FLOUR MONOPOLY AND CONTROL

Evening Star, Issue 18999, 22 July 1925, Page 10

FLOUR MONOPOLY AND CONTROL

DISTRIBUTORS, LTD. CASE THE CROWN'S APPEAL [Fra United Press Association.] WELLINGTON, July 21. Belli divisions of the Appeal Court ivero further engaged to-day, hearing tho appeal in the flour-nulling case board in Dunedin, in which penalties were sought for alleged breaches ol the Commercial Trusts Act of IHlt) (relating to monopolies) Irom Uio Crown Milling Company, Ltd., of Dunedin, flour-millers; Fleming and Co., Ltd., of .Invercargill, flour-millers; the Allas Keller Flour and Oatmeal Mills (Frans and Co.), of Timaru, Hour-millers; AVood Bros., Ltd., of Christchurch, Hour-millers; and Distributors, .Ltd., oi Christchurch, flour-millers’ agents, which companies are respondents in the present proceedings, Air .Justice bim having found against the Crown in the lower court.

Mr Arthur Fair (Solicitor-General), commencing for tho Crown, in discussing the evidence, made the alternative submission that Distributors, Ltd., had operated and would continue to operate contrary to public interest. The burden of showing that the profits were no greater after than before the formation of Distributors was on .defendants. An inspection of the hooks by the Crown was requested, but was resisted by counsel for the respondents and refused by. the court. The facts relied on by tho Crown as showing the illegality of Distributors, Ltd., were that it—

1. Prevented bakers in Southland and Dunedin from obtaining the flour they thought best, and compelled them to take what Distributors supplied. 2. Meant that every flour-mill hut one or two was pernnuieni ly established in trade for over, irrespective of capacity for work, and the public was paying interest on the capital involved when they might bo eliminated by trade competition. 3. Removed the normal incentives to increased efficiency, 4. Prevented a reduction in cost of flour, and consequently bread, that would otherwise have been .made. 5. Increased the cost of distribution and price of Ilnur. 0. Prevented new firms from starting and trading against old firms. 7. Meant the agreement was in breach of section 3 of the Act, and, being illegal, was therefore contrary

to public interest. Mi- Fair said that according to the ;greemcnt tbe price of flour could bo fixed by the managing director of Distributors, Ltd. In the Coal Vend case there was a definition of monopoly.

Tho Chief Justice; The Coal Vend case is different, because it comes under a different Act.

Mr Fair : It ivas impossible for the coal industry to succeed if the owners had not combined to raise prices, but here there was no such need on the part of flour-millers.

Mr Justice Alpers: There is evidence that if they had not done so there might have been chaos. Mr Fair: The difficulty encountered by tbe Southland bakers lasted from February, 1923, to February or May, 1924. According to the evidence of Mr W. W. Millar, his firm was forced to take Fleming’s Hour in order to got Crown flour when it already had more than it needed. Mr Skerretti Something went wrong with Fleming’s mill at this time. That was admitted.

Mr Justice MacGregor : Apparently it was only the Invercargill people, who had to eat bad pastry, who really suffered.

Mr Fair: Mr E. J. Cochrane complained also of tins Hour, and assigned its condition to the bad season. Other Southland flour-millers assigned different reasons.

The Solicitor-General went on to refer to the evidence of Mr S. L. Ueoro, who testified that ho had ordered Steven’s northern flour, but could not got it, the manager for Distributors Stating that Southland’s quota was already taken up. Mr Justice MacGregor: Is it suggested that Australian flour is bettor than Now Zealand?

Mr Alyers: Australian wheat is stronger, and many bakers seem to think it makes better bread.

The Chief Justice t I am inclined to think that wheat grown in Central Otago is as fine as anywhere else. Mr Fair: The submission on the part of the Crown is that Distributors, Ltd., could have obtained flour from other mills to supply the bakers’ demands. Mr Laurenson was one of the most active objectors to the monopoly. He gave evidence that on the formation of Distributors, Ltd., ho was unable to obtain Oamaru flour, and had to rely on local flour.

Mr Myers: That was contradicted in cross-examination.

Mr Fair: It is true he admitted that lie managed to secure Jive trucks amounting to thirty-three tons. Distributors, Ltd., knew what was aggravating the bakers, because iu February, 1924, their Dunedin district manager reported that local bakers were very sore at what they styled the continued sending out of inferior flour. The company knew that the Hon. Mr Downio Stewart had been interviewed and informed that the bakers could land Australian flour in New Zealand at a considerably lower figure than was paid for local flour, and they should be allowed to obtain Australian flour if local flour could not be produced of the standard quality for bakers. It is noteworthy that the defence only called two bakers, both of whom were unsuccessful in business, to disprove the evidence that Fleming’s flour was not welcomed at that particular period. On the other hand, the Grown in the court below called very reliable evidence. The Crown does not suggest that Distributors, Ltd., was responsible for the bad flour, but it does say t his combi no prevented bakers from going elsewhere in Now Zealand—to northern mills—and obtaining good flour. There is information that there was a source from which bad flour might have been replaced. This shows the stocks in hand as at October 31, 1923. Mr Myers: It should be mentioned that several mills were closed down, and the stocks in band in others bad to carry them over until the following February.

Mr Justice MacGregor: Still it remains clear that certain flour was available even though its use then might have caused a subsequent shortage.

Mr Fair; The Government ‘Gazette’ shows that on Slay 30, 1923, there was 32,000 tons of flour in the dominion. That was sufficient to carry on till the end of February, when the now harvest would be coming in. As soon as the defect appeared in the flour the miller would immediately seek to ascertain the cause and remedy the defect, but under Distributors, Ltd., the miller does not have to do this, because he knows that his flour, even if bad, will still be sold h ythis concern, and bo foisted on to the bakers who do not want it and who lose in consequence. Coming to the second point, Mr Fair said: The Crown submits that unnecessary capital is invested in the Hour trade, and the public has to pay interest, which includes the ripkeep of mills, that might in course of competition go to the wall. The agreement binds Distributors, Ltd., to fix a price for wheat and flour that return a profit to each mill owner, which means that a “marginal mill” (economicfilly is&LitjLA siUJMJUHaJssg.

efficiently and is running almost at a loss, has to have its profit as well as the mill, which, in the ordinary course, would gain it through efficiency in .the management. Messrs Love and Frhy testified that the total possible output was greatly limited by the capacity allocated bv Distributors, Lid. The third ground is that-tho agreement removed the normal incentive to efficiency. The defence relics on the clauses in the agreement which permit of a reduction in prices, but first ol all the managing director lias to make up bis mind that the Hour is had, then appoint an expert who must be approved by the directors of tho company; then the expert has to examine the flour over, a period and prepare a report, a copy of which is supplied to the mill owner. This machinery is cumbersome, and it is exceedingly unlikely that flour would bo reduced by this moans. For live months Flemings were turning out inferior Hour, but the clause was never put into operation, and consequently this Hour, although responsible for tho had pastry throughout tho Invercargill district, was fetching just tho same, price as all oilier flours. In unrestricted competition the best recommendation Hour can have is its continued good quality. What wo must be careful about is that Distributors, Ltd., may be causing no concern now. 'I bis company is on its best behaviour now, but once it obtains legal recognition then possiTiTy" prices may be fixed that will benefit tho mill own.ers and be detrimental to the nnhlic. Mr Skorreit: An extraordinary doctrine that is not only contrary to authority, but which overlooks tho Hoard of Trade Act. N

Mr Fair: My fourth point is that the operations of Distributors,. Ltd., have increased the cost of distribution and the cost of Hour itself. There is no evidence flint, economy was eflcekui by the scheme. Distributors. Ltd., has been the cause of the Dunedin bakers bein' l ' obliged to pay Ills per ton more for Oamarii flour. The agreement was framed to prevent the reduction in the price of Hour that would come about in the nnlinarv course ol competition, ami has actually effected ibis purpose. The ease- stands part heard.