1975 UNDER REVIEW: Policies directed toward price smoothing

Press, Volume CXVI, Issue 34046, 9 January 1976, Page 6

1975 UNDER REVIEW: Policies directed toward price smoothing

A few years ago when farmers in Canterbury and some other parts of the South Island were being plagued by problems of ill thrift in their young stock the principal of Lincoln College at the time, now Sir Malcolm Burns, in summing up at the end of a college farmers’ conference, said that the particular year would probably go down as the ‘“selenium” year.

That was a reference to the discovery that in many instances selenium had a very beneficial effect on stock thrift and production. In time to come those looking back on 1975 may see it as being •farm price smoothing or stabilisation year” for farmers.

It was a year when the Meat and Wool Boards were busy developing their price smoothing schemes under the eye of the former Minister of Agriculture, Mr Moyle. Their schemes are now operating, at least in part. There is no question that the former Minister set his heart on these schemes, but that they should have come to fruition so speedily is also due in no small measure to circumstances, quite apart from his enthusiasm for them. There is no doubt, however, that no matter their advantages or disadvantages for farmers, the old Government also saw such schemes as an important vehicle for inducing some stability into the economy of the country' as a whole.

Basically, individualists with a high sense of independence, many farmers have been reluctant to submit to the disciplines of price smoothing or stabilisation schemes, but in the last year or two. with lower prices and spiralling costs, they have been forced into accepting such schemes to survive.

The writing was on the wail when the industry gratefully accepted ssom in the early part of the year to prop up the ailing meat and wool sectors. The former Prime Minister. Mr Rowling, said then that it was proposed that these funds be used in interim stabilisation schemes.

Following the release of the report of the farm incomes advisory committee soon afterwards, the issue was a matter for debate in farming circles for most of the year. Federated Farmers, while promoting discussion around the country, waited for the feelings of the man

at grass roots level to seep up before formulating any specific policy.

The outcome was that the federation went along with price smoothing schemes related closeiy to market realisations, but sought over and above that a

so-called national investment in agriculture where the market or the price smoothing schemes did not provide the farmer with a return to stimulate growth in the industry.

The former Minister and the federation did not quite see eye to eye. Mr Moyle saw that over time the industry had been profitable and considered it would still be so in the future.

Therefore, using cheap Reserve Bank credit at one per cent to provide the best prices possible, even in relatively bad times, he saw price smoothing as more than just stabilising incomes — over time it would also ensure profitability.

But the federation did not see price smoothing as necessarily providing profitability and tried to tie their acceptance of it to guarantees of did over and above that where necessary. without the industryhaving to go into debt. Mr Moyle finally held back from accepting the federation’s two-tier scheme.

But on the basis of its election manifesto the new Government, perhaps more attuned basically to fanner thinking, is committed to ensuring income adequacy for farmers, and if it fulfils this promise and succeeds in getting the industry moving again, after a period of stagnation, it may at the same time help to restore national stability and prosperity, because of the basic importance of farming to the country.

But price smoothing or stabilisation is here to stay and will remain a memorial to Mr Moyle’s term of office.

As ever, the past farming year has underlined the unpredictability of farming. A year ago the industry was very much under the

shadow with prices for lamb, mutton beef and wool very depressed, and even the weather turned against cropping farmers to spoil the harvest, after two months of very dry, hot weather caused premature ripening and prevented crops from fulfilling their earlier promise.

Farmers are hesitant to accept the fact but there has been a considerable improvement in product prices in the meat and wool industry during the year. The disturbing thing remains. cost inflation, which threatens to undermine the whole basis of the industry by making seemingly good market prices still unecomomic when finally reflected back to the farmer’s pocket. But things are much brighter. During the year there has been a steady improvement in wool prices. A year ago they were at modest levels, but before the end of the season they were edging up and at the final Christchurch sale of the season in May the average at almost 103 c per kilogram was the highest of the season, although it is customarily a clean-up sale.

When shortly before the new season began in August the minimum price for wool, under the new price smoothing scheme for the commodity, was set at 124 c per kilogram, there were many serious forecasts of the sort of debt that the industry would be in with the Reserve Bank by the end of the season to sustain this sort of level of payment, but, in fact, apart from finer wools supplementary payments not been large, as prices have continued to mount, either reflecting the improvement in world economic conditions or the prospect of that improvement.

At the last Christchurch sale before Christmas the average return at auction, at better than 155 c per kilogram, was almost 60 per cent higher than a year earlier.

A year ago a P.M. lamb weighing 13.6 kilograms and with 0.75 kilograms of wool on its skin was worth $6.12 at the works. At the end of January when the Government announced wide ranging measures in support of the industry Mr Rowling said one of the purposes of the s3sm grant for the meat industry was to lift the average return for a lamb to $7. When the new season opened in October this

same P.M. lamb was worth $9.12, and at the end of the year with the prospect of a further increase in the tariff imposed on lamb entering Britain and a consequent decline in the price to the fanner for the meat of the lamb, this lamb was still worth $8.93, with some counter-balancing appreciation in pelt and wool values.

Although compared with earlier days the prices for beef have been at very much more modest levels, producers have been protected to a considerable degree from the worst effects of the beef downturn. Late in 1974, the Meat Board stepped in to halt the downward slide of prices to the farmer, and against all market trends in early March it raised its guarantees slightly, after reversing its earlier policy of buying in beef and allowing the trade to take the commodity again — at this stage it began paying supplements to bring producers’ prices up to minimum levels.

In March, the deputychairman of the board (Mr A. M. Begg), told a seminar at Lincoln College that the board was paying supplements over exporters’ prices ranging from 17c to 22c per kilogram. In some cases, he said, that the true schedule prices if they reflected market values would be ‘zero or below that.”

Writing recently in the “Meat Producer” Mr G. T. Harrison, an economic research officer of the board, said it was estimated that in the last season about s3sm had been spent in supporting beef producers’ returns, including about s32m on supplementary payments and s3m on the loss sustained when the board was trading in beef.

Since then the board’s long promised support scheme at much higher levels came into operation at the beginning of October.

When these prices were announced in August they were 11c to 25c per kilogram higher than the guarantees then existing and the board’s chairman (Mr Hilgendorf), said that they would boost producers’ returns in the new season by $53.5m above the support it was then giving, which was significantly above market returns.

When the regional schedules were subsequently announced reflecting differences in processing and other charges in various parts of the country, some of the prices being paid in Canterbury were slightly

higher than the minimums put out by the board earlier.

There has been some improvement in prices on the all important American market, but the position remains somewhat obscure with slaughterings still continuing at a higli level.

Back home again, 1975 has not been a normal year climatically in Canterbury. Above-average rainfall throughout the year has meant that feed supplies have been more than adequate, but again there was a protracted cold wet spell in late August just when many plains properties were in the thick of lambing and on the basis of collections of dead lambs by Slink Skins (MidCanterbury), Ltd, some 85,000 lambs died in Mid and North Canterbury as a result of that visitation. But there was still a much better than average lambing percentage in the province Stemming from the good condition ewes were in at tupping in the autumn. The better feed conditions have also been reflected in much better wool weights. Crops have also been looking well and further rain during the holidays should have been helpful to them, but the sort of unseasonalbe weather that has been Canterbury’s lot in recent times might raise some doubts as to whether conditions will favour the harvesting of this produce. The argument about wheat prices has continued throughout the year. Last harvest produced only about half of the country’s milling wheat requirements.

In February the Government lifted the price by another 10c to $2.60 per bushel, believing that at the level there would be increased sowings as growers moved to the crop in the light of poorer returns from sheep products. Later, to offset unfavourable winter sowing conditions, the Government again made a belated addition of 20c to the price to encourage spring sowings, but although farmers in public were critical of the small increase announced earlier in the season, forecasts of sowings put out by the Ministry of Agriculture and Fisheries indicate that there has been a substantial recovery in sowings — about 77 per cent up nationally, including 99 per cent in Canterbury.

But arable farmers are facing very much higher costs, particularly for machinery and fuel, and

the new Government will have to give early atten-, 1 tion to the economics of! the industry if farmers are to continue to provide all ! or a large part of the: country’s needs.

As already mentioned, costs are one of the industry’s main worries and to do something about them will be one of the new Government’s main challenges.

Mr Harrison, the Meat Board officer already mentioned, forecast recently that to get a lamb from the farm gate to ex hooks Smithfield (London) early this vear would cost about $11.15. This is about $2.21 or 25 per cent higher than the same time last year and represents an increase of about $7.05 or 272 per cent since 1971. At the annual conference of Federated Farmers of New Zealand last year the senior vice-president, (Mr A. F. Wright), said that only about a sixth of the, f.o.b. value of pastoral products ended up in the net income of the farmer. For one reason 1975 will not soon be forgotten. It was the year of the big blow on August 1. This was one of the greatest north-westerly gales of all time and farmers suffered grievously with much damage being done to shelter belts and woodlots, fences and buildings. The scars of this storm will remain for many a day.