THE PRESS MONDAY, OCTOBER 7, 1985. Another meat industry plan

Press, 7 October 1985, Page 12

THE PRESS MONDAY, OCTOBER 7, 1985. Another meat industry plan

The latest in the long line of attempts to revive the flagging fortunes of New Zealand’s sheepmeat industry is an acknowledgement that the stabilisation scheme begun in 1977 has collapsed under the weight of its own debt. The debt is represented by the Meat Industry Stabilisation Account, which was designed to guarantee fanners minimum prices for their export meat. The account, administered by the Meat Board, was meant to be self-balancing over several years. In good seasons, levies on the sales of export meat were to have built up the account so that there would be a reserve from which to make good to farmers in poor seasons any shortfall between low export prices and the guaranteed minimum price. At least, that was the theory. It was always recognised that, in the early years until a sufficient reserve could be built up, the account could not stand on its own. Accordingly, the account’s overdraft was guaranteed by the way of cheap, 1 per cent interest loans from the Reserve Bank. Taxpayers — who were, in effect, extending this credit — were assured that, in the long run, all of the costs were to be borne by the meat producers and not by taxpayers; the early losses would be recovered from sheep and beef farmers when markets improved. Alas, markets have not improved. In its seven years of operation, the Meat Industry Stabilisation Account has run up a total indebtedness of $7OO million. Sales from several good seasons still in the future have been heavily mortgaged; but a good season is not yet in sight. Under the combined effect of this history, of continuing depressed markets, of the end to supplementary minimum price payments, and of a new sheepmeat prices schedule that represents a reduction of a third on last season’s prices, the farmer is in no position to begin paying off the $7OO million overdraft. He might not have to. The Minister of Agriculture, Mr Moyle, has made no commitment other than that the Government “will probably decide what to do about the $7OO million deficit in the account some time during November.” Some of his other comments, however, seem to prepare the way for the Government to write off the debt. He has said that the best interests of the industry would be served if the Meat Board’s present indebtedness were separated from its future trading operations. He has been at pains to say that the meat industry’s parlous state is a special case; and he has said that any favourable arrangements the Government extends to the Meat Board should not be regarded by other producer boards as a precedent. This stage in the preparation of a new plan for the industry has been reached only after lengthy discussions and a fair amount of give and take by the parties. In these circumstances, it is worth noting the confidence expressed by the president of Federated Farmers, Mr Peter Elworthy, that the new plan will mean a clean financial slate for the Meat Board. Taxpayers may be persuaded by any one of several reasons — all of them sound arguments for the preservation of New Zealand’s most important export industry — that the debt should be waived. However, the continued forbearance of taxpayers is likely to be tested by the proposal,

also in the new plan, that the Meat Board will be able to use the $l5O million or so that it has in reserve funds to set up a meat processing and marketing company under farmers’ control. Few of the taxpaying creditors of the Meat Board would deny farmers a share of the say in processing and marketing the meat that they produce. Some of them might wish to ask, however, what better returns can be expected from a producer-controlled company set up with the aid of taxpayers than have been achieved by a producer-controlled Meat Board backed with taxpayers’ money. After all, the Meat Board — and through it the country’s farmers — has had total control of the export meat trade for the last three years. These have been tough years and private meat companies would have had the same difficulties, and might also have run up losses. The difference would have been that meat company losses would have been borne by the shareholders, many of whom are farmers anyway. Furthermore, private-enterprise sellers are not likely to have been so forbearing about losses and the price returned from competitive meat sales would almost certainly have been lower.

For even with the proposed gradual return of export marketing to meat companies, the farmers will still be strongly represented in farmer co-operatives and farmer-controlled private companies. A large proportion of the country’s kill passes through works of this type. Control by farmers of a significant part of the meat processing industry has been achieved by their own efforts in the normal course of events, but might not be as important an object for farmers as some might imagine. After all, in the last market test of “farmer control” versus “capital gain,” Canterbury farmers were ready enough to surrender their control of NCF Kaiapoi. Advocates of the integration of all the farmer-owned or dominated meat companies with the proposed Meat Board company must rue the missed oportunity that the NCF Kaiapoi sale now represents. If the latest meat industry plan indicates signs of panic in its rejection of stabilisation “remedies” that a few months ago were held to be the only hope for farmers, and in its renewed embrace of decentralised marketing — a formula set aside three years ago — the panic is probably a fair reflection of the state of the industry. Processing companies will not necessarily be overjoyed at the return of marketing responsibilities to their shoulders and farmers may well be dismayed at the unstable future now confronting them. The end of the Meat Industry Stabilisation Account will bring a new era in which any price support in one year must be paid for by the next. There will be no more carry-over of cumulative losses. Inevitably, this will bring greater instability to the pricing system within New Zealand and more uncertainty for the farmer, at least for the next few years. It should also mean a more immediate and more accurate response by the industry to the international market. In a bruisingly short time, the meat industry a has been stripped of its insulation against the chills of economic reality. At its core, the new meat industry plan is a decision to tough it out, though weak farmers and processors may fall by the wayside.