P.M. outlines reasons for dairy credit cut

Press, 1 July 1983, Page 3

P.M. outlines reasons for dairy credit cut

PA Wellington Dairy Board use of cheap Reserve Bank credit had caused “considerable difficulties” in money supply management, said the Prime Minister, Mr Muldoon, yesterday. The Minister of Agriculture, Mr Maclntyre, earlier announced that $4OO million worth of the credit, given at 1 per cent interest, would be cut.

Mr Muldoon said he did not think the decision would have a serious effect on the dairy industry. “It’s something that had to come. Their Reserve Bank overdraft had gone up very sharply in recent years and reached the point where earlier this year it hit $lOOO million,” Mr Muldoon said.

“Bearing in mind that it is Reserve Bank money, it clearly has been creating some considerable difficul-

ties for us in the field of the management of money supply quite apart from whether it is equitable.”

Mr Muldoon was asked about the effect of higher interest rates on the industry considering that the board would now not have access to a large amount of cargo credit.

He said he believed interest rates would come down with the decline in the rate of inflation. “Bear in mind what we are talking about is the peak for just very few weeks in the year. This is not something that is going to be outstanding for any great length of time. So at that point if interest rates generally are lower it does not look quite as large.”

Mr Mulddon’s comment about a peak was a reference to the board’s need to borrow to pay farmers be-

fore it receives payments. The requirement to borrow can fluctuate considerably and reach high points for short periods. Mr Maclntyre announced at a dairy conference in Wellington yesterday that the Government had told the board it must get $4OO million of its credit from private bankers at commercial interest rates. The board’s chairman, Mr Jim Graham, told delegates the move would cost each farmer at least $2400 in the coming year.

Mr Maclntyre said the new overdraft ceiling was part of the Government’s review of all protection and incentives for industry. “The . . . concessional overdraft facility with the Reserve Bank has been a significant benefit to the industry and can be portrayed as a protectionist policy,” he said. While conscious of the costs commercial credit would put on the industry, he said, this was “a strategic change" in the industry’s long-term marketing interests. Mr Graham said the Government’s refusal to entertain board counter-pro-posals to the cut or make it part of a package for rehabilitation meant the board saw the move to cut aid as “close to a vote of noconfidence” in his industry. The credit cut applies to the third of Reserve Bank credit the board uses to buy stock and pay debtors. It still had access to $750 million in credit for capital needs. Mr Graham said it was hard to see the board’s extra borrowings costing less than ?40 million over a full year. The clamp comes on top of predictions by Mr Graham that each farmer would be $7OOO out of pocket this year because the basic price for milkfat was 340 c a kilogram, 20c down on last season’s. The $2400 cut for each farmer was additional.

The president of Federated Farmers, Mr W. R. Storey, said statements by Mr MacTntyre that there would be no increase in the S. payment for wool and that there would be a substantial reduction in the availability of Government loan money to the dairy industry were discouraging blows to dairy farmers.

“The dairy industry decision is shortsighted in the extreme and will not only reduce farmers’ incomes but reduce the marketing flexibility of the Dairy Board. It comes at a time of acute difficulty,” he said.

“Dairy farmers will be shocked that in one Government action their income has been reduced $2400 for the year on top of the large drop in the basic butterfat price. The Minister of Agriculture justifies the moves as a part of the Government’s endeavour to restructure the industry and to reduce Government subsidy and involvement,” he said. “If this is indeed the purpose, it will be accepted by farmers only if there is an early announcement of the removal of export incentives and import licensing, as well as a dramatic reduction in the level of tariff protection,” said Mr Storey. “Also, the level of cut to the dairy industry must at least be matched by cuts in non-productive areas of Government expenditure.”