NEW ZEALAND DAIRY PRODUCE

Evening Post, Volume CXXI, Issue 4, 6 January 1936, Page 8

NEW ZEALAND DAIRY PRODUCE

GROUP MARKETING SCHEME

DISSENSION IN INDUSTRY

Radical changes in marketing methods recently decided upon by representatives of the dairying industry have led to a-somewhat grave element of dissension within the industry, and the ultimate outcome is awaited rather anxiously by all sections. The main cause of the disturbance is slated to be the adoption, by the third Dominion Dairy Conference, held in Wellington towards the end of last September, of proposals for the group marketing of New Zealand dairy produce in Great Britain. It is regarded as most unfortunate that there should be such a conflict of.opinion at a time when several vital issues confront the industry. One of these is whether New Zealand is to have a continuance of the existing trade concessions on the Biitish market. Another is the Labour Government's policy of guaranteed prices, which will have a most important bearing on any marketing scheme. Competent observers consider that at no time since 1926-27 has there been such an upset in dairying industry politics. In that year, it will be recalled, the Dairy Board put into force, in the face of much opposition, its short-lived plan of price fixation, with disastrous results to the Dominion —results that have not altogether disappeared. The purpose of this article is to set down, from particulars received from responsible authorities, the position that has developed within the industry, and lo do so in a purely objective and,impartial manner.

On September 19 and 20 last the third Dominion Dairy Conference assembled in Wellington and was attended by sixty dairy factory representatives. On the first day they had explained to them a scheme for group marketing, outlined by the London manager of the Dairy Board, Mr. H. E. Davis, and after discussion the scheme was endorsed by 56 votes to four. Briefly, the scheme, which carried the imprimatur of the Dairy Board, provides for the establishment of seven pools, arranged in the following manner on a basis of output:—North Auckland; South Auckland (except the New Zealand Co-operative Dairy Co.); the New Zealand Co-operative Dairy Co.; dairy companies grading at New Plymouth; dairy companies grading at Patea (cheese only); the balance of the North Island; and the South Island in a single pool.

The board undertook to encourage the establishment of group organisations in the different districts, probably in the form of marketing associations with statutory powers under the Agriculture (Emergency Powers) Act. The proposals also. stipulate that (a) the allotment of produce in the groups shall be in the hands of the board to begin with; (b) the board shall control f.o.b. sales until group organisations are functioning and exercising the powers and duties to be conferred upon them, after which the groups may make f.o.b. sales on such conditions as the board may impose, in all cases f.o.b. sales to the United Kingdom to come out of the merchants' own allocations. F.o.b. sales to intermittent markets, such as Canada and the United States, shall be in the hands of the board on behalf of the industry on a Dominion basis, (c) The board will assist in the development and encouragement of outside markets; (d) ,the board to be responsible for the arrangement of the finance of exports; (c) the handling of all documents, accounting for pools, etc., to be done by the board's organisation; (f) factory brands are to be eliminated, and each group will have a group brand, the registered number to be retained for identification; (g) a premium for quality in both butter and cheese shall be definitely established.

In submitting this scheme, it was pointed' out by Mr. Davis that each group would have a substantial quantity of produce of comparable quality and character to offer, enabling buyers to draw from good straight lines in any desired quantity. His idea was that the proceeds of the sale of produce from each group would be pooled, permitting the exploitation of areas in which sales were slow, and providing the opportunity for each group to link up, if necessary, with a particular distributive organisation in the United Kingdom. Groups would be of sufficient size to justify the establishment of their own direct representation in the United Kingdom, if they thought it desirable, to supervise and stimulate sales by their appointed agents. TWO ALTERNATIVES. The chairman of the board, Mr. A. J. Murdoch, in recommending the scheme, stated that the board was faced with the following alternatives: (a) To give up all control and leave the marketing to be carried on at the whim of individual dairy companies and merchants; or, (b) seek to bring about conditions which would enable the dairy industry, as co-ordinated through its own organisation, to exercise intelligent and effective supervision over the produce to a point much nearer the retail counter. He announced, too, that the board had adopted the scheme after consultation with the Executive Commission of Agriculture. In reply to a question, it was explained that the reason why group marketing was suggested rather than a Dominion pool, was that the latter would "inevitably create an Impression in the minds of their British customers that the board was moving along the lines followed in 1926-27, and there was still a good deal in what was done then that had to be lived down." It was felt that if a single Dominion pool were instituted it would be a case of official control, and trading by an official body was regarded with suspicion in England, where it would have a bad psychological effect. A more detailed explanation of the scheme, and the reasons behind it, was forthcoming from the Dairy Board as a result of a questionnaire submitted to it by the Morrinsville Dairy Co., which is opposed to the scheme. Replying to these questions, the board made it clear that the scheme meant absolute control by the board of all dairy produce exports, with delegation to groups at the earliest possible date. In answer to a question as to whether absolute control would continue after the formation of the groups, the board indicated that it would, "in a degree sufficient to prevent any one group from acting in a manner detrimental to the other groups." The board emphasised the fact that no price fixation was intended or necessary, and contended that group supervision would give closer contact with importers than could ever be possible under existing conditions. ELIMINATION OF BRANDS. One of the matters which is said to be responsible for some of the opposition is the proposal to eliminate individual brands in favour of the group brands. Some of the bigger and longer-established concerns are extremely loath, it is reported, to surrender their brands, through which they have secured and maintained trade contacts in the United Kingdom. In reply to a specific question as to why it is necessary to jettison all the present brands, the board's reply, as published along with the others in its official organ, the "New Zealand Dairy Exporter,'' was: "Because individual brands handled as at present can never attain a real good will. There arc isolated cases, but Ihc great bulk of our

produce is sold on gradet Retention of the present brands as a subsidiary^ is allowed." • Another reported cause of dissension ,is the fact that the New Zealand Cooperative Dairy Co. is grouped by itself. It is considered in certain quarters that this company will have an advantage over, the other groups in that it has had established for years its own distributing agency in the United Kingdom, and that before other groups can compete on equal terms they will have to take steps to establish similar organisations, at the marketing end, the consummation of which will take some time, it is believed. In the meantime the lower marketing costs, of the New Zealand Dairy Company, it is contended, will coastitute a handicap to the other groups and react against them in certain directions. The Morrinsville Dairy Co. wanted to know why the other company should be left as one group, with its own executive, its own brand, and its own marketing organisation. The Dairy Board replied: "Because the New Zealand Dairy Co. is a group already definitely established on the lines suggested by the board. The board's group marketing proposals will permit of similar organisation by other groups." It was claimed in one quarter that the representatives at the Dairy Conference were "stampeded into .accepting the scheme, without being fully-aware of the nature of it." Also tliat they had no authority to commit their factories and their shareholders to such an important change in policy, the complaint being that the proposal was not first of all referred to factories by ward conferences, as was the usual procedure. The board's explanation of this was that ■the proposals were not formulated until after the completion of the ward conferences, and their submission to the Dominion Conference was "obviously the logical thing to do." It pointed out that the ward conferences were completed prior to the board's having the opportunity of meeting its London manager, who arrived in New Zealand on August 18. The board's first decisions were made on September 3 and 4. FEELING IN TABANAKI. Agitation against the scheme is said to be growing in Taranaki, and an indication of the opposition to it is the protest that has been forwarded to the Prime Minister (the Hon. M. J. Savage) by the Rahotu Dairy Company, which is reported to have the support of other North Taranaki factories. Its communication to Mr. Savage reads as follows:— "Our reasons for opposing the proposed new marketing scheme outlined by the Dairy Control Board to the meeting of the board and its delegates in' September last are briefly as fol-

lows:— ■ ■"I. The scheme was sprung upon the industry without notice, it was incomplete, and had not received consideration by cither the industry or its representatives; it was explained to the Press representatives as a definite plan which was to be put into operation, at a meeting held the night before it was submitted to the conference for confirmation. The. idea.that the scheme was the result of a definite decision by the board-and.commission was allowed to permeate the conference, with the result that many delegates were led to believe it was useless offering any opposition, which, coupled with the fact that it was imperfectly understood, led to its adoption owing to misconception of its scope and meaning. "2. The conference was led to believe the plan was'that of Mr. Davis, the board's London representative, recommended specially' by him to meet prevailing conditions, whereas it is now known that Mr. Davis recommended voluntary groups, and that in spite of this and Mr. Davis's warning that there was still a great deal of opposition caused by the 1926-27 experiment in compulsory marketing to live down in Britain, the board added to the plan the element of compulsion. "3. That the proposal by compulsorily taking possession of the private property of individual suppliers held and administered on their behalf by their own lawfully established co-oper-ative companies is a gross violation of British law, justice, and fair play, amounting to confiscation which can only be warranted by extreme national emergencies. That the arbitrary cancellation of companies' brands and the duties of factory directors, both established and authorised by law and long-standing custom is illegal. "4. That previous attempts to control or over-ride ordinary trading custom and conditions have been detrimental to the industry, and that at a time when trade and prices are improving, it is extremely bad business to launch another hampering scheme, and that the industry can be best served by careful but limited supervision to insure free marketing on an holiest and honourable basis.

"5. That the suggested limitation of merchants handling New Zealand dairy produce is suicidal, as the more widely an article of food is known and distributed the better it is for producer and consumer alike. Who can say that the small merchant of today-may not be the big firm of tomorrow or vice-versa?

"G. That no mandate for any such drastic change has ever been given by. producers, and that before any such innovation is brought into operation, it should, in common justice be compiled, explained, and submitled to the direct vote of the producers, the parties most concerned, and confirmed by a substantial majority of ail entitled to vote." ELEMENT OF COMPULSION. The clement of compulsion in the proposals, as opposed to their voluntary aspect, is said to be causing some concern to those who are apprehensive about, the effect it might have in Tooley Street, which is sensitive to any suggestion of compulsion. ; With ■ its

vast interests in other countries, of course, it can afford to be a little independent. It is felt that any hint of dictation from this end might irreparably damage the Dominion's good will in the United Kingdom, and it is appreciated that the maintenance and development of that good will is essential to market expansion in the Old Country. It is suggested that the original idea was that the formation oC the groups should be voluntary, and that this was submitted by Mr. Davis lo the board in . the first place. To this allegation the board has replied: "Mr. Davis recommended groups and pools and considered that so far as the United Kingdom is concerned it is immaterial what machinery is employed to bring the dosired result into being."

Hanging over the whole issue is the question as 1.0 what the new Government intends to do. It is committed to a policy of guaranteed prices, which it has undertaken to introduce during its first year in office, and if it persists in this 'so far as the dairying industry is concerned, the whole question of marketing, it seems, will have to be reviewed. Under a guaranteed price for butterfat it is felt that there would be no need for any group scheme, in so far as the Dominion itself would constitute one big group. The Dairy Board has already discussed the marketing proposals with the Labour Cabinet, and it is understood that this will be one of the first subjects approached by Cabinet when it resumes in the New Year. The first meeting is on January 8. The whole industry is anxious to get from the Government an indication of its plans.

In the very near future New Zealand will have to face up.to the fact that with the expiry of the Ottawa agreement, the . whole controversial question of quotas and levies will require attention. It is one of the most critical problems that has faced the dairying industry and its successful negotiation is a matter that will require the most careful thought of the Government and the Dairy Board.