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War Economy

Stabilising Farm Incomes

Stabilising Farm Incomes

Stabilisation policy, which was first formulated at the Economic Stabilisation Conference in October 1940, and which was worked out in greater detail during 1941 and 1942, was based from the beginning on an understanding between various groups, who were prepared to make sacrifices to ensure the smooth running of the war economy, provided the burden was shared by all.

The special place of farmers in the New Zealand economy had always been recognised. Their production was the predominant, earner of overseas exchange out of which imports and overseas debt servicing could be financed. Exports of farm produce earned annually a sum averaging about a quarter of the national income. Net incomes of farmers made up on average about 14 per cent of national income.

The relative importance of farm incomes made changes in export prices a major cause of instability in the internal economy of New Zealand. This had been an important consideration leading to the introduction of the guaranteed price scheme for dairy produce in 1936. Guaranteed price schemes for other products had not been accepted by farmers.

The comprehensive stabilisation scheme introduced in December 1942 provided for stabilisation of the payments to farmers per unit of their produce and for holding farm costs.

One of the main concerns of stabilisation policy was to keep an acceptable relationship between wages and farm incomes. The basis of the stabilisation understanding was that farmers and workers alike agreed not to take advantage of a sellers' market for their produce and labour. Without farm stabilisation, based on subsidies and pool accounts, wage stabilisation would have been doubly difficult. Without wage stabilisation, farm costs could not have been stabilised, and farm price stabilisation would have been unacceptable to farmers. Farm incomes would have followed closely the upward trend in world prices, bringing severe inflation in a country short of goods and services.

In accordance with the stabilisation announcements of December 1942, the Government negotiated an agreement with farmers, covering dairy produce and meat, which was embodied in an exchange of letters on 18 June 1943. Briefly the agreement provided for:

(a)

The establishment of stabilisation accounts for each product or group of products after consultation with the industry concerned.

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(b)

The payment into stabilisation accounts of any increases in price received from sales of the product overseas above the level ruling at 15 December 1942.

(c)

The payment from the accounts of subsidies required to keep the costs of production down to the level ruling at 15 December 1942.

The agreement provided that credit balances in the accounts at the termination of the stabilisation scheme would be used for the benefit of the industry concerned, while debit balances would be met by the Government. The final clause provided that, while the agreement was in force, prices received by the farmer would not be allowed to fall below the level ruling in December 1942.