The Press FRIDAY, OCTOBER 3, 1975. Smoothing out farm incomes

Press, Volume CXV, Issue 33964, 3 October 1975, Page 8

The Press FRIDAY, OCTOBER 3, 1975. Smoothing out farm incomes

The price stabilisation scheme for meat, announced on Wednesday by the Prime Minister (Mr Rowling), is based on the principle that farmers will pay into the stabilisation accounts when overseas prices are high and receive support from the accounts when overseas prices are low. The scheme does not provide for a direct infusion of Government money into farming, except that the Government will have to authorise loans from the Reserve Bank to get the scheme under way, unless the unexpected happens and prices for meat rise dramatically this season. The scheme will smooth out fluctuations in farm incomes, and it should assist the planning on farms: but it will not, over a period, increase incomes beyond what is justified by returns from sales. The formulas to be followed for setting minimum prices for meat are meant to ensure that the stabilisation accounts balance out over the years. But costs may still rise so sharply that an •• averaged ” annual return does not give farmers incomes high enough to ensure that farm investment continues at necessary levels. The Minister of Agriculture (Mr Moyle) has said that further Government assistance for farmers would be forthcoming if such a difficulty arose. The problem may be a very real one. for in prosperous times — the very times in which farmers’ incomes will be moderated to redress the balance in the accounts — inflationary pressures are likely to push up production costs. The counter argument is that the control of meat prices, among other controls, will reduce inflationary pressures. This is a highly theoretical proposition and one that will not impress farmers who have observed trends in costs and prices in the last vear or so.

Ideally, farmers’ incomes will still be related to market returns and the producer boards will have an important say when prices are being set. The Government will also share in setting prices for meat, and this is proper so long as the Government is required to stand ready to underwrite the scheme with, at least, low-cost loans. The calculation of a season’s range of prices for meat will have to be based on a fine estimate of the market in years ahead. Should the Meat Board and the Government be too optimistic the indebtedness of the farmers and their dependence on the Government could be very damaging to the spirit of the industry. Worse than that, this scheme — like all manipulations of the price mechanism — would screen the farmers from the realities of the world market. Their failure to respond to the directions being taken by the meat market by anticipating changes in demand might well compound the problems of eventual change. But this, of course, is to state the contradictions inherent in any price-smoothing scheme: without stabilisation, farmers’ reactions to the market’s ups and downs may be too swift and unnecessarily damaging to the long-term welfare of the industry; price-smoothing, on the other hand, runs the risks of miscalculations and of the accumulating effects of an error of judgment. An immediate effort to boost farm incomes that is not soundly based on market expectations will do much more harm than good to the industry.