DAIRY CONTROL

Southland Times, Issue 20116, 1 March 1927, Page 8

DAIRY CONTROL

EFFECT IN SCOTLAND MARGIN OF PROFIT TOO LOW BOARD SUGGESTS SPECULATION AS REMEDY The following open letter, addressed to the producers of New Zealand butter and cheese, has been received from the Glasgow wholesalers who had before the control handled most of the New Zealand lairy produce for Scotland:— Glasgow. 30th December, 1926. TTie Producers of New 7 Zealand Butter and Cheese:— Gentlemen: The New Zealand Dairy Produce Board has now been operating for a few months and it is possible to form an estimate of its work, and of how far it has been successful in attaining the objects which it set out to achieve. We consider that several serious defects, and also ill considered favouritism, as between different sections of the trade, • characterise the system, and we are convinced that, if persisted in, these will have a detrimental effect on the sale of NewZealand dairy produce in this country, and consequently on the returns received by the New Zealand producer. We, the undersigned, arq all old-established wholesale provision houses. The wholesale trade is the channel, in Scotland, for the wide spread distribution of New Zealand produce. Each of us has a number of commercial travellers covering between them the whole of Scotland, calling on thousands of retailers, in large centres weekly, country towns fortnightly, and in the small outlying villages monthly. We obtain our supplies in blocks of one, two, or three hundred box lots, and distribute them in small lots, or in single boxes as retail buyers require; we have our conveyances for local delivery in a radius of a few miles round Glasgow, and serve the rest of Scotland by utilising motors, carriers, contractors, rail and steam boat. We give credit varying with the requirements of the districts served. In a word we are the essential link in the chain of distribution, by which the retail trade receives supplies, performing all the detail work, earning the risks, not inconsiderable, of credit, and performing the most onerous as well as the most expensive part of all the work of distribution. We have also some substantial influence in deciding what goods our thousands of buyers will handle. During the period when control was being considered we were not consulted directly. Being aware, however, of the necessary work we were doing, and confident as we had reason to be. that we did it efficiently and economically we were content to wait developments, aroured that in any scheme we would be iarruded, and our work appreciated; all the more so, as New Zealand products have always received a prominent place on our lists and have been introduced by us to a vast number of retail shops. When we had the pleasure of a visit from your delegates they agreed heartily in our view of this aspect of the case. Our surprise has been great and our disappointment profound, when, after the scheme has been inaugurated, we find that our senices are ignored, and that there is no adequate provision made to enable us to continue to handle New Zealand dairy produce. The Board fix prices at which their agents, or allottees, sell to us in the large blocks which we require, they also fix a price at which the agents or allottees sell to retailers, the difference between these prices is 3/- per cwt. The allottees’ price to retailers, being an official figure, automatically becomes the price at which we must sell to retailers, thus leaving a gross margin of 3/- per cwt., equal, at present values, to 1] per cent, to cover all charges for the services already enumerated, and also to leave a margin for interest on capital and profit. We would mention that under Government control, after exhaustive inquiry, the margin fixed for all services of wholesale distribution was 5 per cent and in the case of large businesses 4 per cent. The margin of 3/- being an impossible one on which to continue distributing we are left in a quandary. One obvious course is to cease pushing the sale of New Zealand produce altogether, and to bend all our energies towards selling other butter and cheese on which we can obtain a margin to meet the costs of our business. There are plenty such available —Danish, Irish, Swedish, Canadian, Friesland and Finnish, and to a less extent, Australian and Argentine butters are being pushed insistently, and the makers are putting forward every effort to help and encourage us to market their goods. As already stated we are the channel of distribution for Scotland, no other section of the trade has distributive organisation, and there is little doubt that, if we pursued this course, we would to a large extent reduce the demand and consumption of New Zealand produce throughout Scotland. We have, however, taken a pride in building un the connection for New Zealand dairy produce, and we desire, and mean to continue handling it, so long as we can entertain expectation that the services which we have rendered in the past, and still do render, will ultimately receive recognition. In this difficult position we considered that the proper course in the first instance was to turn to the London Agency of the Board, and we have done so. We sent a considered statement of our case on the lines set out above and proposing that three or four of our members should wait upon the Board in London, and endeavour to come to a working arrangement. The reply of the Board is to the effect that after considering all we say, they do not propose to interfere. The only suggestion they offer is that: “The whoelsaler has got the benefit of extra profits obtained by purchasing in a suitable market. We interpret this as indicating that we should lay in large stocks when prices are low, hold them for an advance and so secure our profit. Our system has consistently been to buy at market price, sell all the time with a margin to cover our costs, and we are not prepared to change over to a system of speculating in New Zealand dairy products, even at the suggestion of the London Board. In orde# to explain the favouritism which we allege in the opening paragraph of this letter, we must, however reluctantly, compare the very rigorous treatment meted out to the wholesale trade with that accorded to allottees or agents of the Board The scale of commission allowed to allottees is 2 per cent, equal on present raiue to 3/6 per cwt., on sales to wholesalers. Such sales are block sales in which the services rendered consist largely in handing over delivery order ex quay or store. W T hen the sale is to a retailer, however, the commission to the Board's agents is 3 per cent, equal to 5/3 per cwt.; such sales are generally to selected large retailers taking fair quantities, and requiring no expensive machinery of distribution We compare this 5/3 allowed to allottees for serving selected large retailers, with the 3A allowed to wholesalers for distributing everywhere, in any quantity, to all and sundry, and we think it obvious that the remuneration is in inverse ratio to sen-ice rendered. Further, the stock held by allottees, being on account of the Board, on a falling market the allottee has indent nity against all market reductions; we wholesalers on the other hand, once we take over the butter bear all losses resulting from market reduction.

In our experience allottees are paid by their buyers uniformly in seven days. Wholesale terms to buyers are one month, which frequently stretches to two or three months. Nor is this all. Under the system intertrading among allottees is permitted. This simple term means that allottees of the Board may sell all or part of their allotments to another allottee, the seller securing his commission as agent of the Board, and once the sale is made, the butter becomes the property of the purchaser, as a free commodity. This permits and

makes it possible for butter to be transferred and held as their own property by agents of the Board, and it is obvious, that by taking hold of blocks of butter or cheese when the price is low and holding for an advance, greatly enhanced prices and large margins may be secured, without supervision of the Board, and without any portion of the increased price reaching the producer in New Zealand. A system which permits the same firms to be agents of the Board, to be also free operators of the Board's commodities, and at the same time, to have a representative committee of their own members to advise the Board as to the fixing of prices, is the most anomalous system we could imagine, and one which no well informed body of producers would approve. Our impression was that the objects of the Board were chiefly three:— (1) To eliminate speculation. (2) To stabilise prices. (3) To encourage the steady flow of New Zealand produce through the legitimate established channels of distribution. The nett results of the efforts so far are: (1) No efficient safeguards against speculation ; it can be shown that speculation has been encouraged by the immunity from risk which any allottee or agent of the Board desiring to speculate, will enjoy under the system; (2) in the short trial of the Board’s operations, prices have fluctuated to an extent seldom experienced under open trading; (3) The Board have wantonly, and without cause or reason, antagonised the overwhelming majority of these traders, namely, wholesalers, who have built up and who carry on the trade in New Zealand butter and cheese. It is our considered opinion that the present methods of the Board, however well intentioned they may be, must result in serious set back to New Zealand produce in this market, and to returns being obtained by the New Zealand producer less favourable than he deserves, and in our opinion, less than he is entitled to receive. Yours, etc., (Signed) : JAMES DAVIDSON & CO. JOHN LAIRD & CO. JAMES LEGGAT & CO. ALEX. OSBORNE & SONS. JOHN RITCHIE & SONS. (All of Glasgow).