DAIRYING COSTS

Evening Post, Volume CXXIV, Issue 14, 16 July 1937, Page 15

DAIRYING COSTS

A CLOSE ANALYSIS

REPORT TO FARMERS 7 UNION

CASE FOR INCREASE IN BUTTER PRICE

An increase of at least 3.385 d a pound in the price of butterfat is necessary to place the dairy-farmer in the same relative position at the present time as he was in the 1935-36 season, according to calculations made by a committee of the New Zealand Farmers' Union, whose report has been approved by the Dominion Conference of the union. As costs are rapidly rising, however, a larger increase would appear to be necessary, the committee says in a statement issued to the Press. Increases since the 1935-36 season in the cost of production of a pound of butterfat are set out by the committee as follows:—Wage costs, 2.335 d; farm costs (approximately), ,550 d; total, 2.885 d. " "We would point out that dairy production during the 1936-37 season on a per acre and per farm basis has been higher on account of favourable seasonal conditions, and consequently income has been above normal," the committee says. "The 1936-37 season in-, come has been swelled by the fact that the 1935-36 factory bonus was paid during the season, and at the same time a higher' advance, proportionate to the expected final return for the 1936-37 season, was also paid, so that more than the actual income for the 1936-37 season is shown in the cash receipts. In our experience, returns of income and expenditure. ■' of ,'individual farmers are not very reliable guides to the cost of production, because of the variation in individual interpretation of items, and particularly variations shown from year to. year in actual costs, such as the maintenance of a farm, herd, and plant; quite heavy costs may be incurred in these items in one season and none, or, comparatively light costs, in another. IMMINENT ADVANCES. "We also find that only a part of the present increase .in costs is accounted for, as many increases in prices are taking place; these increases have not been anything like fully reflected in the year's costs, as they have only acted throughout the latter part of the season. Consequently, it is necessary to calculate costs on the basis of present prices, with a due allowance for increases that are now imminent. "In many cases we find that fanners' statements omit important items of costs which do not involve actual cash transactions. Depreciation is often not charged, or only incompletely charged.' Interest on the farmer's own investment is frequently not included as a cost. No provision is made in most cases for a reserve to meet the decreased income in seasons of low production. No provision is made for increased expenditure made necessary by the operation of dairy and other regulations which may be considerable. "We would' point out the danger of depending on average costs, and returns to determine the price for butlerfat, as the price that is fixed will also fix the margin where production becomes unprofitable; if the average is taken to fix this price then those farmers with costs above the average will be forced out of production '> or have their standard of living reduced, below the general standard of living throughout New Zealand, which the Act requires to be afforded to dairy farmers. This would particularly affect the smaller farmers as is clearly shown in the Dairy Industry Commission report; with herds of 31 cows and under, it is shown that the cost of producing butterfat, apart from capital costs, was 9.763 d per Ib, while'with herds of 100 cows and over the cost of similarly, producing butterfat was 6.279 d per lb. "The same report shows that ;with what is classed as 'efficient' management, the cost of production may vary from 4.89 dto 10.22 d per lb. The average is 7.555 d, but it is evident that, if the price were fixed on this basis, all farms with over 7.555 d per lb costs would produce at a loss and eventually be forced out of production. YEAE'S WAGE INCREASES. "Note: This is drawn, up on the assumption that only minimum rates arc paid. In view of the difficulty of obtaining dairy-farm labour at present the average wage now paid is generally above the minimum. "It is difficult to obtain information with regard to concrete cases concerning wage increases over a sufficiently large number of instances to enable a general conclusion to be drawn with approximate accuracy. It is submitted, however, that the increases over last year can be computed on the basis of the following points agreed on dur<ing the dairy-farm labour discussions, namely: (a) The fair amount of butterfat production for one adult labour unit (permanent employee) is 60001b of butterfat; (b) the average rate of wages for an adult dairy-farm worker prior to the agreement was agreed to be 25s per week and founa. "The average wage for an adult farm worker (such a hand as could be expected to produce 60001b of fat) was fixed by the Agricultural Workers Act at £2 2s 6d, an increase of 17s Cd per week. There was also granted a further payment of 8s 9d per week (half the board allowance) for the time which the worker had on holiday. In the calculation following a conservative allowance for board for a fortnight has been taken, although a month's holiday is provided for by the Act. Assuming the workers under 21 to be paid in proportion to their capability for the production of butterfat, the average increase per lb of butlerf at will be the aggregate increase in payments divided by 6000, namely, 1.855 d. "It is submitted, therefore, that the increase in labour costs due to legislation is 1.855 d plus the extra cost of the man's keep. "The increase in the charges of boarding-houses in Wellington during the last year have ranged from 5s to 10s a week. We can claim, therefore, that a conservative estimate of this increase is 5s per week. To take a conservative view, although a month's holiday is provided and although an inci'ease of 8s 9d was taken above only for a fortnight, in this case we base the increase on 48 weeks of the year only. The increased cost per lb butterfat, due to :- creased keep is, therefore, .48d. The total wagn increase is .48d, plus 1.855 d, or 2.335 d. DAIRY FARM COSTS. "It is difficult to obtain figures which are truly representative, but the Dairy Commission went exhaustively into this matter, and, accepting the figures in its report as a base, we submit the following computation. It must be pointed out that we have taken the North Island average costs and consequently the increases are probably more than those stated. It will be noted that for cultivation no increase has been stated, as it is difficult to know just what was included in this figure. In the South Island, for which no figures are shown, in the dairy report, this is a considerable item in dairy farm costs. The cost of replacing horses, for instance, has increased very ■ considerably. No increase has been claimed for noxious weeds or rabbits, and an increase of only_ -20 per cent, has been claimed, lot

sundry items. Sundry items will include cartage inward, which has increased by 50 per cent, in many cases. A conservative view has been taken and 20 per cent, only added. The procedure which has been followed has been to take the North Island costs of th Dairy Commission's report, and add to those the percentage of increase vwiich we have been able to ascertain (from comparisons of price lists and our personal knowledge) has taken place in the last year. This would appear lo be a practical method of comparison, but as prices had risen from 1934 to October, 1936, the calculation must be conservative." PRODUCTION COSTS DISSECTED. The increase, since the 1935-36 season, in each item in the production of one pound of butterfat is set out as follows:— Cultivation, ; seeds, .0350 d; fertilisers, ; fencing, .0376 d; water repairs, .0136 d; noxious weeds, ; rabbits, ; casual labour, .0233 d; cow covers, .0067 d; veterinary, ; shoeing, ,0043 d; implement repairs, .0214 d; milking plant repairs, .0250 d; power, .0370 d; milking plant materials, .0077 d; depreciation, .1464 d; overhead, .1430 d; stock and poultry feed, .0492 d; total, .5502 d. ■ * ■ • j "The use of a standard of 60001b of butterfat per unit of labour was taken merely because it was the standard of efficiency postulated by the Government representatives in the discussion with the committee of the Farmers' Union on dairy farm wages, and, having been postulated by the Government, was accepted by us merely for the purpose of a standard for calculation," said the president of the union, Mr. W. W. Mulholland, in explanation of the union's statement last night. "I would. like: to state emphatically that: the Farmers' Union by its use of this figure in no way put it forward as the union's considered opinion of the stand-. ard of. efficiency of the labour unit in the dairy industry. The union has at no time investigated sufficiently this question to have been able to express a definite opinion, and it was used merely because, of the reason' stated."