THE PRESS THURSDAY, MARCH 1, 1984. Tough time for Meat Board

Press, 1 March 1984, Page 18

THE PRESS THURSDAY, MARCH 1, 1984. Tough time for Meat Board

A small trader dealing in bricks, ball bearings, or bananas who bought his stock for $1 an item and sold it for 80c, making a 20 per cent loss on each transaction, would soon be bankrupt. Family and friends might well seek to have him declared incapable of handling his own affairs in an attempt to prevent his economic collapse. The Meat Board’s trading in sheepmeats during the 1982-83 season amounted to much the same thing, but the board will not go bankrupt. Years of future production can be mortgaged to the Reserve Bank for cheap loans. The board’s “family” of farmers, who elect board membership and determine general policy, have nowhere else to turn; the rest of the community, who have a large contributory interest in the board’s well-being, dare not cure the board’s economic ills in any way that might compound the malaise of the meat industry that provides more than a quarter of New Zealand’s total export income. The seriousness of the Meat Board’s plight would be hard to overstate. The figures released by the board this week are quite clear. Sales of sheepmeat during the year under review required the support of $2BB million in contributions from the meat income stabilisation account. This account is the result of a scheme introduced in 1977, with the agreement of the industry, as a self-help measure to even out the highs and lows of world prices. The theory is that prices paid to farmers are skimmed to build up the account when world prices are high, and prices are supplemented from the account when world prices are low. Farmers’ incomes are therefore more stable and cushioned from much of the fluctuation in world markets, enabling farmers to better plan their production and avoid wild variations in farm maintenance and stocking rates; at the same time, taxpayers’ contributions through supplementary minimum price payments are reduced by the amount of supplementation from the account. Because the account is designed to be selfbalancing over several years, the present losses will have to be recovered from sheep and beef farmers when markets improve. Losses in bad years are meant to be balanced by profits from good years; but a good year is not yet in sight and the accumulated losses charged to the meat income stabilisation account now stand at $340 million. In the long run, the Meat Board loss will be borne by meat producers, not by taxpayers. In the meantime, however, the taxpayer supports the deficit through 1 per cent Reserve Bank loans to the board. What this means in effect is that each one of the 70 million sheep in New Zealand has a $5 bounty on its head before it can start to show a return to the farmer. It also means that the country’s

taxpayers will have to support the sheep population for some little while yet. When the cost of supplementary minimum price payments during the year is added to the loss shown in the meat income stabilisation account, the true cost of supplementing export returns is revealed: almost $450 million, or roughly the equivalent of $l5O for each man, woman and child in the country. The collective shortfall between payments to farmers and export returns is more than 20 per cent of the $2OOO million industry. It also amounts to about $lO for each sheep carcase exported during the year. Even without the additional costs of processing, freight, insurance, and so on, the board cannot sell the meat it buys from farmers except at a loss, and taxpayers must foot the bill for S.M.P.S above that.

This is not to suggest that farmers are doing well. As well as the increasing debt they are incurring through the meat stabilisation account, their incomes are dropping. According to the Agricultural Review Committee of the economic division of the Ministry of Agriculture and Fisheries, net income for meat and wool producers has dropped by 16 per cent in the last 12 months over the previous year, at a time when S.M.P.S accounted for 1 per cent of gross farm income. In these circumstances, farmers cannot maintain production because they have not the capital for necessary reinvestment in things such as fertiliser and fencing. Some of the profits from the first good years of sheepmeat sales — when they come — will be needed to arrest the decline in production and not all profit will be able to be skimmed off to repay the meat income stabilisation account. Once again, the eventual reimbursement of the taxpayer will be delayed.

Trading out of the present position will be a tough time for the Meat Board, for the farmers, and for the country as a whole. The Meat Board can lower the level of its supplementation to ease the drain on the stabilisation account, but that will increase the taxpayers’ S.M.P. burden, since the level of S.M.P.S has been guaranteed. Some confidence can be taken in the knowledge that the worst of the difficulties for the industry could be past: unsold stockpiles are certainly a lot lower than they were at the beginning of the last season, and the board has been able to find markets for most of its product, if not at the prices it would prefer. Within these confines, the board cannot forget that too great a call on taxpayers’ support will increase pressure on the Government to look after the taxpayers’ investment through a system, perhaps a State corporation, that is responsible first to the taxpayers, not the producers.