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Economics of the Cockies' Plight

Salient: How important has farming been in the past, not only to our economy but to our whole way of life?

Philpott: It has been very important to the economy because New Zealand has a very high requirement for imports and this is the way we have satisfied these requirements in the past. Indeed it is the main way that we are satisfying them at the present time and are likely to satisfy them predominantly in the future though there are more and different sorts of export industries arriving on the scene. But the average high standard of living derived in New Zealand compared with other countries based on the fact that we were a very productive agricultural economy (as compared with other countries) and were therefore able to sell our products cheaply and efficiently in competition.

What part will it play in the future?

As things stand at the moment the targets that have been set for the economy for 1980 envisage agricultural exports continuing at about 2.8% per annum and if they don't continue at that rate then in spite of very big increases planned for manufacturing, tourism, forestry and other export industries, our standard of living will not increase at the rate planned by the NDC. An export increase of 2.8% per annum is not really as fast as agriculture has expanded in the past, but it is still a very high rate of increase for an industry that already provides most of the foreign exchange.

At the moment there seems to be a lack of confidence in farming and those growth rates may not be reached at all, because there is a great drop in stock numbers on farms in New Zealand. Do you think those targets have a chance in being reached?

I think that it is certainly now going to be difficult to reach them. The volume of agricultural production has slowed down in the last two or three years and it is going to be difficult to make up for the slow down that has occurred. But there have been periods in New Zealand's history when with special incentives and special encouragement agricultural production has forged ahead at rates up to 4—4½% per annum. I think that we have got to recognise that part of the reason for slow down in agricultural production has been a run of very unfavourable climatic seasons. But this is by no means the whole story. There are a number of other reasons as well.

Would one of these reasons be the government — the farmers' lack of faith in it?

I don't know that it's farmers' lack of faith in the government that leads production to slow down. Farmers have been accustomed in the past to feel little faith in whatever government is in power. Its mainly the result of the inability of the Government (and not just the Government either) to control inflation. This has led to a very fast increase in farmers' costs as compared with the increase that has occurred in the prices they have received for their products i.e. a severe cost-price squeeze.

Well, do farmers receive a fair share of the welfare of this country in light of the facts that farming and its related industries earns more than 80% of our export income, and our export income contributes more than 25% of our GNP.?

In some periods in New Zealand's recent history, the rewards in farming have been quite high for example 1973 and in some periods have been reasonably fair, but certainly taking the last seven or eight years as a whole, the situation has deterioated markedly to the farmers disfavour. Let me quote some figures for you. In 1964 farming income was just on $300 million and the total private income in New Zealand was just on three thousand million dollars. Private income in New Zealand has gone up three times to $9000 million, farming income for 1974-75 is predicted to still be around $300 million. Farming income has not changed at all therefore in ten years, though it's had its ups and downs, while the total incomes earned in New Zealand have increased by three times — by 200%. So I think its quite clear because of this very fast rise in prices of farm inputs, (about 50% over the decade) compared with a much slower rise in prices of outputs (about 25% over the decade) that farmers have suffered in their share of the national income and are not at the present time receiving a reward comparable to their contribution to the economy.

This is not to say that there are not some farmers who are not fully exploiting the productive potential of their farms which could be quite profitable even at present prices and costs. To rectify this situation would require a change in taxation systems in agriculture, viz. the substitution for income tax of a productivity tax levies on the productive potential of the farm.

Is the drop in the standard of living of New Zealand as a whole from third in the world to about fourteenth directly attributable to a drop in farmers' incomes?

Indirectly so. I think it is attributable in part to aspects of our industrialisation policies. By this I mean not just industrialisation per se, but industrialisation in the wrong sort of ways and in the wrong sort of industries, industries that have not been very competitive with imports which tended to raise the cost structure in New Zealand and have led to income being drained out of farming into local high cost industries so that the rate of increase of agricultural production has been slowed down seriously.

Do you think we should be processing our primary industries more before we send them overseas?

I think we've got to be fairly careful about this. In some cases the costs of processing in New Zealand, if they are vastly in excess of costs overseas, do not provide a good argument for going ahead with New Zealand processing but there are many products where, even if the costs are a bit higher, the chances of selling more seem to me to be greater if we sell finished products than raw materials. I think this is the case for instance with wool where, it is true, overseas costs for processing are lower than New Zealand's, but where it seems to me to be easier to promote and advertise woollen products than it is to promote and advertise raw wool. This would provide for me, an argument for more processing of wool.

New Zealand has a very important position for supplying food for the underfed world and should strive to get maximum production at all times. Do you agree with this?

Well, I'm afraid I'm old-fashioned enough and hard-headed enough to think we should get maximum production of food if in fact it pays us to do so.

But what about all the people overseas that could not possibly pay the prices we ask?

Well I still think its desirable, if we want to assist people overseas to give them money and let them spend it on what they like rather than gearing up our agricultural production and giving them food.

Do you agree with the Institute of Economic Research who in their book 'Farming and Inflation' say that the exchange rate should be ordered more frequently?

Yes, I agree that the exchange rate changes should be an integral part of New Zealand external economic policy to bring adjustments of internal prices in to line with overseas prices especially for our country because agriculture prices fluctuate an awful lot.

Well, should the dollar be devalued at present?

No I do not think it should be devalued at present because we have too high a rate of inflation at the present time and as devaluation tends to be inflationary. I think we should wait until the latter part of this year, when as a result of the credit squeeze at the present time, a substantial amount of the present inflation will perhaps have been wrung out of the system. Then we could devalue with safety and with much greater benefit to the economy next year.

Federated Farmers estimate the production of local manufacturers from world competition costs New Zealand $700 million every year. Are they justified in this claim?

Well I wouldn't like to comment on the figure but I would certainly agree, as I said before, that unduly high protection of many New Zealand manufacturing industries is costing New Zealand dearly.

This figure was put forward in 1972 and at that time the Secretary of Trade and Industry reckoned on a figure of $280 million, so would it be somewhere within that range?

I would like to see exactly how these, figures with which I am not familiar, were calculated before I gave a judgement but its not impossible that it would be in the range of $500 million which is about the figure you quote.

What are the chances of a collapse of the world economy as if presently exists into global depression?

I think the chances are very slight indeed, though the similarities of the present world economic situation with that of 1929 the last great crash, are very great. Namely that a large amount of money is being withdrawn from the world's monetary circulation as a result of paying the Arabs $65 billion more for oil, and that money is not immediately going to be respect in the rest of the world. But I do think that government's and their advisors are more aware of the way to handle situations like that than they were in the thirties and for that reason I don't think there will be a collapse. Furthermore there is still a strong groundswell of increasing wage rates which will keep demand rising, whereas in the thirties policies were mainly directed at reducing wage rates.

Is the Agriculture industry getting the right sort of people as recruits for farm labour and eventual farm ownership?

There is, I believe, an urgent need to review carefully the arrangement by which young people are recruited into the agricultural industry. At the moment it is not an occupation a young man would be tempted to enter unless he had a lot of cash or stood to inherit or marry into a farm. Consequently, we may not be getting the best of talent in the industry. This calls for some form of land settlement arrangements, like the post-War Rehabilitation Scheme, in which aspiring farmers after a long period of successful training could be settled on farms which they acquire solely as a result of their proven ability rather than of their acquired wealth.

Many farmers, especially sheep farmers, have tight controls placed on them by big stock and station agents who sometimes not only control all the financial affairs of the farmer but actually control the farmer and what work he does. These firms carry on making profits whether the farmer has a good year or bad. Would the economy function better if the farmers could rid themselves of these firms?

I know of a number of stock and station agents who have maintained farmers through very lean periods and hot insisted on repayment of debt that was due but have allowed such debts to be tided over. Equally I know of a number of situations where the opposite occurred. I don't think its wise to generalise. I think as time has gone by, stock and station agents have regarded themselves very much as agencies to assist in farm development, and have taken sensible views of the sort I have just outlined. But I do think that there is an argument for a lot more financing for agriculture to be made by the state owned rural bank which is geared towards development finance and which can exercise rather more lenient views when things are bad than stock and station agents acting within the framework of current business practice. Incidentally I think you should check up on the profits made by stock and station agents businesses. They're really very low.

Many farmers have an inherent distrust for people like economists, accountants, scientists, etc. What do you think of this?

Farmers are good, practical, down-to-earth conservative people, who by the very nature of their craft, distrust people who work with their minds. Such a critical approach is not entirely unhealthy. There is room for both approaches. Nevertheless, as far as scientists are concerned, I think farmers ought to recognise that the enormous increases in efficiency in New Zealand agriculture stem largely from the applications of New Zealand scientific research in animal and plant breeding, nutrition, fertilising etc.

Much of my own work as an economist has gone into trying to sort out and measure the major economic forces at work in causing fluctuations in prices of farm products. The agricultural industry is so important to New Zealand that it la quite ridiculous that farmers should just produce their products and throw them onto world markets without knowing much about what factors are influencing prices and without trying to forecast prices in the future. Any big industrial firm would certainly not be as ignorant of the marketing situation for its products as we in New Zealand are.

But such agricultural price forecasting work is very challenging and just in its infancy. One is bound to make mistakes and farmers will always remember the times when one is wrong and not the times when one is right which accounts for their distrust. But as long as one is right more times than wrong (and that has largely been the case) then a useful and important job is being dune and farmers' attitudes would certainly not deter me from pressing on with what is a unique university function.