THE New Zealand Herald AND DAILY SOUTHERN CROSS. WEDNESDAY, JULY 27, 1921. COSTLY FOOD SUBSIDIES.

New Zealand Herald, Volume LVIII, Issue 17844, 27 July 1921, Page 6

THE New Zealand Herald AND DAILY SOUTHERN CROSS. WEDNESDAY, JULY 27, 1921. COSTLY FOOD SUBSIDIES.

The dangerously high level and the alarming growth of national expenditure are attributable to several causes. Two of the principal, the failure of public services such as the Railways and the Post Office to pay their way and the unbridled extravagance of the administrative departments, have already been referred to in some detail in the Herald. A third cause which deserves examination is the system of food subsidies introduced in 1919 and still perpetuated at a time when the financial position of the Dominion is going from bad to worse and expenditure is soaring while revenue is likely to fall. It is not generally realised how great a price the public has paid for the privilege of buying bread and butter at fictitious figures. The two subsidies were at one period running at the rate of over £1,000,000 a year, and even now. when the case for subsidising food has wholly disappeared, they aggregate £350,000 a year. The total disbursements to the flour-millers and the butter-producers have been over £1,750,000, distributed in fairly equal proportions. When it is remembered that the' housing scheme leans upon a State subsidy and that the Railways and the Post Office depend upon the taxpayers to find interest on a considerable portion of their capital, it will be realised that the Government has drifted into a thoroughly bad habit of subsidising services and commodities for which the public should pay approximately the cost price. It cannot even be argued for the subsidies that they have been negotiated with ordinary commercial foresight. The arrangements made in respect to butter illustrate this. During the first two years of the war there was no question of subsidy. By the voluntary action of factories supplying the local market the New Zealand consumer paid from Ad to . Ifd a pound less than the export equivalent. When, in October, 1916, the Government established the equalisation scheme, the concession to the consumer became about 2d a pound. The abandonment of the equalisation scheme was followed by a retrospective payment of £170,000 late in 1919, to recoup the dairy farmers who had continued during the 1918-19 season, to accept a local price about 2d below the export parity. There was another subsidy of the same amount for 1919-20, and of about £100,000 from March to October, 1920. Then came the new contract with the Imperial authorities, and to prevent butter rising to 3s a pound the Government paid a subsidy of 6d a pound, at the rate of £600,000 a year. This continued in force till early in April, when it was reduced to 2d, at which figure it will stand till it expires at the end of August. The various subsidies on butter have therefore cost the taxpayers £823,000, the details being: £ Retrospective payment, 1918-19 170,000 Subsidy. 1919-20 170,000 March—October, 1920 . . . . 100,000 October, 1920—April, 1921 (6d) . . 300,000 April—August, 1921 (2d) . . . . 83,000 £823,000 The April arrangement appeared, at the time it was made, a doubtful development of the subsidy policy. Perturbed by the prospect of a rise in local prices the State burdened itself with the liability for a continued subsidy and fixed the price of butter until the end of August at a level which is now considerably above the London parity. Even assuming that at the beginning of April the sudden and substantial drop in the London market could not have been anticipated there were alternative means of influencing the local price less vicious than one which perpetuated a fixed subsidy and embodied the fallacy that local prices could be based on the temporary cost of production instead of on the export parity. In saving the consumer a short-lived increase the Government unwittingly placed both consumer and taxpayer under a penalty for several months. It must needs be careful of its cereal policy if it is to avoid keeping the loaf at an artificially high price. The flour subsidy commenced in March, 1919, at the rate of £2 17s 6d a ton. The amount placed on the Estimates for that year was £213,000, but the expenditure was £358,084, from which might fairly be deducted an unknown profit on Australian wheat. During the following year the subsidy was at the rate of £4 7s 6d a ton of flour, and the vote was £500,000, from which may be deducted the profit on Australian wheat, possibly £80,000. The subsidy for the current year has fallen to £l 10s, and will cost £150,000. The flour subsidies therefore aggregate £928,084, made up as follows: — ' 1919-20 (£2 17s 6d) . . . „ . BKS«U 1920-21 (£4 7s 6d) M,W £500,000 less £80,000 .. , . 400 nrm 1921-22 (£1 10s) .. .. jSo^oo £928.084 The subsidising of millers to make cheap flour out of dear wheat has rot represented the sole effort of the Government to meet the admittedly difficult cereal position. It has set itself to encourage wheatgrowing in

the Dominion by guaranteeing prices, but it has never been able to command a sufficient harvest in return. Every year the necessity has arisen for h-eavy importation, and this year again the harvest has not been equal to the country's requirements. In these circumstances no excuse can be found for the shortsighted policy which has led the Government to offer a minimum price for the 1922 harvest. A guarantee which is wholly one-sided, which places the wheat farmer under no obligation to produce any given quantity, or to accept a price below the world's parity, is against public policy. In effect, it offers a free market to the farmer and withdraws the opportunity for free bargaining from the consumer. The 1922 guarantee, indeed, exposes the consumer to more than a problematical risk of having to pay an artificially high price for bread. In these circumstances the Government may be tempted to continue the flour subsidy, but public opinion will , resolutely oppose any such effort to conceal errors in policy. The sub- . sidy system has definitely failed. It has proved costly and inefficient, ' and the sooner wheatgrowers are left i to face the risks and profits of the . market the better for the national [ finances and the better for the , consuming public.