THE PRICE OF BUTTER

Evening Post, Volume CXXIII, Issue 56, 8 March 1937, Page 10

THE PRICE OF BUTTER

SURVEY OF ENGLISH MARKET

CAUSES OF FALL IN VALUES

A thoughtful and valuable survey-of the United Kingdom butter market was made by Professor W. Riddet, director of the New Zealand Dairy Research Institute, in a special interview with a "Post" representative at Massey Agricultural College on Saturday. Professor Riddet recently returned from a tour abroad, and during his stay in England he paid particular attention to the marketing of INfew Zealand dairy produce. He has little patience with those who attribute the fall in the price of-Dominion butter in Great Britain to the marketing system, and holds, as the result of personal study and deductions from official data, that the factors responsible for-the .drop in the price level are entirely divorced from the marketing system, which, he states, is not unique and is approved by the.Tooley Street merchants through whom the Dominion's produce is distributed..

Professor Riddet said that in the earlier years of export marketing of New Zealand butter and cheese, sales were made principally on an f.o.b. or c.i;fc basis, which meant that the butter was purchased by British importing firms berore it was shipped abroad. As production increased, and as the export trade developed, more and more produce was consigned to selling agents in Great Britain, and it remained the property of. the dairy factory companies until it was sold. However, local selling, while declining in relative importance, still remained an important and sometimes a disturbing factor. Chain stores and combines could afford to make' their purchases within the Dominion, but such a proposition was beyond the resources of the individual retailers, who had to rely on London agents for their supplies. That meant that.one setof retailer's, such as a number of the chain stores, were buying under one system, and another section, composed mainly of individual shops, were seeking their supplies by another method. There were also merchants buying.on their .own. account for speculative purposes—such a position, especially,'in' periods of fluctuating prices such as has marked the post-war era, .had given rise to anomalous situations and complications, which at times wer.e:detrimental to New Zealand's interests on the British market. I.t had to be remembered that, although thqre had been a striking growth in the multiple store system, the small retailer was'still an important factor. It1 was not .in the interests of the Dominion that one section of the retailers should be .-given, an advantage over another, and it was for that reason that the New Zealand Dairy Control Board evolved a riew system of marketing which was based 'on ' fourteen years' experience and study of the characteristics and requirements .of the United Kingdom market. • . ENDORSED BY IMPORTERS. ■ The: new system had nothing to do with the change in Government, as it had been conceived before the change in administration. Furthermore, it had the endorsement, of the Importers' Association, which consisted largely of Tooley Street merchants. Under the. new system, the Dairy Export Control Board,.with the approval rof the Importers' Association, granted licences to certain importers to act as consigning and selling agents for New Zealand produce, but in accordance with the agreement certain f.o.b. purchases were still permitted, subject to certain conditions. The accredited agents had to allow the board to inspect their books and if necessary audit them. .'■•'• "It is necessary to emphasise that this type of trading is more acceptable to the general body of.traders than the old system," said Professor Riddet. "The trader who has built up a reputation for handling a good line of butter is assured ■• of a continuity of supply, and he is able to satisfy his clients at all times. As he is paid on a' commission basis, he has every incentive to expand his business. Under the f.o.b. system, he was never sure of his' supplies or when he would be displaced by another agent. There was no' incentive to give the best service to New Zealand or the consumer. The old system was not only entirely un-necessary,-under a' collective system of marketing, but also had serious drawbacks. When agents were in active competition for the business of individual factories, it was difficult to get from them an expression of opinion in regard ,to market difficulties or the quality, of our produce. It is admitted that they would point out any defects in the butter, but there is a difference between average produce and defective produce. Thus there was no incentive for the' factories to maintain the highest quality. Under the new scheme the agent knows that he will not lose our custom if he criticises any of the consignments allotted to him, and the board is quickly able to correct any falling-off in the quality from any particular factory. This is an important point in view of the necessity of maintaining quality in the face of improved qualities from our competitors." EFFICIENCY BASIS. Professor Riddet said that under the new scheme . the consignments were alipcated by the Marketing Department on the basis of the efficiency of the distributors. Such a system kept the agerifs still in competition with each other,. but i they had the incentive to render the best service possible. There was no attempt at price fixation by the Marketing Department, and one could - say that the system gave the Dominion the advantages of collective marketing under conditions in which public service was the criterion of distribution. "I know from personal investigation while I was in London that the .new methods of distribution have the solid support 6f the agents," said Professor Hiddet. "They would naturally resent anything in the nature of price fixing, but nothing of the kind is contemplated. The London officers of the Dairy Board and the other produce boards have built up an amazing good will among the traders, and I am happy to be able to pay this tribute to our representatives. Those who have not been abroad have no conception of the wonderful work they are doing, and the splendid feeling that exists ■ between them and our agents."

The Professor said that the new marketing.system was detrimental to the speculator. There were some who maintained that speculation led' to a buoyant'market. It was true that speculation might raise prices when they \yere low,, but, when the position was surveyed over a period, the results were not so happy. Speculation might also depress a rising market. Furthermore, there was the paramount queston of the quality of our butter to be considered. Speculators knew that our butter would keep in cool store, but storage did not improve its condition. While the speculator was holding butter waiting for a rise, it was getting staler and staler, and when it was finally placed on the market its quality was below the standard the consumers expected from New Zealand produce. Such a state of affairs nullified the efforts of the producers to export only the highest quality . and alienated the consumers. It had to be recognised that those who were holding butter for a rise endeavoured to keep rtown their overhead charges and did ..of. always store the produce under the best conditions. Speculation would

PAYMENT OF SERVICES

never be avoided entirely, as there would always be purchases made in expectation of a rise in prices, but it could be reduced to a reasonable minimum without interference with the trade.

"I will say, however," said Professor Riddet, "that when it comes to paying for services rendered we are inclined to be cheese-paring. We cannot afford to be less generous than our competitors if we expect to get the highest possible efficiency from'our agents."

He said that the, idea that other countries allowed all and sundry to market their produce was wrong. The Russians, for example, chose a panel of brokers to handle their butter, but one of the outstanding instances was provided by the Dutch in the marketing of their bacon. When their exports to the United Kingdom weie limited by 'a quota they reorganised the whole 'Of their business. They stipulated the number of pigs each farmer could grow, and a marketing board, set up by the Government, bought the pigs from the farmers, paying them on a quality basis. The board then paid a curing factory for the curing of the bacon, and.consigned the finished produce.to the United Kingdom, where it was sold by a limited number of agents, who were not .allowed to market any other Continental bacon. As a result of their marketing efforts, the Dutch materially reduced the difference between the price of their bacon and Danish. Although the practice of appointing a group of agents was not universal, it was widespread, and it. obtained. in the. sale of manufactured goods as well as foodstuffs and raw materials. Thus when people stated that New Zealand's competitors allowed free trade in their produce they were not stating the actual facts. SUPPLY AND DEMAND. Coming to the question of the fall in price of New Zealand butter, Professor Riddet said that it had to be borne in mind that prices were affected by supplies. New Zealand's exports to the United Kingdom., had been increasing almost continuously. When a country was faced with expanding exports of a particular commodity, it was necessary to find an expanding market in order to maintain prices. In the case of butter that could be done in at least three ways:—(l) The individual consumer, could be induced to use more butter, and in this case any increase would be governed to a large extent by purchasing power; (2) butter could be substituted for such alternatives as .margarine, and here the expansion was limited by price, because.if the price of'butter rose too high there would be a tendency, for it to be displaced by margarine; (3) one country's butter could displace that from another country. It was very difficult to get people to change from one kind of butter to another. Many retailers built up a reputation for stocking what they termed selective brands, and once their customers became used to those brands it was difficult to get them to switch to another brand. In fact a retailer who had built up such a reputation would go out-of his way to maintain his supplies. Thus, if his particular brand was in short supply, even though other butters were plentiful, he would face an uplift in prices rather than make a change. That factor had to be taken into account when examining the present position. BLENDING PRACTICE. Contrary to general belief, very litlte New Zealand butter was used for blending, but considerable quantities of both Empire and Continental butters, which were generally cheaper, were used for that purpose. A blender endeavoured to keep his blend constant through fear of altering its characteristics and losing his clients. Thus, when 'Continental butters used for blending tended to dwindle they hardened in price through the eagerness of blenders to obtain their usual supplies. That was a reasonable explanation of the rise in the price of Polish butter. The last summer in the Northern' Hemisphere had been a most unseasonable one, and, although there had been a good autumn, the hay crops had been poor, and winter feed scarce. Thus when the cattle came indoors the stocks of foodstuffs were not sufficient to maintain the usual output of milk. The result had been that there had been a falling off in production in many of the Continental countries. RESERVE STOCKS. Proressor Riddet said that he had been rather surprised at the knowledge among English merchants of New Zealand stocks. They used the weekly produce notes supplied by the Dairy Board as their bible, and when New Zealand had a good season and others had the reverse, there was a detrimental reaction in the price of New Zealand produce. Another disturbing factor for the Dominion had been the unexpectedly large supplies of Russian butter, which was somewhat like New Zealand butter. The Russians had not disclosed their stocks, and their appearance on the market had thrown cut all calculations.

"It would be tragical if the fall in price were attributed to the marketing system and no cognisance were taken of the supply position," stated Professor Riddet. "It would also be tragical if the propaganda of the minority were allowed to break down a system evolved by long experience and supported by the majority of producers and merchants. Why should we accept every little statement coming from England as authentic and representative of the people in the trade? We were annoyed when false1 statements relating to the Napier earthquake; were circulated in England, and we should be just as annoyed when false statements regarding the marketing of our produce are sent out to us. Let us take all the factors into consideration and not be misled or stampeded by those who are putting forward propaganda in their own selfish interests.

"Why didn't the same people jibber when, about October last, our cheese was selling above Canadian cheese? Our cheese is made for the masses, and we supply 50 per cent, of the cheese sold in the British market. The Canadians make a higher grade cheese for a more limited market, anil yet for n time we were above^them in price. The reason was that our slocks were below normal, and retailers were anxious to keep up their supplies. They laced a hardening in price rather

PRODUCTION CHANGES SUGGESTED.

than disappoint their clients. Yet when they wish to obtain a continuity of supplies of butter which are below normal we have a lot of propaganda against our marketing system. The price of cheese today is more satisfactory than the price of butter, and both products are marketed under the same system."

Professor Riddet suggested that New Zealand might be able to circumvent the piling up of stocks for the London market by producing butter all the year round instead of'confining her activities to a season of the year. If production were more uniform throughout the year, it would not be necessary to hold. such large quantities of butter in store and the market would be more buoyant, as merchants would not be influenced by a knowledge that there were large reserves in hand. There would be less incentive to speculation, and the butter, because it did not have to be held in store for long periods, would be fresher when it reached the consumer.

The people should not break down the marketing system merely because it was a Government system. The system deserved a thorough trial, not I over a few months only, but over a period of years, because it was fundamentally sound. The Minister of Marketing, who was at present in England, had been doing a wonderful service since he had arrived at Home. As a responsible Minister of the Crown, he had made contact with all classes of people, and had been able to answer all sorts of questions as they arose. His speeches had allayed many misunderstandings about New Zealand, and had won wide respect both for himself and the Dominion. Even those who disagreed with him admired him.----"It is only natural that any" change in a marketing system will be opposed by a few disgruntled individuals," concluded Professor Riddet, "but these individuals are no good to New Zealand, as they are generally out for themselves alone. Unless something desperate has happened since I left England, what I have told you is the position as I saw it after a careful investigation. There has never been any attempt to cajole the distributors of our produce. The agents doing our business are giving us the best service possible, and I hope that, instead of trying to direct a market that is 12,000 miles away, the critics will show sanity and judgment in their remarks."