SENSITIVE STRUCTURE

Evening Post, Volume CXVIII, Issue 94, 18 October 1934, Page 20

SENSITIVE STRUCTURE

DOMINION'S ECONOMY

BURDEN OF INTEREST

FUTURE MARKETING

After reviewing the changes in tho nature of international trade which have occurred in the post-war years, the report points to the high sensitivity of tho Dominion's economic structure to post-war conditions. "This sensitiveness arises .from tho facts that.the greater part of our national income is derived from primary products exported overseas, that these products are few in number, that, with the exception of wool, they are sold almost entirely in one market, and that our. per capita external trade is the largest in the world," states the report. "The result is that any event which prejudices the successful sale of any one of our major export commodities has immediate prejudicial effects on the farming industry concerned and early prejudicial effects on the rest of the community. Our lack of diversification both in products and in markets; N plus the notorious instability of farm-produce prices as compared with most other prices, makes our economic position far more insecure than that of most other countries as soon as there is a check to the expansion of markets or a fall in prices. While this insecurity was always inherent in our economic structure, it was of no immediato practical importance whilo overseas markets were both profitable and expanding, and during this time there was no valid reasfin for assuming that a restriction or congestion of markets would occur. Eecent events, however, have presented us with the problem of low prices combined with a state of market congestion. - Policies of economic nationalism, notably in Europe, have both limited our outlets and led to the dumping on the English market of rapidly-increasing supplies of subsidised dairy produce. We, in turn, have enor-. mously expanded tho volume of our exportable surplus in an endeavour to increase turnover as a moans of offsetting lower produce prices, and as a result, of years of work in improving our grassland policy and the general efficiency of production. The serious fall in prices which has accompanidd the increaso of supplies to the United Kingdom makes it evident that this market is unable to absorb dairy produce at prices that will cover, the present costs of production of the majority of our dairy farmers. In general, these costs are low. If interest charges are excluded, it is probable that no' other country in the world can produce high-grade dairy produce as cheaply as wo can. Despite these low costs, wa are confronted with the fact that our actual.output, which is far short of our potential production, is at present incapable of beingmarketed at remunerative prices. MARKETING PROBLEMS. "The situation outlined above indicates very clearly that we must abandon our traditional view of the "United Kingdom as a bottomless market, and that we must more earnestly consider the balance of loss arid gain that might

follow upon an acceptance, in conjunction with'other countries, of a.policy of quantitative restriction of exports. Further, the problem of establishing ourselves in markets other than tho United Kingdom becomes one of pressing urgency, demanding an organisation of our national resources and a sustained, concentrated endeavour ou the part of all primary-exporting industries not only to find and exploit additional markets, but also to develop as far as possible alternative types of products. "Tho search for additional outlets and for more diversified forms of production must, however, bo accompanied by a more competent and vigorous campaign to develop existing markets. For the purposes of maintaining and developing old markets, and for establishing new ones, it is important that attention be concentrated both on the improvement of tho quality of our produce and on the methods of their marketing. This aspect of our problem involves consideration of the interrelated processes of production, manufacture, transport, and sale,- and is essentially a question of organisation and administration. It i« clear to the Commission that substantial changes are required in the administration of the dairy industry, and ■ that a closer co-ordina-tion must be effected between the major exporting industries of the Dominion if a successful approach to these problems is to be made. COSTS AND. INCOME. "Looking, at the situation from tho fanner's point 61: view, wo are at once impressed by . his achievements in increasing production, and by tho fact that his increased output has brought him uo gain. The reason is that the I rapid decline in export prices has not been accompanied by an equivalent fall in import prices or in.any of the main fanning -costs. This disparity between income and costs is the basic proximate cause of farming distress. It is true that the disparity has to some extent boon made less than it otherwise would have been by euch devices as exchange depreciation and statutory reductions in interest, but tho benefits of these measures have been largly or wholly offset by tho continued fall in produce prices. Moreover, the continued disparity between rates of interest charged on rural mortgages and the yield from other securities has seriously impeded the needed adjustment of costs to prices. The processes of relief under tho Mortgage and Tenants Belief Act, while conferring great general benefit on both mortgagor and mortgagee, have unfortunately helped to 'freeze' the mortgage situation and to prevent decisive adjustments from being made. "The maladjustment between costs and prices has thus brought into prominence the rigidity of many farm costs. It has also revealed an extensive amount of ovor-capitalisation and an "unsatisfactory state of rural finance. Tho uncoordinated and competitive nature of our rural finance, allied to a strong tradition of trading in farms for profit, and to a highly-efficient system of land transfer, has led to much land speculation on the basis of small equities and large mortgages, and in some cases to the financing of unsuitable men and un. suitable laud. The problem of cost adjustment is therefore more than a problem of farming relief. It involves not only a consideration of means by which out rural credit mechanism may bo strengthened, but a consideration also of means by which the present methods of relief may be made more positive in their operation.

"From a national point of view, the developments of the past few years have placed an increasing burden on us in the payment of our overseas interest bill. Because the rate of decline in prices lias been greater than the rate of increase in production, an increasing proportion of our gross national income has to be allocated to overseas interest payments,, and this without in any way casing the interest or other burdens of farmers. Hence, the same set of circumstances that places the farmer in a position where he requires relief adds to the burden of State commitments overseas, and thus makes it progressively more difficult for the State to assume further liabilities on, the farmer's behalf. " If produce prices fail to recover, it is difficult to see any solution of this problem, compatible with the continued payment in full of our overseas interest charges, for any substantial relief to farmers means placing additional burdens on other sections of the community, unless they too can be relieved through a lowering of taxation consequent upon a reduction of overseas claims. This problem of our ability to meet in full our obligations to our overseas creditors and to meet in full our 1 obligations to our own farmers is inseparably linked up with our ability to sell and must be taken into considers, tion in future discussions with the United Kingdom in respect of market policies or trade agreements.