DAIRY EXPORTS

Evening Post, Volume CXXIII, Issue 123, 26 May 1937, Page 5

DAIRY EXPORTS

GUARANTEED PRICE MARGIN FOR CHEESE COMMITTEE'S REPORT rise In costs '■.

An interim report by the Guaranteed Prices Investigation Committee was released by- the. Acting Prime Minister (the Hon. P. Fxaser) at [kawera yesterday. The committee iis not yet;in a position to announce the guaranteed price for 1937-38 season, but it has recommended that the price of cheese for the season should be fixed at a level which would enable cheese-manufacturing . companies showing , a yield not markedly below the standard to make an effective marginal butterfat return to its suppliers of not less than 2d per pound over the butterfat return made by a butter-manufacturing icompany.' of comparable efficiency. "The basic guaranteed, price of butter fixed for, the 1936-37 export season was designed, on the basis of the costs for the 1935-36 season, to enable an averagely efficient and economic butter-manufacturing company to pay its suppliers 13.04 d per pound for butterf at," states the report. "The average'butterf at payment for the preceding ten-year period was 12.73 d per pound, or .31d per pound less than' the payment which it was expected that, on, the basis stated, the guaranteed price would eaable to be made. This margin of- .31d per pound above the average for the ten-year period was intended partly to provide an offset -against increased costs, and partly to 'ensure an adequate return to suppliers. "In working out the basic -guaranteed price of butter for the 1936-37 ex|port season, the committee set up for (the purpose based its calculations on an average overrun of 21.75 per cent, and average factory costs of 2.25 d per pound butterf at'-The estimate of factory costs. appears to, have been.on the generous side to the extent of approximately .25d per pound, for it is probable : that for the 1936-37 season an averagely efficient' arid economic but-ter-manufacturing company will be iable to show a return to its suppliers iof at least 13.04 d per -pound for butiterfat, notwithstanding the increase in [factory costs that has'taken place durling the season. ■~ ■ ■■••.•. FACTORY COSTS. i "The figures supplied by buttermanufacturing companies to the committee show that the increase in factory for the September-December period of the season 1936-37 over those . for the corresponding period of the season1 1935-36 was equivalent to .2d per pound butterfat. It may be necessary, in view of. possible'further increases in factory "costs, to adopt a figure of .25d per pound of butterfat las the measure of the increase for the[complete season 1936-37, but a more precjse>;flgur.eVcan be determined lateri in thetfeSson.l?OijrtWS:b"asis, the basic guaranteed' price'i of butter for ■ the

1937-38 season should make allowance for factory costs at 2.25 d per pound of butterfat and for an ascertained average overrun. In so far, then, as the butter-manufacturing companies are concerned,.it is possible that the only adjustment that will require to be made in the basis of calculation of the basic guaranteed price of butter will be in respect of the overrun percentage, for the factory costs allowed for the 1936-37 season will probably be adequate for the 1937-38 season. In so far as the suppliers are concerned, however, the items to be taken into account in the calculation of the basic guaranteed price of butter cannot be assessed until farm costs and other relevant factors referred to in the Primary Products Marketing Act, 19.5b, have been ascertained and considered. "The basic guaranteed price of cheese fixed for the 1936-37 export season was designed, on the basis of the costs for the 1935-36 season, to enable an averagely efficient and economic cheese-manufacturing company to pay its suppliers 14.54 d per pound for butterfat, or 1.5 d per pound in excess of the rate at which it was estimated that an averagely efficient and economic butter-manufacturing company would pay its suppliers. Such evidence as the committee has been able to obtain up to the present date indicates that the intended margin of 1.5 d per pound of butterfat will not be realised; but, until the companies' balance-sheets for the current season are received, it will be impossible for the committee to determine precisely the extent of the. discrepancy, if any, between the intended and .the realised margins. The discrepancy that will probably be found to .exist can be attributed to two principal factors: (a) that the factory costs of butter-manu-facturing companies were allowed at a rate of .25d per pound of butterfat in excess of the probable actual rate, and (b) that factory costs per pound of butterfat have increased in the case of cheese-manufacturing companies to a greater extent than in the case of butter-manufacturing companies. CHEESE YIELD. "The basic guaranteed price of cheese for the 1936-37 export season was calculated on an average cheese yield of 2.51 gross and 2.45 net, and average factory costs of 2.75 d per pound of butterfat. The estimate of factory costs was accurate, but in' view of the low yields shown 7 by a large number hi companies, it may be necessary to revise the yield figure in fixing the basic guaranteed price for the 1937-38 season. ' ..■•' \, :,, ; "The figures supplied by cheesemanufacturing companies to the committee show that, the increase in factory- costs for the . September-Decem-ber period of the", season 1936-37 over those-for the corresponding period of the season 1935-36 was equivalent to .46d per pound of butterfat. It ,may be necessary, in view of possible further increases in factory costs, "to adopt a figure' of :5d per pdund of butterfat as the measure of the increase for the complete season 1936-37, but, as in the case of butter-manufac-turing companies, a more precise figure can be determined later in the season. On this basis, the basic guaranteed price for cheese for the 1937-38 season should make allowance for factory costs at' 3.25 d per pound of butterfat, and possibly for a cheese yield lower than 2.51 gross and 2.45 net. In so far, then, as .the cheese-manufac-turing companies are concerned, it is possible, that an adjustment in the basis of calculation of the basic guaranteed price of cheese will be necessary to allow for an increase in factory costs of .5d per pound of butterfat', with an additional adjustment, for yield. In so-far as suppliers to cheese-manufacturing companies are however, the samelposltion "exists,.;as ;iri the; case of suppliers to .Butter-minufacturirlg companies: for

the items to be * taken into account in the calculation of the basic guaranteed price of cheese cannot be assessed until farm costs and other relevant factors referred to in the Primary Products Marketing Act, 1936, have been ascertained and considered. SUPPLIERS" COSTS. "Through the Government Statistician's Office and the Department of Agriculture the committee is obtaining data that will enable it to make a reliable estimate of suppliers' costs. This information will not be available before July, but in view of the desirability of enabling the Government to announce as soon as possible the probable effective marginal return for butterfat1 supplied for cheese-making over the return for butterfat supplied for butter-making, the committee considers that it should submit an interim report and recommendation. "The Committee is of the opinion that it is necessary to stabilise the production of cheese in the Dominion, and it considers that, in order to achieve that object, the basic guaranteed price of cheese in relation to that of butter should be so fixed as to enable an adequate effective rharginal payment to be made for butterfat contained in whole milk supplied for cheese-making. Owing to the enhanced value of the by-products that are in part lost to suppliers of whole milk to cheesemanufacturing companies, and owing to the fact that farm costs in the case of dairy farms supplying whole milk tend to increase in> a greater ratio than in the case of dairy farms supplying cream, the Committee, considers that a marginal payment of 1.5 d per pound of butterfat is now insufficient to preserve tt^ balance between cheeseproduction and butter-production. "It has already been stated that it is improbable mat the margin will be generally realised during the current season. In the opinion of the Committee, the evidence at present available relating to costs and the value of by-products justifies the conclusion that the effective marginal payment for butterfat for the season 1937-38 should be not less than 1.75 d per pound. The Committee considers, however, that a marginal payment Of 1.75 d per pound will not afford a sufficient inducement to suppliers to enable the production of cheese to be maintained, and is of the opinion that.the effective margin should be 2d per pound. MAINTENANCE OF OUTPUT. "It is recognised, though, that the low yields of many cheese-manufactur-ing ■ companies contribute, more than any other factor, to their present inability to make an adequate marginal butterfat payment to their suppliers. In the meantime, however, the necessity of maintaining the level of the output of cheese is a paramount consideration, and the addition of the further .25d per pound (or so much of that .25d as is due to the factor of low yields) to the marginal butterfat payment is suggested as a temporary expedient until a solution of the yield problem is found. The Committee therefore recommends that the Government should announce that the basic guaranteed price of cheese for the season 1937-38 will be fixed at a level that should enable a cheese-manufacturing company ■ that shows a yield not markedly below the standard to make an effective marginal butterfat return to its suppliers of not less than 2d per pound over the butterfat return made . by a buttermanufacturing company of comparable efficiency, operating under comparable conditions. On the assumption that the effective butterfat margin that will be realised by suppliers of whole milk to cheese-manufacturing companies for the current season will be approximately . Id, the effect of the adoption of the recommended level will be to increase the effective butterfat margin realised by such suppliers for the 1937----38 season by at least Id per pound."