THE EXCHANGE RATE

Press, Volume LXXV, Issue 22768, 21 July 1939, Page 6

THE EXCHANGE RATE

INCREASE SAID TO BE ESSENTIAL MR H. D. ACLAND’S VIEW “ONLY WAY OUT OP OUR DIFFICULTIES” fXHE fBESS Special Service.! WELLINGTON, July 20. “I am more than ever convinced that the only way out" of our present difficulties is by raising the exchange rate.” This statement was made by Mr H. D®Acland, president of the New Zealand Sheepowners* and Farmers Federation, when he was moving the adoption of the annual report submitted to the annual meeting of the federation at Wellington to-day. Mr Acland commented that the last season had been one of very grave difficulty to many sheepfarmers, prices of wool and store stock having fallen far short of those required to meet costs of production, which had increased enormously during the last few years. “It is contended in some quarters, he said, “that the freeing of our exchange from political control, and allowing it to find its true commercial value under the control of the Reserve Bank, would merely give us temporary relief, because when the exchange came back to normal, following the building up of sterling funds, we should be no better off than we are at present. The point appears to be overlooked, however, that if the high costs of all kinds in New Zealand resulting from the present policy continue, there cannot be any appreciable building up of our London funds, while there would appear to be a still further reduction In volume of output for export, owing to the lessened encouragement to producers resulting from the heavily depressed exchange as it affects our export industry. , „ ,• , . „ “We cannot go on indefinitely buying more than we can pay for, without making inroads upon the capital accumulations of .past years, and it is therefore vitally necessary to expand opr exports. In New Zealand this means we must give more encouragement to farmers, who provide the only e. .port nroduct which can compete successfully with other sources of supply.” The I><fmestic Market

No Government, whether in New Zealand or elsewhere, could afford to maintain a policy of too high protection for industries and services to its domestic market at the expense of its exports. Even a rich country like Britain had definite limits set with respect to her exports, which were manufactured goods. If her factories were forced to close down for export production, then there could be no . question of subsidisation from her primary industries, as her factory products would merely accumulate with no sale past her domestic requirements. The same principle applied to New Zealand. as the Dominion’s exports, being almost wholly farm products competing with other world sources of supply to one market only, could only continue to be marketed with any prospect of success if costs of production allow producers to meet market conditions and prices overseas with a margin of profit. “Average wool prices this year are 9.19 d per lb, and £l3 2s 2d a bale, which is roughly 3d per lb less than last year, and lower by 22s a bale,” Mr Acland added. “The average wool price per lb over the last 10 years_is 8.67 d approximately. I mention this to give you some indication of what we may expect to get under a guaranteed price for wool. The fixed price we might expect under a Government guarantee would probably not exceed 7id per lb for lamb, with other.classes of meat in proportion. Experience so far shows that not only in New Zealand, but in other countries also (Canada with her wheat, for instance), the so-called guaranteed price can give no more In the long run than an average price for the particular export product on its overseas market averaged over a period of years. U J am more than ever convinced that the only Way out of our present, difficulties is. by raising the exchange rate. This would assist exporters by lifting export prices in New Zealand money in proportion to the rise in exchange, and would also hold out greater inducement for primary producers for export to maintain their land at Its maximum production level, and so continue to feed our sterling funds to the fullest extent from the only source available to us. It would also have the effect of bringing down the volume of imports and assist in restoring the balance needed to properly provide for our debt services overseas, and payment for our essential imports.”

Suggested Alternatives Admittedly it would involve increases (in New Zealand currency) of interest and other payments overseas, but this would only affect a proportion of the. Dominion’s export returns, while the rise In exchange would apply to the gross amount realised for exports, and be of meat assistance. Failing a rise in exchange, it would appear to be essential to reduce expenditure on unproductive works,, and bring labour costs generally down to a point where productive industry could continue without using up capital, or unduly mortgaging its future ability to give employment “Regulation and fixation of costs in industry may divert real wealth within a country, but they cannot create it, ahd I still maintain that with governments, as with individuals, any breach of fundamental economic principles will in the long run, bring its own detrimental result. I would once more urge the need for a reduction in costs of production to a level which will allow of our primary producing Indus? tries being carried on without loss, and the need for making payments for all services in real wages, rather than in currency on a basis, of value, which is out of all proportion to the price realised for our exported products. "It would be obvious that unless a substantial lift in prices, or what would appear at the moment to be an almost unattainable reduction in costs, is arranged for, large areas of grazing country may be forced out of production.”

Producers for export were still faced with the two -major problems—high internal costs, .low overseas prices. But he ventured to say that at no previous period in the history of the federation had the position of members been so difficult and fraught with such dangerous possibilities as at the present time.

“We have* of necessity, cut our costs inside our boundary fences to the utmost, and in many cases future production must suffer, as farmers have been forced to allow their properties to deteriorate owing to their Inability to raise the necessary finance to provide for top-dressing and other rejuvenating work. It would appear that so long as the present conditions remain, the mortgaging of the future productive value of our farm land must continue.

’’The results of the application of the policy of extended protection for industries and statutory wage increases" to raise money wage levels within New Zealand sufficiently to meet the increased costs of goods and services, are becoming increasingly evident .each