FACTORY OVER-RUNS

Otago Daily Times, Issue 23830, 9 June 1939, Page 12

FACTORY OVER-RUNS

CREDITING OF BUTTER-FAT ELIMINATION OF SHORT CREDITS A DAIRY DIVISION PROPOSAL An interesting proposal with relation to over-run in dairy factories and output in terms of butter-fat received was olaced before the conference of the South Island Dairy Association yesterday by Mr W. M. Singleton (director of the Dairy Division of the Department of Agriculture) for the adoption or rejeciton by factories. The idea, he said, was to institute a system under which the amount of butter-fat recovered from produce should be the measuring stick of a factory’s efficiency and output instead of the present method of short-crediting_ of butterfat and over-runs. By this means it was suggested a lot of unfair competition and cut-throat policy could be eliminated in the industry to the advantage of all concerned. Suggestion for Factories Outlining his proposal, Mr Singleton said that he was merely throwing it out as 'a suggestion to dairy factories, and he would welcome anv criticism of it that they could bring forward. The whole thing hinged on whether factories were crediting suppliers with the full quantities of butter-fat produced by them, and by the method he had in mind it was possible for the Dairy Division to determine exactly what the position was in this respect. At present dairy companies supplied the division with the quantities of butter or cheese they produced, and from such figures the percentage of butter-fat in the produce could be worked out. By multiplying the quantity of produce by the percentage of fat they arrived at the amount of fat in the produce, and from that point it was not difficult to figure the butterfat that should have been credited to suppliers. Actually many factories were not crediting their suppliers with enough fat, and if the system he was now explaining were adopted all that sort of thing could be prevented. Of course, said Mr Singleton, a certain amount of loss of butter-fat in manufacture had to be reckoned with. For instance, in home separated cream for butter-making the loss was about 1 per cent., in whole milk for buttermaking about 3 per cent., and in milk for cheese-making about 7 per cent. A standard over-run in cheese making was impossible, and even in buttermaking it would' not tally with the butter-fat recovered in the produce, but these things roust be taken into account. The standard of butter-fat recovered from creamery butter would be about 99 per cent., in butter from whole milk about 97 per cent., and in cheese about 93 h or 94 per cent. Where more than these quantities were recovered from the produce there must be short-crediting somewhere, and the object of the scheme was to keep a check on such short-crediting. Determining Short-credits Having arrived at the amount of butter-fat recovered from the produce, said Mr Singleton,, and allowing for the appropriate percentages of loss, it was easy to figure out the amount of butter-fat that should have been credited. All that was required was to subtract the amount credited from the amount recovered, and there was the short credit. It was suggested that at. the end of every manufacturing year the company secretary should ascertain from the Government grader how much short credit there had been, if any. Should there be any short credit, this should be added to the amount credited, and the total butterfat then divided into the output would produce the yield in relation to the butter-fat received. ! , Then again the figure of total fat received would be divided into the aggregate pay-out to determine the actual pay-out per lb of fat made by the factory. Mr Singleton conjectured that If this were done many factories would find that the butter-fat received item and the pay-out figure in their balance sheets would have to be altered. It wcHild be impossible then for factories to make a show of high payouts and heavy yields in relation to butter-fat received by means of shortcrediting their suppliers. He did not mean to suggest that there was any dishonesty about the practice. It was mostly a case of the factory manager having a bias towards the company and remaining well on the safe side, even if it was at the expense of the supplier. When this was done it was oasv to Imagine how the more attractive figures of one factory might prove* an inducement to suppliers to change over. The maintenance of a proper check on short-crediting, Mr Singleton said, would eliminate much of the unfair competition that existed to-day and returns would be more accurate. Common Fault A very careful analysis of the figures with respect to all factories in New Zealand had been made by the department last year, he said, and it appeared that about 16 per cent, of factories could be classed as bad in the matter of short-crediting. He thought that the other 84 per cent, many of whom were only medium offenders, would have no quarrel with the system he proposed, and he suggested that there were perhaps others among the 16 per cent, that would not object to the business being put on a proper footing since it would ultimately assist co-operation between factories and re-

move the fear, and to some extent suspicion of each other, which as much as anything caused short-crediting, “We recognise,” said Mr Singleton, " that the system is not perfect, but there is so much uniformity in makes to-day that such imperfections that exist do not amount to much. Certainly the proposed system would be fairer than the present one. Moral suasion has been tried, and it has failed, and the idea is now offered for your adoption or rejection. If it is no good I ask you to throw it out,, but I would , at least likd the thing fully discussed.” In reply to a question from the chairman, Mr Singleton said that a safe over-run for any factory depended entirely on the amount of butter-fat in the produce. m \ Replying to Mr C. P. Agar (Tai Tapu), Mr Singleton said that the importance of including factories that supplied the local market had not been overlooked, and it was recognised that such produce would have to be included. Explaining the Excess Mr Agar said that the proposal had much to commend it. mainly because it would get rid of the bogey that efficiency had to be bought with high over-runs. But he would support the proposal on one condition, and that was that, if a factory had more butterfat than the department considered it should have, the department, on behalf of the suppliers, would step in and find out where the excess came from. If the brains of the company or of the department could not find out where such excess came from, then there must be something wrong with both tympany and department. Mr Singleton said it was really the factory’s job to find out where the extra fat came from, but. if the management was unable to do so, then the department would most certainly come in and co-operate. Conditional Approval Mr Agar then moved: ‘‘That this conference accepts Mr Singleton’s offer to help factories to find the source of anv excess quantities of butter-fat that may be disclosed, and on that understanding approves of the plan outlined by him.” Mr F. G. Harris (Okains Bay) moved as an amendment: “That this conference approves the proposals outlined by Mr Singleton.” Mr J. Christie (Fortrose): How does Mr Singleton propose that factories should pay out for the excess butterfat shown by short-crediting? Mr Singleton: There would be no pay out. It would not be necessary to make any difference in either monthly pay-outs or bonuses. The situation of the company with respect to the relation of output to butter-fat received would simply be made clear. Mr Agar said the amendment was simply an omnibus approval of the scheme, denying to managements the assistance of the department in accounting for excess fat. He thought that factories should show, in their balance sheets the exact butter-fat received and the actual pay-out, and then add as an extra item the butter-fat short-credited. Then suppliers would know the position properly, and the factory without any unaccounted ’ for excess would be under the suspicion of publishing incorrect figures. But most important of all when managements could not explain unaccounted for fat they should .have the asistance of the department, Mr Singleton said he appreciated Mr Agar’s suggestion that short-credits should be published as a separate item in balance sheets, but in neglecting to mention it he had been looking at the matter from the viewpoint of companies. If the companies wanted shortcredits down to the smallest fraction published he had no objection. Mr Harris then withdrew his amendment. Mr D. F. Rutledge (Invercargill) said that Mr Agar’s idea of publishing the true and actual state of affairs in balance sheets was the more courageous way of doing what Mr Singleton wanted. The motion was then carried. Mr Singleton said that nothing could be done about it this season, and it was a question whether the statute could be amended in time for the scheme to De put into operation next season, but no time would be lost.