Drive home butter advantage, urges marketing advisor

Press, 2 March 1984, Page 18

Drive home butter advantage, urges marketing advisor

New Zealand should drive home its comparative advantage in the production of butter by cutting its export prices to create maximum disruption in the subsidy schemes of competitors, believes the Christchurchbased marketing advisor, Mr Michael Mellon. “This is the appropriate time to cut our prices and win more markets,” he said this week. He complimented the Prime Minister, Sir Robert Muldoon, for drawing the attention of Europeans to New Zealand’s international dairy marketing options. Sir Robert, as a tough negotiator, was stating the obvious and giving the Europeans cause to think how long they could continue to massively subsidise their own dairy producers,

according to Mr Mellon. New Zealand could now capitalise on its comparative price advantage by cutting the price of butter and destroying the E.E.C. stockpile and sabotaging its price protection systems. Butter was not doing well, price-wise, against its non-dairy competitors but the response of the Dairy Board was to enter into agreements with its major competitors in the E.E.C. and Australia to try and maintain the international price. By doing this the Dairy Board was drifting, Mr Mellon said, and in danger of being led along by the nose by the largest competitor for dairy export products, the E.E.C. A basic principle of marketing was pricing strategy, said Mr Mellon, and it was

a good strategy to drive home a comparative production advantage. The chairman of the Dairy Board, Mr Jim Graham, had told a group of visiting agricultural journalists in November 1982 that New Zealand could better stand an international dairy price war than its competitors. Sir Robert was restating this essential fact, said Mr Mellon. But what Mr Mellon advocates is starting a price war, not just surviving one. Wasn’t he worried about retaliation? The supplementary minimum pricing system would 1 insulate New Zealand dairy producers against the worst of the short-term shock, he said. Perhaps a differential pricing policy could be ac-

centuated to maintain the E.E.C. price as high as was acceptable to the Europeans, he said. If the E.E.C. and the United States retaliated it would create chaos in their own subsidy support systems so that they would eventually disintegrate and at the very least the stockpiles would disappear. “The sacrifice, and I acknowledge it is a sacrifice of our export earnings in the short-term, would be worthwhile to consolidate our hold on the markets with the best opportunities. “Let us look to Asia, where we are the nearest producer and could become the cheapest supplier of butter for industrial uses. “These are the open markets for dairy produce. Let the Europeans wallow

in their own surpluses.” Questioned about the possibility of cross-commodity retaliation from the E.E.C., Mr Mellon said that if New Zealand had to pick a time to prejudice lamb access negotiations this was it The reformed sheepmeats selling system had “balanced the stocks” as the Meat Board chairman, Mr Adam Begg, had often said, and there was a prospect of shortages' for certain lamb grades for established markets. “Given the present season and the present levels of lamb stocks and sales, we may have more people than Lord Vestey begging for supplies,” said Mr Mellon.