DAIRY PRICES NOT FIXED

Press, Volume LXXXIV, Issue 25590, 3 September 1948, Page 6

DAIRY PRICES NOT FIXED

Interim Pay-Out Till Position Clearer STERLING PARITY EFFECTS (P,A.) WELLINGTON, September 2. Principally because of the alteration in the rate of exchange and the new considerations involved, the Dairy Products Marketing Commission was not yet able to announce a final decision on the new season’s pay-out to dairy farmers, said the chairman of the commission. (Mr W. Marshall), addressing the Dominion dairy conference to-day. In the meantime, however, so that normal business could proceed, the commission had decided to fix an advance price. This would be the same figure as last season’s guaranteed price. Whatever adjustment there might be would be made later, he said. Payments to dairy companies would be made meanwhile at last year’s guaranteed price and he suggested that dairy companies adopt the same principle in paying suppliers. If there was any change to be made under the commission’s final decision it could be included by way of a supplementary payment later. Mr Marshall said the commmission had hoped to be able to announce its decision by now, but many new factors had arisen with the alteration in the exchange rate. The new price for fertiliser (reduced by £1) just announced by the Minister of Agriculture (Mr E. L. Cullen) was one of these. To a question when a final»decision could be expected, and whether producers could take it that they would not deceive less than last season’s price, Mr Marshall said the decision might be a matter of only a week and it might be longer.

Reclamations Not Wanted “I am not prepared to say that the price will not be reduced from last year’s figure,” he said, “but I have had one experience of reclamations and I hope I will never be blamed for making them.” Last season’s guaranteed prices, which in accordance with Mr Marshall’s anouncement will be the ruling rates for the new season in the meantime, were: for butter-fat for finest butter, 25.907 d; for butter-fat for firstgrade cheese. 27.907 d. The commission had lost £90,000 on payments already made to dairy companies for last season’s unsold balance in New Zealand through the alteration in the exchange rate, said Mr Marshall. Mr Marshall said that if the season’s output was the same as last year’s the effect of the altered exchange rate, when converted into New Zealand currency, would be a loss of more than £10,000,000 to the industry account. If the price paid by Britain were to recede by the full 7| per cent., as was possible in a future year, it would cost the industry account £700,000 to maintain last year’s guaranteed price. If the worst happened and similar reductions in price occurred in a succeeding year with the guaranteed price held at last year’s level thfe credit in the industry account would be wiped out in about four years. Lower Costs Needed

It was essential therefore, said Mr Marshall, to look for a reduction in costs to assist the industry to bridge any gap brought about by a fall in prices. It was necessary to remind the industry that it was working under a guaranteed price. The resources of the State had been placed behind the commission in the payment of its price to farmers. This would be of advantage to young men coming into industry and might be of considerable advantage to primary industry as a whole. With the commission fixing the price factor year by year, the country would be brought up against the fact if costs of production were too high for selling prices. The existence of the guaranteed price should have a steadying effect Asked whether the possible alteration of the exchange rate was taken into consideration when the commission negotiated the recent contract with the United Kingdom, Mr Marshall said this possibility was one the Commission discussed. The United Kingdom was not at any time prepared to underwrite New Zealand’s right to alter the exchange rate. Transactions in Sterling Had the exchange alteration taken place before the negotiations the commission would not in his opinion have secured a higher price. The United Kingdom Government took the view that it bought and sold in sterling and was not concerned with what New Zealand did about its internal values. Asked by Mr W. N. Perry, Cambridge, wh§t would happen if Britain devalued her currency, Mr Marshall said such a move would not affect the money coming into the industry account. If Britain depreciated. New Zealand’s costs would be affected to the extent of the Dominion’s adverse trade with dollar countries. That would be a general matter for the whole country. Asked about the difference between the price Britain paid to New Zealand for butter and the price paid to Denmark, Mr Marshall said that, even though Denmark had been selling at 321 s cwt. her farmers had also to get a subsidy of 20s from their Government. The cost of production in Denmark was abnormally high and Britain had to have produce from there to maintain her fat ration. New Zealand could have held a pistol to the head of the United Kingdom Government and said. “Give us the Danish prices,” but that was not the policy of this country. He thought that in the long run the attitude of New Zealand would be of great value. Investment of Funds Mr Marshall said the total in the Dairy Industry Account at July 31, 1947, when the commission took over, was £8,907,459. The balance at July 31 this year was £12,585.000 This last figure was subject to audit. The funds were held as follows:—Government 3 per cent, stock, £3,000,000; Government 2 J per cent, stock, £4,700,000; Treasury bills maturing during the next six months and carrying interest at the rate of 1 per cent. £2.500,000. These sums totalled £10,200,000, and the balance was used by the commission for trading purposes. To meet earlier payments to dairy companies, which the commission had made in the last year to enable them to keep down interest charges, the commission was forced to go into overdraft, and during the year this ran as high as £11,000,000. The cost of overdraft was a little over 1 per cent. The funds were invested at the best possible return the commission could get within the authority of the statute which governed its operations, and to finance its advance payments the commission had secured an overdraft from the Reserve Bank at a low rate of interest.

Total purchases by the commission, including stocks of the previous season, amounted to 129.426 tons of butter and 79.613 tons of cheese. The value in New Zealand currency was £38,630.041. Butter sold to the United Kingdom amounted to 22,727 tons and to other countries 1494 tons. Stocks held in New Zealand at July 31 were 5205 tons. The amount of cheese sold to Britain was 77,362 tons and to other countries (apart from processed cheese) 234 tons. Stocks of cheese on hand at July 31 were 2016 tons. Processed Cheese The commission had not wished to become involved in the processing and packing industry, but the circumstances left it no alternative but to take over the Auckland plant of the Internal Marketing Deparment. It was finally decided, after investigation, that the commission had no option but to purchase all processed cheese as well as other cheese. This had involved some difficulties, but he believed they would be ironed out.

Unfortunately the exchange alteration had changed the position of processed cheese in overseas markets and some orders had already been cancelled. It did not seem possible for New Zealand to compete with Australia under the present exchange position, and the commission was now hunting the world for other markets

to keep the export industry in processed cheese going. Effdrts had been made by large proprietary concerns to get a foothold in New Zealand in the manufacture of the milk products, Mr Marshall said. If they were to be kept out the cooperative setup might be called on to meet the demand for these products. Companies going in for the production of these commodities must do so with preparedness to meet ordinary commercial risks. They could not expect protection from long-term contracts to cover them against all these risks. The development of manufacture of these products might set up stresses within the industry and discipline within the industry might prove necessary.