Begg explains huge M.I.S.A. debt

Press, 2 March 1984, Page 19

Begg explains huge M.I.S.A. debt

The Meat Board’s “orderly disposal” of excess sheepmeats on world markets during the 1982-83 trading year had prevented possible chaos in the marketplace, the chairman of the board, Mr Adam Begg, said this week. Mr Begg was explaining the massive $2BB million injection of Meat Income Stabilisation Account funds into the returns paid to sheep farmers last year. Publication of the M.I.S.A. statement this week revealed an accumulated $340 million, debt in the sheepmeat account.

Combined with the Government Supplementary Minimum Prices, the M.I.S.A. supplementation means that sheep farmers were paid more than 20 per cent over ruling market prices during the 1982-83 trading year. Mr Begg said the M.I.S.A. deficit was a debt against future production and would ultimately have to be repaid when prices improve. Mr Begg said while the extent and the cost of price support in 1982-83 may come as a shock to many New Zealanders the figures were not surprising given the nature of the price smoothing scheme and the market circumstances that prevailed during the year. He said any discussion of the results should take into account the following facts: • The minimum and trigger prices used for the price smoothing scheme are set

by the independent Meat Export Prices Committee and only administered by the Meat Board. The prices are based on a three-year average which includes a forecast for the coming season made prior to the commencement of the season. • Just prior to the beginning of the 1982-83 season a crisis situation existed in the sheepmeat industry that was not fully apparent at the time the prices committee established minimum and trigger prices. The facts were that at the beginning of the season, the exporters, in the face of record carry-over stocks, likely record production and weak demand, could offer schedules in the vicinity of 90 cents per kilogram for the benchmark PM lamb and then only for around 60 per cent of the product. The board decided after consultation and with the agreement of the Meat Exporters Council and the Government to buy in all lamb as well as muttong at S.M.P. levels rather than make massive supplementary payments. For the record, carryover stock levels in late 1982 were nearly 100,000 tonnes or approximately 70,000 tonnes more than normal levels. Carry-over stocks owned by meat companies were sold directly by them which meant although owning all new season’s product the board was not in a position to completely co-

ordinate the selling of lamb. In the interests of stability the board was forced to hold back new season’s product until the carry-over stocks had been substantially reduced.

• If the board had taken the alternative course and supplemented the exporters down to whatever they could have earned in the marketplace, chaos would have resulted. There would have been a rush to sell product quickly and prices would have collapsed in traditional markets like the United Kingdom. This would have had very serious implications for access to the E.E.C. and for major markets like Iran which look to the British market when negotiating prices. “While this was going on the board would have in effect been forced to write out blank cheques to the exporters and the stabilisation account would in all probability have ended up with an even bigger deficit,” said Mr Begg. • The prime aim of board control of lamb was to get the stocks down to a reasonable level and it was thought this would take two years. “Late last year the board decided the long term interests of the producers would best be served by accelerating this process and I am pleased to report we are fairly close to the point where stock levels are normal.

“At present only in the

United Kingdom are stocks above satisfactory levels. “By ‘biting the bullet’ on lamb stocks we have ensured that nearly all of the costs of this exercise have fallen in the 1982-83 year,” he said. • With a lower minimum price operating this year (99 cents per kilogram for the PM grade compared with 114 cents the previous year), less stock carried over and a firming market the Meat Board was looking forward to a much better result in the current year than that experienced in 1982-83. Mr Begg said the system used for trading in lamb over the past year was not satisfactory for either the meat exporters or the board itself. “It was a stop-gap selling arrangement we came to 'with the exporters and proved unsuited to long term marketing strategies. “It could best be described as an orderly disposal operation as compared with a ‘fire sale,’ which is what we would have had if we had not intervened. “We are now putting in place a new system aimed at strengthening the position of lamb overseas. “While the board is continuing to take control of sheepmeat it is not establishing a large selling organisation. “Outside of bulk commodity sales sheepmeat will generally continue to be sold by private enterprise

companies both here and overseas.”

Mr Begg said while the outlook for lamb was improving the position with mutton was quite different. Present processing costs could not be recovered in the marketplace. It was clear costs must be substantially reduced and alternative uses for the product must be found if the present unsatisfactory situation was to be changed. The board would shortly come up with proposals to deal with problems, he said. Mr Begg said the meat industry had come through a very difficult period. “But I firmly believe the worst is behind us. The world out there will remain very tough. “However, in lamb we have a basically sound product and it is up to the industry, the board and the Meat Industry Council to jointly implement a strategy that will improve its position overseas and restore real profitability to the producer in New Zealand,” he said. In response to the publication of the M.I.S.A. figures, the Dominion chairman of the Meat and Wool section of Federated Farmers, Mr Timothy Plummer, said meat and wool farmers supported the principles of price smoothing and recognised that any debt incurred against the

meat income stabilisation account was farmers' money collectively supporting the meat industry. “It is horrifying to think that the cost of support for sheepmeats from the stabilisation account for the year ended September 30, 1983 amounts to $6.25 per lamb. This debt is a liability against all fanners and will not be reduced in the short term,” he said. It should be recognised that in addition to this $6.25 per lamb the Government contributed approximately $4 per lamb by way of the S.M.P. scheme, he said. “This past year’s position reflects the high internal cost structure and low market returns faced by the industry. “It further emphasises the need for New Zealand to tackle the causes of high costs in all sectors of the industry to ensure that we remain competitive on the international market. “We must also look to product and market development to take advantage of changing market demand. “The Meat Board must be complimented in the way in which it has managed the stock position, despite trading difficulties, with the result that it is confident that in this trading year similar debts will not occur,” concluded Mr Plummer.