DEADLOCK BETWEEN DOMINION AND BRITAIN OVER DAIRY PRODUCE PRICES

Gisborne Herald, Volume LXXVII, Issue 23343, 28 August 1950, Page 6

DEADLOCK BETWEEN DOMINION AND BRITAIN OVER DAIRY PRODUCE PRICES

(P.A.) WELLINGTON, August 28. “Negotiations with the United Kingdom concerning the prices and conditions of the supply of butter and cheese under the contract from the production season from August 1, 1950, to July 31, 1951, have been protracted and it is regretted that agreement has not been reached on prices,” said the chairman of the Dairy Products Marketing Commission, Mr. W. Marshall, in a statement at the week-end. Mr. Marshall quoted the following exchange of letters between the British Minister of Food, Mr. M. Webb, and himself setting out the results of the negotiations by the commission delegation in Britain in Jline and July:—

FROM THE MINISTER OF FOOD TO MR. MARSHALL, JULY 7: “I have considered very carefully the representations you made in company with Mr. Askwin on June 23 on the prices we arc paying New Zealand for dairy produce under our several contracts and I have studied the position in the light of the history of our contracts for these commodities during the war and since.

1948-49, 1335; 1949-50, 141 s 6d. Canada: 1947-48, 1445: 1948-49, 1725: 1950, 181 s lOd. Dutch (45 per cent fat): 1949-50, 2025; the latter being considerably lower in fat content than New Zealand cheese. “Your (b) takes no account of our claim being based partly on an increase in our costs brought about by the devaluation of sterling and the continued upward movement of the prices of goods we import from the United Kingdom.

‘‘As regards butter and cheese, I am reminded by my official colleagues in the Ministry that we conceded a year ago the full 7i per cent increase which the contract permits, although at the time we felt doubtful whether the claim to the full increase was justified. We understand that our view is borne out by the fact that you have, during the year which has elapsed since, again been able to put a substantial sum to reserve out of the funds from the sale of butter and cheese of which the money paid under our contract is by far the largest item. “I note that this year you base your claim for a 7$ per cent increase upon: (a) Prices we are paying other suppliers, particularly European suppliers; (b) an • estimate of increased costs which will be incurred during the year we are considering. European Prices

Domestic Matter

“In regard to the reference to our having placed sums to reserve, we are bound to record what has been frequently said that this has been possible only because of the Government policy of stabilisation, keeping down the prices to farmers as low as possible. This policy has necessitated subsidies on costs and other economic measures and is entirely a New Zealand domestic matter, just as the fact that you pay about three times the amount to your farmer is a domestic matter for the United pngdom. “You say that the Ministry felt doubtful as to whether the increase of 7j per cent conceded last year was fully justified. lam bound to say, having regard to the fact that since the previous year’s negotiations you had given another country a long-term contract at higher prices than ours, we felt we should have pressed for more loan the 7£ per cent increase, had it been possible to do so. "We cannot accept your contention that merely because of the existence of long-term contracts there is no competition between our cutter and that of European origin. “We have no evidence that such disabilities as are now being experienced, for instance by Denmark,_ are substantially greater than those imposed upon our own economy under the post-war conditions, and the marked _ disparity in the price paid to one traditional supplier to the United Kingdom compared with others is a very serious matter to us. i

"As to the prices which we pay European countries there would, perhaps, be some substance in your claim if we were close to the time when your butter and cheese would have to compete against theirs in the United Kingdom market under free competition, but that cannot happen while this contract lasts, in other words for another five years. “Meanwhile we have to obtain what supplies we can from these countries, whose whole economy differs from yours. They have peasant farmers who hatfe to feed their cattle on imported feeding stuffs during the winter and whose costs generally arc bound to be higher than yours. “In some countries exports to us are being subsidised, whereas New Zealand has been able consistently to put into a reserve fund part of the price we pay.

Increase In Costs

“Having regard to our long-term position, you say you cannot interpret the contract as carrying the right to an increase in price on the b=isis of estimated costs for a future war. No claim has been made on such premises. “The increase in costs spoken of were increases which have taken place since last year and. therefore, exist .ow and we wo'uld remind you that rising costs

"With regard to your costs, we recognise that they are the most important consideration, though not, of course, the only one.

Estimated Costs ; “I am bound to say it seems quite clear that we cannot interpret fie contract as carrying the right to an increase in price on the basis of estimated costs for a future year. No one can be certain, even if costs are rising how, that they will not be falling before the year is far advanced and we, for our part, if costs do indeed fall, should have little hope of obtaining a reduction in price, simply on the basis of an estimate of what the fall in a coming year is likely to be. “For these reasons, I am bound to tell you that, after full examination of all the considerations which you put before me, I can see no ground which would justify our agreeing to an increase in prices for the year which stars on August 1, 1950, and my conclusion is that we should allow the present prices of butter and cheese, with the exception of secondary qualities, to stand as they now are for the 1950-51 production season.

“As regards second-quality butter and cheesef. it has become clear that these categories, especially butter, will increasingly be unsaleable at present costs and we feel in the interests of both sides that prices should be revised as shown below.”

Proposed Variations

The Minister set out his proposed l variations in prices for secondary | grades, involving slight reductions from 1 the .present price level. The prices he j proposed, per cwt. f.0.b., were: ! Butter:—Creamery. second grade.! 242 s 6d; whey, first grade, 239 s 6d; ■ whey, second grade, 235 s 6d. Cheese.—Second grade, 1375. He continued: "f realise that this reply will be a disappointment to you and I want, if I may, to express regret that wc have not found it possible to r"rec to your request for an increase but, as I explained to you, we are compelled now to look very closely indeed at prices in all our contracts'and I am satisfied that the above proposals are fair to you and to the people of the United Kingdom, who, in one way or another, have to foot the bill.

Phases Confirmed

“I trust that, notwithstanding the disappointment which this answer will cause, butter and cheese shipments will continue to move forward to us as hitherto in accordance with the contract. I am glad to be able to confirm our agreement to the following alterations in other terms and conditions of the contract:—

(1) Payment shall be made in sterling in London as to 100 per cent, on shipment, instead of at the rate of 97| as heretofore.

“(2) We are prepared to agree to the amount of butter and cheese which New Zealand will send from the production of the 1950-51 season, Including sales within the limits of the calendaryear programme to certain specified destinations, will be not less than 94 per cent, of the exportable surplus of butter and cheese calculated on a butterfat basis, with the proviso that not more than 12.000 . tons . shall. be taken for other markets in the form of cheese.

“In conclusion I should like to say how glad I. was to have our conversation on such ,a cordial basis.”

FROM MR. MARSHALL TO THE MINISTER OF FOOD, JULY 7: “I have considered your letter of *July 7 and deem it necessary to reply to some of the points.

during the year have been a met dur- . ing the whole 11. years of the contracts, although always the price has been fixed at the beginning of the year. “Wc well appreciate the fact that you are compelled to examine closely the prices of all your contracts, as we ourselves are confronted with similar problems. Indeed, the continually rising prices of our imports, ncluding those from the United Kingdom, are a major factor compelling us to press for higher prices. , ~ , “We regret that despite the fact that during our discussions we offered to reduce our requests substantially in . order to avoid an impasse, we have failed to reach an agreement,. All that I can now say is that the matter must have further consideration in New Zealand. “We are glad to confirm the alterations in the terms and conditions which, in negotiation, were agreed upon as set out in your letter and record that we agreed to all matters except the prices. May I conclude by reciprocating the pleasure you expressed at the cordiality of the conversations.” Return of Delegation Continuing his record of the negotiations Mr. Marshall said that following the return of the delegation the commission conferred with the Minister of Marketing. Mr. K. J. Holyoake, who requested it to refrain, for the time being, from making any public statement. As the result of assistance given by the Government the Ministry of Food agreed to forego the claim for a reduction in the price of second-quality butter and cheese. This referred specifically to second-grade cheese, secondgrade butter and whey butter. The tonnages shipped during the past 1 season were approximately 3500 tons, 100 tons and 2800 tons respectively. The reduction claimed, therefore, represent--1 ed a total of approximately £23,000, 1 which was an insignificant amount in ’ the total value of about £50,000,000 : worth of produce. It, however, avoided ■ any reduction whatever in prices and 1 left the offer at. the same figure as last i season. Mr. Marshall continued; Could Not Agree t "In view of (1), the high quality of » produce we are supplying and the fact f that this produce is most suitable for the present conditions in the United r Kingdom; (2), the effect on our costs . of the steady upward trend of- prices of goods we import from the United Kingdom. including the effect of the devaluation of the pound sterling; (3), the 1 increasing domestic costs which will raise the guaranteed price paid to producers by the commission for produce we are exporting; and (4), the wide disparity in prices which have been paid to other countries since the war ended 1 in 1945, ihe commission felt it could not • agree to accept. lower prices for its . produce than the United Kingdom is 1 prepared to pay to other supplying 1 countries who have been our traditional 5 competitors in the United Kingdom for many years. “In this connection it will be noted 3 that the present landed cost (including s duty) of butter purchased by the United - Kingdom from Denmark is 25/3 per cwt. -■ sterling higher than the landed cost of f butter purchased in New Zealand and the landed cost of Canadian cheese is s 33/2 per cwt, sterling above that of i, New Zealand cheese. “The present wide difference between :; the United Kingdom cost of butter and i. 1 margarine is undoubtedly a matter s which must give New Zealand great I. concern, but we shall not help that ;; problem by taking a lower price under

“You state that we based our claim for a 7i per cent increase upon, (a), prices you are paying other suppliers, particularly European, and (b) an estimate of increased costs which would be incurred during the year we are at present considering. “Reference to our submitted statement will reveal that this group is much too sweeping. Your (a) .gnores the strong case made on the comparable prices paid since the war, as evidenced by the following repetition of figures: Butter.—New Zealand: 1945-46, 150 s fid: 1946-47, 1755; 1047-46, 205 c; 1948-49, 2355; 1949-50, 252 s fid. Denmark.— Jan.-April, 1946, 2305; May-July, 1946, 2055; Aug.-Dee., 1946. 220 - 1947. 2425; 1948, 321 s fid: 1949. 321 s 6d: 1950, 271 s 6d. Dutch: 1949, 312 s fid. ■ Cheese. —New Zealand: 1947-48, 118 s;

bulk sale and purchase than that being paid to other suppliers. "The negotiations this yeai have, however, been pressed as far as is possiole and cannot profitably be taken further at this stage. ihe situation which has developed is an awkward one, but the non-agreement is between related countries snaring commoh interests generally, in particular there is tne common interest that the United Kingdom needs all the butter and cneese we can send and New Zealand has no other market lor the major portion of the exportable surplus. "As the new season’s produce is already available tor shipment a tormuia must be tound quickly, which will enable the normal How to continue.”

In the effort to find an orderly way out of the deadlock the commission has despatched the following cablegram to the United Kingdom Minister of Food: “The commission Is unable to agree to sell at the price you have Indicated you are willing to pay and in the absence of agreement on price cannot be bound to snip you not less than 94 per cent, of our exportable surplus. “The Rangitane, now loaning in Auckland, expects to start taking in the new season’s butter on Monday. In the circumstances, as a formula covering supply under the contract, we propose shipment, on pro forma invoice, at, last year’s prices, the commission reserving the right to raise the matter of price at any time during the season. “The quantity to be shipped to you will be not less than 92J per cent, in the butter equivalent of our exportable surplus, the commission limiting its sales of cheese to export markets outside the United Kingdom and programmed countries to the maximum of 14,000 tons.”