PRODUCTION COSTS

Evening Post, Volume CXI, Issue 93, 21 April 1931, Page 10

PRODUCTION COSTS

MILLER AND BAKER

FLOUR COULD BE REDUCED

LOW PROFIT ON THE LOAF

Preparatory to a general discussion on the price of bread in relation lo the cost of flour, two reports were laid'on the table of the House of Representatives yesterday showing the results of investigations into the costs of manufacturing flour and the cost of producing and distributing bread in the four main centres of the Dominion. The Department of Industries and Commerce expresses the opinion that the average cost of manufacturing flour could, be reduced; that the present prices of bread do not return to. the bakers an excessive margin of profit; and that if an adequate charge were made to cover the cost of retail delivery to householders some reduction might be made in the cash-over-the-counter price. According to the report on tho flour milling industry, there arc 46 flour mills operating in-the Dominion. TheoutpuY for the year ended 31st March, 1930, was 136,018 tons of flour, 18,921 tons.of bran, and 33,000 tons of pollard. .The importations during 1929 were 9774-J tons of flour, 171 tons of bran, and 3450 tons, of pollard. The Dominion millers aro able to secure upwards of 90 per cent..of the total trade in : .flour, .bran, and pollard. / /', ; MANUFACTURING- COST. The Secretary of the Department of Industries arid- Commerce (Mr C. W. Clinkard) submits the result of an in-, vestigation'by his Department last year into the. costs of manufacturing flour, as revealed by inquiries from mills with annual output of '85,400 tons of flour, representing about 65* per cent, ot the total Dominion, output. The lowest cost of manufacture, for two separate years, was £'2 3s 10d-perton and £2 3s o*d per-ton; the highest cost was £4. 10s \i<l and-£4 8s 5d .per ton; and the-av-crW cost per mill was £3 4s 3*d and that it should not be panned, that the mills showing the lowest cost figures are necessarily the £r S t 'efficient or most. 'advantageousy Situated ' The figures include delivery and f eight outwards, bulf not" the cost of freighting the raw material to the mill A mill situated in a wheat"rowing district is able to secure ft, wheat at a lower price- than mills iuated at a considerable distance from t1.6 supply of raw material. Against tHs, however, there is the cost of transporting the manufactured product to the principal.markets, which are n large measure.situated at considerable Snces from the wheat-growing <hstrict The mills situated in the North Is and are faced with the cost of transport "wheat from the- South. On.the other hand, they have a larger populaof tho. Dominion. A number of the mills could produce increased quantises per-year, thereby reducing over-herd-expenses per ton of flour. Tl o report points out that it was d fficult on account of the varying conditions of manufacture and circumstances of the mills to make any explicit, statement as to-what constitutes the cost of production and distribution of flour °yd further,-as'to what is the reasone margin* of -profit per ton, having regard to the- capita investment, m the., different, circumstances of each case. . ' . RETURNS ■TO .MILLERS. ■Discussing the question of financial refurnsTo millers, Mr. Clinkard. states that with -one or two exceptions they *S entirely satisfactory to th<.shareholders The percentage ot net'profit o paVd.up capital showed considerable variation, and some . companies rnached a high level.-Variation* in the "t profit l«r ton of flour sold in some dances Appeared, high. Chang* in methods. Of valuing stocks of ; vheat at the "end of each financial .3 ear ac counted in one instance at least-for the h-iP'h amount of net profit-.' ■ ' Iflllirs' prices pc-r ton of .2000 pounds for mill products during the years under review were: —

■The report points out, however, that siu.ee that time prices have changed 10 some extent. Flour prices arc now generally 10s per ton higher while bran and pollard prices have fa len to k* per ton f.o.b. Lyttelton, Timrau, and Oaniaru, with consequent alterations at other-points. Prices about £1- 10s per ton higher are charged for bran' and pollard, sold for local delivery.in Canterbury . and adjacent areas. 'HIGH PROFITS—AND PRICES. "The combination to restrict selling competition -has generally tended :to maintain prices at a level satisfactory to, the less efficient or least advantageously situated class.of mi 11,".. Mr. Glinkard states. "In consequence, the profits of the most efficient, or most advantageously situated mills may bo regarded as;higher than would bo likely under unrestricted selling compctiuon, ■though not necessarily so high a3 to be markedly unreasonable or grossly excessive. * ■While there is no definite or formal ' combination among purchasers of wheat, and individual millers" compete with one another and with merchants who buy .from growers for resale there is some evidence that on occasions millers have made- looso agreements as ;to -what prices car. be re-'carded-as properly and fairly payable to-"rowers. The extent to wJnch grow- ( .-rsecan secure the limit of the value of their product depends to sonic, extent from season to season upon the total production of wheat in New Zealand. Export w.hcot parity is usually well below internal consumption value (protected' as the latter is by duty), and consequently the internal market may. be depressed if millers as the main-users are able to "withhold from purchasing in heavy quantities These facts may give rice to material variations, in millera' profits from season to season: MILLER IN STRONG. POSITION. "Protected from external competition by. duty which docs not allow of import of flour below a certain cost, assisted a.nd safeguarded by combination in respect of selling prices or products, and, in good harvest years, being in a favourable situation with respect to purchase of grain, the miller in New Zealand is in a strong position. "The prices in New Zealand for .-wheat and flour, when compared with Mid present very low level of world-mar : kct prices, are particularly high. The main factor in bringing about this position is, of course, the existing . duty

on importations aurl the influence of manufacturing costs and millers' margins'of profits is-not relatively a substantial or serious one. The Department is of! the opinion that the average cost, of manufacture of flour could be reduced. Concentration of manufacture- in the more efficient mills would eliminate much of the overhead, expense with which the industry is at present burdened.

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