Wheat industry challenge

Press, 2 November 1984, Page 12

Wheat industry challenge

An inevitable consequence of closer economic relations with Australia is that the New Zealand Wheat Board has to relinquish the control of the flour and wheat industry that it has exercised for half a century. Under the Closer Economic Relations agreement, imports of flour from Australia to New Zealand must be free from import licensing by 1995. The question for the Government was not whether deregulation of. the industry should occur, but how far and how fast the liberalisation should go. Some parties wanted a free market; others argued for the retention of the Wheat'Board’s price-setting role in a modified form and the removal of the flour quota. In deciding to abolish controls completely, the Minister of Trade and Industry, Mr Caygill, follows the course adopted by the Government in other fields in the search for more competition in the economy.

Although some form of decontrol would have been inescapable at some point during the next 10 years, the temptation must have been great to pigeon-hole the issue in the ‘‘too hard” basket for a few years at least. The Government was right to grasp the nettle now. To postpone deregulation of the wheat and flour industry would only have made the adjustment more painful. Early removal of the controls will bring a more speedy stripping away of the artificial mechanisms that have allowed the wheat industry to pursue inefficient practices, cocooned from the realities of the market. Some farmers have resisted the cultivation of high-yield, low-price stockfeed wheat because they wished to preserve a market for reject bread wheats. Even in bread wheats, some have put an undue emphasis on yield rather than quality. In both quality and price, New Zealand bread wheats will have to match up to the

Australian competition, or miss out. Without an injection of vitality, the local industry is in no state to meet the impending competition from Australia. The Government’s decision to open up the industry from next year will bring local growers and millers into competition with the Australian industry much sooner than the C.E.R. agreement requires, but still at a measured pace which should give time to adapt and adjust. The advent of high-quality bread wheats from Australia will almost certainly mean an end to the growing 'of bread wheat in Southland; mid-Canterbury farmers are prepared to meet the competition. Whether or not they are successful, one consequence of deregulation should be greatly increased exports of New Zealand stockfeed wheat, and of non-bread wheat for human consumption to the countries of South-East Asia. Decontrol might also provide the impetus for a switch to speciality wheats such as those for pastamaking. These, too, may become valuable exports.

The challenge to the wheat and flour industry is a stiff one, but by no means insurmountable. Internal freight rates will play a large part in the competitiveness of New Zealand-grown wheat with Australian. Some concern is being expressed about the possibility of monopoly control of the industry, or collusion between large buying groups. The Government intends to place flour-milling and bread-baking on the Third Schedule of the Commerce Act, and this should give the Commerce Commission power to deal with problems in this sphere. As long as that precautionary measure is taken, deregulation of the industry will be in the public interest. The first and most noticeable change should be an improvement in the quality of flour and bread.