MAJOR OVERHAUL OF PRICE SUPPORT SCHEMES ADVOCATED

Press, Volume XCV, Issue 28265, 1 May 1957, Page 6

MAJOR OVERHAUL OF PRICE SUPPORT SCHEMES ADVOCATED

A major overhaul of the support schemes for prices of New Zealand farm products is suggested in the latest Economic Bulletin isued by the Canterbury Chamber of Commerce. The author of the bulletin, “L. 8. claims that the separate schemes now existing for supporting meat, wool and dairy prices should be integrated, one with another, and with national policies. He suggests. that the Executive Commission for Agriculture or some similar body should be revived. Composed of representatives of farm support authorities, Government and other officials, this commission would “ensure that support schemes were viewed in a national context.” In a footnote to the text, the author gives the size of the reserve funds, at July 31, 1956, as follows: dairy, £ 29.5 m; meat, £40.6m; and wool £29m. “The schemes for the three industries have' apparently been conceived independently. Each scheme has its own features, is based on its own principles.” The bulletin is particularly critical of the “cost-of-production” basis of the dairy support scheme. “The greatest weakness of cost of production support schemes is their divorce from overseas realizations.” Influence on Economy The important influence on the economy as a whole exercised by large scale movements in the farm industry reserves necessitates an integrated farm support policy, the writer says. “For instance, it is quite possible for the present farm reserves to fall by about £2O-30 million annually. Such a movement could have an impact on the economy of the same magnitude as a £2O-30 million change in bank advances or a budget surplus or deficit of similar dimensions. At the present time the deficit on the Dairy Industry Account for the current season could well be about £l2 million, to which must be added the subsidy on internally consumed butter the greater part of which at present can be considered a producer rather than a consumer subsidy.” To combat economic depression by allowing large drawings on farm reserves would encourage a drain on overseas funds; “It is usually forgotten that the successful reflationary policy of the Labour Government in the immediate prewar years was made possible by the fact that in December, 1935, equalled thirteen months’ import payments. Overseas reserves in December, 1956, were equal to about four months’ import payments. A low level of overseas reserves greatly strengthens the case for co-ordination of farm support with over-all economic policies.” Without a common policy, the separate administration of the reserves could lead to inefficient allocation of resources. “A high support price for dairy produce and a low support price for meat and wool would encourage marginal meat and wool farmers to switch to dairy farming—a switch which may be completely undesirable on economic grounds.”

Price Fixing Price fixing should provide for payments into reserve funds as well as out of them—“in fact both procedures should be automatic if support schemes are to be based on reserve funds.” This could be acheived by fixing a floor price and a ceiling price for each commodity, based on recent average prices to ensure flexibility. More accurate and up-to-date statistics than are at present available on farm incomes, investments and

expenditure would be needed. Farm reserves should be built up to about six months’ export returns from each product. Representation on the revived Executive Commission of Agriculture should be as follows: each farm support authority, Secretary of the Treasury, Director-General of Agriculture, Governor of Reserve Bank “and possibly either or both the Judge of the Court of Arbitration and the president of the Federation of Labour.” “The present farm support schemes in New Zealand are in need of considerable changes if they are to play an effective role in combating economic instability. The farming community may resent the suggestion that their control over the use of the reserve funds should be reduced, but it should be fairly clear that farmers cannot consider their own problems in isolation and that it is very much in their own interests to have farm support schemes fully integrated with national policy. “The co-operation of farmers would however probably be much more enthusiastic if they had some tangible evidence of some clearer thinking on a national level of the problems created by falling export prices.”