MARKETING OF PRODUCE

Otago Daily Times, Issue 22397, 19 October 1934, Page 6

MARKETING OF PRODUCE

NEW DAIRY REGULATIONS COMMENTS BY COMMISSION COUNTER-SUGGESTIONS MADE In a discussion of the new marketing regulations which came into operation on October 1 last, the Dairy Industry Commission has some pointed comments to make bn the wisdom of the board’s action. After making some, counter-proposals it recommends a review of the regulations nt the end of the current export season. The effect of the regulations, the commission states, is that, in place of free marketing of New Zealand dairy produce, there is now a system of regulated marketing. For the current season a list of some 30 licensed importers, who are all consignment agents, or are regarded as such, has been prepared by the board, and allocations of all the "x----portablo surplus of butter and cheese have been made to these importers. These allocations arc subject to subsequent f.o.b. and c.i.f. sales. There are also three licensed import brokers, who purchase f.o.b. or c.i.f. for clients in the United Kingdom. The board has placed on its list of importers all the importers and import brokers who handled New Zealand butter or cheese during the 1933-34 season, and has allotted to them approximately the same respective quantities as were handled by them during that season. Its intention is to maintain a close scrutiny of the operations of the licensed importers, and Jo increase or diminish their allocations in future years according to their efficiency in distribution, and from year to year, as occasion warrants, to license other importers. There is, however, no provision for removing an unsatisfactory importer from the list, or cutting down his consignments, or allotting consignments to importers not on the list before the end of a season. The board has agreed with the Importers’ Association not to add any more importers to its list without first consulting the associated importers. Wo are of the opinion that it is unwise to obstruct the obtaining of supplies by a bona fide importing agent whose financial standing and business reputation are good, and who has a genuine distributive connection, and 5s prepared to agree to reasonable conditions of trading.

Wc think, too, that the system of allotting consignments, for a year ahead, of our exportable surplus butter and cheese, subject only to subsequent f.o.b. and c.i.f. sales, is objectionable because of its inflexibility. A system that would permit of more frequent rearrangement of consignments and the unfettered recognition of sound importing agents would, in our opinion, bo preferable. We do not suggest that tho value to the industry of a consignment agent should bo judged on the basis of returns from a few shipments, but we think that when, from a consideration of all the circumstances, it appears that an agent is unable to dispose to the best advantage of all bis supplies, the question of revising bis allocation should be gone into.

PURCHASES ON CONSIGNMENT We are inclined to view that, as a matter of general trading policy, it is reasonable to require importers who are consignment agents to undertake to act solely in that capacity in so far as New Zealand butter and cheese are concerned. The marketing regulations of the board impose this requirement, for they prohibit the purchase of New Zealand dairy produce, either in New Zealand or afloat, by importers on their own account. This does not preclude the purchase on spo.-, in the United Kingdom, of New Zealand dairy produce legitimately required by them for their regular trade outlets, nor does it prevent them from purchasing f.o.b. or c.i.f. for bona fide clients, but it aims at the prevention of speculative purchases on their own account. On the whole, we are inclined to the view that firms that act as consignment agents should not bo purchasers on their own account, and our view is strengthened when we consider the nature of the disability that necessarily affects vendors who are at the other end of the world from their market. It is, of course, impossible to prevent consignment agents from purchasing on their own account dairy produce from other countries than New Zealand, and accordingly the objection to their being purchasers of New Zealand dairy produce loses some of its force; but, to the extent to which a demand exists for New Zealand dairy produce in preference to dairy produce from other countries, the objection holds good. It may be the case that consignment agents who, as part of their business, effect f.o.b. or c.i.f. purchases of New Zealand dairy produce for clients arc at a disadvantage through being unable to make quick contacts between vendors and purchasers who arc 13,000 miles apart, and that in consequence they may have to make sales of competitive butters from other countries. It is thought that, if this is so, it is not impossible to devise safeguards, by means of a system of notification and audit,.which will prevent speculative purchases from being made by consignment agents on their own account, but will enable them to purchase on f.o.b. or c.i.f. terms small stocks from which they can make quick sales to bona fide purchasers in the United Kingdom.

F. 0.8. SALES We are of the opinion that the regulation that all f.o.b. and c.i.f. sales are to be through such importers as arc approved by the board is unwise. It would have been sufficient if the regulations had required that particulars of f.o.b. and c.i.f. sales should bo notified to the board. We agree with the London committee that under present conditions freedom to make sales is desirable. In the absence of a system of absolute control of sales and pooling of returns, dairy factory companies should be left unhampered in this respect. At the present time the board each week fixes minimum prices at which sales may be made. This provision is, in our opinion, unnecessary. We think that it is desirable, with a growing production, that the channels of distribution should not be restricted in number, and that the board should not attempt to confine f.o.b. and c.i.f. sales to the agency of a limited number of importers. The regulation eliminates the possibility of a sale being made by any dairy factory company or exporter in New Zealand to any purchaser in the United Kingdom, except through one of a small group of firms. We think that wo should say, before we leave this matter, that the members of the Dairy Produce Control Board were not of one mind as to the effect of the clause, and that it is probably true that the general approval given by the dairy factory companies to the regulations w’ould not have been given if the full import of the regulations as finally approved had been clearly understood by them. NECESSARY PROHIBITIONS The remaining provisions of the marketing regulations do not call for detailed comment. The prohibitions against short selling, sales of consignment produce in transit, and pooling of returns are justifiable on the ground that the dairying industry in New Zealand is essentially co-operative, and that consequently practices that may benefit one company to the detriment of others should be prohibited. It seems clear to us that the unsound practices that have been complained of have arisen largely from fierce inter-factory competition, which is the antithesis of co-operation. Dairy factory companies have insisted on importers returning to them prices at least equal to those returned by the same or other importers to neighbouring companies, without taking into account such circumstances as variations in quality and differences in times of arrival of consignments. Importers have in some cases been compelled, in self-defence, to adopt business practices that are specially objectionable when a cooperatively managed industry is concerned. The blame for this rests largely on the New Zealand dairy factory companies. They have failed to display the spirit of co-operation in matters affecting the industry nationally. Their action has tended to a levelling of prices, and has tended to discourage special efforts by importers on .behalf of specially choice brands. REVIEW OF SYSTEM

Wo think that after the expiration of tho current season tho board should be able to devise a system of output allocations that would best servo the requirements of the industry. The present year may be regarded as a trial period, during which the results of the new system can be estimated, and any weaknesses and imperfections discovered. In determining on any system of allocations, it is desirable that tho board should make allowance for supplies, or increased supplies, that may bo required by importers who do not at present receive supplies or who could effectively handle larger supplies, and particularly by those importers whose areas arc served by ports other than London. Wo are of tho opinion, also, that while the hoard should endeavour to co-operate fully with importers and merchants, and should be free to make all inquiries and engage in all consultations that it may consider necessary, it should not in any way hamper its freedom of action by entering into any obligation in this rqspect.

REGULATIONS AND LATE RATES It is not reasonable to attribute to the marketing regulations of the Dairy Produce Control Board the falling off of f.o.b. and c.i.f. sales and the general fall in prices. Last season, before the regulations were introduced, f.o.b. and c.i.f. sales bad fallen below the average. The unfavourable stock position and the uncertainty of the market are the prime causes of a falling off in f.o.b. and c.i.f. sales. That this is so was frankly admitted by one of the keenest critics of tho regulations. We say this in fairness to the board, though we are of tho opinion that f.o.b. and c.i.f. sales to ascertained buyers should be free from unnecessary restrictions. The general fall in prices is due to tho huge increase in supplies from nearly every producing country except Denmark. That our butter has maintained a higher price level than other imported butters, with tho exception of Danish, is sufficient proof that the existence of tho regulations has not affected its price injuriously. Its low price ns compared with that of Danish butter and the inability to clear stocks are, however, indications that shipments have increased in volume more rapidly than the constant consumptive demand. ABSOLUTE CONTROL

We think that the board should consider the advisability and practicability of assuming absolute control of export marketing after tho end of the present season, hut without attempting to repeat its former experiment in the direction of price fixation. If this course were adopted, tho board could ship all butter and cheese in its own name to its United Kingdom agency, through which it could be allocated for sale through existing and new channels of distribution. Such a system would give greater flexibility in making allocations than is possible under the existing system. It rvould enable the board itself to make f.o.b. and c.i.f. sales whenever market conditions make it advisable to do so. The proceeds of all sales, however made, would require to be pooled.