Devaluation should cancel out S.M.P.s

Press, 20 July 1984, Page 19

Devaluation should cancel out S.M.P.s

The 20 per cent devaluation will benefit all farmers and either wipe out or reduce S.M.P.S to a minimal level, according to the M.AF.’s top economist. Mr Eric Stonyer, the director of the Economics Division, said the devaluation was a welcome move. “The dramatic part is the removal of S.M.P.S. It is a very obvious form of assistance. Both farmers and taxpayers don’t like it.” Devaluation was a step in the right direction but other moves would need to be taken to ensure that the immediate benefits were not lost, he said.

The M.A.F. had estimated that about $lO,OOO of the sheep and beef farmers 1984-85 net income would be supplemented. Now S.M.P.S would be reduced to a minimal level and the average sheep and beef farmer with 3500 stock units could have his gross income lifted by 15 per cent, said Mr Stonyer. However, devaluation would affect farmers’ costs which was an unknown element. “We can estimate in terms of gross income but the critical thing is the flow through effects on farm costs of a devaluation of this magnitude.” Farm expenditure was about 20 per cent imported costs. Wages and internal cost structure elements would also be affected. The M.A.F. estimated the average sheep and beef farmer’s costs would increase in excess of $lO,OOO. Prior to devaluation the average farmer’s income would have been about $21,000. With the 20 per cent devaluation it could rise in excess of $26,000.

However, living income, capital improvements, and taxes would come out of this figure so it was not a “tremendously healthy” situation, said Mr Stonyer.

Beef farmers’ gross incomes would increase by about 30 per cent as a result of devaluation.

However, some of the money could be transferred into their pooling account. Dairy farmers had already had their basic price set at 355 cents per kilogram of milk fat. “The expected market return prior to devaluation would have meant that the 355 c payment could only be sustained to dairy farmers after supplementation from the Daily Industry Reserve Account.

“The devaluation would mean increased returns to the board so dairy farmers should be able to look forward to an increase in the

minimum price and maybe some bonus payment at the end of the season,” he said. The 20 per cent devaluation package would have major implications for the meat industry, the deputy chairman of the Meat Board, Mr Norman Mcßae, said.

“Most of our sheepmeat and beef is sold in overseas currencies so there will be a direct flow on into receipts,” Mr Mcßae said. ‘ln the case of beef it may well be that schedules offered by the exporters will be higher than the trigger levels established by the Meat Export Prices Committee and this matter may need to be re-examined by the committee.

“It would appear that the devaluation will bring average lamb prices close to the current S.M.P. level which means that taxpayer support will probably not be needed for the coming season.

“Mutton, however, is a different story and the situation will have to be reviewed in the light of the agreement with the previous Government.”

Mr Mcßae said it was important that the Government was able to develop a full package of policy measures which would ensure that the benefits of devaluation were maintained in the months and years ahead.