Off-set to inflation

Press, 22 June 1979, Page 2

Off-set to inflation

When this assurance on the cost side is coupled with the fact that, on the output price side, farmers have been told that the supplementary minimum prices for

By Professor Bruce Ross, professor of agricultural economics at Lincoln College.

The 1979 Budget will be seen by farmers as the one in which the Government has given virtually full recognition to the problems faced by exporters selling on the world market from a home economy in which they face sharply rising prices.

This recognition is expressed most clearly in the new exchange rate system, and in the prices announced for major farm export prodr ucts under the supplementary minimum prices scheme.

Although the details have still to be announced, it appears that the new exchange rate system which allows for frequent adjustments of the value of the New Zealand dollar in terms of other currencies amounts to full compensation to exporters for increases in their costs resulting from internal inflation. Farmers are thus given an assurance that the profitability of any development will not be eroded by inflation.

the 1980-81 season will be at least as high as those for the coming season, the financial stability of farming must be seen to be higher than ever before. The wisdom of apparently relating the exchange rate to the level of costs in New Zealand, without reference to the level of overseas returns, might well be questioned, but the greater flexibility should be welcomed. It may well be that the level of prices received is taken into account in the details of the scheme. The high level at which the supplementary minimum prices have been set for the coming year should be viewed along with the reductions in fertiliser subsidies and investment allowances. It lias been clear for some time that the Government is keen to shift assistance to farming from subsidies on inputs to greater rewards for production. Farming

leaders have expressed their desire to see this type of change and the Budget represents a significant step to achieve this object. The ability of the market to maintain the level of prices set without assistance from the Government will be increased by the 5 per cent devaluation and by further devaluations which may follow in the course of the export season, given the more frequent changes which can be expected in the exchange rate.

Farming leaders, who have been calling for the restructuring of the economy, have certainly hot got all they might have hoped for, but the slight liberalisation of the import licensing scheme can only be regarded as a step in the right direction. The announcement that some additional import licences will be made available by tender will be especially welcomed by those who believe in free markets.

Although Mr Muldoon said much less about farming this year than he did in 1978, the long-run significance to the farming industry of this year’s Budget will almost certainly be 'much greater.