THE GUARANTEED PRICE

Press, Volume LXXXVII, Issue 26515, 1 September 1951, Page 5

THE GUARANTEED PRICE

Dairy Industry’s Examination MAJOR CHANGES ARE ADVOCATED For a number of years there has been restiveness within the dairy industry over the guaranteed price scheme, and this feeling has now resulted in recommendations from a special committee set up by the Dairy Board for far-reaching modifications of the present guaranteed price system. The committee making the investigation came to the conclusion that the present guarantee was too precise to be a guarantee in the sense that dairyfarmers understand a guarantee, and its recommendations are for a system which will be a true guarantee of prices, and will also define and protect the standards laid down in 1938, on which the price structure is based. The main recommendations are that the present dairy industry reserve fund of £23,000,000 be maintained at that figure; that annual surpluses in the dairy industry account in future be divided into three equal parts, one to be available in the form of loans to the dairy industry as a whole, one to be available to dairy companies in the form of loans for capital development; and the third to be paid out to farmers in addition to the guaranteed price to finance development work on farms. In the event of prices falling and the reserve account being reduced below £20,000,000. the Government is to accept responsibility for one-third of the difference between the income of the dairy industry account and the guaranteed price. An equivalent amount will become the responsibility of the industry, which will accept a reduction of an equivalent amount in the guaranteed price. In introducing the committee’s report, the chairman of the Dairy Board, Mr W. E. Hale, said that the committee was set up to answer a series of questions from Morrinsville and Whakatane on the adequacy of the reserve fund, the nature of the guarantee, and the distribution of surpluses if the fund was considered adequate.

"We say that the existing reserves are adequate for the next seven to 10 years," said Mr Hale. “We recommend that any surplus funds above the present reserves in the Dairy Industry Acfcount should be invested in the dairy industry itself, rather than in Government securities. We aren’t saying that our funds are not soundly invested. They are. However, it is clear to the committee that one danegr of investing all our surplus in Government securities is that if the present inflationary trends continue, the purchasing value of our reserves is reduced. On the other hand, if we invest these in our own industry, in bringing our factories and oyr equipment up to the highest pitch of efficiency, we secure full value for our investment at the time it is made. I want to make it clear of course that the reserve funds for future use in guaranteed price payments will comprise the present Government securities plus the funds invested in the dairy industry. Payment to Farmers “The committee’s suggestion is that two thirds of future surpluses be invested in the dairy industry and that one third be paid out directly to dairyfarmers at the end of the season, additional to the guaranteed price. From the dairy industry loan or trust accounts into which two thirds of future surpluses would go, money would be available to dairy companies to allow them to finance factory alterations and improvements. One third would be distributed tp dairy companies on a butterfat basis and one third would be available for borrowing on approved terms. “The one third paid out direct to the dairyfarmer would establish something we ought to have had in our guaranteed price structure—a reserve for developmental work and contingencies. Its payment would be subject to the condition that the industry agrees to a similar percentage reduction at times of falling prices when the total reserve funds fall below £20,000,000. “One of the great worries many in the industry have had over the years the guaranteed price scheme has been operating, is this. Where will the millions come from, in times of falling prices, to maintain the guaranteed price? I am sure that you will see one very great advantage in the suggestion that once the reserve fund drops below £20,000.000. the Government should be asked to pay into the fund, one third of the difference between overseas realisations and the guaranteed price. At that stage the position here in New Zealand will still be reasonably buoyant and the Government should have no great difficulty in raising the amount' required. . At that earlv stage, many years before the reserve fund was in any danger of being exhausted, the Government would have been given the red light, and the public will know the amount by which the dairy industry is accepting a reduction in its price. “We have always said that our reserve fund was there to cushion us against the period of falling prices. The committee wants, under its scheme, to cushion the Government’s assistance so that it will find some money during the earlv stages of falling prices. If the committee’s scheme is adopted, the Government would know that the time had arrived for doing something about our high costs in New Zealand. Your committee believes that concentration on the need for cost reductions at as early a stage as possible, when prices are falling, is desirable.

‘‘What is Guaranteed?” “Ever since Mr Nash first brought down the guaranteed price scheme there have been arguments as to what different clauses in the act really meant. What is guaranteed? I know that many in the industry would say at once in reply ‘we are guaranteed our costs of production.’ The act doesh’t say so and you could drive a horse and cart through its loose wording. Alter a close examination, the committee came to the conclusion that the present act provides no real guarantee as the industry thinks of it. What the committee has tried to do is to replace the present act with something much more definite, so that the industry would always know pretty well where it .-as heading. We think it would be like chasing butterflies to imagine that in a time of depression, if we operated the present guaranteed price scheme in its present way, any Government would—or could —pour £23,000,000 into the dairy industry. Yet that is what many in the industry imagine would happen under the pres ent scheme.

"The committee has attempted to put forward something which it believes will be of much greater benefit to the indu’stry than the present scheme,” Mr Hale concluded. “It has tried to retain all the admitted stabilising advantages of the guaranteed price system and it has gone further. Through the provision under which the Government and the industry will each accept responsibility for one third of the difference between overseas realisations and the guaranteed price as fixed on existing standards when the reserve falls below £20,000.000, it has brought an entirely new factor into the picture. It has made possible an early warning that the time has come to reduce costs. Under the present guaranteed price scheme there is real danger that so long as there is something in kitty to maintain the price, little attempt will be made in New Zealand to reduce costs, even when the overseas price may be falling.”