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War Economy

Most Reserves Inadequate at Outbreak of War

Most Reserves Inadequate at Outbreak of War

Details of the actual reserves accumulated by September 1939 are confused. Many producers established their own reserve stocks of small, inexpensive, but essential items required in production. The majority of reserves were carried by manufacturers or wholesalers, at their own expense, but in some cases the Government gave financial assistance. Some reserves were purchased and stored by Government departments. The stocks accumulated by the Government or with Government assistance comprised, in the main, bulk raw materials. It had been stressed to manufacturers that they were responsible for reserves of their own key materials.

Comment has already been made1 on the pitifully small sum of £512,000 set aside for Government purchases of reserve stocks of essential commodities. Moreover, there was a distinct possibility that, even when the Government did import, normal imports of the same commodities might be cut back through exchange difficulties. The Co-Secretary of the Organisation for National Security reported to the Supply Control Committee on 7 July 1939:2

‘… the main difficulty which now arises is that no guarantee can be given for funds for the normal importations of current requirements of the articles in the approved list. Generally speaking, it may be said that the £512,000 represents three months' consumption required as a reserve to bring the average three months' stock up to the basis of six months. Therefore in the next six months it is desirable that we import the normal six months' requirements plus three months' extra stock for building up reserves. On this basis the amount involved to build up and protect reserve stocks of items already approved amounts to three times the value of the reserves, that is approximately £1,536,000.’

The pressure on overseas funds was temporarily relieved when Mr Nash, in the same month, succeeded in negotiating sterling credits for imports from the United Kingdom,3 but it was too late for the required build-up of stocks before war broke out.

In his first Parliamentary Report,4 in 1940, the Minister of Supply said:

1 See p. 37.

2 Memorandum on Industries and Commerce file 55/7, Pt 1.

3 See also p. 26.

4 H-38, 1940, p. 2.

page 112

‘… the reserve stocks created with the assistance of the Government comprised in the main bulk raw materials. These included amongst others, asbestos, rubber, tin, lead, tinplate, galvanised iron, gypsum, jute goods, phosphates, sulphur, nitrate of soda, and various other chemicals which are consumed in bulk by our manufacturing industries. To protect the food situation reserve stocks of wheat and sugar were also arranged.’

However, a six months' reserve of an essential supply was the exception rather than the rule when war broke out, and in the first report of the Factory Controller on 11 September 1939, he stated:1 ‘It is evident that some essential raw materials are in very short supply, and in view of world conditions today this is a matter of serious moment. A list according to my views of priority is being prepared so that in the allocation of sterling credits any curtailment will be placed on materials of lesser importance, even though this involves unemployment. The question is, of course; mainly one of sterling funds, but it is also bound up with the rising commodity prices during times of war and curtailment of sources of supply.’

Unfortunately it is impossible now to draw a comprehensive picture of stocks at the outbreak of war. In the pre-war years there were no detailed statistics of stock holdings and the uncertainties which exist have been increased by the loss of relevant supply files.2 For some commodities the extent of the building up of special reserves before the war is known, but it is not always clear what had happened to normal stockholdings while these special reserves were being set aside. A brief sketch of the special reserve stocks was given in Chapter 2,3 but further information is now given on some of the key commodities.

Corrugated Roofing Iron: The Public Works Department purchased and stored 2000 tons valued at £60,000. This was equivalent to about five weeks' supply of corrugated iron for the whole of New Zealand. Normal stocks carried throughout the Dominion usually amounted to some 5000 tons, or about three months' supply, but, because of air-raid precautions in Britain, shipments to New Zealand during 1938 and 1939 had been considerably reduced and stocks had fallen to approximately 2000 tons. Thus all stocks, including the special reserve, were only about four-fifths of normal.

1 Factory Controller to Minister of Supply, on Industries and Commerce file 55/8.

2 The 1946 annual report of the Department of Industries and Commerce (Parliamentary Paper H–44) says on p. 2: ‘It is much to be regretted that the great pressure of work and shortage of staff in those years did not permit of thorough compilation and complete assimilation of records and statistics, for these would have greatly enhanced the value of the experience gained….’ War History narrative 90/1, Ministry of Supply, says on p. 1: ‘An opportunity was taken when the Department (of Industries and Commerce) later shifted its premises to destroy many of the files without selection’.

3 See p. 38.

page 113

In his second report on 20 September the Factory Controller stated, concerning galvanised iron, ‘there is definitely a shortage at the present time and suppliers have been rationing deliveries. The shortage is due in some measure to the demands of the A.R.P. in England…. For a few months at least I do not anticipate any acute shortage.’

The Public Works reserve was purchased primarily to meet military requirements and was less than the estimated needs for this purpose alone. In July 1939 the Engineer-in-Chief of the Public Works Department had estimated corrugated iron requirements for ‘emergency mobilization buildings’ as 2682 tons.1 However, it was possible from these public works stocks of 2000 tons to make some corrugated iron available to builders to meet cases of extreme hardship.

Chart 22 compares stocks of corrugated iron at the outbreak of war with imports for 1936 to 1941.

chart of import/reserve stock statistics

Chart 22

Gypsum Rock: This rock was imported from Australia and was essential for the manufacture of cement and plaster. Reserves of 7000 tons, equivalent to about six months' normal usage, were imported and financed by New Zealand companies.

1 Official War History of Public Works Department, Vol. I, p. 96.

page 114

Chart 23 shows imports of gypsum, which increased quite rapidly up to 1940, and compares reserve stocks.

chart of gypsum statistics

Chart 23

Wheat: Stocks and arrangements for Australian supplies were put on a satisfactory footing before war broke out.1 The relationship of these stocks and imports to New Zealand production is discussed later in this chapter.2

Raw Sugar: The Colonial Sugar Refining Company at Auckland purchased and stored 15,000 tons of raw sugar, which was equivalent to some two months' normal New Zealand use.

Imports and reserve stocks of raw sugar are compared in Chart 24.

Rock Phosphate: The British Phosphate Commissioners supplied 80,000 tons of rock phosphate to be stored at phosphate works throughout the Dominion. This was equivalent to about four months' normal supply. Except for internal freight and handling charges, costs did not have to be met until the stocks were used.

Chart 25 shows imports and reserve stocks of rock phosphate. It should be noted also that imports of other phosphates declined from over 80,000 tons a year in 1937, 1938, and 1939 to under 35,000 tons a year in 1940 and 1941.

1 See also p. 38.

2 pp. 142–3.

page 115

Other Commodities: Reserve stocks of corn sacks, woolpacks, calico for flour bags, tinplate, asbestos fibre, rubber, sulphur and other chemicals, and cream of tartar are also known to have been built up, but generally on a small scale.

chart of raw sugar statistics

Chart 24

As has been indicated, these special reserves were no guarantee of an adequate general stock position. In fact the continuance of strict import and exchange controls had made this unlikely. The change in volume of imports is shown in Chart 20 on page 106. The selective nature of import controls might have been expected to avoid interference with the more important supplies, but embarrassing gaps appeared in a number of areas where high priorities would have been expected. The declared policy required import controls to give preference to manufacturers' materials and producers' equipment, particularly where production was regarded as essential; but this selective effect of import controls can easily be over-emphasised. In actual fact, imports of producers' materials fell in value in 1938 and again in 1939, while imports of producers' equipment fell substantially in 1939, and were then 7 per cent below their 1937 level. In the circumstances it is not surprising that the Factory Con- page 116 troller, in a letter to the Minister of Supply on 21 September 1939, wrote:1 ‘… I have previously brought under your notice that the stocks of some essential raw materials are very low….’, and in the same letter, ‘… generally, our factories which are dependent on imported raw materials, are working on very much lower stocks than is generally the case….’

chart of rock phosphate statistics

Chart 25

Other surprising shortcomings were revealed. For example, the equipment necessary to provide more adequate storage space for perishable exports had not been imported, which seems to indicate that the selective effects of the import control policy did not always ensure that materials and equipment which were regarded as of high priority for war preparations were brought into the country.2

Some of the special reserves were still in existence in mid-1940. As long as normal supplies were available, the policy was to purchase current requirements and use the reserves in rotation. In this way the reserves were maintained in volume and kept in good condition.

1 Letter on Industries and Commerce file 54/3. Its purport was to recommend more orderly purchasing of certain materials.

2 See also p. 44.

page 117 Some were used as buffer stocks, temporary shortages being bridged by issues on loan, subject to replacement. With public realisation of the needs of war, it was to become more expedient politically to use import controls selectively. Later there were to be more orderly purchasing arrangements, which would help to protect stocks of essential commodities.