N.Z. BUILDING PROGRESS

Progress, Volume XVII, Issue 2, 1 October 1921, Page 29

N.Z. BUILDING PROGRESS

VOL. XVII. No. 2. Monthly.

[Registered as a ft after.}

The Cement Industry

Our readers will watch with great interest the future developments of the charges made by Mr. Masters, Member for Stratford, against the principal cement manufacturers of New Zealand. It is alleged that they have operated a mutual agreement for restraint of trade which has had the effect of maintaining high prices by rigorous curtailment of output, this going so far as to cause the shutting down of the Golden Bay works, and the throwing out of employment of a couple of hundred men when the economic position made it particularly hard to get another job. The Governmentitself one of the largest users of cement in New Zealand promptly agreed to have an inquiry made into the allegations, and we have already heard from some of the parties to the agreement that it does not bear the objectionable construction put upon it by the Member for Stratford. As these things will have to be argued out before a proper tribunal, we will not attempt to anticipate its conclusions. One or two general observations are, however, not out of place. Some years ago, the interest of New Zealand capitalists in the building material of the future was thoroughly aroused, and ample supplies of money became available to develop cement manufacture in accordance with the prospective demand.' Very large sums indeed were invested in the industry, and very large sums have been lost. Apparently the industry became seriously overcapitalised, and the strongest people in the business dropped their rivalry and came together, to save the position. Whether, in their defensive efforts they made an offensive upon the consumers' pockets, we leave the coming investigation to decide. There seems to be some parallel between the cement situation and that of the flour-milling industry about the year IQO7. New Zealand millers were dealt a severe blow by an Australian tariff on imported flour. With this market cut off, the New Zealand flour-milling industry found itself in a position which threatened speedy ruin. The milling plants were sufficient to supply . thrice the. requirements of the local market, consequently the millers entered into a mutual agreement for reduced • output and the prevention of price-cutting. Com-

plaints of exploitation soon arose, and the result of an investigation was the passing of the Flour and Other Products Monopolies Prevention Act of 1907, which enables the Government to deprive the industry of tariff protection if it is evident that the tariff is being used to push prices in New Zealand to a point comparing unfavourably with outside supplies under normal conditions. The tariff protection to cement was suspended for quite a long period during a shortage of New Zealand cement. This shortage was primarily due to coal difficulties. Approximately 15 cwts. of coal are needed to produce a ton of cement. The Board of Trade, in conjunction with the Coal Control organisation, made special arrangements to keep the New Zealand cement works fully supplied with fuel. It was expected that the manufacturers in New Zealand could then cope fully with the demand. Eventually the demand fell off seriously, and then began the organisation of the cement industry which had led to public criticism. Whether these protective measures went too far, investigation will eventually show.

Timber Costs and Prices.

The Board of Trade has done some valuable investigating work in connection with important New Zealand industries such as coal-mining, woollen manufacturing and timber-milling. These inquiries, in which skilled accountants, with a proper knowledge of costing take part, will give the public a fairer view of things than can be obtained through the arguments of directly interested parties. The public is not disposed to listen patiently to representatives of the sawmillers seeking to justify increased prices; nor do they attach much credence to denunciations of profiteering from other quarters. But when a State Department looks into the position with statutory authority to demand books and papers, its conclusions must be accepted with respect. The Board of Trade has permitted several increases in timber lists, and it justifies this course in a long memorandum just published, in which the industry is very closely analysed from the point of view of production costs. The result goes to show that New Zealand mills are not working, in the main, on a very wide

margin of profit, especially as the industry is dealing with a wasting asset, which makes the problem of maintaining a supply of its raw material more expensive as time goes on. It is admitted by the Board of Trade that had the timber industry been able to charge f.o.b. prices for its output, the application of export values to local supplies—as in the officially accepted case of butter and cheese —would have made things much worse for the New Zealand consumer. Royalties, cutting and handling charges, supervision, and overhead charges are brought into the Board of Trade calculations. Variations in freights and royalties affect the net result with different mills, but taking all the facts into consideration, the Board (which sets out the facts in careful detail) comes to this conclusion : " As already intimated, as the result of the investigations made, the Board is satisfied that when all the circumstances are taken into consideration only a reasonable profit has been made generally; but those mills that are working on rights acquired on advantageous terms years ago are earning fairly lucrative profits as compared with the mills working under current royalty conditions."

Prices Near the Limit.

Details of working costs of two North Island mills are given in the Board's report, supporting their conclusion that although prices have increased, profits have not gone up. Then the report analyses carefully the costs and average prices realised by a typical South Island mill, the efficiency of which, it states, is probably above the average. Thus the figures relating to this mill may be taken as one of the fairest, judged from the consumers' point of view. They are as follow :

This table is significant in the way in which it shows how the stringent financial conditions have prejudiced timber milling. At one stage, the mill could sell its output straight off the saw; now the lessened demand has necessitated extra handling to stack, and the expense of financing marketable stock for a period. A third grade of timber has come into the count, showing an improved utilisation of the product. But the all-over average price shows a margin of only 3s. 6d. over cost of production—not a heavy margin in such an industry. The first-class timber realised 18s. 9d. per 100 ft. on the trucks at the mill. Railage from Ohakune to Wellington, over 200 miles, is 4s. Bd. per 100, but the West Coast miller has to pay 7s. 6d. per 100 for sea freight. Taxation has also been a heavy burden. Every factor in the business has made for increased expense, until the industry has reached the point of not being able to carry anything more. What is the remedy ? The Board of Trade states it in plain terms: —"As a counteracting influence to the persistent effect of the law of diminishing returns, thereby attempting to prevent prices from going still higher, and with a view to the conserving of our timber supply by the elimination of waste, the Board of Trade is going into the question of improving and standardising the system of costing with the object of improving the efficiency of the mill organisation generally, and it is also urging upon millers the adoption of a uniform system of measurement with the idea of establishing standards that will tend towards a reduction of the loss in cutting. The price of timber is approaching what may be termed the marginal utility point; hence it is imperative, in the interests of the millers, of the industry generally, and of consumers, that no effort should be spared to increase the efficiency in production and thereby bring about a lowering of the cost."

Railway Common-sense.

An announcement of changed policy in regard to the construction of new railways will be received with satisfaction by the general public. The Minister of Public Works (Hon. J. G. Coates), who has brought the revivifying vigour of youth to the portfolio, is not going to authorise further lines simply on the dictum of members of Parliament and other people who can put pressure on the Government. His plan is to have suitable routes surveyed, but before deciding to placate the local demands for a share of the public works pie, he will refer the whole proposal to the Railway Department, to decide whether the conditions of traffic running have been met in the detailed survey, and what will be the running cost. Then the proposal goes to the Department of Agriculture for a report on the productivity of the area to be served, and its capacity for providing payable traffic if the line is built. That is what any business man would do, and it is consoling that these hard times have produced a change to business methods in Government circles.

Production Costs per iooft. Cut at Mill. Year Year Year 1919. 1920. 1921. Logging 33.58 43-97 63.90 Milling 36.17 34-H 50.72 Yarding 3.86 4.02 5.09 Loading 0.95 1.21 1.38 Royalty 6.01 6.00 6.10 Depreciation ... 5-77 5-64 6.18 Overhead 13.00 19.00 19.00 Income tax ... 9.00 15.00 13.00 Total cost 106.34 128.95 165.37 (8/10) (10/9) (13/9)

Average Prices Realised on Trucks at Mill Year Year Year First-class ... Second-class Third-class ... 1919. s. d. 15 11 11 0 1920. s. d. 15 6 11 4 1921. s. d. t8 2 13 11 12 8 All-over average • '•■- 12 9 15 0 16 3