Farming stabilisation

Press, Volume CXV, Issue 33778, 26 February 1975, Page 2

Farming stabilisation

mi. Press AMoctotuW WELLINGTON, February 25. The Economic and Monetary Council says it accepts the widelyheld view that the effect of cost inflation on farm incomes is one of the most serious problems the Government has to faee. It recognises the necessitv for short-term assistance, but suggests that the latest measures for meat and woof producers should lead to the establishment of permanent stabilisation funds. “The Government’s grant of Ssom wit! restore some confidence to beef and sheep farmers,” savs the '•ouncil’s report. “But the council would oppose this use of Gov. emment revenue if the farmers are not prepared to reciprocate. This means using the peaks of their incomes in good years to supplement the inevitable troughs which occur in these volatile markets.” The essential principle of such stabilisation schemes is

that receipts in excess of the long-term market price should be credited to a fund for the collective benefit of each industry, and payments from it made to all producers whenever the current market price is below the established long-term price, says the report.

This would complement the arrangements for fixing schedule prices (which would become the guaranteed prices for producers) while allowing existing marketing channels to be maintained. Extender farm income stabilisation schemes, provided they are designed to be responsive to world market trends, would benefit the economy as well as the farmers involved. Long-term subsidies are opposed, as they “reduce the incentive to implement feasible cost-saving techniques and discourage the shift into the most economic lines of production.”

DOMESTIC COSTS The council states that if domestic cost trends are above those for long-term overseas product prices, then appropriate and properly timed exchange rate changes are preferable to subsidies.

On main policy issues, the council emphasises that New Zealand’s real income per capita can be increased only by improvements in productivity (at a long-term annual average of about 2 per cent) and by favourable changes in the terms of trade. Attempts to increase incomes more rapidly result in inflation, balance-of-payments deficits, and unfair treatment of some income groups, it says. Under more stable international circumstances, and with careful economic management, a return to inflation rates of about 5 per cent, within the next two to three years, is a feasible economic and social goal, it says. The more modest rates of

about 3 per cent experienced in 1956-65 seem unlikely while the pressures on resources exerted by recent social legislation—equal pay, accident compensation, superannuation. longer holidays—are being absorbed. The council attaches great importance to measures to control costs in the first half of this year. These include price as well as wage restraints.

Its report emnhasises that policy measures should be related to cost, not demand inflation. It notes that apart from falling import orders there are many other indications ' that excess demand pressures have markedly eased and might soon disappear.