PRICE TRIBUNAL

Evening Star, Issue 23511, 27 February 1940, Page 10

PRICE TRIBUNAL

WHAKATANE MILL CASE CONCLUDED DECISION RESERVED [Per United Press Association.] . ' WELLINGTON, February 26. , Tha hearing before the Price Tribunal of the application by; the Whakatane Paper,Mills to increase the prices for cardboard entered upon the ninth day to-day. Further technical evidence was given by accountants as to costing -■'systems, with particular reference to the .mills. Dr Foden submitted that the book assets of the company should not be accepted without a check. The alternatives were either to make a valuation which, would take some time or fix an arbitrary figure. He was not casting doubt on the authenticity of the figures, but it appeared certain that the fundamental principles of costing had not been observed. These errors related to-the way in_ which the company arrived at the prices it now asked for. ; The industry had been in production just over six months, yet the figures Compiled as a result were taken substantially into account in arriving at the prices sought. He submitted that'this was a serious error of principle. The experimental period was not a relevant period for that purpose. Another fundamental error was to treat the mill as. the company’s only activity. One fact which had been overlooked was'that the salaries which had been shown as unduly high referred not only to mill operations, but also to the for-estry-side. He submitted that the evidence had established _ a certain inefficiency in the' operation of the mill which was incorporated into the prices asked. The management could j not be .blamed for not yet having dovetailed all the manufacturing processes, and it could be said that if the inquiry had ‘ dime nothing else it had impressed the company’s advisers and officers with the desirability of concentrating still , more carefully on seeing that there was no overlapping or loss of efficiency. He contended l also that the initial loss of £26.000 should be spread over a period 6f years and not brought, immediately into the cost of production. The Crown waS J not. disposed to 1 accept the company’s figure for core wood costs as reasonably. econbmic. The tribunal might feel called on to decide whether the errors in this regard had been reflected in the, price asked for. It had been stated that the company needed new prices to enable it to obtain finance to carry on, but the Crown’s submission was that this was no concern of the tribunal. _ , . Opening his address, Mr Richmond submitted that, there had been no attack iin the form of the evidence on the aggregate Capital of the company’s mill and plant. With many of the observations of Dr Foden he was in entire agreement, continued Mr Richmond. The company did not quarrel With the evidence that the time had arrived when' its system' of accounts should bo extended into a better costing' system. In reply to,. Dr Foden’s submission that there had been a good deal of inefficiency, there was not, in his opinion, a tittle of evidence of this. There had been repeated suggestions that there was some evidence of ex- ( travagance or inefficiency because the company’s estimate in 1934 was £350,000, whereas in fact the mill and everything about jt had'eost morethan £500,000. It was an utter and entire confusion of thought to state this as indicating extravagance or inefficiency. There was no nexus between the estimate in 1934 and the actual cost in 1937. It had been suggested that the company brought part of the losses into the estimates for future cost. This was never done; Its case had always been .that the first loss of the first six. months, was' an establishment loss vyhild the company was experimenting bv trial and error, as, was necessary ' with „a! new industry. ; Dr -Foden had said the • mill had started before the proper time. What would have been the position now if it had not yet started? All the cardboard would have had to be imported, but the cost would have been greater than for the Whakatane board. The company never did. and'did not now. seek to base its■ claim on the increase in outside prices because of the • war conditions. It wanted the price to, enable it to_ work on a . commercial basis.; The tribunal was not faced with the issue of having to decide whether or not the increase in the Whakatane prices was beyond those of the imported, because this a'stion did not exist. The company - always been frank. The absence of tariff did not entitle it to special treatment. When considering how much of the burden, if any, was to be thrown, on - the public'the tribunal could take into account that in the case of the nearest related industry, that at,,Mataura, there was a tariff of £lO ,per ton foreign and £6 English directly and indirectly. Taking into consideration logging’, railing , shipping, and ot|ier. activities, the company provided wages , and employment for 500 - men. The most staggering suggestion had come from Mr J. R. Middleton, senior investigating officer of the Department of Industries and. Commerce, and As-, slstant Secretary of Supply, who suggested that; the, tribunal should base its findings on an artificial annual output'’of .15,000 tons. This did not appear to have been supported by any other witness of the Crown or of the company. He hoped the tribunal would put the company in a position where its activity would not be wasted or frittered away trying to find its way through',a financial morass, and that it would allow a price which would put it;on,a reasonable commercial basis. If this was done the tribunal could be assured that more time' and activity would be available to apply_ to the suggestions made by Crown witnesses. If, production costs could be lowered this would be done for the users of Whakatane board. Mr W. Perry said they were vitally interested, because any • increase in costs would affect them unless they were allowed to pass the increases on to.,their consumers. It was submitted that the approach by the company to the, problem was basically unsound. It asked in effect for a true gross return of 10 per cent, on a capital outlay of £586,538. His clients, Mr Perry said, approved of the suggestion of Mr H. D. Vickery, a Crown witness, that the company should add an appropriate percentage to the costs of production. If the firm was selling at an uneconomic price at-September I, when the prices were fixed, what justification was there for it now to ask permission for a price that would make production economic? The tribunal was not a loans board which conipanies > that had got themselves -.into a 'perilous financial position could approach to assist them in bolstering up their businesses, In effect, the company came to the tribunal and said its accumulated losses from July to September were £27,000. Tt could stand no further loss, and the less already made should be recouped by the con-

sumers of their products.. Most manufacturing firms in their early stages showed losses, but the company asked for prices such as would enable it to have a profit from the beginning. The war had been a heaven-sent opportunity to the Whakatane Paper Mills by the elimination of competition from overseas. This had left the company with a clear field in New Zealand, and no one could object if there was in the Dominion an industry capable of supplying the local market at a fair economic price. Here was an opportunity, if the company put its hand to the plough of producing to supply an expanding market it could become more efficient and eliminate overhead, and increase production so-that the costa would be less in proportion to the output and the more the profit. The tribunal’s decision will be given later.