“Cost Of Production” Farm Pricing Attacked

Press, Volume XCVIII, Issue 29068, 3 December 1959, Page 26

“Cost Of Production” Farm Pricing Attacked

(From Our Own Keporter) WELLINGTON, December 2. “The thing to avoid at all costs is the Government guaranteeing so-called costs of production of farm products,” an agricultural economist told the New Zealand Association of Economists today.

Mr J. V. White, of the Department of Agriculture, Wellington, said this in a paper read to the association’s conference this afternoon, Mr White reviewed marketing arrangements and price regulation of New Zealand’s main primary products.- Some of his comments on specific products were:— Butter and Cheese: The sacred cow (of costs of production) was driven off the road in 1958 but her plaintive lowing can still be heard. ... At the morhent she is virtually quiescent. Long may she rest. Wheat: The “cost of production” debate between the Government and the industry has been of academic interest only since the practice of setting an incentive price vras established several years ago. Once again doubt has been thrown on the holiness of the sacred cow but it is not impossible that in this case she may one day attempt a come-back because somebody may ask just how much incentive there is in the wheat price. Meat: If the prospect for lamb still looks gloomy next year it is likely that there will be some further reduction in the floqr price. Thus the object of the act —the cushioning of the price fall —will have been achieved. Wool: The wool reserve would be at a safer level if it were somewhat higher, say £5O million rather than £3O million. Apples and Pears: The cost of production arrived at for the pip fruit industry in 1947 seems to have been reasonably satisfactory . . . The success of the guaranteed price scheme depends on growers co-operating, fully in the scheme for orderly marketing. Hops and Tobacco: Growers receive a fixed price determined with reference to costs of production. In assessing these costs a valuation must be put on farm assets; but the valuation of a farm must depend partly on the price for the product and this is what we are trying to determine.

Apart from the technical difficulties in assessing the “costs of production,” Mr White mentioned several more general objections to this approach to pricing farm products. “In the case of export products, while it is possible to operate stabilisation schemes which cushion price falls, the price to the farmer must move in sympathy with the market; otherwise there can be adverse effects

on the whole economy and a serious imbalance in the allocation of resources. “Furthermore, the maintenance of prices at above world levels would invalidate any case we make against other countries for subsidising their exports.” Meat and Wool Floors “The position in the major export industries is now reasonably satisfactory except that in the case of meat and wool there are floors but no ceilings. This is less important for meat than for wool because the sum in the Meat Industry Account is considerable and meat prices are no-t subject to quite such violent fluctuations as are wool prices. “The important point is to establish the princijfle of a form of stabilisation with floor prices cushioning the producer (and .the economy) against severe price falls using for this purpose funds siphoned off when prices rose to a level which was dangerous to the stability of the economy. The dairy industry is in this position at the present time.” Mr White said the alternatives to “cost of production” pricing should be seriously examined. He favoured a system of contract production whenever practicable, with some form of floor pricing preferably financed by each industry. He also suggested more co-ordination between price policies for different farm products, in the interest of more efficient use of land and other resources.