THE BUTTER MARKET

Wanganui Chronicle, Volume 76, Issue 105, 6 May 1933, Page 5

THE BUTTER MARKET

►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 to-day. It is, indeed, not merely to-day’s biggest question. It stands out as one of the main problems that have arisen in tho course of fifty years. The years 1882 and 1932 can, in this connection, be regarded as epoch-making dates in New Zealand 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 our existence. In 1882 we discovered in Great Britain a bottomless market: in 1932 we discovered that rhe 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 by 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 thorp. 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 he imposed by the British Government forthwith. So far as meat is concerned, the Ottawa agreements provided that Australia and New Zealand should limit their exports of frozen 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 1931-32 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.

Tn regard to butter (as well as meat). Now Zealand asked at Ot'.awa for a tariff on foreign produce, leaving the dominions free of duty, and also for tho restriction of the volume of permitted imports from foreign countries, again leaving the dominions free. The British Government agreed to regulate foreign meat imports, bur with the regulation of ours also; and they agreed to impose a tariff of 15s per hundredweight on foreign butter. They would not agree to impose both a quota and a tariff on meat. When, in addition tn a tariff, a quota on foreign dairy produce and fruit was suggested, the British reply was that this now device of the quota must be tried on one commoditv only before it could bo extended.

Lost an undue measure of credit, or of blame, for the quota might be ascribed to tho proposals made by Now Zealand at Ottawa, it should be emphasised at once that the representatives of the United Kingdom there were from tho outset strongly in favour of tho regulation of the volume of meat supplies coming on to the British market. They came to the. conference prepared in detail for their approach. The onlv differences between their attitude and ours were, first, that they sought tho regulation of all supplies, not foreign supplies only: and. while 'the New Zealand proposals looked to th' quota as n temporary measure tn » an emergency. Ihe United Kingdom delegation took the view that it should apply permanently*,

A QUOTA OR FREEDOM THE PROBLEM FULLY SURVEYED RT. HON. J. G. COATES PRESENTS POSITION In a foreword to the following statement ihc Rt. Hon. J. G. Coates emphasises that it is presented as “a basis for consideration and discussion.” There is no attempt at 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 are, not as wc might wish them to be. “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. 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 the 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.”

Meat Quota: A Success? Ottawa left us in this position, then: 1 n quota on meat, including our Dominion produce; and a tariff only, with uo 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, tho opinion of the New Zealand Meat Producers’ Board) judges tho 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 tho 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 tho 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 Now 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 wore 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 arc 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 vahie; 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 docs suggest that wc should at least pause before dismissing the proposal. There is good reason for cur looking patiently at the facts, and withholding judgment until those have been examined.

Changing British Policy. First amongst the facts to be faced in 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. Laissez-faire, the law Qi supply and demand, unregulated competitive enterprise were the rule yes terday. To-day the old order is being replaced; to an increasing extent by deliberate planning, by regulation and joint organisation in industry, in commerce, in all spheres of activity. The wisdom or otherwise of the. change may, of course 1 , be disputed and debated ou perfectly reasonable general grounds. What is necessary for the present is that wc should take note of the inescapable facts as they are. Significant, too, is the fact that the new developments show no sign 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 organisation arc being devised British political and admimst rat ive genius is being reflected in combining individual responsibility and freedom with public and corporate control. Ami so far as can he judged, all political parties in the United Kingdom appear td be committed to this new policy. It dearly 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 \ t.-w of the future of tho quota:

waking at Manchester, the Minis ter of Agriculture, Major IV. I.'. 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 tho reorganisation of agricultural marketing” in Great Britain. It gives producers the means whereby they can weld themselves into an organised body. “Tho Act is organisation from within, organisation under producers’ auspices.” It provides for the setting-up of representative boards, with far-reaching power 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 “rhe price at, below, or above which, and the terms on which . . . the product . . . may bo 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 tho scheme for pigs and pig products provides for a comprehensive system of stabilising bacon supplies at: “for the present,” 10,670,OOOcwt. 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 bo 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, in 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 expressly provided, in accordance with the Ottawa Agreement, that New Zealand should be granted an expanding r.haro of tho United Kingdom market. Foreign supplies are to bo reduced Thus, with provision made, to increase our market for pig products, it is clearly wrong to suppose that the I quota necessarily means restriction ami reduction.] Another report ami scheme under the Agricultural Marketing Act. 1931, (Reorganisation Commission for Milk. January. 1933), go into comparable detail in regard to milk ami milk products. 'rim mi-poses sought Im.t arc summarised in part as “enabling producers to negotiate as a solid body with one voice: • . . the development of the manufacture of milk pro duels”; ami “the co-ordination of rhe •fforts of all concerned —producers, distributors, ami manufacturers.” A responsible council, it is suggested, is to ■ have power Io fix prices for the sale of milk, both for liquid consumption ami for manufacture. Two extracts from the Commission’s report, referring 1o butler and cheese respectively, are di rectiv in point: Butter. —Present indications point to the fact that, in spite of the depressed level of butter prices, Do-

minion producers are extending their 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 any extent which calls for greatly increased supplies of skimmed milk. Cheese. —We cannot view witnout 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 will ci 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, Marell, .1933), the United Kingdom have proceeded still further along the road of control and organisation. While the 1931 Act deals mainly with internal factors, the new legislation is concerned with imports. Tt gives to the Government, and to various authorities to be sot 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, tho Act in its final form is not available in Now Zealand, but we have a synopsis of t-he measure; and nobody can read rhe Hansard reports of tho House of Commons debates of March .13 and 20, 1933, without being struck by the deep significance of the changed outlook that is there revealed. Somewhat e.x*onded reference has been ninth* to these recent doveion nients in th<* Un'-cd Kingdom, nccamo they are of such vi’ *i renoorn to al’ primary producers. The United Kingdom. i.s no longer contein to leave her agriculture t<» ils own fate. Moreover, as we shall note later, rhe roguln lions of supplies is looked upon as a necessary step in raising the level of prices. This development in though* and practice, then, is tho first circumstances of which account leiist be token in considering tho outlook for Now Zen land exports, and in deciding our own policy. Statistics of U.K. Imports. Now lot us look at tin* iiioreaso in butter imports into tho United King dom, anil note separately tho volume from Empire and foreign sour'os. Imports of Butler intn U.K. Year. Empire. Foro’gn. Total Tons. Tons. Tons. 1913 . .. 42,1119 164.590 206.900 1927 . .. 116 4’5(1 171.500 290,950 1928 . .. 132,550 172.500 305.650 1929 . .. 132,609 187.250 319.850 1930 . .. 153.500 157.600 341.100 1931 . .. 200.000 203,550 403,550 1932 . .. 221.500 201.000 422,500 1933* .. 256,000 201,000 157.000 * Estimated.

We can see where the main increase is from if, under the heading “Empire,” Australia and New Zealand be separated, thus:— Imports of Butter into U.K. from Aus. and N.Z. Year. Australia. New Zealand Tons. Tons. 1913 29,700 .. 12,600 1927 24,450 .. 62,600 .1928 43,650 .. 61,100 1929 . 38,400 .. 65,200 1930 47,550 .. 78.200 1931 77,950 .. 96.750 1932 91.450 .. 109,500 1933* .... 120,000 .. 116,000 •Estimated. Quantity v. Price. The only other figures that require to bo taken into account, and they need not be quoted here, refer to the relation between quantities and prices. It can easily bo shown, as would be expected. that tho increasing flood of supplies sends prices down. This is illustrated clearly by a graph which shows, for the past five years, the quarterly totals of butter imports in Great Britain from all sources, and the price per hundredweight, realised foi New Zealand butler. Apart from quantities, there are other intluenc< s at work, notably poor purchasing power; but the eon noct ion between big supplies and low prices is very < Ivar and direct. And it follows that a necessary step in raising and sustaining prices is th.regulating of supplies. We can argue—and should argue—about the wisdom of strengthening purchasing power so that consumption will increase. But such arguing, for all its merits, will not influence prices. Moreover, even if that part were at-

tended to as it shculd be. we arc in sight of the time when the limits of consumption will be reached. Either New Zealand or Australia, within the space of a f«w years, could by intensive development supply the whole of Great Britain’s butter requirements.

Incidentally, but of importance, we should recall that in foodstuffs, it u proverbially true that an increase in supply causes prices to fall out of all proop'rtion to the change in supply—e.g., 5 per cent, more in volume may easily mean 10 per cent, less in prices; and, vice versa, 5 per cent, less in supply may raise prices by as much as 10 per cent. This is common experience; a reduction in supply may so increase the rate at which it sells that the total receipts arc also increased. Hut how to get the reduction and the regulation in .supply? That is the piublcm. The Tariff as a Weapon. From March, 1932, the British Goy(‘rmfient imposed a. 10 per cent, tariff on foreign imports of dairy produce; following Ottawa this was raised to 15 per cent. —converted, in tho case of butter, to 15s per hundredweight. Now that prices have fallen below 70s per hundredweight the preferential margin in favour of Empire butter is over 20 per cent. In England’s free-trade days Imperial tariff preference, if only England could be induced to grant it, was looked to with boundless hopes. Now that we have the preference it docs not seem to work too well, and why? it seems clear that the foreign producer i.s largely bearing tho cost of the tariff, and that no increase in the price of Danish or other foreign butter has resulted. This means that the foreigner’s net receipts have fallen substantially. I tl part, also, the English consumer i.s bearing the cost, insisting on having his Danish butter; and this accounts for some of the widening margin between New Zealand and Danish prices. If tho tariff is to be effective in raising prices it will be so-through limiting supplies. And since the effect i.s to reduce Danish farmers’ receipts from butter, this may bo looked upon as promising. They should produce loss butter, ami turn to something else. Here, however, is <•: tough problem: to what will they turn? In the middle of last century Denmark turned from grain-growing to live-stock; it is not at all clear what she can turn to now. Xor will the farmers cease to exist. They will rather tighten their belts, and carry on producing with a lower standard of living. (To be Cor.cludodL