New Fertiliser Works" 6Not Very Attractive”

Press, Volume CIV, Issue 30822, 6 August 1965, Page 16

New Fertiliser Works" 6 Not Very Attractive”

Investment in a new co-operative fertiliser works m South Canterbury did not appear to be very attractive, the chairman of the Dominion Fertiliser Company, Limited (Sir Carl Smith) said in a statement released this week.

Sil* Carl Smith said , that a fertiliser works jwas already operating j in the South Canter- 1 bury district and also that there was keen competition on its boundaries.

Although reluctant to make any further comment on the fertiliser works argument, he said that there were certain points that should be made clear. “The proposed co-opera-tive company, claims that the potential of the area would be 140,000 tons but has not said when that tonnage would be attained. The actual tonnage at present in the economic area is about 55.000 tons and this figure has been confirmed recently in a report by the research officer of the Federated Farmers acting on instruction from his head office and completely without the knowledge or assistance of Dominion Fertiliser,” Sir Carl Smith said in his statement. “Any increase on that figure of 55,000 could only be taken from the two existing companies operating on the boundaries of the economic area and ignores the fact that Dominion Fertiliser will be operating a works at Seadown on a very low capitalisation cost. Any natural increase in the area would also be shared by the other companies. Stand Idle “With the limited tonnage required, an acid plant such as suggested, capable of producing an output of 140,000 tons of fertiliser, would have to stand idle for a large part of the year and thus be quite uneconomic. For that reason Dominion Fertiliser will supply acid to Seadown until such time as the demand justifies an acid plant. This method will produce the cheapest possible acid at Timaru, It is not without precedent. It is done successfully in England and Australia and, as announced, our lead has been followed in the North Island by the East Coast Co-operative Works. If not already fact, 1 forecast that the principle will be endorsed by Cabinet, the Meat Board and farming communities,” the statement said. “The chairman of the cooperative has stated that it might be some years before a rebate could be paid and has quoted the Southland works. The following Southland figures, therefore, are interesting:

“(a) Southland has and continues to have a far greater potential than South Canterbury. Before the Southland works opened the tonnage in the Southland economic area was over

90.000 tons. and_ last year was over 150,000 . tons. I “(b) There was no other works operating in the district, nor was it i Hanked on either side by two competitive companies. ■(c) Throughout its six and a ■ half years of existence Southland has enjoyed I a higher price than has Dominion Fertiliser. For I the period these higher margins year by year I were 3s, 3s, 9s 6d, 9s 6d, ‘ 9s 6d, 6s 6d and 2s per ton. |“(d) Money was advanced at two and a half per cent interest—not five per eent as will be the case • in South Canterbury. Had Southland been on five per cent terms it would by today have had to find at least an additional £175.000 more interest. “(e) In spite of ail these advantages, it was three and a half years before shareholders received a six per cent dividend (in total only £23,884). The next year farmer consumers received a rebate of £1 and subsequently have received 30s. It should be realised that these payments are subject to income and social security tax. whether the rebate is paid in cash or converted into shares. The farmer meets this taxation at his top rate. Had the Southland companybeen charged five per cent interest and been forced to trade on an equal price with Dominion Fertiliser the position would obviously have been entirely different. Capital “With a works already operating in the south Canterbury district and with keen competition on its boundaries, an investment in a new cooperative works does not appear to be very attractive,” the statement said. “A farmer using, say, 100 tons of fertiliser will have to subscribe capital of £BOO. At Southland with a high tonnage, high prices, cheap capital and no competition in its favour, it took five years before the first rebate was declared. With its less favourable conditions and competition in tonnage and price, it must take the proposed co-operative works in south Canterbury a great deal longer. However, supposing

I am an inventor ... inventors are cranks. They have a different way of looking at life than anyone else. 1 have to confess honestly that I am also a crank.—Lord Strange.

that it took 10 years (which is a low estimate), the farmer in the meantime will have lost £4OO in interest (5 per cent on £BOO for 10 years). His shares would be j>egged at their face value and he could sell them only to another user. The shares would thus suffer from inflation. On the other hand, without subscribing any capital at all the farmer will receive a substantial reduction in price at our Seadown works.

“The farmer could go further and invest his £BOO in Dominion Fertiliser shares, which at today's price could bring him in ten years dividends of £340, against the loss of £4OO interest already mentioned. These shares could be sold at any time or used as security if required. 'These are the facts of the position and my company has no wish to enter into any further public discussion. Having pointed out the facts, all my company can do is to repeat yet again that its works at Seadown are in the process of being built, that building will continue, and that early in 1967 the farmer will receive a substantial reduction in the price of his fertiliser,” the statement said.