PRICE MARGINS

Evening Post, Issue 12, 14 July 1936, Page 6

PRICE MARGINS

BUTTER AND CHEESE

QUALITY PRODUCTS

MINISTER'S DECISION

Price margins fixed by the Minister lof Marketing (the Hon. W. Nasli) for butter and cheese were announced last evening by the Acting Director of |Marketing .(Mr. P. A. Duncan). The margins have been fixed for the purippse of encouraging quality products, but no alteration has been made in the present grading system.

| ' "The Government," said Mr. Dun- : can, "is desirous of maintaining and improving ,the quality of New Zealand butter and cheese, and it has decided, by means of a system of differential 'price margins based on quality, to en- ! courage the production of the best | types of both' commodities. At the present time, creamery butter is classed for export under three grades —finest, first, and second. Whey butter is classed under two grades—first and second. ' Cheese is classed under three grades—finest, first, and second. When the butter and cheese are marketed in England,' the prices realised vary according to the grades assigned, and price variations occur also within the respective grades.

"The range of points for the three grades of creamery butter is as follows:—Finest, 93 and over; first, 90 to 924; second, 80 to 89*.

"The range for whey butler is: First, 88 and over; second, 80 to 87£.

"The range for cheese is: Finest, 93 and over; first, 91 to 92J; second, 80 to 90i. •

PROVIDING AN INCENTIVE.

"It was, realised that if, under the guaranteed prices plan, differential payments for quality were based simply on grades, ■ dairy factory companies .would have no incentive to strive to secure the/higher pointings within the respective grades. In some cases there would be a tendency to save costs by making less frequent collections of cream and by less efficient methods of manufacture, with a resultant falling off in the quality of the product. Udder the existing marketing system, the margins received for quality provide some incentive, though these margins are by no means constant. The Government, by fixing constant margins, aims at providing a more distinct arid tangible incentive to quality production. At the same time, it is obvious that-the margins- must bear a reasonably close. relation, to expected market realisations. '.

"It was recognised that the industry was divided in opinion regarding the basis on which 'differential price margins should: be •fixed. One section adopted the view that no distinction in price .'should be made between-differ-ent qualities in the same grade. Another section- held that price differentials: shpuld be made on half-points throughput the grades, and that differential margins should be well marked, with the sole object of encouraging quality, and without regard to market realisations. • DIFFERENTIAL PRICES. "The Executive Commission of Agriculture had a.series of discussions with officers N of the Dairy Division of the Department of Agriculture and the Department of Scientific and Industrial Research and members of'the Dairy Board. The matter of grades and margins was carefully considered from all angles, and a recommendation was made to the Minister of Marketing (the Hpii. W. Nash) that the grades should remain as at present, but that, in addition to the fixation of price margins for the different grades, differential prices should be fixed for higher and lower scoring cheese and creamery buU ter in the iinest and first grades. These grades represent by far the, greater part of £ur : output, the volume of second grade being practically negligible. There,is a range of six half-points for first-grade creamery butter and of four half-points • for : first-grade. cheese, while for both creamery butter and cheese the range in finest grade is from- 93 points upwards. Though it was agreed that- it would be inadvisable to alter, the, present number of grades, it was considered that the range of halfpoints was sufficiently wide to justify the provision- o£ two prices for. each of finest arid first grades. "The price- margins recommended to the1 Minister, arid approved by him, are ajs f0110w5;—..... - < ■ .■"'■■ " ' ". CUEAiIEUY BUTTEK. Finest Grade— . " ' 94 upwards plus Is 2d per cwt. 95 to 93% basic guaranteed price. First Grade— !12 to 92% minus 7d per cwt. 90 to 91% minus 2s 4d pec cwt. Second grade ...... minus 7s per cwt. WHEY BUTTER. First grade .... , minus 9s 4d per cwt. Second grade ...... minus 14s per cwt. ' CHEESE. . : Finest Grade— 94, upwards . . plus Is s'/.d per cwt. 93 to 93% ...... plus Is id per cwt. First Grade— . 92 to 92% Ijasic guaranteed price. 91 to 91% minus 7d per cwt. Second grade ...... minus 2s 4d per cwt. "The margins decided upon are thought to be sufficient to provide the necessary stimulus to quality production, but at the same time regard has been had to the necessity of maintaining a due relation to market realisations on dairy produce sold on con- ■ signment, and to. the grade differential; prices recognised in the past in f.o.bJ and c.i.i sale contracts. GRADING NOT ALTERED. "It should be made clear," concluded Mr. Duncan, "that what has been decided upon does not alter the present grading system in any way. The number of grades will remain the same, the allocation of points to grades will remain the same, and the methods and standards of grading will remain the same.- Butter boxes and cheese crates will be marked with the same grade marks as at present, and no added marks will be affixed to indicate anything in the nature of a subdivision o£ grades. These facts arc stressed in order to remove the impression that the grading system is to be altered in some way. All that has been done is to recognise that under the present -, marketing system market realisations show that price variations exist within the grades, and that under ,a system of guaranteed prices provision must be made for similar price variations, in order to maintain and stimulate.the production of butter and cheese of the highest possible quality." When asked if he could indicate the guaranteed prices for butter and cheese for the ensuing season, Mr. Duncan said that the Minister would make an announcement in due course. What he had stated related only to the margins above and below the guaranteed prices. He could, however, say that, in the case pi both cheese and creamery .butter, the range of grading points in respect ,of. which the basic guaranteed price would be paid included a considerably larger percentage of our exports than any other similar range.