DAIRY MARKETING

Manawatu Standard, Volume LVII, Issue 110, 10 April 1937, Page 16

DAIRY MARKETING

THE GUARANTEED PRICE. INTERESTING ANALYSIS. AUCKLAND, April 9. The position of the dairying industry in New Zealand as a result of the introduction of the scheme of guaranteed prices for dairy produce was analysed by Mr A. J. Sinclair, secre-tary-manager of the To Awamutu Cooperative Dairy Company, Ltd., in an address to the Auckland Crcditmen’s Club. Mr Sinclair, who is a member of the Government Guaranteed Price Committee, said that unless butter took a sharp upward trend for the balance of the season there was a prosect of a deficit of about £2,000,000 on the year’s operations. Although the industry as a whole had accepted the scheme, it would be idle to deny •that some of the leaders in the industry viewed the future with considerable msigiving, knowing that the creation of large deficits could not continue indefinitely.

“Eight months ago the dairying industry entered a new phase,” said Mr Sinclair. “The dairy-farmer found that many of his deeply-rooted ideas were jettisoned and replaced by a plan of marketing which proposed to bring stability to the industry by paying for his produce a price which is related only indirectly to the price realised on the overseas markets. The dairy-farmer was in a mood to welcome a proposal of this kind. For six years in succession he had laced steadily-falling prices, and had struggled to counter these by the only two methods known to him —increased production and decreased costs. INCREASED PRODUCTION.

“The manner in which the dairyfarmer increased his production during the period of low prices is a tribute to the efficiency of the industry. In 1928 the butter exported from New Zealand amounted to 73,397 tons, for which the industry received £11,315,756, f.o.b. New Zealand, equivalent to 154 s 2d per cwt., or Is 4-id a lb. butter. In 1934, the exports of butter had increased to .141,294 tons, for which the industry received only £ll,830,070, although this included an increase in the exchange premium which had been raised in the interim from 10 per cent, to 23J per cent. This price was equivalent to 83s 9d per cwt., f.0.b., or approximately 9d a lb. In tho short space of six years the dairy-farmer met a decrease of 84 per cent, in prices by an increase of 92 per cent, in production, and it is doubtful if any major industry in any country can show similar results. “Tho efforts of the dairy-farmer to decrease his costs involved great sacrifices, but the results were in no way spectacular because costs were determined largely by factors beyond his control. His first recourse was to economise in labour, and tho shortage of skilled labour on the farms to day is partly due to the wholesale manner in which farmers dispensed with hired labour, substituting the labour of women and children in the milking sheds, although the moro attractive wages an 1 shorter hours now enjoyed by workers in other industries are also a contributing factor. Tho slight reduction in interest rates gave the farmer little relief, and in 1934 many dairyfarmers were undoubtedly insolvent from an accountancy point of view. “It w r as at this stage that the guaranteed price scheme was placed before primary producers. Originally intended to embrace all primary products, it has been wisely restricted to the dairying industry, and was expounded in detail to the leaders of the industry for tho first time by Hon. W. Nash at a conference in Palmerston North in June, 1936. The scheme was rejected by an overwhelming majority of the conference on the grounds that it was economically unsound and financially impracticable. When the individual farmer had an opportunity of expressing his views at the. ballot box, however, ho voted solidly for tho scheme, the general impression being that it would return something in tho region ol Is 3d per lb. butterfat, and he was not concerned with the manner in which the project would be financed.” Mr Sincliar said the announcement of Hon. W. Nash as Minister of Marketing in August, 1936, that the guaranteed price for the first season would be 12 9-1.6 d per lb. f.o.b. for butter (106 s 6d per cwt. London) had created general disappointment. This was less than tho price ruling at the time—ll6s per cwt.—and promised to be little in advance of the average for tho previous season, which worked out at 98s per cwt. London. BENEFICIAL RESULTS.

Although tho scheme had been opperating only eight months, it had had two beneficial results. It had undoubtedly brought to the industry a state of stability previously unknown. In the past it was not unusual for a dairy-farmer to find his monthly income curtailed 20 to 30 per cent, in the space, of a few months. This season he had apprecriated the advantage of a uniform monthly advance payment of one shilling a pound butterfat, with the prospect of a satisfactory “bonus” at the end of the season, because of the certainty with whch lie could now budget loi his lequirements. The scheme was also proving a distinct advantage to tho small farmer who employed no hired labour. On the other hand, there was a steadily increasing protest from farmers milking herds of 40 cows upward, because increased costs were cancelling tho benefits of the guaranteed price. Farm labour was the principal item of increased cost. Last season skilled farm workers were available at a wage of 30s weekly with board, and dairy-farmers generally were satisfied with the season’s return of Is to Is Id per lb. butterfat. Legislation hail fixed wages at £2 2s 6d weekly with

board, or £3 without board, and at that figure there was a shortage of the necessary skilled labour. HIGHER WAGES COSTS. Even on eJlicient larms, where butternut production was well above tiie average, tile increased wages cost alone represented id per ib buttenat, and Lie most conservative estimate snowed that the costs of the larm would be at least Id per lb butterfat higher than last year. In aduition, factory costs had risen, varying from id to id per lb butterfat in butter and cheese factories, 'the farmer's increased cost of living in the home must also be accounted lor, and under all headings it would be found that the guaranteed price had increased the farmer’s returns by approximately Id per lb butterfat, whereas his costs had increased by at least lid per lb. These factors had been recognised by the Government, and a committee was now engaged in investigating the increase in costs, so that this. may be taken into account in determining the price to be paid by the Government next year. It would lie sonic time before the committee could reach finality, but private investigations showed that if the farmer was to be adequately compensated for his increased costs, the guaranteed price for butter next season should be approximately Is 2d per lb f.0.b., making possible a butterfat payout of Is 3d. The difficulties of financing a scheme of this magnitude were obvious. Unless butter took a sharp upward trend for the balance of the season, the average price would not reach 160 s per cwt., London, and there was a prospect of a deficit of about £2,000,1)00 on the year’s operations.

The proponents of the scheme were hopeful that the surpluses in subsequent years would cancel the deficits, but it was unfortunate that the steadilyimproving conditions of industry in Great Britain were having no appreciable effect on the price-level of New Zealand butter. USE OF MARGARINE.

“With a cheap substitute available in the form of margarine, the British consumer appears to have made up his mind that Is a lb is a fair price to pay for New Zealand butter, and it is difficult to get the retail price higher than Is 2d,” added Mr Sinclair. “Even in the unlikely event of surpluses accruing through higher prices in Britain, these cannot be withheld from tho industry without serious repercussions. The dairy farmers of 1938 who may receive one penny a lb less than their product realises will find little consolation in the fact that the dairy farmers of 1936 were overpaid a penny. With butter at a level of 100 s per cwt, LoLndon, a guaranteed price of Is 2d f.o.b. would create a deficit of between four and five million pounds annually, and as there is no question that the New Zealand taxpayer must ultimately accept responsibility for any deficits created rnider the scheme, it is difficult to see how the price can be maintained at a level which will give any degree of satisfaction to dairy farmers.

“The rapidly-increasing costs and tho difficulty of securing skilled labour are causing some large dairymen to switch over to sheep, while others are expressing open hostility to the scheme. This has caused the Minister of Labour to intimate recently that dairy fennel's may be given an opportunity next season to vote themselves in or out of the scheme. This proposal'would be fair if the Government could restore to. the industry the conditions which obtained in the 1935-36 season, but it is asking too much to expect that the dairy farmer should go back to the old level of prices and at the same time face the new level of costs. Recent legislation has undoubtedly impaired the balance of industry, and it is natural that a skilled farm worker should resent having to work about 60 hours weekly for a wage of £3, when the lorry-driver who picks up the cream at the farm gate is working under an award wage of £5 2s a week for 44 hours. “The fact that the benefit of the guaranteed price is being neutralised by rising costs has resulted in. a demand from a section of the producers for what is termed ‘a compensated price.’ The supporters of this movement contend that the difficulties of the primary 'producer are caused by the fact that ho sells his produce in Great Britain, where price levels are low, and buys his requirements hi New Zealand, where price levels are approximately 60 per cent, higher.

BRITISH PRICE LEVEL. “To pay the primary producers of New Zealand on the British price level, however, would involve finding an additional sum of approximately £25,000,000 on last season’s exports of agricultural and pastoral products. It was proposed to find this money by making unlimited drafts on an intangible factor known as ‘the national credit,’ but the movement received little support in the early stages because of its vagueness, and the certainty that it would involve a complete change in the present monetary system. Lately, the propounders of the compensated price scheme have limited their proposals to dairy produce in the form of a few straightforward propositions which are making a strong appeal to the dairy farmer, and which secured tho approval of a conference of the industry’s leaders held in Wellington last month. “The industry as a whole, however, has accepted the guaranteed price scheme, and is making the best of it. Even those who consider it is fundamentally unsound, concede that the Government is making a genuine attempt to place dairying in a position of stability, and they insist that the scheme be given a fair trial. Erom the farmer’s point of view, the scheme _is •on probation for this year, and its succes will largely depeud upon the decision of the Government in fixing the price for next year. If the farmer’s increased costs are adequately provided foi. all will be well. He gives little thought to the magnitude and the financial implications of the scheme. Hoi

contends that if Svo are going upward, and the sky is the limit,’ he should bo an essential part of the social skyrocket, because past experience has shown him that, when the stick conies down, the primary producer is invariably at the end which hits the ground first. It would be idle to deny, however, that some of the leaders of the industry view the future with considerable misgiving, knowing that the creation of large annual deficits in the Dairy Industry Reserve Account cannot continue indefinitely.”