PRICES AND PROFITS

Dominion, Volume 13, Issue 178, 23 April 1920, Page 8

PRICES AND PROFITS

QUESTION OF REPLACEMENT THE ACT IS DEFINITE Retailers who have been appearing before the anti-profiteering tribunals in Wellington and other centres have arguedj in favour of basing selling prices on replacement costs. This question was discussed in 'an article published in The Dominion last week, The Boaa-d of Trade has ruled, in conformity with the Board of Trade Act of last year, that profit should be based on the actual dost of the goods and not on the replacement cost; and this ruling is being maintained by the tribunals, witli such modifications na special circumstances may require. The point is to.be tested in the courts in the near future. In'the meantime some retailers, it appears, are not aware ■how fully the relation between prices and replacement costs was discussed when the legislation now in force was before Parliament. The Act provides that "the price of any goods fhall be deemed to be unreasonably high if it produces, or is calculated to produce,. more than a fair and reasonable rate of • commercial profit to line person selling or supplying or offering to sell or supply these goods, or to his principal." When the Bill was before the Legislative Council last year rome of the retailers asked for the recognition of replacement dost as-the basis of selling price, and the following proviso was suggested: "Provided that a sale at a price not higher than the price at which the goods can ho replaced, plus a fair and, reasonable commercial profit, shall not be deomed to be unreasonably high." This proviso was not inserted in the Bill, and the reasons for its rejection were made clear in the course of the proceedings of a' committee, which took evidence. - Mention was made, for example, of the price of rice. A sensational rise iu the price. of rice in Japan and Java was caused by the failure of crops. If holders of rice in New Zealand were allowed to charge' the replacement cost for the stocks they held, they would make very'largeprofifs. Yet asji matter of fact they would not pay the increased cost -to any large extent, since the consumption of rice : would decline sharply when the price was doubled or trebled. The opinion of Parliament,,as expressed in the Act, was- that profits should bo assessed on the actual cost of the goods. If the retailer had to pay an increased price for replacement, he would recoup himself when he sold the new goods.

An article published in The Dominion last week quoted the argument of a retailer, who said that he'would suffer loss if he were not allowed to charge the replacement cost. He stated that by charging the replacement cost he merely secured his ordinary trade profit, plus tiri increase in the paper value'of his 6tock.. -This increase might be wiped out when wholesale prices fell. Speaking to a reporter yesterday, a gentleman who has had opportunities for investigation, .said that this statement did not cover the facts fully. "Let me quote a case by way of illustration,"'he said. "I will assume that the retailer is adding a gross profit of 30 per cent., and that the wholesale price of tho goods rises by stages from .£IOO to ,£200.. This is how it works out:— Cost . Selling - . Price. Price. Profit. .- ,£IOO .£l3O .£3O ■' ,£l2O ' ,£156 .£36 ,£l5O .£195 £ih i ,£2OO .£260 , .£6O You see that the retailer, charging the replacement cost plus profit, has increased his profit from ,£3O to JM„ and has at the same time added .£l3O to the. book value of his stock, on-account of an increase of .£IOO in the cost of replacement.' Observe that the consumer, and not the paid'the increased cost of replacement. The retailer may possibly lose the added book value, if prices fall, but the extra profit is in his pocket. I know that there are other factors to be considered, 6uch as Teduced 6ale? owing to increased prices, but iny argument is simply that replacement cost is not a fair basis of selling price in all cases." .