Agricultural Discussions with United Kingdom Government

New Zealand Journal of Agriculture, Volume 97, Issue 3, 15 September 1958, Page 221

Agricultural Discussions with United Kingdom Government

By

C. F. SKINNER,

Minister of Agriculture

EARLIER this year I visited the United Kingdom to discuss the marketing of our dairy produce and meat.

This visit was made in accordance with Articles 1 arid 2 of the 1957 agreement between New Zealand and the United Kingdom, which supplemented the Ottawa Agreement of 1932. Under the 1957 agreement the two Governments each undertook to give full weight to the views of the other in the formulation of their production, marketing, and import policies relating to agriculture. To this end provision was made for consultations in November each year and at any other time at the request of either Government.

Though the first of the annual consultations under the agreement had taken place only the previous November, the marketing of our dairy produce and meat in the United Kingdom deteriorated so rapidly in December and the first 3 months of this year that it became absolutely essential that we ask the United Kingdom for urgent consultations. In November 1957 our butter was realising 2605. per hundredweight on the London market. By March of this year the price had fallen to 2305. per hundredweight, and in April there was a further fall to the catastrophic low level which prevailed until toward the end of June2o6s. per hundredweight. In addition, lamb prices over the same period fell by about 25 per cent and there were also serious declines in returns for the byproducts of the meat industry.

Agriculture in New Zealand's Economy THE extent to which the New Zealand economy depends on the successful marketing overseas of our three main export commodities, dairy produce, meat, and wool, is perhaps not sufficiently realised. This dependence is well illustrated by a few basic statistics. In 1957 our total exports, which were valued at £276.1 million, included exports of dairy produce £66.1 million; of meat £70.5 million; and of. wool £105.7 million. That is, of our total exports dairy produce con-

tributed about '24 per cent, meat 26 per cent, and wool 38 per-cent. Of the remainder, livestock byproducts contributed a , further 5 per. cent. New Zealand’s entire economy is based on the sale overseas of the farm products just mentioned, because it is from the proceeds of these exports that we pay for the capital goods and

raw materials which are essential to our manufacturing industries and for those consumer goods not produced locally. As our population grows, more and more of our people are required to find employment in manufacturing, and our ability to maintain full employment is, therefore, vitally dependent on satisfactory markets for our dairy produce, meat, and wool. Toward the end of 1957 and during the first quarter of 1958 wool prices

also dropped and just before my departure for the United Kingdom the prices were nearly 15d. per pound lower than the average prices of 1957. The significance of price falls is well illustrated by the fact that a 10s. per hundredweight reduction in the return for butter means a loss in overseas earnings of about £1.5 million; and each Id. per pound on wool for a whole season . represents ■ about £2 million to New Zealand. A penny per pound on a whole season’s lamb production also represents nearly £2 million in overseas exchange.

The drop in prices for our principal export commodities was not accompanied by a corresponding movement in the prices of imported goods. Terms of trade (the purchasing power of our exports in terms of imported goods) therefore moved against New Zealand. This movement was a continuation of a trend which had shown itself in official statistics for the fourth quarter of 1956 and which gained momentum in the third quarter of 1957. The

downward trend had its reflection in New Zealand’s balance of overseas receipts and payments, which showed a deficit of over £32 million for 1957.

United Kingdom Market

The United Kingdom normally purchases about 90 per cent of our butter, 96 per cent of our cheese, 80 per cent of our meat, and nearly 40 per cent of our wool. My representations to the United Kingdom Government related principally to dairy products, for very good reasons. Firstly, price falls of dairy products had been most drastic, and it was our dairy farmers principally who were being most adversely affected. Secondly, wool as a basic industrial raw material commanded a world market, and the United Kingdom, though the principal purchaser of our product, could not materially influence world prices. Thirdly, the fall in the price of lamb was to some extent counterbalanced by the buoyant demand for beef, particularly in the United States, with a corresponding beneficial effect on beef prices. . • .

Before I refer to the nature of my representations to the United Kingdom Government and the outcome of the discussions, it is desirable to give a picture of the present world market situation for dairy products in general.

Liquid Milk

. During the past few years there has been a steady increase in world milk production.. Based on figures for 18 of the principal, producing countries, this increase in 1957 was about 2 per cent. The most pronounced expansion has taken place in Europe, particularly in the United Kingdom. This increase in milk production has resulted largely from improvements in breeding, and feeding, which have been reflected in higher average milk yields per cow. However, in some areas, particularly in the U.S.S.R. and eastern Europe, cow numbers have been increasing.

While milk production has been increasing the consumption of liquid milk has fallen, except in Canada and the U.S.A. Liquid milk usage in 1957 by the 18 countries referred to above increased by less than 1 per cent and for the second consecutive year failed to keep pace with population increase. The bulk of the increase in milk output has therefore been used for manufacturing, particularly in making butter.

Butter

According to the Food and Agriculture Organization, 23 of the world’s leading producers of butter had an output of over 3| million tons in 1957 compared with about 3 million tons in 1954, an increase of 15 per cent. The areas which have contributed mainly to this increase have been

Europe and the U.S.S.R. Production in the four major exporting countries, New Zealand, Denmark, Australia, and the Netherlands, has been nearly static.

Apart from the fact that increased quantities of milk have been used for manufacturing, other, factors which have made for greater supplies of butter are:

1. Increases in the average fat con tent of milk.

2. The practice in a number of countries of standardising the fat content of milk for liquid consumption below its natural level, thus releasing considerable quantities of butterfat for processing. It is estimated that as a result of this practice an additional 60,000 tons of butter was produced in western European countries alone ' in 1955-56.

World Demand for Buffer

Between 1953 and 1956 butter consumption per capita increased appreciably only in . one large importing country, the United Kingdom. In many countries consumption either fell or remained static. Though butter consumption in a few countries increased substantially in 1957 and the first part of 1958, the increases have not been general. On the other hand, consumption of margarine, an important competitive product, has been increasing. The increase in world butter production without a corresponding increase in consumption has had a twofold effect: 1. There has been a greater concentration of supplies on the United Kingdom market, which takes about 75 per cent of the world’s butter exports. 2. The “world” (United Kingdom) market price for butter declined steadily, despite several short-lived rises. A comparison of the annual average London • wholesale prices for New Zealand butter clearly illustrates the price trend. Per cwt. ' ■ s. . 1954 .. . . . . . . 373 1955 . . 355 1956 .. .. .. .. 323 1957 285 Earlier this year the price declined to 2065. per hundredweight, but has since recovered to 2355. The foregoing analysis of the world butter market shows that production over recent years tended to outrun demand and consequently prices dropped. Behind this very simple

statement of the operation of one of the basic economic laws lie some very disturbing features which are disclosed only on close analysis of the

factors influencing the supply of, and the demand for, butter.

Effects of Support Policies on Supply and Demand

During recent years the supply of agricultural commodities has been greatly stimulated by the ’ almost universal adoption by countries of policies designed to support agricultural incomes and prices. The social and political background to such policies must be recognised if the situation is to be viewed realistically.

In most countries farms are small and farm incomes are lower than nonfarm incomes. Farmers constitute a large part of the population and of the total electorate. At the same time the very nature of farming justifies the adoption of measures to ensure to farmers a fair return for their efforts. Farming is subject to special risks arising from the vagaries of the weather, which play an important part in the success or failure of a crop and in . the health and mortality of livestock. Again, agricultural production cannot be readily adjusted to changes in demand, and perishable products must be disposed of irrespective of the state of the market.

Though recognising the considerable merit in income and price support measures, this country, as an efficient producer of agricultural products for sale in world markets, takes the strongest exception to countries, particularly in Europe and North America, adopting unrealistically high levels of support for agriculture based on extensive use of subsidies. In some countries, not only is domestic production, encouraged .by subsidies, but consumption is discouraged by high domestic prices. The inevitable result is production surplus to requirements at the high supported domestic prices, restrictions on imports, and the disposal of surpluses abroad, often at dumped prices or on concessional terms.

The influence of national-income and price-support policies on the supply of and demand for butter is at the core of the problem facing our dairy industry today.

Among the farm products subject.to price guarantee in the United Kingdom is milk. During recent years the surplus of liquid milk has been increasing under the stimulus of the price guarantee, and increasing quantities have been used in manufacture. In 1955 the United Kingdom produced 15,000 tons of butter. Production increased to 25,000 tons in 1956 and to 34,000 tons in 1957. For 1958 production is estimated at 44,000 tons. There have been similar large increases in the production of cheese and processed milk.

Not only has the United Kingdom’s own production of butter been increas-

ing, but she has accepted much larger

exports from countries which have not been regular suppliers in recent years. For instance, in 1955 the United Kingdom imported 8,300 tons of butter from Finland, Sweden, the Irish Republic, and Argentina. Imports from the same countries in 1957 totalled 61,100 tons. In the recent request made by New Zealand to the United Kingdom Government for the imposition of antidumping and/or countervailing duties on imports of foreign butter, the countries just mentioned were quoted as adopting unfair trading practices, and the following figures were given in support of this contention.

COMPARISON OF DOMESTIC AND EXPORT PRICES OF BUTTER EXPORTED TO THE UNITED KINGDOM IN 1957

Exporter Irish Sweden Finland Republic Argentina (Dec.) (Nov.) (Dec.) (July) shillings per cwt. Sterling equivalent for domestic price .. .. 445 506 438.5 306 Export price .. .. .. .. ... .. 229 244 247 264 Amount by which domestic price exceeds export price .. .. .. 216 262 191.5 42

I have dealt rather fully with butter because it is our most important dairy product. Further, the effects of agricultural support policies on the market for butter is symptomatic of the effects of such policies on the market for other dairy products. I will, however, refer briefly to cheese and . milk powder. Cheese Practically all of New Zealand’s cheese exports go to the United Kingdom. The annual average price of cheese on that market during recent years has been as follows: Per cwt. s. 1954 191 1955 194 1956 . . . . 278 1957 . . . . . . .. 189 Today the price is 185 s. per hundredweight. A factor which has materially

contributed to the fall in price for cheese is the increase in the United Kingdom’s own production, which rose from 63,000 tons in 1955 to 100,000 tons in 1956 and to 114,000 tons in 1957.

Milk Powder

New Zealand has useful markets in many countries for milk powders, but efforts to develop these markets are continually frustrated by the action taken by some countries to dispose of their surplus' production on concessional terms. On the United Kingdom market, where the bulk of our exports are sold, prices showed little change in the first half of 1957, but later in the year, with home production at a high level and substantial imports, quotations showed a marked reduction. Mission to United Kingdom The basic purpose of my visit to the United Kingdom was to request the Government of that country to recon-

sider its agricultural import policy to give effect to the objective of the Ottawa Agreement, which is the expansion of trade between the United Kingdom and New Zealand to their mutual advantage. I also wished to bring to the attention of the United Kingdom Government the fact that the very great majority of European countries restricted imports of butter to their own high-priced domestic markets, though they were free to sell their surpluses on the United Kingdom market.

The outcome of my talks with representatives of the United Kingdom Government is in essence embodied in the decision on New Zealand’s request that action be taken against countries dumping butter in the United Kingdom.

Frankly, the Government was disappointed that the United Kingdom did not accede to our request for the imposition of duties on the products of the offending countries. In our view we had an irrefutable case.

The United Kingdom Government deemed otherwise, though they found that exports of butter by Finland, Sweden, the Irish Republic, and Argentina had been promoted by subsidies. In the light of this decision the United Kingdom Government decided to ask the Governments of Finland and Sweden to eliminate the practices complained of, or to keep exports to the United Kingdom within agreed limits. If these countries are unwilling to take either course, the United Kingdom will impose countervailing duties.

The Irish Republic was asked by the United Kingdom to enter into consultations on a similar basis in accordance with the provisions of a trade, agreement of 1938.

The decision in respect of Argentina was that since estimated imports from that source in 1958 were not expected to be large, no action Would be taken meantime. However, if it later seems likely that imports will rise above a specified level, the United Kingdom will offer Argentina the same choice as that offered Sweden, Finland, and the Irish Republic.

Independently of this action, the United Kingdom is to limit imports of Polish butter, and the. open licence for imports of butter from eastern Europe generally is being withdrawn.

In' the course of the discussions I had in London and in the decisions taken, the United Kingdom Government conceded a number of important points. These were: n - That there had been subsidisation. —■ of butter by the countries complained of. HU That there had been material ' —' injury to the New Zealand dairy industry. LU That the problem of over-produc-‘—J tion and under-consumption of butter was world-wide and was at the root of the present difficulties. In consequence, the British Government proposed to take the initiative in such international forums as the Food and Agriculture Organization, the General Agreement on Tariffs and Trade, and the Organization for European Economic Co-operation, to achieve international co-operation in dealing with this problem. □□ That they were prepared to im- ■—' pose quotas on butter from the offending countries. ; 1 HU That if • dumping or subsidisation ' — were proved against other countries, they would be prepared to take similar action to that already proposed, fg - ! That they were prepared to withdraw open general licences for imports of butter. ryi That the action to be taken would ' —' result in the retail price of butter on the United Kingdom market rising to 2s. 9d. to 3s. per pound, by the latter part of this year. This would appear to be tacit admission that 2s. 9d. to 3s. per pound is a fair retail price for New Zealand butter in the United Kingdom at present. Fgl That the position would be re—I vised in 6 months. The points just listed were important concessions to New Zealand on matters of principle. It is difficult to say, however, what their likely effects will be on butter supplies to the United Kingdom. For the period May 1957 to April 1958 total imports of butter into the United Kingdom plus home production were about 421,000 tons. In the period May 1958 to April 1959 it is estimated that, taking into account the effect of the quotas, supplies could total about 433,000 tons. Without quotas supplies would possibly be 450,000 to 460,000 tons.

To forecast with any accuracy how supplies of this order will, affect prices is . impossible, but the recent rise in consumption in the United Kingdom and measures taken by Continental countries to boost consumption should

help to firm the market. Butter consumption in the United Kingdom in April reached 8,500 tons a week. If such consumption were maintained, an annual offtake from the market of upward of 433,000 tons would be feasible.

Endeavours to increase the consumption of butter in Europe have been inspired by appreciation of the seriousness of the present market situation. .In April last the International Federation of Agricultural Producers arranged a conference in London of representatives of butter-producing countries. This conference recommended to governments and marketing organisations that immediate steps be taken to:

1. Secure a significant increase in butter consumption in all producing countries by:

(a) Effectively narrowing the gap between prices of butter and margarine in countries where this is excessive; (b) extended publicity campaigns, or (c) other effective means.

2. Raise the fat content of milk sold for liquid consumption in countries where standardisation, especially at a low level, is now practised, to as near the natural level as possible and to take all possible steps to increase the consumption of liquid milk.

3. Promote the use of milk and milk products for welfare purposes; for instance, for school milk programmes.

The Organization for European Economic Co-operation has also held several meetings to consider remedial action, and individual governments and producer organisations are making efforts to deal with the problem.

Outlook

Market forecasting is extremely difficult. Nevertheless, the broad factors of demand and supply for milk and milk products would appear to indicate that at least in the short term the outlook’ is not very bright. The emergence during the past year or two of production surplus to requirements in certain European countries is an extension of a problem which has existed in the U.S.A, for some years. In that country support prices for agricultural products have so stimulated production above requirements that huge surpluses are held in stock and are disposed of by gift, loan, sale for local currencies, or on ordinary commercial terms. The U.S.A, exported about 24,000 tons of butter in 1954, 100,000 tons in 1955, and 80,000 tons in 1956. An average of only 6 per cent of these total shipments was disposed of on a commercial basis.

Disposals of agricultural products with a view to extending relief to the needy, raising living standards, or advancing the economic development

of underdeveloped countries are justifiable and praiseworthy. Nonetheless, there can be no doubt that disposals from the highest motives do, in many cases, disrupt international markets to the detriment of countries such as New Zealand whose economies are highly dependent on the export of agricultural commodities. At the heart of the whole problem is the intensification of national policies of agricultural protectionism. There is general recognition of the cause of the existing problem, but it would be closing one’s eyes to realities to expect that radical changes in national agricultural support policies will be made quickly. New Zealand takes every opportunity at international gatherings, and on other occasions where opportunity permits, of roundly 'condemning excessive protection for agriculture and of emphasising the serious implications for New .Zealand and other countries which ’ are highly dependent on trade in primary products. But it has to be recognised that the practices of which we complain are; in general, those of the powerful industrial countries of the world, which are sufficiently strong economically to give substantial support indefinitely to their agricultural industries. Though the immediate outlook for the sale of dairy produce on world markets is far from cheerful, there are a number of encouraging factors. First of all we have the concessions of

principle made by the United Kingdom following the Government’s application on butter dumping. Then there is the specific action taken by the United Kingdom to limit the quantity of foreign butter placed on her market. Again, there are the recommendations of the International Federation of Agricultural Producers and the action taken or proposed by a number of countries. Above all .else, we can take heart in the fact that our farmers are highly efficient producers of foodstuffs in a world whose population is increasing at the colossal rate of 47 million a year. In other words, an additional market the size of the United Kingdom comes into being each year. Put another way, world population should double within the next few decades. Unfortunately, the greater part of the additional population represents, at the most, potential consumers, because like a large proportion of the existing population, they will not have the means to buy our products. However, today international cooperative action is directed toward the economic development of the less advanced parts of the world. To an increasing extent, therefore, potential markets will become effective markets. Meantime it is the task of our farming industry to maintain and improve the quality and attractiveness of its products, reduce costs wherever possible, and diversify production to the maximum extent practicable.

COMMONWEALTH ECONOMIC COMMITTEE

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Meat, 1957 An annual volume in the Commodity Series of the Commonwealth Economic Committee, London. Reviews world production, consumption, trade, and prices for all types of meat, offals, and livestock and examines the measures of various Governments having a bearing thereon, such as marketing schemes, prices and subsidy arrangements, trade agreements, and import duties. Price ss. 9d. including postage. Dairy Produce, 1957 An annual volume in the Commodity Series of the Commonwealth Economic Committee, London. Reviews world production, consumption, trade, and prices for all kinds of dairy produce including milk, butter, cheese, condensed milk, milk powder, casein,' eggs, egg products, and margarine. Examines the measures of .various. Governments having a bearing thereon and gives details. of import duties in the main importing countries. Price ss. 9d. including postage. Fruit, 1957 An annual volume in the Commodity Series of the .... Commonwealth . Economic Committee, London. Reviews, world production and trade for fruit and deals individually with the main kinds of deciduous and citrus fruit, bananas, grapes, pineapples, canned fruits, dried fruit,

fruit juices, and wine. Gives fruit consumption anc J utilisation figures for the United Kingdom and certain other countries, and _ information about tariffs, import quotas, licensing arrangenients, import duties, and trade regulations of the United Kingdom and Western European countries. Price ss. 9d. including postage, i a ■ i f-k Industrial Fibres, 1958 An annual volume in the Commodity Series of the Commonwealth Economic Committee, London. Reviews world production, trade, consumption, and prices for cotton, wool, mohair, silk, flax, jute (including substitutes and manufactures), coir, kapok, sisal, and other hemps, rayon,- acetate, and other man-made, fibres, Price ss. 9d. including postage, A Review of Commonwealth Raw Materials, vo ( | (1953) ... , „',,. ' „ v . , , Volume 1 of this Report by the Committee J? Commonwealth Governments reviews the Commonwealth situation against a world background for a wide range of raw materials (ineluding metals and ores, non-metallic minerals, fibres, timber, wood pulp, rubber, and indusJf’al vegetable oils) and for sources of energy, The course ,of production, consumption, trade, and prices is considered m detail and attention ls drawn to .some recent trends and developnients. 288 pp. Price 16s. including postage.