Growers still waiting for tobacco legislation

Press, Volume CXI, Issue 32567, 29 March 1971, Page 3

Growers still waiting for tobacco legislation

(From Our Own Reporter) NELSON, March 28. New Zealand tobacco growers, still awaiting final implementation of the findings of the Committee of Inquiry into the Tobacco Industry, are becoming impatient.

The one-man committee (Mr G. Laurence), set up in 1966 as the result of widespread dissatisfaction with the stability of the industry, presented its report and recommendations to the Minister of Industries and Commerce in March, 1969. The growers say that the two most important recommendations —production control and leaf classification by independent Government classifiers—still await agreement. , , Until agreement is reached they say the growing industry has little chance of reaching its full potential and, as a consequence. New Zealand will continue to spend hundreds of thousands of dollars in overseas exchange annually importing leaf, to the detriment of both the industry and the country’s economy. Most accepted

Sixteen of the 19 recommendations of the committee are either acceptable to the growing and manufacturing industries, or are not disputed. Two of them which recommend removing from the control of the manufacturers the right to govern production and to classify leaf, are strongly contested by the manufacturers. Growers are equally strong in support of the recommendation.

The other is still under negotiation. The committee’s findings, sent to the Minister of Industries and Commerce, were referred back to the Tobacco Board in September, 1969, to see what areas of agreement could be reached.

The board has completed consideration of the findings but because of disagreement between the two parties on production control and independent leaf classification, both parties were asked to present arguments in support of their cases to the department These were completed in February.

Tight contracts The manufacturers at present have the right to contract with individual growers the acreage to be grown, to fix the amount of leaf to be bought from that acreage, and to set their own leaf standards. These powers have been wide, and their contracts extremely tight. They would prefer to retain these powers. The committee of inquiry found that the actions of the two big tobacco companies, W. D. and H. O. Wills and Rothmans, precipitated the crisis within the growing industry in 1965. This led to the inquiry and to the committee’s recommendations which, if endorsed by the Government in legislation, will adversely affect the manufacturers’ powers. One of the major recommendations of the committee was “that the Tobacco Board . . . work to reduce the possibility of recurrence of avoidable disturbing consequences through policies and practices of the manufacturers.”

This recommendation arose from a comment made by the committee on a statement that the growing of tobacco in the early 1930 s was carried on by farmers who did not have contracts and who grew tobacco on the chance of selling it somewhere at any sort of price. The committee’s comment

was that "... the instability of the industry in the 1960 s has been due largely to the actions of manufacturers.”

Strong boost

How was this instability caused? According to evidence before the committee, by a version of “The Power Game”—an industrial battle fought by one company to retain power; by the other, for acreages necessary for establishment and survival. The growers were the meat in the sandwich.

Generally, however, trouble arose in 1958, the year in which Rothmans entered the New Zealand tobacco manufacturing market. The competition by these two companies artificially stimulated the growing industry. Wills, stung by big concessions made to Rothmans on the percentage of domestic leaf usage (and deemed unfair by Wills), attempted to comer the local market and deny Rothmans a share of domestic leaf.

Both companies set out to acquire as great an acreage for production as possible. As a result, new growers were given contracts, the locality of production extended throughout the Nelson province, and new growers were heavily capitalised and financed by the companies. More production

Growers were encouraged to plant ever-larger acreages and the companies bought the ever-increasing yields. During the 1957-58 season, there were 411 growers with 3265 acres under contract. They produced 4.6 m lb (green weight) of leaf. From the 1958-59 season to the end of 1964-65 season the industry boomed. The number of growers increased from 437 in 1958-59 to 763 at the end of the 1963-64 season with 5878 acres under contract. The next season, although the number of growers dropped by 35 and the planting by 38 acres, production reached an all-time peak of 9.8 mlb of green leaf. That year, the crop reached a total value of $4.5m. But the market had been falsely over-stimulated and between the years 1959 and 1965, production exceeded company usage by 34.9 m lb (dry weight). The Wills company ended the 1965 season with an enormous stockpile. The axe fell in July the next year. Wills announced a 20 per cent reduction in acreage for the next growing season and both companies imposed new leaf standards, thereby curtailing the amount of leaf they would buy. Those who had contracted with Rothmans did not suffer the acreage cut, but those with Wills—which had 60 per cent of the acreage and a preponderance of established growers—were badly affected by the cuts. When the new buying standards were introduced by both companies, the new growers, with heavy financial commitments to the companies, found themselves in extreme economic difficulties and many were forced out of the industry. This, then, is some of the background leading to the inquiry. Every facet of the industry was scrutinised by Mr Laurence, and his summary of evidence, his comments on it and his recommendations, fill 78 closelytyped foolscap sheets. Presented with recommendations confirming their representations, growers are now pressing for the establishment of a system based on that being used in Aus-

' tralia. The Australian tobacco i industry has experienced and s surmounted obstacles to its expansion and stability; and

these, New Zealand growers have found, bear a remarkable resemblance to those being faced in this country. It was to test the validity of the recommendations of the committee of inquiry that a study tour of the Australian industry was undertaken by a delegation from the Tobacco Board in 1970. The delegation found that, before 1964, manufacturers and growers had no basis for agreement after four years of conferences. Then, in 1964, the Federal Government took legislative action and introduced a stabilisation; plan adopted by state Governments. This was so successful that after a trial period of four years, a renewal for another five years was sought by all parties, Government, manufacturers and growers. Among the results has been a planned distribution of production, the provision of water for irrigation and the promotion of research. The introduction of these measures has brought a marked improvement in leaf quality.

Board control The plan is administered by the Australian Tobacco Board, which, through marketing boards and quota committees, controls production to a level consistent with the manufacturers* usage. Independent leaf classifiers are employed. In New Zealand, production control and grade pricing (with the exceptions of the 30 per cent minimum usage and prices fixed by the Price Tribunal) are the prerogative of the manufacturers. Their contracts specify that they are the sole judges of quality. To encourage Australian manufacturers to use a greater percentage of domestic content in their products, Commonwealth legislation provides that each manufacturer must comply with a 55 per cent usage of Australian leaf in all brands of all products in order to qualify for the concessional rate of duty on its imported leaf. Before the plan came into force, Australian manufacturers were bound by law to use only a minimal percentage of domestic leaf in their products and were free to obtain the balance from any other source. Consequently, usage fluctuated. Keenly sought

Australian manufacturers had often described Australian leaf as being of too low a standard to command greater usage but growers found, after the plan came into force, that this supposedly low-standard leaf suddenly improved overnight. There was keen competition by manufacturers for it. Likewise, New Zealand manufacturers have argued (and argued at the committee of inquiry) that New Zealand leaf was not of the required standard, but experiments at the Tobacco Research Station, Riwaka, show that New Zealand can produce a leaf of very high quality. In New Zealand, minimum content is determined by law at an over-all 30 per cent. Usage could recede to this figure and, if it did, growers would have to accept it. At one point in recent years the percentage of local content reached 52.8 per cent, but it has been receding and, from statistical evidence available, would appear now to be closer to 48 per cent. New Zealand growers insist that if stability is to be obtained within the industry, the first need is for the To-

bacco Board to be empowered to control production and a new system instituted for the independent classification of leaf. By this action, and the adoption of some further provisions of the Australian stabilisation plan, production of New Zealand leaf could be rationalised, its quality progressively improved, and a higher percentage of leaf used, they say. Along with the greater use of domestic leaf would come the benefits of big savings in overseas exchange. Of this, growers are certain. But such benefits will eventuate only as the result of legislation; and that is not yet forthcoming.