FLOUR SUBSIDY BETTER THAN DEARER LOAF

Grey River Argus, 30 September 1949, Page 3

FLOUR SUBSIDY BETTER THAN DEARER LOAF

Bakers’ Request Analysed By Price Control

P.A. WELLINGTON, Sept. 29 An extra subsidy on flour, to bakers, was suggested by the director of the Price Control Division, Mr Wise, before the Price Tribunal today. He was replying to an application from the Master Bakers’ Federation of New Zealand for an increase of one halfpenny in the price of all loaves up to 21b., and also an increase of one penny per loaf for 41b loaves. He also recommended an increase in the delivered price of bread. For the 41b loaf he suggested Id increase, and one half penny increase for 21b loaves. The delivery charge for the lib loaf would be half that for the 21b loaf.

The increase in the subsidy, he added, should be set at 8s 6d per ton of flour for bakers in the scheduled or city areas, and ” 15s per ton for bakers in the rural or non-scheduled areas. The Division considered that a graded subsidy on flour was the best means of affording relief where it was most needed, said Mr Wise. There were two alternatives for the granting of relief from hardship under which some bakers were put. One was a retail price increase of one halfpenny, as asked for by the bakers. The other was an increase in the subsidy on flour, thus reducing the price to the baker. This latter alternative could be graded. Difference in subsidies could be paid to the bakers in different areas. The Division considered that the second alternative afforded the better means of giving any justified relief to the bakers.

An increase of one halfpenny per loaf would be a substantial one and it would, in many instances, yield the bakers substantial profits, said Mr Wise. The charge on all loaves up to 21b would go against the baker making a majority of large loaves. The baker in the rural areas would gain least. His position in relation to the city bakers would be aggravated. A number of the larger proprietary businesses in the larger centres were now operated at a satisfactory profit, said Mr Wise. On the other hand, the bakeries in the smaller centres were earning only modest profits. The flour subsidy adjustment recently announced had taken care of tl\e increased wages costs for the employers, but it had not necessarily provided an adequate adjustment for the smaller working proprietors. The Division had not been able to agree to the figures supplied by trade, said Mr Wise. There were some fundamental differences in the trade statement which the division could not reconcile with its own figures.

A schedule submitted by the federation dealing with the profit results of 43 companies engaged in the bread industry showed that 18 of them, or approximately 42 per cent., made an actual loss on last year’s trading. It said: ‘‘lf profit were calculated on a prudent and correct basis, the percentage of the undertakings making an actual loss would be much higher. We doubt if there is any industry in New Zealand which has been so undermined financially as the bread trade: A second schedule compiled from audited accounts for the last three years of seven of the largest companies showed in every case a reduced net profit for 1949 compared with the profit for 1947. In every case but one the decline had been progressive. The amalgamated turnover figures showed a fall of from £618,000 in 1918 to £527.000 in 1949, representing a decline in turnover in one year of 14.7 per cent.

The reasons' the fall in gross turnover given by the federation were: 1. The high percentage of flour extracted from wheat which tends to make the loaf less palatable.

2. The 40-hour week, which results in Monday’s bread being staler than would otherwise be the case. 3. The rigid and undue restriction of profits which prevented the manufacturer from following the recognised practice of adding certain ingredients in bread-making over and above the stajuto’-y requirements.

The federation submitted a third schedule dealing with the seven larger companies, a case showing the actual value of assets employed in earning profit as well as book values and also the percentage of tax-free profit both to the book value of assets and the actual value of the assets. It said that the average taxfree profit on book values was 2.3 per cent, and average tax-free profit on actual value of assets was 1.27 per cent. A fourth schedule showed how a half-penny increase per loaf would affect profit returns of the same seven companies. The average return on the book values was 9.3 percent., and this figuure, apart on the book and not on real value, made no allowance for. loan capital, additional replacement or reserves. The federation said that an increase of half-penny per loaf meant approximately 21d a week to the average household. It said the price of bread for many years had been regarded as of interest in the political field and had assumed an importance out of proportion to the increase in cost involved.

George Ronald Burrows, a charof Walter Buchanan Ltd., Auckland, said that in his opinion a halfpenny increase per loaf would be insufficient for the baking industry in general to meet the huge bakery plant and motor replacement costs, which it inevitably must face up to. George Ronald Burrowes, a chartered accountant and secretary of the New Zealand Federation of Bakers and Pastrycooks said that the evidence given by Thomas in regard to cost increases in the bread trade between 1939 and 1949, and in regard to the insufficiency of depreciation funds for the replacement of plant and machinery, applied throughout the trade. He said that unless substantial relief was given by an increase in price, the trade as a, whole was faced with economic disaster. A halfpenny increase was insufficient to enable the industry to provide for future commitments in plant replacement and at the same time give a reasonable return to shareholders.