REDUCTION OF COSTS SOUGHT

Southland Times, Issue 23586, 13 August 1938, Page 20

REDUCTION OF COSTS SOUGHT

Explanation Of Compensated Price Plan

A statement of the meaning the New Zealand Farmers’ Union attaches to the compensated price plan, support for which is laid down as a plank in its policy, has been made by the Dominion president, Mr W. W. Mulholland. Sound economic policy demands that the Government take an active interest in maintaining a correct relationship between farming costs and farming prices, he states, and the recognition of this need is the underlying factor in the campaign to secure what has become known as the compensated price. “Fundamentally the plank in the union’s policy known as the compensated price insists that the of goods and services in New Zealand which largely represent the costs of production of the industries producing for export, should be maintained, says the statement, “in such relationship to the prices received for export commodities that the producers of the latter, on which our national wellbeing so largely depends, could continue to produce and could obtain a reasonable reward for their services comparable to that enjoyed by labour and capital employed in the production of goods and services for our domestic requirements. “Sound economic policy demands that the Government in New Zealand shall take an active interest in maintaining a correct relationship between farming costs and farming prices. The worst disservice that any Government can do to New Zealand is to so govern that these two sets of prices become out of balance. Such action will affect the whole community, for though the farming section will receive the first impact of unbalanced conditions their effects will quickly permeate through our whole economic structure, severely affecting all industries, even those enjoying the most sheltered positions, as was demonstrated in the early years of this decade. CORRECTING HIGH COSTS “The correction of too high costs for the export industries can obviously be approached from two opposite directions—the reduction of costs or the raising of prices in those industries. Actually the Coalition Government, in attempting to correct the position brought about by the heavy fall in. export prices during the slump used both avenues, reducing costs by reductions in wages, interest and Government expenditure, and increasing export prices by devaluing our New Zealand pound in terms of sterling. The policy with which the Labour Party successfully opposed them at last election was a policy of increasing wages and Government expenditure, to be made possible by raising the prices paid to the farmer in New Zealand for export commodities which they claimed they could do. “When the Labour Party came mto office it appeared to have the erroneous idea that if it fixed farm prices for a period of years it would have done all that was necessary to leave it free to inflate costs. Farmers pointed out that stabilized prices with unstable costs would not meet the position, especially as the energetic raising of costs was an important part of Government policy. They said that to carry out the Government’s pre-elec-tion promises it must give a price adjusted from time to time to the level of costs if it was going to put its policy of highly inflating them into operation. Some one used the phrase ‘compensated price,’ that is, in the sense of a price balanced against costs, as opposed to the phrase ‘guaranteed price’ or fixed price. “The phrase was apt at the time as denoting a radical fallacy in the conception of the guaranteed price and useful in calling pointed attention to the vital necessity of maintaining a correct relationship between farm costs and prices. Faced with the fact that the most strongly organized body of support which the Government had, now represented by the Federation of Labour, was, and still is, determined on forcing costs higher and higher, without regard to the position of the export industries, and that it was in a position to bring strong influence to bear upon the Government, farmers found it necessary to put up an active and determined resistance to such an insane policy, fraught as it was with disaster to the country. “The compensated price formed a focal point for the demand that farmers’ costs and farmers’ prices must be kept in such relationship as will enable their industry to carry on satisfactorily. The brunt of the fight has devolved upon the dairy farmer partly because the sheep farmer has had his rising costs temporarily looked after by good world prices, and in consequence has been apathetic, and partly because the Government was itself actually paying the dairy man in cash for his produce at a price which it itself fixed, but which it had promised should be sufficient to take care of the full costs of production. So he had a concrete and immediate goal in front of him—the demand that the Government should turn its promise into cash. “A BALANCED INFLATION” “The demand on the part of the Farmers’ Union that the Government and the electors having decided on a policy of inflation, it should be a balanced inflation embracing both export and local prices, does not mean that the Farmers’ Union has altered its opinion in regard to the unsoundness of inflating costs and then chasing them with artificially inflated prices for exports. It has continually emphasized that unless such a policy was confined within very narrow limits it would threaten our financial stability, for it could only be carried out by a devaluation of our currency in terms of sterling either overtly or covertly, and if that is carried very far it is fraught with peril at home and abroad. Consequently while adjusting the statement of its policy to the altered conditions brought about by the change of Government, so as to still insist on its fundamental principle—the correct relationship between farmers’ costs and prices—the Farmers’ Union has kept in the forefront its own unaltered opinion of how the balance between farm costs and farm prices should be restored. Plank No. 2 reads: “While the Farmers’ Union policy is still that the soundest method of closing the gap between farmers’ costs and prices is by a reduction of costs, we insist on its complete closing by a reduction of costs or by an increase in prices. Such adjustment must: (a) Enable farmers to pay competitive rates of wages; (b) Allow them reasonable interest on the capital invested in their farms and stock; (c) Enable them to meet the increased costs imposed by legislation including tariffs; (d) Allow them a remuneration commensurate with the service they render, and with that obtained by other members of the com- » aaunity whs render eiual service..

“Compensated prices are not to be brought about by inflation —meaning by ‘inflation,’ an increase in the general price level due to an increase in the amount of money put into circulation. , . , “The Minister of Marketing (the Hon. W. Nash), has said that the guaranteed price as set out in the Primary Products Marketing Act makes provision for all that is claimed in this planx. It is true that on a certain interpretation of section 20, sub-sections 4 and 5, they can be held to mean that the guaranteed price for dairy produce is to be fixed on the basis of the cost of production. But in sub-section 4 the price fixed in the previous year is given at least the same importance as a factor to be considered as is the cost of production and in none of the six or seven conditions to which ‘regard shall be had’ is their relative importance or their bearing on the price defined. WORK OF COMMITTEE

“It is popularly supposed that the committee at present sitting is to determine the cost of production of dairy produce and to recommend prices to the Minister accordingly; but its order of reference is the two sub-sections of the Primary Products Marketing Act quoted above, and it will be interesting to see the interpretation that _it places upon them. If the price of dairy produce is fixed in accordance with the costs of production will that satisfy the requirements of the Farmers’ Union policy? No, it will not. It may be a Step on the way. But it is not only necessary to .fix a price but even more important—to the seller —to pay it. “To satisfy the Farmers’ Union policy the payment must not—-neither now nor eventually—involve either the dairy farmer or other producers for export in increased costs. “If it does it is merely a transference of money from one of the farmer’s pockets to another, with probably some loss in transit. “How the Government will equalize receipts and payments in the Dairy Industry Account in the Reserve Bank in the event of payments exceeding receipts is of great importance to us, for it seems inevitable that there must be a considerable debit balance if the Government adheres to its promise to pay a price equal to the costs of production. “Even if all this is satisfactorily dealt with there still remains some three-fifths of our export production uncared for. * No Government policy that leaves out of account industries producing £30,000,000 to £40,000,000 worth of our exports fulfills the requirements of the Farmers’ Union policy. The guaranteed price scheme seems to be totally inadequate to deal with the position that the Government policy has created, and we greatly fear the effects of the considerable farther devaluation of our currency which a continuance of the policy of still farther inflating costs will inevitably involve. “The compensated price as stated in the Farmers’ Union policy is not a demand for an adjustment of individual prices which would mean a degree of bureaucratic control that would be obnoxious to the great majority of farmers; nor is it a scheme for the automatic fixing of prices by some authority according to the relationship of some sets of figures. It is a demand that the Government shall so govern that the relationship between the price levels of those goods and services which represent the export producers’ costs, and of those goods which he produces and must sell in competition with the world on world markets shall be maintained on a basis that will allow him to continue to produce and obtain a reasonable reward for his services. It insists that the soundest method of closing the gap between farmers’ costs and prices is by a reduction of costs. In spite of the Minister of Agriculture it is a very live issue in which the farmers have the support of many other people who realize that the welfare of everyone depends on the correct relationship of the export producers’ costs and prices.”