ECONOMIC FOOTING

Evening Post, Volume CXXIV, Issue 120, 17 November 1937, Page 15

ECONOMIC FOOTING

SUPERPHOSPHATE WORKS

STATEMENT BY MINISTER

NEW APPLICATIONS

The desire of* the Government to •place the manufacture of superphosphate on a proper- economic footing that would ensure to the farmer superphosphate at the lowest possible price and allow a reasonable return to invested capital was emphasised by the Minister of Industries and Commerce (the Hon. D. G. Sullivan) in a statement issued last evening. The state-. ment followed on representations made by the Hon. W. E. Barnard (Government, Napier), Mr. H. M. Christie (Government, Waipawa), and Mr. E. L. Cullen (Government, Hawke's • Bay), and referred to the applications for licences to erect and operate further phosphatic fertiliser works in the North Island,' and particularly in the Hawke's Bay district.

"At the outset, I would like to give an outline of the operations of the Industrial Efficiency Act which, under section 14, now controls the'erection of further phosphatic fertiliser works in New Zealand," Mr. Sullivan. said. "The. Industrial Efficiency Act ..was designed to promote the economic welfare of New Zealand by providing for the promotion of new industries in the. most economic form, and by so regulating the general organisation, development, and operation of industries that a greater. measure of industrial efficiency will be secured." Section 14 provided that the Minister might at any time, by notice published; in the Gazette, declare that any industry specified in.the notice should s as from a date to be specified therein, be carried on only pursuant to a licence. >

PREVENTION OF WASTE.

"One of the factors which influenced, me in invoking this section,is the der sirability of limiting units in an industry, to an economic number, in order to prevent uneconomic waste by- overcapitalisation in that industry, resulting in higher, costs through production, being carried on by an excessive num-. ber of units," the Minister continued. A number .of. applications for licences to erect and- operate further phosphatic ; fertiliser works in various parts of the North Island had been., received, including the Hawke's Bay and North. Auckland districts.

Following the Hawke's Bay application, the fertiliser committee of the Bureau of Industry in March last had visited Hastings and Napier to hear evidence in support.of the application and to inspect., the site on which it was proposed to ■ erect the _works. Although no specific information as to the costs of plant and equipment, nor as to costs of was given to the committee, the committee was impressed with the genuine desire and the capability of the personnel of the promoters; as proved by the success of other coroperative ■ organisations with which they had been associated. The Minister said he must stress, however, that complete proposals of costs of production and estimates of building and plant costs had not been submitted.

At the time the committee visited Hawke's Bay it was hot satisfied that ' the proposed works could secure sufficient output to'warrant' the necessary capital expenditure. In the manufacture 'of SUper'phospK'Rte, the overhead ■ expenses, such as interest, depreciation, and general administration; had a' far greater influence on the ultimate sell-' ing price than the prime manufacturing costs.' As those expenses were governed by the tonnage output, it woud be seen that a decline in output could increase these "costs very materially:. . ■ • .■••■■■■

"It is generally agreed that a' works of lessthan 40,000 tons capacity would not be an economic unit, and it is estimated that in the case of a works of this capacity operating on an output of 30,000 tons, that is, 75 per cent, of its capacity,' the overhead costs of interest, depreciation, and obsolescence would be 5s a ton m6re than when; operating at full capacity," Mr. Sullivan said.

BASIS OP PRESENT PRICE.

Since 1931, when the Government granted a subsidy to encourage the use of superphosphate, the production1 had shown an increase from just over 200,000 tons per annum to the present level of approximately 400,000 tons per annum. From; 1928 to 1931 the price of superphosphate in the North Island, was £4 17s 6d a ton. The Government subsidy enabled a price of £4 to be maintained for four years during the depression, while the subsidy was being gradually reduced year by year. The present price of £3 16s (without subsidy) in comparison with the 1928----31 price of £4 175.6 d had. been achieved, "riot so much by reduction in costs of materials and production costs, but by reason of the increasing output enabling the manufacturers to. spread their overhead charges over a larger tonnage and still make reasonable pro-. vision for depreciation and dividends.

■ The Bureau' of Industry, in considering the applications, had to be assured beyond all' doubt that an . opening existed for new works, and. that existing works would still be able to secure sufficient output that would enable their works to continue to operate as efficiently as before the new works were erected. One very .important factor that was inclined to be overlooked was' that under the Board of Trade regulations one price for superphosphate operated in the North Island, and that price was based on the cost of production and- a reasonable return on capital invested.

It was obvious that before further capital should be brought into the industry it must be shown that the output of the new works could be fully absorbed without detracting from the present output of the existing works, otherwise one of two things would happen:

1. Shareholders would lose their money in the new undertaking, and the company,would go into liquidation, or

2. The price of superphosphate in the whole of the North Island would have to be increased to enabled existing works to recover their overhead charges on a reduced output.

PROSPECT FOR SEASON.

"The capacity of the five ' North Island works is sufficient to meet farmers' normal ; requirements, but many farmers had difficulty in obtaining delivery of superphosphate during last season;" Mr. Sullivan ■ continued. "The companies were inundated with orders much earlier than, usual and as farmers required prompt delivery a congestion arose which took some little time to adjust itself. The deliveries for the first five months of this year exceeded the deliveries for the corresponding period of last year by .30 per | cent. There is not likely to be the [same congestion this season, but the increased demand is expected to be maintained, and as a result it is anticipated that the existing works will be operating at a much higher percentage of capacity than in the past. "Wherei-.s a few months ago the Bureau of Industry would probably have declined a licence, the indications today are much more favourable. "The changed conditions have necessitated further conferences with- the manufacturers, and a draft plan has

been- prepared for discussion with them. This- plan "envisages the establishment of a works in Hawke's Bay, but naturally, definite decisions must await the outcome of the discussions." Mr. Sullivan said he would like farmers and primary producers in Hawke's Bay to realise that the erection of works in the district was not simply a local enterprise, the success of which depended on local support. The question was much wider, as it was necessary to deal with the industry as a whole and not individual works or individual districts. Works at Napier would require adjustment of deliveries from existing works and co-operation between all. companies became increasingly necessary, if the country was to enjoy the benefits of a rationalised industry. He was hopeful that the companies would conduct the negotiations with a desire to cooperate with the Government to that end.