DAIRY BOARD CONFERENCE

Hauraki Plains Gazette, Volume 52, Issue 3274, 11 June 1943, Page 6

DAIRY BOARD CONFERENCE

PEGGING OF COSTS

THE GUARANTEED PRICE ECONOMIC STABILISATION STATEMENT BY MR SINCLAIR There were 13 remits on the agenda •paper dealing with economic stabilisation and the guaranteed price. On the day prior to the opening of the conference, the Dairy Industry Council met and prepared a resolution designed to cover, as far as possible, the main points dealt with by the remits and Conference agreed to accept this as a basis of discussion. The resolution submitted, by the Dairy Industry Council was as follows:—

That this Council recommends Conference to support the plan of holding wages, costs and prices as a practical contribution towards arresting inflation and ensuring’ that any sacrifices involved will be spread over the community as a whole. In view of. the fact that the dairy farmer’s position is relatively worse than it was when the price was fixed on August 1, 1938, the application of the Government’s plan would not be equitable and could not be accepted by the industry unless, while the present price is maintained, the Government agrees to a reduction, to operate from the beginning of the 1943-44 season, in the costs of dairy farm and dairy factory requisites so that, as far as practicable, these may be adjusted to the 1938 level; further' that the government should agree to a committee from the industry being associated with its' stabilisation organisation for the purpose of giving effect to this proposal, and that Conference 'agrees that any surpluses which accrue in the Dairy Industry Account from sales of produce at present price levels may be ‘‘‘properly appropriated towards such expenditure.

I was deputed by the Council to make a statement to Conference outlining the background, and explaining the objectives, of the proposals contained in the resolution, and I attach a copy of the remarks I made. Stating The Problem The grave problem facing the country to-day in connection with our currency system makes some form of stabilisation urgently necessary, and that problem can be best set out by quoting the following three statements:— First: Last week (May 12) the Deputy j Governor of the Reserve Bank referred to the great increase which has taken place in the purchasing power of the people of New Zealand since the outbreak of war. He said: According to the Bank’s calculations, the supply of spendable money (not counting deposits in the Post Office Savings Bank) has increased from £54,000,000 at the outbreak of war to over £120,000,000 now.

Second: On December 15, 1942, the Right Hon. the Prime Minister outlined the Government’s plan of econoriffc stabilisation in a broadcast, and made the following statement in connection with the national income of the people of New Zealand:

Since 1939 the national income has increased by about £50,000,006, and the supply of goods the people could buy had decreased by more than £40,000,000. This excess of purchasing power, amounting therefore to almost £100,000,000, had begun to swamp the Government’s price controls. Third: On May 3, 1943, a report was published in the press showing the quantity of notes in circulation in New Zealand by the six trading banks. This statement reported that the amount of notes in circulation in March, .1939, was £11,175,600, compared with £26,175,606 in March, 1943 —an increase of 143 per cent, in four years. That is the problem this country is now facing, and at the ’outset this point must be made clear: The 'Government’s proposals to stabilise wages, costs and prices cannot in themselves make any material alteration in the position I have outlined. The most that can be hoped for by this procedure is to hold the position where it is to-day and prevent any further deterioration and it should be noted that Conference is asked to agree to this proposal of holding wages, costs and prices as a practical contribution towards arresting any further infiltration, and insuring that any sacrifices involved will be spread evenly over the community as a whole. If this motion is agreed to by Conference, no one can say truthfully, here or elsewhere, that the in-

dustry rejected the principles underlying the Government’s plan. Dairy Farmer’s Responsibility

At this point it is fair to inquire to what extent the dairy farmer has been responsible for this rapid deterioration in the currency position. From August 1, 1938, to August 1, 1942, the price of his produce was stabilised at 14.89 d per lb. for butter and 8.42 d per lb. for cheese. Year after year his cost of production continued to increase steadily and the Dairy Industry Council applied in vain to the Government for an increase in the price in fulfilment of the pledge given when the guaranteed price plan was instituted. That pledge was outlined by the Hon. Walter Nash in his pamphlet “Guaranteed Prices, Why and How?” when he said:

“Payment to the farmer must be measured by the same tape as is used to measure the payment to others who render equal service . . . The principle has come to stay, for guaranteed prices includes compensation for all costs, provision for reasonable wages, provision for interest on capital, and a remuneration to the farmer commensurate with the service he renders to the community, and sufficient to give him a reasonable standard of living.”

That pledge was subsequently written into section 20 of The Primary Products Marketing Act, 1936. .

With a fixed price to the dairy farmer during those four fateful years of rising costs, we shall first of all ascertain to what extent he contributed to the country’s financial problems because of the decreased production of £40,000,000 in goods which people can buy and which occurred during the years 1939 to 1942. In that connection, I wish to link with the Prime Minister’s statement a further statement he made when reporting' to Parliament on the man-power position when he reported that the number of men engaged in rural industries had decreased by one-third. Despite shortage of labour, despite lack of sufficient fertiliser, the dairy farmer increased his output during those three years by 18,624 tons of butter and cheese. Not only must he be absolved from any responsibility for the decreased production stressed by the Prime Minister —he has shown that he is fully entitled to the encomiums passed on his efforts at this conference to-day by the Hon. Minister of Finance (Mr Walter Nash), and the Hon. Minister of Marketing (Mr J. G. Barclay). Credit to Women and Children It is not correct, however, to say that two men are doing the work of three on the farms to-day. The credit for this great achievement is due largely to all those women and children on the dairy farms who have rallied around the dairy farmer, and who are now working in the milking-sheds to a degree never experienced in the history of dairying in this country. The Hon. Mr Webb may take his hat off to the miners, but many people will prefer to extend that courtesy to the women and children on the dairy farms.

We now inquire to what extent the dairy farmer participated in the huge increase of £54,066,660 which took place in the national income from 1939 to 1942. Although he was working under a fixed price, the dairy farmer’s income is of course dependent on his total production, and as this showed an increase during the triennial period quoted 'by the Prime Minister, we must inquire to what exbent he contributed to the increased national income. With an increased output of 18,624 tons of butter and cheese, and taking the labour reward factor of 8.84 d per lb. butterfat in the guaranteed price formula set out by the Hon. Mr Nash in 1938, it can be shown that, even if the dairy farmer had ever reached that mythical figure of 2561 b. of butterfat per cow, the actual share of the labour reward which went to the dairy farmer himself, apart from wages paid to dairy farm employees, formed only an infinitesimal part of that increase of £54,000,606. Dairy Farmer’s Attitude The dairy farmer is therefore completely absolved from responsibility for the position disclosed in the country’s currency system to-day, and any attempt to single him out for special sacrifices which are not demanded from other sections of the community who have participated in that increase would be unfair and inequitable and will be bitterly resented. What is intended by the proposal that the dairy farmer should agree to stabilisation on the existing levels of wages, prices and costs? For all practical purposes, it implies that the dairy farmer should stabilise on a 1938 prise, accompanied by 1943 costs,’and I shall be surprised if there is a” single delegate here prepared to

advocate such a course.

The dairy farmer’s attitude can be summed up in these words: “If I have to stabilise on a 1938 price, I want 1938 costs; but if I have to stabilise on 1943 costs, I want a 1943 price.” The one point on which I find almost complete agreement among the rank and file of the dairy farmers is that they will not agree to stabilise on a 1938 price and 1943 costs. Of these two methods, the dairy farmer infinitely prefers lower costs to a higher price, and the resolution now before Conference is based on that principle. Lower costs can be achieved for him, not by the unworkable method of reducing to-day’s price-levels for his requirements to the 1938 basis, but by a practicable method which I shall explain to Conference after I have shown the method of approach now being adopted by the Commonwealth Government of Australia to solve this problem of placing the dairy farmer on a level with other sections of the community. In Australia, the middle of April had been fixed as the proposed date of general stabilisation, but a Federal Committee of Inquiry has been set up to examine the incidence of wages, prices and costs and evidence of the Government’s bona fides has already been forthcoming in the form of an interim subsidy of £2,000,000 to dairy industry pending completion of the Federal Committee’s report, and its consideration by the 'Government. Australia’s Lead The report of the Federal Committee of Inquiry is now available, and two recommendations have been made with the object of achieving a number of objectives, among which I list the following as being particularly applicable to conditions in this Dominion to-day: 1. The industry will be enabled to offer award conditions for labour; 2. The proposals would maintain in full-scale production many of those dairy farmers who, at present prices, are not encouraged to remain in the industry; 3. The proposals would stimulate maximum production on all dairy farms. Farmers hard-pressed for labour, and those contemplating either complete abandonment of dairying, or a reduction in the size of their dairy herds, must be encouraged to milk cows rather than sell them for 'beef at the current attractive prices; • 4. The proposals would offset the “defeatist psychosis” of a considerable section of the industry which is

of opinion that it is being exploited.

I hesitate to mention the first recommendation of the Federal Committee, because no one in this industry has the temerity to advocate the application of the principle involved to conditions in this country. The recommendation .is that the retail price of butter in the Commonwealth should be increased to 2s per lb. The people of Australia have always been prepared, and even content, to pay a price considerably in excess of that charged to the consumers in New Zealand. Our butter is retailing at Is 6d to-day and it has remained at that figure since 'before the outbreak of war, but if anyone suggested that, because of the manner in which costs have piled up on the dairy farmer in this country during; the last few years, the consumer should be requested to pay, say, Id per lb. more for his butter, there would be an outcry from one end of New Zealand to the other., That course is not being advocated to-day, and it is to the second recommendation of the Federal Committee I would direct special attention. Problem of Export Prices The Federal Committee’s recommendation is that there should be a new proposed contract price for export butter of 165 s 21d per cwt., compared with the present price of 142 s 92d. The export price of New Zealand butter is 145 s in New Zealand currency and a question which should receive consideration by this conference is whether any approach should be made to the United Kingdom Government for a review of the prices now paid for New Zealand butter and cheese.

I would specially ask the Conference to note that I bring this matter forward entirely on my own responsibility, because the matter has not been discussed by the Dairy Industry Council. This is due to the fact that it was only late last night that I obtained the information on which I am basing a request for reconsideration of the export prices for dairy produce, and I shall submit that information as concisely as possible. In 1940, the Hon. Walter Nash, as Minister of Marketing, submitted a report to Parliament from the Marketing Department, entitled “Food and Other Supplies to the United Kingdom During the War.” This report contains details of all contracts entered with the United Kingdom

in connection with primary products. In addition to cables and minutes of meetings, the report is prefaced by an explanatory memorandum by the Minister and I quote this paragraph: “The preliminary action taken by •both Governments was along the lines of avoiding, if possible, extreme price-rises, whilst at the same time ensuring that the United Kingdom Government secured all the produce it required on an equitable basis, and that the prices agreed upon should enable the farming community in New Zealand to meet all necessary costs of production.”

On 29th. September, 1939, a cable was forwarded by His Excellency the Governor-General to the Secretary of State for Dominion Affairs outlining the “oroposed conditions in connection with United Kingdom-New Zealand trade during war.” Clause 7 of this cable reads:

“ Prices to be fixed on a yearly basis, but adjustable within this period if the index pf export prices in the United Kingdom rises by 10 per cent, or more. This is important to New Zealand, since . this country will depend on sterling funds to purchase imports which may rapidly increase in price.” On November 6, 1939, a meeting was held in London between representatives of the United Kingdom and New Zealand, when a memorandum of this subject was submitted by our present Prime Minister, who was at that time Deputy-Prime Minister. I quote the following excerpt from the minutes :

“Price of Goods imported into New Zealand: Mr Fraser said that the first point he had to raise concerned the general economic position of New Zealand under war conditions. If prices in 'England were to rise considerably, the imports of United Kingdom goods into New Zealand would be bound to fall. He pointed out that if, despite considerable increases in prices in the United Kingdom, payments to New Zealand remained on the basis of the prices now included in the various agreements under negotiation, a position of considerable difficulty would arise and might seriously affect the financial and economic position of New Zealand. In this connection the New Zealand Government had suggested that the price of produce sold by New Zealand to the United Kingdom should be subject to review if the United Kingdom index of wholesale prices increased by 10 per cent, or more.” Increased Costs of Imports

Everyone associated with the administrative side of the dairying industry is well aware that there has been a substantial rise in the prices paid for our imports from 'Britain since the outbreak of war. In connection with dairy factory requisites, which we get from the United Kingdom, I find that the percentage of increase in these items is as follows: — Parchment 166%; salt, 58%; cheese bandages 112%,; Cheese caps 93%; crate wire 235%; bicarb, soda 53'%. The same ratio of increase is apparent in imports from the United Kingdom required for the dairy farm and I mention the following items; Galvanised piping 147% ; cyclone fencing 74%; corrugated iron 45%; plain galvanised wire 74%; barbed wire 64%.

I am informed that the average rise in the prices of our imports from all sources since the outbreak of war is

about 47 pei* cent., and that the average increase in our export price-

level is about 7%. We do not consider it is unpatriotic on the part of the British merchant because we find that his parchment costs us £l5B a ton to-day, instead of £6O at the outbreak of war, nor do we claim for one moment that British firms are making undue profits out of the New Zealand dairy farmer. The point I make here is that we should not be expected to pay these tremendous inincreases, say, for parchment, wrap our good New Zealand butter in it, and then ship it to the Homeland at practically the same price as we received at the outbreak of war, lest a request on our part that the United Kingdom should take our increased costs into consideration be construed as a lack of loyalty on the part of New Zealanders. In the minutes of the meeting in London at which our : Prime Minister was present, I observed this recordl—- — “It was agreed to take note of Mr Fraser’s representations regarding the effect on the financial position of New Zealand of a ser- ■' ious increase in the price of materials imported from the United : Kingdom.” 1 There is undoubtedly a clear case for this industry to make representations to the Government in suggesting to the United Kingdom Government that the prices paid for our dairy produce should be subject to review. Method of Reducing Farm Costs I am now able to deal with the method which can be used in bringing the dairy farmer’s costs back to 1 the 1938 level. In that year there was a complete investigation into farm working and maintenance costs, and also into dairy factory costs. These were set out in great detail and itemised on a butterfat basis. It would not be difficult for an expert committee to tabulate the presentday costs of these commodities, and reduce them to a butterfat basis. The resultant figure would represent the amount of compensation which should ■be paid to the industry to bring costs hack to the 1938 level. It is impos-, sible to say at the moment the amount this would represent per lb. butterfat, but I would recall to the mind of delegates the fact that, in April, 1942, some attempt Was made by officers of the Dairy Board to arrive at such a figure. Admittedly, some of the information necessary for an accurate computation was not available, but an approximate sum of I.slfid per lb. butterfat was set down by the Dairy Industry Council as the minimum amount required to compensate the dairy farmer for his increased costs up to that date.

Conference is well aware that, as a result of our negotiations last year, we secured no increase in the guaranteed price apart from .61d per lb. butterfat, and this was termed by the Government a “war cost allowance. ’ This represented .44d for labour reward, being 5% of the labour reward factor of 8.84 d set down by the Hon.

Mr. Nash in his guaranteed price formula of 1938, and the balance of .17d per lb. butterfat was allowed by the Government as an offset to the dairy farmer’s increased costs, I stress the > point that the money represented by this increase was not found by the Government, but came from funds belonging to the industry, following an increased price paid by the British Government to compensate the industry for the expense involved in the switch-over from butter to cheese, and the switch-back to butter soon afterwards. The payment just mentioned continues, although provision has nowbeen .made for the expense and this sum will be available from year to year. By 31st. July, it will be found that the Dairy Industry Account will be almost balanced, if not entirely so, and this additional sum from the United Kingdom 'Government, estimated To produce about £750,000 annually at present levels of production would be available towards paying the compensation to be provided to the dairy farmer to bring his costs back to the 1938 level. That is the meaning of the last section of the resolution now under the consideration of Conference.

The figures I have just given will indicate that, on the 'basis of the request made twelve months ago by the Dairy Industry Council, there is still an adjustment required of approximately Id per lb. butterfat to satisfy the claim which we presented to the Government twelve months ago. I do not say that this sum of Id per lb. is the amount of the compensation which should be claimed. That can be determined only after an investigation by a competent committee of investigation as provided for in the motion, but it will be helpful for purposes of illustration if we keep that sum in mind for a few moments. It would cost approximately £1,5'00,000 • at present production levels to compensate the dairy farmer for his increased costs to the extent of Id per lb. butterfat. Half this sum is already provided for in the credit balance which will be • available in the Dairy Industry Account.

From what source is there a prospect of obtaining the balance ? I submit that our case for a review of the present prices of export butter and cheese is so strong,. that this small additional sum could reasonably be expected from the United Kingdom Government. There is no inflation about this proposed method' of compensation’for the dairy farmer, and I am certain that if he could get y

his costs, as well as his prices, stabilised on the 1938 level, the Government would have his wholehearted

support for its plan of economic stabilisation.