Rising Dairy Farm Costs

Manawatu Times, Volume 62, Issue 167, 16 July 1937, Page 9

Rising Dairy Farm Costs

Justify Increase of 3.385 d per lb. Butterfal ANALYSED BY SPECIAL COMMITTEE Tho following statement has been issued by a special committee of the New Zealand Farmers’ Union on increases in dairy farm costs from October. 1, 1936, to June 1, 1937: 44 We would point out that dairy production during tho 1936-37 season on a per acre and per farm basis. has been higher on account of favourable seasonable conditions, and consequently income has been above normal. The 1936-37 season income has been swelled by the fact that the 1935-36 factory bonus was paid during tho season and at tho same time a higher advance proportionate to the expected final return for tho 1936-37 season was also paid, so that more than the actual income for the 1936-37 season is shown in the cash receipts. 4 ‘ln our experience, returns of income and expenditure of individual farmers aro not very reliable guides to tho cost of production because of the variation in individual interpretation of various items, and particularly variations shown from year to year in actual eo3ts such as tho maintenance of a farm, herd, and plant, as quite heavy costs may be incurred in these items in one season and none, or comparatively light costs, in another. 44 We also find that only a part of present increase' in costs is accounted for, as many increases in prices arc taking place and they are continuing to rise, and these increases have not been anything like fully reflected in the year’s cost as they have only acted throughout tho latter part of tho season. Consequently, it is necessary to calculate costs on the basis of present prices with a due allowance for increases riiat are now imminent.

4 4 ln many cases wo find that farmers’ statements omit important items oi costs which do not involve actual cash transactions. Depreciation is often not charged, or only incompletely. Interest on the farmer’s own investment is fre quently not included as a cost. No provision is made in most cases for a r© servo to meet the decreased income iv seasons of low production. No provt sion is made for increased expenditure made necessary by tho operation dairy and other regulations which may be considerable.

44 We wmuld point out the danger of depending on average costs and returns to determine the price for butterfat as the price that is fixed will also fix the margin where production becomes unprofitable, and if the average is taken to fix this price then those farmers with costs above the average will be forced out of production or have their standard of living reduced below tho general standard of living throughout New Zealand which the Act requires to be afforded to dairy farmers. This would particularly affect the smaller farmers as is clearly shown in tho Dairy Industry Commission report, page 64, para. 144, where, with herds of 31 cows and under it i 3 shown that the cost of producing butterfat, apart from capital costs, was 9.763 d per lb., while with herds of 100 cows and over the cost of producing a pound of butterfat was 6.279 d per lb." The same report, para. 135, shows that with what is classed as 44 efficient" management, the cost of production may vary from 4.59 d to 10.22 d per lb. Tho average is 7.555 d but it is evident that if the price were fixed on this basis all farms with over 7.555 d per lb. costs would produce at a loss and eventually be forced out of production. Wage Increase. (Note: This is drawn up on tho assumption that only minimum rates are paid. In view of tho difficulty of obtaining dairy-farm labour at present the average wage now paid is generally above tho minimum.) It is difficult to obtain information with regard to concrete cases concerning wago increases over a sufficiently largo number of instances to enable a general conclusion to be drawn with approximate accuracy. It is submitted; however, that tho increases over last year can be computed on the basis of tho following points agreed on during the dairy-farm labour discussions, viz.: (a) Tho fair amount of butterfat production for one adult labour unit (permanent employee) is OOOOlbs. of butterfat, and (b) the average rate of wages for an adult dairy-farm worker prior to tho agreement was agreed to be 25s per week and found. The average wago for an adult farm worker (such a hand as could be expected to produce GOOOlbs. of fat) was fixed by tlio Agricultural Workers Act at £2 2s 6d, an increase of 17s Gd pe r week. There was also granted a further payment of 8s 9d per week (hall the board allowance) for the time whicn the worker had on holiday. In tho calculation following a conservative allowance for board for a fortnight has been taken although a month’s holiday is provided for by the Act. Assuming the workers under 21 to be paid in proportion to their capacity for the produei tion of butterfat, the average increase ! per lb. of butterfat will be tho aggregate incrcaso in payments divided by 6000: —17s 6d for 52 weeks plus Ss 9d for 2 weeks equals £45 10s plus 17s 6d equals £46 73 6d for 6000 lbs. fat, equals 1.555 d per lb. It is submitted, therefore, that the increase in labour costs due to legislation is 1.855 d plus the extra cost of the man’s keep. The increase in the charges of boarding houses in Wellington during the | last year have ranged from 5s to 10s per week. We can claim, therefore, ‘ that a conservative estimate of this in I crease is os per week. To take a c-on-I servative view although a month’s holiday is provided and although an in-

crease of 8s 9d was taken above only for a fortnight in this case we base the increase on 48 weeks of the year only. The increased cost per lb. butterfat due to increased keep is, therefore, 60 x 48 for 6000 lbs. equals .48*1. The total wage increase is .48d plus 1.555 d equals 2.335 d. rann Costs. It is difficult to obtain figures which are truly representative, but the Dairy Commission went exhaustively into this matter, and accepting the figures on page 193 on their report as a base we submit the following computation. It must be pointed out that w r o have taken the North Island average costs and consequently the increases are probably more than those stated. It will be noted that for cultivation no increase has been stated as it is difficult to know just what was included in this figure. In the South Island for which no figures are shown in the dairy report, this is a considerable item in dairy farm costs. The cost of replacing horses, for instance, has increased very considerably. No increase has been claimed for noxious weeds or rabbits, and an increase or only 20 per cent, has been claimed for sundry items. Sundry items will include cartage inwards which has increased by 50 per cent, in many cases. A. conservative view has been taken and 20 per cent, only added. The procedure which has been followed has been to ( take the North Island costs of the Dairy Commission *s report and add to those the percentage of increase which we have been able to ascertain (from comparisons of price lists and our personal knowledge) ha 3 taken place in the last year. This would appear to be a practical method of comparison, but as prices had risen from 1934 to October, 1936, the calculation must be conservative. With regard to fertilisers, there have been increases in basic slag, blood and bone, and lime, and a slight decrease in super. .3 »p $ t Ch § g *3 3 M , Item d. tfo d. Cultivation 171 Seeds 175 20 .0350 Fertilisers ~ .. .. .. .909 Fencing 188 20 .0376 Water repairs 068 20 .0136. Noxious weeds .. •. .020 Rabbits 003 Casual labour .. .. .070 33 J .0233 Cow covers .• •• •• .045 15 .0067 Veterinary . • 072 ; Shoeing 035 12} .0043 Implement repairs .. .107 20 .0214 Milking plant repairs .125 20 .0250 Power (incl. petrol) .. .408 9 .0370 Milk*g plant materials .077 10 .0077 Depreciation 639 .1464 Overhead 735 .1430 Total working expss. 3.817 Stock and Poultry feed 246 20 .0492 Total 4.093 .5502 Depreciation— Implements .. .. .. .258 20 .0516 Farm buildings .. .140 33} .0466 Milking plant 241 20 .0452 Overhead— Sundry items 296 20 .0592 Rates .419 20 .OS3S Land tax 020 Per lb. Butterfat Increase in wages costs .. .. 2.335 d Increase in farm costs (approx) ,550 d Total increase 2.SSSd (The farm to f.o.b. increase based on figures supplied by dairy companies we understand to bo .5d.) This would make the increase per lb. butterfat necessary to place the farmer in the same relative position at the present time as ho was in season 1935-36 3.385 d per lb. butterfat. As, however, costs are rapidly rising, it would appear that it would be necessary to increase this amount. The Dominion President of the New . Zealand Farmers* Union (Mr. lholiand) made the following statement in connection with the report of the special committee of tho union on increases in dairy farm costs: — “The use of a standard of GOOOlbs. of butterfat per unit of labour was taken r merely because it was the standard of efficiency postulated by Government representatives in the discussion with ’ the committee of the Farmers* Union on dairy farm wages, and having been postulated by the Government was accept--1 ed by us merely for the purpose of a 5 standard for calculation. I would n«£e to state emphatically that the Farmers’ ' Union by its use of this figure in no way J put it forward as tho Union’s consider--3 ed opinion of the standard of efficiency > of the labour unit in the dairy industry. The union has at no time investigated • this question to have been able to ex--3 press definite opinion and it was used • merely because of the reason stated.”