REPERCUSSIONS.

Auckland Star, Volume LXVII, Issue 149, 25 June 1936, Page 27

REPERCUSSIONS.

GUARANTEED PRICE.

SERIOUS POSSIBLE RESULTS

MR. H. R. RODWELL'S VIEWS,

While admitting the necessity for some stabilisation in the marketing of agricultural products, Mr. H. K." Podwell, speaking at Auckland University College last jijght before the Auckland ,I,ranch of the Economic Society of Australia and New Zealand, warned his audience that , the method of the guaranteed price might have serious results, lie predicted tliat prices would probably lise under it; that the guaranteed price itself might, have to become progressively higher. Before he came to the specific plan for a guaranteed price for primary produce in the Dominion, Mr. Rodwell, who is acting-head of the Department of Commerce at the college, traced the origin of the fixed price He explained that there w.-is more justification for pricefixation in agriculture than elsewhere, because primary products varied more rapidly and between wider limits than secondary products. While the demand remained relatively stable, production might differ greatly. He stated that there was a vital need for a marked improvement in marketing agricultural products and schemes to that "end fell broadly under two lieadj n ,r S —improvement in marketing machinery and the method of the guaranteed price. The former might be described as the "orderly marketing'' method, the spreading of the volume of production; but it was the latter 011 which lie concentrated. The Free Market Explained. Before any control was made in marketing there existed what he called the '•free°market," where demand and supply regulated each other. The function of such a market, in fact, was to bring about a re-equilibrisation of supply and demand. To some extent prices current would dictate costs, because only those whose production costs were under the market price would continue to produce. Under the fixed price 110 such adjustment would take place. If the fixed price were higher than the market price, there would always be a surplus of wlncli it would be impossible to get rid. The next step would be a control of the volume of production; and that could be done only by prohibiting the entry of other producers and by limiting the amount to be produced bv those already in the field. He gave two examples from the experience of Britain —the Hops Marketing Board and the Milk Marketing Scheme. The former body, he said, 'had fixed the price for hops at £9 per cwt. An unsaleable surplus occurred and a limit on production became necessary. The same surplus had occurred i.ll the milk scheme. No production limitation bad yet been introduced; but there was agitation for it. Position in N.Z. As far as Xew Zealand was concerned, he said, that what he had to say was somewhat speculative because the amount of the guaranteed price was not yet known; but it seemed that it would be higher even than the present market price, which wrs higher bcv.usc of the season. If it was to give stability it would have to be for a long period. If the price to be jiivcn was higher than the market price, then there would be the same marked increase in production (in this case of butter and cheese) as there had been in the British milk scheme already referred to —and the increase would be very rapid. Produc- 1 tion would be carried 011 to the level of costs, and that would make it hard to lower the price in other years. It would also be hard to find a market for the surplus, and a lower price would be necessary. > The future of butter, he thought was doubtful. Larger supplies were becom-* ing available for the same market; and it would seem unlikely that the price for butter would rise to any great extent without quantitative restriction. The margin between the guaranteed price and the market price would widen and the Government payments would become progressively greater. Production control might become necessary. Financing of the Scheme. Mr. Rodwell then discussed the financing of the guaranteed price. The part of the price recoverable would be financed by trade bills, and the difference between the guaranteed price and the market price, by overdraft. This would appear as deposits in other banks, where thcy < would be used as the basis for advances. These were payments against 110 real assets. It was real credit creation. Prices would rise. Then there would be a considerable increase in imports. That would mean increased pressure 011 the London funds. The Xew Zealand-London exchange rate, if left to itself, would rise. If that happened and prices rose, the position of the dairy farmers would not be what it was intended to be under the guaranteed price, and the amount of the guarantee would have to. be raised. He envisaged the possibility of the Government meeting the difference between the two prices, market and guaranteed, by taxation.

Speaking generally, he said that tlie destruction of the free market would have a profound effect on the present economic system. The market price was > too valuable <t guide to be thrown over altogether. Marketing had to be controlled, particularly agricultural products. Orderly marketing would overcome fluctuations; but to control a market was different from price fixation. With the former he agreed; the latter, he thought, was starting at the wrong end. If the market price were destroyed, lie said, then it would be found necessary to control everything else relating to supply and demand.