A BUTTER QUOTA Or a FREE MARKET?

Southland Times, Issue 22008, 6 May 1933, Page 6

A BUTTER QUOTA Or a FREE MARKET?

—♦• ♦ . i MEMORANDUM By the Rt. Hon. J. G. COATES. The Minister of Finance, the Rt. Hon. J. G. Coates, yesterday issued a memorandum in which he discusses the vital question: “A Butter Quota or A Free Market? He makes it clear in a foreword that his notes have been set down in a purely tentative and provisional way, as a basis for consideration and discussion. They are not an advocacy of any dogmatic view. “Suggestions for regulating the volume of our exports of butter to the United Kingdom raise new and complex problems,” says Mr Coates. “They call for quiet and dispassionate thought in the light of the facts as they aie, not as we might wish them to be.”

QUOTA SCHEME

HOW IT ORIGINATED INCREASED SUPPLIES; LOW PRICES MINISTER EXPLAINS “If I have dwelt more fully on points that favour our acceptance of the quota, rather than on the difficulties and objections, it is because I have felt that up to the present the points thus stressed have been inadequately presented; and I am certainly not unaware of the difficulties that must arise if the principle of the quota is applied to our great staple exports,” says Mr Coates in his foreword to the memorandum. “There is, however, need for us also to pay due regard to the difficulties that will face us if other alternatives are adopted, or if nothing at all is done. “Whence came the present suggestion for a butter quota so far as dominions’ produce is concerned? This is a straightforward question, but one which is being answered in a misleading and mischievously inaccurate manner in a good deal of current controversy. The facts of the matter are that in January, 1933, the increasing supplies and the falling prices of butter in London caused concern to those in the trade, including the direct representatives of New Zealand exporters. From these trade quarters suggestions were made for reducing the volume of imports from foreign sources. The New Zealand High Commissioner supported the request for official discussions, and in these, when they’ had been arranged by tb.e British Government, attention was given to the whole position. . . “It was then made clear by British Ministers that, while they, were prepared to recommend the limitation of foreign imports in the ratio of two to one compared with the limitation of imports from the Dominions, they were not prepared to impose the desired reduction of foreign supplies while leaving the Dominions’ supplies wholly unregulated.”

THE MEMORANDUM

Mr Coates’s statement is as follows:— Should the New Zealand Government and the dairy industry agree to the quantitative regulation of exports of butter from New Zealand to Great Britain? This is a question of first importance before the Dominion today.

It is, indeed, not merely to-day’s biggest question. It stands out as one of the main problems that have arisen in the course of fifty years. The years 1882 and 1932 can, in this connection, be regarded as epoch-making dates in New Zealand’s history. Before 1882. say, for our colony’s first fifty years, we were an isolated island, exporting gold and timber, tallow and wool; most of the country’s live-stock produce had no export value. Then came Refrigeration—and at once our perishables became marketable in England. The expansion of production in beef, mutton, and lamb, in butter and cheese, and latterly in fruit also, became the one clear object of oui' existence. In 1882 we discovered in Great Britain a bottomless market: in 1932 we discovered that the market is not a bottomless one. The fifty years from 1882 to 1932 were very different from the fifty years before; the fifty years ahead of us will be as different again.

Why do we say, 1932? Because then and the Ottawa Conference were the time and the place of the posting of the notice “English market full: saturation point reached—or about to be reached.” At Ottawa New Zealand agreed to limit to a certain quantity her shipments to the United Kingdom of mutton and lamb in 1933. Elsewhere in the agreement is the promise bv the British Government that no system of quantitative regulation will be applied to imports of Dominion dairy produce within three years; thereafter, in the interests of the Home producer, the British Government may regulate supplies of dairy produce from all sources. These actual or possible restrictions, it is worth remarking, were in no sense caused by Ottawa. They were registered there. Already the British Government had full power to restrict, or, for that matter, to exclude altogether, any imports. The Ottawa Agreement really represents a partial surrender by the British Government of their undoubted right to control imports; and those words about dairy produce are of very great (though inadequately appreciated) importance at this moment. If they were not there, a restriction on imports of butter and cheese would almost certainly be imposed by the British Government forthwith.

Meat Position. So far as meat is concerned, the Ottawa agreements provided that Australia and New Zealand should limit their exports of fror n mutton and lamb to the United Kingdom in 1933 to the volume exported in the twelve months July 1, 1931, to June 30, 1932. Great Britain agreed to reduce her imports of South American mutton and lamb and frozen beef by 10 per cent., rising to 35 per cent., below the 193132 figures, and to prevent an increase in chilled beef imports beyond those figures. This arrangement, is recalled in considering butter,, so that we can set it in contrast with the butter arrangement that arose out of Ottawa. In regard to butter (as well as meat) New Zealand asked at Ottawa for a tariff on foreign produce, leaving the dominions free of duty, and also for the restriction of the volume of permitted imports from foreign countries, again leaving the dominions free. The British Government agreed to regulate foreign meat imports, but with the regulation of ours also; and they agreed to impose a tariff of 15/- per hundredweight on foreign butter. They would not agree to impose both a quota and a tariff on meat. When, in addition to a tariff, a quota on foreign dairyproduce and fruit was suggested, the British reply was that this new device of the quota must be tried on one commody only before it could be extended. Lest an undue measure of credit, or of blame, for ’the quota might be ascribed to the proposals made by New Zealand at Ottawa, it should be emphasized at once that the representatives of the United Kingdom there were from the outset strongly in favour of the regulation of the volume of meat-supplies coming on to the British market. They came to the conference prepared in detail for this approach. The only differences between their attitude and ours were, first, that they sought the regulation of all supplies, not foreign supplies only; nd, while the New Zealand proposals looked to the quota as a temporary measure to meet an emergency, the United Kingdom delegation took the view that it should apply permanently. Meat Quota: A Success? Ottawa left us in this position, then. a quota on meat, including our Dominion produce; and a tariff only, with no restrictions as to quantity, on butter, cheese, fruit. We have thus had the two methods, the quota and the tariff, working side by side, and it is possible to some extent to compare their results. What is the outcome to date/ As definitely as could be, responsible opinion (including, notably, the opinion of the New Zealand Meat Producers Board) judges the regulation of meat to be a success. In November of 1932, when a glut in meat supplies and a debacle in London prices threatened, the quota arrangements were revised by agreement amongst all countries supplying Great Britain, and the market was maintained. It is certainly fair to say that, so far as New Zealand is concerned, the permitted export of mutton and lamb to Great Britain (based as it is on the 1931-32 peak year) has not required any reduction below the figure that would otherwise have been probable. To this extent the butter position is more difficult than the meat position. However, it is worth noting the outcome to date of the meat quota. The opinion of those who can judge is that it is a success, and that, to New Zealand producers and to the whole industry, it has given results which could not have been given by any tariff on foreign meat, unaccompanied by the regulation of supplies. And these favourable opinions have been formed by men who were extremely doubtful and critical of the quota on meat. It is always difficult to measure statistically the effect of any change in tariffs or of any’ other expedient; so many conditions are altering that the consequences directly due to one change cannot be isolated. Nevertheless, with this warning against drawing too precise conclusions, we may quote Board of Trade figures on the volume and value of certain imports into the United Kingdom in the month of March, 1933: Compared with the same month of the previous year, bacon imports declined by 24.3 per cent, in volume and by only 1.7 per cent. . in monetary value; butter imports increased in volume by 26.3 per cent, and their monetary value fell by 14.6 per cent. It is at any rate clear that the quantitative regulation of meat supplies has shown more satisfactory results than have been shown to date by the tariff on foreign dairy products. This is not in itself nearly enough to establish the case for applying the quota principle to butter; but it does suggest that. we should at least pause before dismissing the proposal. There is. good reason for our looking patiently at the facts, and withholding judgment until these have been examined. Changing British Policy. First amongst the facts to be faced is the recent change in practice and in declared policy in the United Kingdom, especially in relation to her own agriculture—though there is evidence that the change here is but a particular instance of a widespread revision of,

political and economic thought. Laissezfaire, the law of supply hnd demand, unregulated competitive enterprise were the rule yesterday. To-day the old order is being replaced to an increasing extent by deliberate planning, by regulation and joint organization in industry, in commerce, in all spheres of activity. . ' , The wisdom or otherwise oi tne change may, of course, be disputed and debated on perfectly reasonable general grounds. What is necessary for the present is that we should fake note of the inescapable facts as they • it Significant, too, is the fact that the new developments show no signs of being merely emergency decrees to meet an abnormal crisis. Far from it. As we shall see presently in mentioning one or two particular measures bearing on British agriculture, a long view is being taken. New forms of control and organization are being devised. British political and administrative genius is being reflected in combining individual responsibility and freedom with public and corporate control. And, so far as can be judged, all political parties in the United Kingdom appear to be committed to this new policy. It clearly behoves us in New Zealand to take 'note of the change and to shape our policy accordingly. An extract from a recent London Press cablegram (February 10, 1933) is in point, as it gives an authoritative view of the future of the quota: “Speaking at Manchester, the Minister of Agriculture, Major W. E. Elliot, said the quantitative regulation of meat was not a mere expedient to meet- a crisis, but had come to stay.” Agricultural Marketing Act, 1931. This Act, to quote the British Minister of Agriculture, “laid the foundation of the reorganization of agricultui al marketing” in Great Britain. It gives producers the means whereby they can weld themselves into an organized body. “The Act is organization from within, organization under producers auspices.” It provides for the settingup of representative Boards, with iaireaching powers of control; for drawing schemes to ensure efficient production and marketing; for the registration of producers; and, inter alia, the board that is functioning in relation to any product may determine “the price at, below, or above which, and the terms on which . . . the pioduct . . . may be sold.” Reference to a couple of approved schemes will illustrate still further the extent of the current departure from Great Britain’s historic laissez-faire policy. Thus the scheme for pigs and pig-products provides for a comprehensive system of stabilizing bacon supplies at; “for the present 10,6(0,000 cwt per annum; for regulating, by quotas, both home production and imports;‘for the selling of bacon pigs “only on annual contracts at a national price closely related to feeding costs ; for establishing various committees and authorities to give effect to these and other matters. Under the . contract system “producers will be required to contract to deliver to bacon factories numbers of pigs not yet born.” And, by an ingenious formula for relating prices to costs of production, the price of bacon pigs is• suggested to be based, Part, on variations In an index to the cost of a defined ration of pigs foodstuffs. [Under the quota arrangements concerning pig-products, it is provided, in accordance with the Ottawa Agreement, that Nety. Zea J al should be granted an expanding skat e of the United Kingdom market. Foreign supplies are to be reduced. Thus, with provision made to increase our market for pig-products, it is clearly wrong to suppose that the quota necessarily means restriction and reduction.] Milk and Milk Products. Another report and scheme under the Agricultural Marketing Act, 1931 (Reorganization Commission for Milk, January, 1933), to comparable detail in regard to milk and milk pi O'ducts. The purposes sought here aie summarized in part as enabling producers to negotiate as a solid body with one voice; ... the development of the manufacture of milk products , and “the co-ordination of the efforts of all concerned —producers, distubutors, and manufacturers.’ A responsible Council, it is suggested, is to have power to fix prices for the sale of milk, both for liquid consumption and for manufacture. Two extracts from the Commission’s report, referring to butter and cheese respectively, are directly in point: Butter. —Present indications point to the fact that, in spite of the depressed level of butter prices, dominion producers are extending then production. Should this process continue, it may become necessary to explore the possibility of the regulation of both home and imported supplies in the interests of all concerned. The case for the regulation of the home butter trade and of butter imports would be strengthened should the pig industry develop within the next few years to an extent which calls for greatly increased supplies of skimmed milk. . Cheese.—We cannot view without apprehension the possibility of low butter prices leading to a greater concentration on cheese production in the dominions, and, should this happen, the collapse of cheese prices might be even more drastic than that which has taken place in dominion butter prices. In our opinion, the situation requires to be closely watched in the near future, and the possibility may arise that emergency action by agreement with, and in the interests of, the exporting dominions may have to be considered. By legislation this year (the Agricultural Marketing Bill, March, 1933), the United Kingdom have proceeded still further along the road of control and organization. While the 1931 Act deals mainly with internal factors, the new legislation is concerned with imports. It gives to the Government and to various authorities to be set up for this purpose, far-reaching powers of regulation. It looks to the permanence of the quantitative regulation of supplies. At the time of writing, the Act in its final form is not available in New Zealand, but we have a synopsis of the measure; and nobody can read the Hansard reports of the House of Commons debates of March 13 and March 20, 1933, without being struck by the deep significance of the changed outlook that is there revealed. Somewhat extended reference has been made to these recent developments in the United Kingdom, because they are of such vital concern to all primary producers. The United Kingdom is no longer content to leave her agriculture to its own fate. Moreover, as we shall note later, the regulation of supplies is looked upon as a necessary step in raising the level of prices. This development in thought and practice, then, is the first circumstance of which account must be taken in considering the outlook for New Zealand s exports, and in deciding our own policy. Statistics of United Kingdom Imports. Now let us look at the increase in butter imports into the United Kingdom, and note separately the volume from Empire and foreign sources. Imports of Butter Into United Kingdom. Year. Empire. Foreign. Ttl. Tons. Tons. Tons.

1933 (estimated) 256,000 201,000 457,000 We can see where the main increase (Continued on page 10.)

1913 42,400 164,500 206,900 1927 116,450 174,500 290,950 1928 132,850 172,800 305,650 1929 132,600 187,250 319,850 1930 153,500 187,600 341,100 1931 200,000 203,550 403,550 1932 221,500 201,000 422,500