Effect Of Exchange Lift On Dairy Industry

Chronicle (Levin), 3 September 1948, Page 7

Effect Of Exchange Lift On Dairy Industry

Press Association)

(Per

' '.RA . WELLINGTON, Sept. 2. With the' alteration in'ljlie exchange rate, the Dairy Products Marketing Commission liad Ibgit £90,000 o'n payinents already made to dairy companies foi' laht seasoii's unsold ' balance in New Zealand, said the cliaii'mkh oi' the Commission, Mr. William Marshall, when addressing the annual Dominion Dairy Conference. Mr. Marshall said if the Season 's output was the same as last year's, the eft'ect of the altered exchange rate, when eonverted into New Zealahd curren'cy,-' would be a loss of ovcr £10,000,000 to the industry account. If the price paid by Lritain wero to recede by the full per cent., as was possible in a I'ulure year, it woidd cost the industry account £700,000' to mahitahi last year's guaranteed price. If the worst happencd and similar reductioiiS' in price occurred in a succeeding year with the guaranteed price lield at last ' year's level, the credit in tlie industry account wouid be wiped out in about four years. It was essential, tlierefore, said Mr. Marshall, to look for a , reduction in costs to assist the industry .to bridge any gap brought about by a fall in prices.

It was uecessary to'remind the industry that it was working undor the guaranteed price. The resources of the iState liad been placed behind the (Jommission in the payment of its price Lo the fanners. Tliis would l)e of advantage to young men eoming into the industry and niight be of eonsidable advantage to the primary industry as a whole. The existence of the guaranteed price sliould have a steady mg effect." Asked wliether it was possible that the alteration of the exchange rate .v as taken into consideration when the Coniniissioii negotiated the receut con tract with the United Kingdom, .Mr. Marshall said tliis possibility was oue the Commission discussed. The lT inted Kingdom was not at any timo pre pared to underwrite New Zealand 's right to alter tlie exchange rate. liad the exchange alteration taken piave before the negotiations, the Commission would not, in liis opinion, have secured a higher price. The Cnited Kingdom Govemment took the view that it oought and sold in sterling and was uot concemed with wliat New Zealand did about its internal values. Asked by Mr. W. N. Porry (Cambridge) what would happen if Britaiii devalued her currency, Mr. Marsliall said sucli a move would not affect tlie money eoming into the industry account. If Britain deprecialed New Zealand 's costs would be affected to the extent of the pominion's adverse trade with dollar countries. That would oe a geueral malter for the vvlioJe i ountry. Asked about the difference belween the price Britain paid to Nevv Zealaml ior butter and the price paid to JDon uark, Mr. Marshall said even thougli • lenmark had .been selliug at 321s a cwt., her fanners had al.-o to get a sub ■iidy of 2Us irom their Governmenl. l he cost of production in Denmark was .luiiormaily higll aird britain had to rnve produce irom there to inainlain Iier fat ration. New Zealand couJd lave lield a pistol to the head of the c'nited Kingdom GovorninenC and saul 'give us the Danisli prices" but that . as not the policy of tliis countrv. 11c ihought that in tlie long run tlie'altiude of New Zealand would be of grcal value. Funds in Accounts. Mr. Marshall said tlie lotal in the lairy industry account at .1 uly 31, 11)47, when the Commission took over, was £ ti, 907, 459. The balance at July 31 this year was £ 12,585,000. Tliis last iigure was subject to the year's audit .vhich was yet to be made. The funds were lield as i'ollow: — Govommout, 3 per cent. stock £3, 000, 000, Governnient D, per cent. stock £4,700,000, Treasury Bills maturing the next six nionths and carrying interest at the. rate of 1 per cent. £2,500,000. Tliese sunis total led £10,200,000. The balance was used by the Commission i'or trading purposes. To meet earlier paymenls to dairy •ompauies which the Couunission liad 'made in the past year to enable tlicni lo keep down interest charges, the Commission was forced to go into overdraft and during the year this rau as iiigh as £11,000,000. The cost of the Overdraft was a little over oue ] >o r eeiit. The funds were invested at tlie best possible return tlie Coniniissioii •rould get within tlie authority of the statute vvhich- governed its operalion.s. To linanee its advanee paynients the Commission had secured aii overdraft . roin the Keserve Bank at a low rate of interest. Tlie total purehases by Ihe Commission, including stocks of the previous season, ainouutcd to 120,420 tons of butter and 70,013 tons of cheese. The value in New Zealand currency was £38,030,041. Butter sold to the Cnited Kingdom totalled 22,727 tons, and the other countries 1-101 tons. Stocks lield in New Zealand at July 31 last totalled 5205 tons. The amount of cheese sold to Britain was 77,302 tons and to other countries (apart from processed cheese) 234 tons. Stocks of cheese on haiul at July 31 were 2010 tons. The Commission had not wished to become iuvol.ved in Ihe processing and packing industry but circumst.auc.es lef'f it no alternative but to take ovei tlie Auckland plant of tlie Internal .Marketing Department. It was linally deeided, after investigation, that the Conuuis sion had 110 option but to purchase aii processed cheese as well as othei cheese. This had involved some dilii ' culties but he believed they would be ironed out. Cnfortunately the exchange alteration liad ehanged the position oi processed cheese in overseas niarkel;and some orders had already been cau celled. It "did not see'm possilile foi New Zealand to compete. with Austru lia under the present exchange posi tion and the Commission was now hunt iug the world for other markets to keep the export industry in processed cheest going. Mr. Marshall reviewed in detail t Ii ■ recent negotiations With the Knited Kingdom for tlie sale of New Zealand butter and cheese. He said that althougli he had received from Nevp

Zealand, wliile he was in London, mauy' niessages prolesting against atiy ra: iiewal of lump sum payinents, there had been 110 pressure of any kiml brought to beur 011 Ihe Commissiog, or hiniself by tlie Governnient. Before tlie negotiations were liuished, . luiup sum payinents were a fhing of the past. The Coniniissioii was successful in negotiating aii entirely new agreemenl, . the clauses of wliicli he discussed in some detail. Elforts had lieen made by large pro prictary concerns to get a footliold in Nevv Zeabuid in the manufacture of milk products, he added. if they were to be kejit out, the eooperative set up niight be called on Lo meet the deinaud for these products. The eonipanies going '111 I'or jiroduetiou of these commodities must, however, do so with preparedness to meet ordiuary eonimereial risks. They eould not expect proteetiou from long-term eoutraels to cover them against all these risks. 'Tlie deveiopinent of Ihe mauufaet ure of these products niiglil set up stresses wilhin tlie industry and diseipline within tlie industry niiglil prove to be necessary.