An overview of government policies for the New Zealand livestock industries, with emphasis on recent price stabilisation and price support schemes

Abstract

During the 1970's the New Zealand Meat Producers' Board introduced a buffer fund price stabilisation scheme, and the Government implemented a pastoral sector Supplementary Minimum Prices scheme. The schemes were jointly expected to reduce the variability in pastoral sector farm prices and incomes, reduce the cyclical impact of farm sector income on the New Zealand economy, expand output and export revenue, and maintain an adequate income level for agricultural producers. Considerable debate ensued as to whether these schemes achieved their stated objectives during the period of operation, and whether this was done in a cost effective manner. The SMP scheme was introduced to ensure adequate incomes to pastoral sector producers and to encourage greater output and export revenue. It is acknowledged that the scheme suffered severe problems. First, it was not clear that a strong link existed between farm income and agricultural investment, so the objectives may not have been compatible. Second, the operation of the scheme was altered many times as the Government's perception of a desired adequate income changed. Rather than introducing a more stable planning and investment environment in agriculture, these changes may have induced the opposite effect. Third, some substantial problems existed with the scheme, including an obvious inconsistency in New Zealand's trade policy stance and a pattern of prices distorted significantly from market levels which impeded desirable production adjustments. For the price stabilisation scheme, many of the same problems existed. Also the overall objective of price stability may not have been appropriate, and there existed the problem of accurately forecasting the long run average price to set the price bands. A natural tendency to set wide bands made the stabilisation scheme less effective and perhaps encouraged the institution of the SMP scheme. Perhaps the major criticism of this decade of price intervention though is the belief of Governments that income objectives may be achieved through the price system. The large financial losses of the New Zealand Meat Producers Board during 1981/82 -1984/85 may not have occurred if there had not been the obsession with income adequacy through price supplementation. In the New Zealand pig industry some pressure exists to look closely at alternative marketing structures including price stabilisation and/or support schemes. The experience of a decade or more in the pastoral industries, plus a brief and ill fated encounter with price stabilisation in 1977/78, would suggest this should be very carefully done. With current Government attitudes the industry should examine in detail the sources of instability and whether the advantages of greater stability are worth fighting for.