Dairying Deficit Forecast

Hawke's Bay Herald-Tribune, Issue 70, 9 April 1937, Page 8

Dairying Deficit Forecast

— Own Correspondent)

£2,000,000 LOSS Survey of Guarantee Scheme By Mr. A. J. Sinclair INDUSTRY PERTURBED

CBv Telegraph-

AUCKLAND, Last night. The position of tlhe dairying industry in New Zealand as a result of the introduction of the scheme of guaranteed prices for dairy produce was analysed by Mr. A. J. Sinclair, secretary-manager of the Te Awamutu Co-operative Dairy Company, Ltd., in an address to the Auckland Creditmen's Club. Mr. Sinclair, who is a member of the Government Guaranteed Price Committee, said that unless butter took a sharp upward trend for the balance of the season there was a prospect of a deficit of about £2,000,000 on the year's operations. Although the industry as whole had accepted the seheme, it would be idle to deny that some of the leaders in the industry viewed the future with considerable misgiving, knowing that the creation of large defieits could not continue indefinitely. ' ' Eight months ago the dairying industry entered a new phase," said Mr. Sinclair. "The dairy-farmer found that many of his deeply-rooted ideas were jettisoned and replaced by a plan of marketing which proposed to bring stability to the industry by paying for his produce a price which is related only indirectly to the price realised on the overseas markets. The dairyfarmer was in a mood to welcome a proposal of this kind. For six years in succession he had faced steadily-^ falling prices, and had stTuggled to counter these by the only two methods known to him — increasied production and , decreased costs. Increased Production. The manner in which the dairyfarmer increased his production during the period of low prices is a tribute to the effieiency of the industry. In 1926 the butter exported from New Zealand amounted to 73,397 tons, for which the industry reeeived £11,315,756, f.o.b. New Zealand, equivalent to 154/2 per cwt., or l/4i a lb. butter. In 1934, the exports of butter had increased to - 141,294 tons, for which the, industry reeeived only £11,830,070, although this included an increase in the exehange premium whieh had been raised in the interim from 10 per eent. to 28J per cent. This' price was equivalent to 83/9 per ewt., f.o.b., or approximately 9d. per lb. In the short spaee of six years the dairy-farmer met a decrease of 84 per cent. in prices by an increase of 92 per cent. in production, and it is, doubtful if any major industry in any country can show similar results. "The efforts of the dairv-farmer to decrease his costs involved great sacrifices, but the results were in no way spectacular because costs were determined largely by factors beyond his control. His first recourse was to economise in laboiir, and the shortage of skilled labour on the farms to-day is partly due to the wholesale manner in whieh farmers dispensed with hired labour, substituting the labour of women' and children in the milking sheds, although the more attractive wages and shorter hours now enjoyed by workers in other industries are also a contributing factor. The slight reduction in interest rates gave the farmer little relief, and in 1934 many dairy-farmers were undoubtedly insolvent from an aceountaney point of view. Scheme Supported at Election. It was at this stage that the guaranteed price scheme was placed before primary producers. Originally intended to embraee all primary products, it ha.s been wisely restricted to the dairying industry, and was expounded in detail to the leaders of the industry for the first time by the Hon. W. Nash, at a conference in Palmerston North in June, 1936. The seheme was rejeeted by an overwhelming majority of the conference on the grounds that it was economically unsound and financially impracticable. When the individual farmer had an opportunity of expresging his views at the balolt box, however, he voted solidly for the scheme, the general impression being that it would return something in the region of 1/3 per lb. butterfat, and he was not concerned with the manner in which the project would be financed." Mr. Sinclair said the announcement

of the Hon. W. Nash as Mimster of Marketing in August, 1936, that the guaranteed price for the first season would be 12 9-16d. per lb. f.o.b. for butter (106/6 per cwt. London) created general disappointment. This was less thaii the price Tuling at the time-r-116/-per cwt. — and promised to be little in advance of the average for the previous season, which worked out at 98/per cwt. London. Beneficial Results. Although the seheme had beenoperating only eight months, it had had two beneficial results. It had undoubtedly brought to the industry a state of stability previously unknown. In the past it was not unusual for a dairy-farmer to find his monthly income.eurtailed 20 to 30 pcr cent. in the space of a few months. This season he had appreciated the advantage of a uniform monthly advance payment of one shilling a pound butterfat, with the prospect of a satisf actory ' ' bonus ' ' at the end of the season, because of the certainty with which he could now budget for his requirements. The scheme was also proving a distinct advantage to the small farmer who employed no hired labour. On the other hand, there ,was a steadily increasing protest from far* : mors milking herds of 40 cows upward, because increased costs wore caneelling •.he benefits of the guaranteed price. !j,arm labour was the principal item of •ncreased cost. Last season skilled t'arm workers were available at a wage of 30/- weekly with board, and dairyI'armers generally were satisfied with I Ihe season 's return of 1/* to 1/1 per lb.

butterfat. Legislation had fixed wages at £2 2/6 weekly with board, or £3, without board, and at that figure there was a shortage of the necessary skilled labour. Higher Wages Costs. - Even on efficient farms, where but-ter-fat production was well above the average, the increased wages cost alone represented |d. per lb. butterfat, and the most conservative estimate showed that the costs on the farm would be at least ld. per lb. butterfat higher than last year. In addition, factory costs had risen, varying from ^d. to id. per lb. butterfat in butter and cheese factories. The farmer 's increased cost of living in the home must also be accounted for, and under all headings it would be found that the guaranteed price had increased the farmer 's re* turns by approximately ld. per lb. butterfat, whereas his costs had increased by at least lid. per lb. These factors had been recognised by the Government, and a committee was now engaged investi'gating the increase in , costs, so that this may be taken into account in determining the price to be paid by the Government next year. It would be some time before the committee could reaeh finality, but private investigations showed that if the farmer was to be adequately compensated for his . increased costs, the guaranteed price for butter next season should be approximately 1/2 pei lb. f.o.b., making possibly a butterfat payout of 1/3. The difficulties of financing a scheme of this m'agnitude ' were obvious. Unless butter took a sharp upward trend for the balance of the season, the average price would not reach 100/per cwt., London, and there was a

prospect of a deficit of about £2,000,000 on the year 's .operations. The proponents of the scheme were hopeful that the surpluses in subsequent years would cancel the defieits, but it was unfortunate that the steadily- improving conditions of industry in Great Britain were having no appreciable effect on the price-level of New Zealand butter. Use of Margarin> " With a cheap substitute available in the form of margarine, the British consumer appeaTs to have made up his mind that 1/- a lb. is a fair price to pay for New Zealand butter, and it is difficult to get the retail price higher than 1/2," added Mr. Sinclair. "Even in the unlikeiy event of surpluses accruing through higher prices in Britain, these cannot be withheld from the industry without serious repercussions. The dairy-farmers of 1938 who may receive one penny a lb. less llian •their product realises will find little consolation in the faet that the dairyfarmers of 1936 were overpaid a penny. With butter at a level of 100/- per cwt London, a guaranteed price of 1/2 f.o.b. would create a deficit of between four and five million poounds annnally, and as there is no question that the New Zealand taxpayer must ultimately accept responsibility for any defieits created under the seheme, it is difficult ro see how the price can be maintainod at a level which will give any degroe of satisfaction to dairy-farmers. "The rapidly -increasing costs,- and ihe difficulty of sccuring skilled labour, are causing some large dairymen to' switch over to sheep, wbile others are expressing open hostility to the scheme.

This has caused the Minister of Labour to intimate recently that dairy-farmers may be given an opportunity next session to vote themselves in or out of the scheme. This proposal would be fair if the Government could restore to the industry the conditions which obtained in the 1935-36 season, but it is asking too much to expect -that the dairyfarmer should go baek to the old level of prices, and at the same time face the new level of costs. Recent legislation has undoubtedly impaired the balanee of industry, . and it is natural that a skilled farm worker should resent haring to work about 60 hours weekly for a wage of £3, when the lorry-driver who pxeks up the cream at the farm gate is working under an award wage of £5 2/- a week for 44 hours. "The fact that the benefit of the guaranteed price is being neutralised by rising5 costs has resulted in a demand irom a section of the producers for what is termed 'a compensated price.' The supporters of this movement contend that the- difficulties of the primary producer are caused by the fact « that he sells his produce in Great Britain, where price-levels aTe low, and buys his requirements in New Zealand, where price levels are approximately 60 per cent. higher. British Price-level, "To pay the primary producers of New Zealand on the British price-level, however, would involve finding an additional sum of approximately £25,000,000 on last season 's exports of agricultural and pastoxal products. It was proposed to find this money by making unlimited drafts on an intangible factor known as 'the national credit,' but the movement reeeived

httle support m the early stages because of its vagueness, and the certainty that it would involve a complete change in the present monetarysystem. Lately, the propounders of the compensated price seheme have limited their proposals to dairy produce in the form of a few straightforward propositions which are making a strong appeal to the dairy-farmer, and which secured the approval of a conference of the industry 's leaders held in Wellington last month. "The industry, as a whole, however, has accepted the guaranteed price scheme, and is making the -best of it.. Even those who consider it is fundamentally unsound, concede that the Government is making a genuine attempt to place dairying in a position of stability, and they insist that • the scheme be given a fair triaL From the farmer 's point of view, the scheme is pu probation for this year, and its suceess will largely depend upon the decision of the Government in fixing the price for next year. If the farmer 's increased costs are adequately provided for all will be well. He gives little thought to the magnitude and the financial implications of the scheme. He contends that if 'we are going upward, and the sky is the limit,' he should be an essential part of the social sky-rocket, because past experience has shown him that, when the stick comes down, the primary producer is invariably at the end which hits the ground first. It would be idle to deny, however, that some of the leaders of the industry view the future with considerable misgiving, knowing "that the creation of large annual defieits in the Dairy Industry Reserve Account cannot continue indefinitely, ' '