THE PRESS SATURDAY, MARCH 13, 1982. The bind over beef

Press, 13 March 1982, Page 14

THE PRESS SATURDAY, MARCH 13, 1982. The bind over beef

If the Government has been looking for a way of lowering the cost to the New Zealand taxpayer of supplementary payments to farmers for .meat and wool, the South Island beef exporting companies this week provided one Way of doing so. Payments to farmers under the supplementary minimum prices (S.M.P.) scheme are expected to be between $2OO million and $3OO million in this financial year. The Government could be forgiven for becoming agitated about the future cost of the scheme when market prices are unknown and the inflation rate in New Zealand is not yet showing a useful decline. ' The South Island beef exporters recently asked the Government to raise supplementary payments for beef to take account of higher processing charges in the South Island. During 1981, killing charges for beef in the North Island did not rise at all; in the South Island they rose by 24 per cent. This was not the result of general inflation, but the result of an over-supply of killing capacity in relation to the supply of beef.

Faced with the prospect of losing millions of dollars during 1982-on underutilised beef killing facilities, the South Island meat companies asked the Government to raise the S.M.P. payments to. compensate for the higher killing charges here. The Government considered, and declined the request. The companies responded by lowering their export beef schedule prices between 8c and 14c a kilogram.

The Government was doing its job in restraining expenditure on S.M.P.s and the processing companies were exercising their right to vary schedule prices to ensure that they do not lose money. The domestic consumer may even benefit from slightly reduced beef prices when saleyard prices take account, of the lower schedule prices being paid for cattle for export killing. The. people caught in the middle are the beef farmers.

They accept what the companies are now offering; or sell through pool systems to try. to raise their returns above the schedule; or they withhold beef cattle from the freezing works in protest, as suggested by the Minister of Agriculture (Mr Maclntyre). The. weather and the supply of stock feed are such in Canterbury that farmers will not easily be able to hold on to cattle, waiting for some negotiated way of breaking out of what has become an impasse created by the exporters and the Government.

Squeezed from all sides, the farmers complained. Their target was not the companies, who must have expected an angry reaction to their provocative action. The Government was the target, mainly because it seemed to have more power to influence the companies. The farmers’ spokesmen claimed that the Government was breaking its commitment to hold beef prices steady at a minimum for two years: it had done this by rejecting the companies’ demand for higher supplementary payments. A spokesman for the Minister replied that the Government’s commitment was to keep S.M.P.S at the same cash level, not to make up for freezing company costs.

A further reason for the farmers’, attack on the Government may be found in the squabble a few weeks ago between Federated Farmers, the Wool Board, and the Prime Minister, over who said what, and to whom, over Budget strategy and S.M.P.S. To adopt what was felt to be a

very responsible attitude on future levels of S.M.P.s by not pushing for increases in the meantime, and to urge the Government to work at full strength against the big problem of inflation, was the farmers’ aim. To have the Prime Minister question what was said, and meant, must have been a blow to those at the top of Federated Farmers.

The whole debate highlights the big danger with the supplementary prices. When do they stop being a short-term measure, needed for the health of the country, and when do they start being something the farmers cannot do without? Federated Farmers has said, “It would be an admission of defeat if a nation, so dependent on the export earnings of its farming industry, and one recognised as the most efficient in the world, was to have its major export sector permanently reliant on substantial Government assistance.” The federation has found general agreement on that statement. The Parliamentary Under-Secretary for Agriculture, Mr Austin, said, “We cannot afford to build ourselves into a permanent support structure.” Freezing company spokesmen have said the same thing. Why did the companies try to vary the S.M.P. scheme and increase the supplementary payments to farmers to compensate for their own problems of over-capacity? In 1981, beef-killing capacity throughout the whole of New Zealand was used to no more than about 30 per cent of its maximum. Although the companies in the South Island complain that they have grossly uneconomic overcapacity, the problem is common the freezing works all over New Zealand. If it is more serious in the South, the likely answer will be the closing of some, beef chains — and a consequent extra cost in transporting cattie.

Why did farmers accuse the Government of breaking a commitment when the Government is trying to hold down inflationary expenditure on S.M.P.s by sticking to a principle of not compensating meat companies for a loss that the companies themselves created? It costs three times as much to get a cattle beast killed in New Zealand as it does in Australia. New Zealand’s seasonality is a big factor in this difference, but surely not a multiplier of three.

Can the farmers’ concern about inflation and their desire not to become hooked on S.M.P.s be counted as genuine when they turn on the Government in such a way? As soon as the Government caves in to pressure from either side to vary supplementary payments, New Zealand will be showing signs of being hooked on a support scheme.

As unparalleled producers of protein from grass, the price of which does not seem to rise quickly on world markets, New Zealand would indeed be in a fine, and very inflationary fix if S.M.P.s of, say, 20 per cent on the value of all rural produce were to become entrenched. Market forces must eventually be left to solve this, latest impasse in the South Island, however unfortunate the impact on southern beef producers. Everyone is in a bind here. If the farmers follow the Minister’s advice and withhold stock, they enlarge the capacity problem, and probably force the closing of chains. If beef sales can be made abroad at profitable prices, a decline in production is good for no-one. If the overseas market and costs in New Zealand continue to be at odds, S.M.P.s will not serve either.