season of £2,824,000, assuming that market prices and output were the same as in the previous year. On the question whether this deficit was within the limits of prudent finance, the committee refused to express an opinion, holding (on a somewhat narrow interpretation) that this was a matter of Government policy and not within its terms of reference. Mr Nash indicates plainly that he regards this deficit as impossibly large and points out that heavy deficits "must inevitably wreck " the guaranteed prices procedure." Even so, the prices to be paid by the Government, assuming that market prices and output will be the same as last season, mean a deficit of £935,000, which will probably be large enough to cause the Reserve Bank some uneasiness. Moreover, the assumption that market prices will remain at last season's level is very far from if butter and cheese prices follow the general tendency now perceptible, the deficit may well be half as large again as Mr Nash estimates. The Minister and the Government can therefore be congratulated on a refusal to embark on a.course which could only have impaired seriously the stability of the currency and of the national finances. It can also be congratulated on admitting by inference, what it has hitherto persistently and foolishly denied, that over the long period guaranteed prices must be . related to market prices. But the episode is chiefly significant as a complete and devastating condemnation of. the Government's economic policy. The six members of the .Guaranteed Prices Advisory Committee were appointed (three of them on the recommendation of dairying interests) by the Government, which thereby accepted them as persons qualified for their task. The unanimous opinion of this committee is, in effect, that, on present prices and output, a subsidy of £2,824,000 would have to be paid by the State to dairy farmers in the coming season to enable them .to meet costs and maintain "a reasonable " standard of comfort." The State cannot afford a subsidy of this amount. The inference must be that costs have risen so steeply in the dairy industx-y, largely as a result of heavy public expenditure and wages and hours legislation, that it is beyond the Government's financial capacity to ensure to dairy farmers that "economic justice" of which it has talked so freely. The- policy of chasing mounting costs with subsidies is bankrupt.