GENERAL AGREEMENT ON TARIFFS AND TRADE RESTRICTED 6 September 1961
THE MARKETING OF BUTTER IN THE UNITED KINGDOM
Note by the United Kingdom Delegation
The United Kingdom Permanent Delegate informed the Executive Secretary that the United Kingdom Government had received applications from the Governments of Denmark and New Zealand for -the imposition of anti-dumping or countervailing duties on imports of butter into the United Kingdom from certain countries. On instructions from the United Kingdom Government, he requested the Executive Secretary to arrange at the earliest practicable date for a meeting of exporting countries to examine afresh, in the light of the new situation arising from the submission of these applications, the position in the United Kingdom market with a view to reaching agreement on appropriate action in the common interest.
The United Kingdom consider that, in preparation for the meeting, the participating countries will wish to examine the attached documents, which contain the substance of the Danish and New Zealand applications.
MGT(6l)24 MOT(61)24 Page 2
SUBSTANCE OF DANISH APPLICATION FOR THE IMPOSITION OF DUTIES
The serious deterioration of the United Kingdom butter market caused by steadily increasing supplies of imported butter sold at dumping prices has been the object of prolonged discussions and a series, of resolutions both in the OEEC and by the CCNTRACING PARTIES to the GATT. The Danish Government has been gratified by the constant support received from Her Majesty's Government in the efforts to relieve the pressure on the British butter market.
Despite these efforts supplies to the British market continue to increase and prices have been further depressed. Forecasts prepared by the OEEC for the remaining months of 1961 indicate that this is not a temporary phenomenon, but that a tendency exists towards a permanent oversupply. It must, therefore, be feared that unless effective measures are taken with the least possible delay, the market will suffer a virtual collapse.
In the circumstances the Danish Government find themselves compelled to ask the British Government to institute procedures with a viev; to the imposition of anti-dumping or countervailing duties on butter imported into the United Kingdom.
In the opinion of the Danish Government the fall in butter prices in the British market is due primarily to increased supplies from France, Ireland and Argentina. Quantities of butter from these countries have been sold at dumping prices with the aid of massive subsidies, at any rate in the case of French and Irish butter. The Danish Government find it appropriate to draw particular attention to exports from these three countries since increased supplies have been forthcoming from them despite the recom mendations of the OEEC and of the CONTRACTING PARTIES to GATT. The Danish Government are aware that butter from other sources is being sold in the British market at dumping prices with the aid of subsidies and they may wish to revert to this matter at a later stage, if necessary.
The serious decline in butter prices is causing serious injury to the Danish dairy industry. It is a well known fact that butter exports to the United Kingdom have played and still play a most important role in the Danish agricultural economy and that proceeds from these exports are an important element in Danish export earnings. The fall in prices is, therefore, a serious threat to the Danish balance of payments and has an important bearing on the economic stability of the country.
In the annex are contained the evidence in support of this application. The Danish Government would also refer to the extensive material on this subject collected by the OEEC and the CONTRACTING PARTIES.
The Danish Government wishes formally to apply to the Government of the United Kingdom for the imposition of countervailing duties on butter imported from Ireland and Argentina. The Danish Government ventures to suggest that this matter is treated as urgent. MOT(61)24
ANNEX
DOCUMENTATION RELATING TO THE DANISH REQUEST FOR . THE INTRODUCTION OF ANTI-DUMPING OR COUNTERVAILING DUTIES FOR BUTTER
I. Evidence of dumping and subsidization
A great number of countries dispose of butter in the British market at prices which, after deduction of freight charges, the usual trade profit, customs duty etc. are considerably below the prices prevailing in the home markets of the countries in question. In the past months of the current year, France, Ireland and the Argentine have greatly increased their butter exports to the United Kingdom, and this increase has been effected at extraordinarily low prices. As will appear from table 1, the wholesale prices quoted in the United Kingdom (ex quay) for both French and Irish butter are less than half the corresponding wholesale quotations in the resoective home markets for butter of comparable quality, while the dumping element is somewhat less in the case of Argentine exports. Consequently u,hese three countries have been dumping butter in the sense of the British legislation, the Customs Duties (Dumping and Subsidies) Act of 1957* according to which dumping exists when export prices are lower than the free market price of the goods in the exporting country.
The French and Irish dumping is made possible by considerable State subsidies of butter exports. Sufficient documentation thereof is found in the information on systems of subsidies which has been furnished in collaboration with the countries concerned during the confrontation of the agricultural policies of member countries in the Agricultural Committee of OEEC.
In the case of France, the following was stated in the Fifth Report on the Coordination and Confrontation of Agricultural Policies:
"in the agricultural sector, the need to organize the market for certain products In order to assure the stability of agricultural incomes has led to the introduction of a number of export aid schemes. Such exports are not however an essential purpose but are only an inevitable consequence of the organization of tl^e national market and the regulation of prices on it." .....
"The products for which export aids are currently provided are bacon and lard, dairy produce, cereals, sugar, some fruit and vegetables and certain fruit juices .
As far as the Danish authorities are informed, new principles were laid down on 31 March I96I concerning the storage of butter and butterfat subject to guarantees on the part of the French Government. For consignments stored subject to full guarantee under contract with the French marketing MGTf6l)24 Page 4 organization, INTEKLAIT, the storage price for the entire slimmer of 1961 was fixed at 7*70 francs per kg. of butter (approx. Il/-), equivalent to 570/- per cwt. The price of 230/- per cwt. given in table 1 at which French butter was quoted"on"the London Provision-Exchange..in. mid-July I96I, corresponds to J.10 francs per kg.' It should be noted that the said London quotation includes freight and customs duty etc. so that the actual export price is even lower. On this basis, the subsidy for French butter now being exported to Great Britain may safely be estimated at more than 4.60 francs per kg. or about 150 per cent cf the export price.
In the case of Ireland, the afore-mentioned OEEC publication states the following:
"in place of the present Butter Marketing Committee, which has supported the domestic butter market through purchases from creameries and is the sole exporter of butter, there will be an Irish Dairy Produce Board (an Board Bainne). The Board will be free to support any dairy product by purchase on the domestic market, and will be the sole exporter of all dairy products to all destinations, except for a few products for which the Government proposes to leave exports in the hands of the manufactures: these are chocolate crumb to Britain and Northern Ireland, milk powder, non-creamery butter and some special kinds of cheese.
The Board will resell its butter stocks on the domestic market when it can do so without incurring a loss, thus incurring only storage costs; on exports, however, losses are to be expected. The.Board will meet its expenses by levies on creameries, together with a grant from the Exchequer which will be negotiated annually between the Board and the Minister for Agriculture; it will not be intended to cover more than a proportion of any export dificit within a predetermined limit which in any event cannot, under the Act establishing the Board, exceed two-thirds of the deficit
The support price for butter was raised in April i960 from 44l/- to 469/- pçr cwt., thus raising the ex-farm price of milk for manufacture".
The price of 253/- per cwt. given in table 1 at which Irish butter was quoted on the London Provision Exchange in mid-July is 213/- per cwt. below the corresponding price in the Irish home market. Even though the exporters have to bear about one-third of this loss, the subsidy will be 142/- per cwt. or about 55 per cent of the export price.
During the year ending 31 March i960, the Irish State subsidies for butter exports totalled £55*606 whilst expenditure on the Dairy Produce Stabilising Fund totalled £27*803. The corresponding figures for 1960/61 are £2,087,397 and £296,330 respectively.
•j. MOT(61)24 Page 5
With regard to Argentine, table 1 shows a considerable difference between the prices on the home market and export prices which proves that dumping is taking place. Although there is no detailed evidence that the Argentine is subsidising exports, this country is included because of the fact that it is the only supplier which besides Prance, Ireland and New Zealand, has increased butter shipments essentially in the current year.
II. Documentation of the injury inflicted upon Denmark by the fall in prices resulting from export dumping.
As shown in table 2, prices for Danish and for New Zealand butter on the British market since 1956 have shown a falling trend which only during brief periods has been replaced by short periods of rising prices. Price movements for Danish and New Zealand butter reflect the price trends for the market as a whole.
The background for this development is shown in table 3 from which it is seen that supplies to the British butter market have undergone a con siderable increase in the period under review, not least because untraditional suppliers have appropriated a greatly increasing share of British imports. This development in the supply situation has constantly depressed prices to the injury of traditional suppliers. Already in 1958 this was manifested in a collapse of prices on the British market. It is an identical situation which has caused the present crisis on the British butter market as during the past months of 1961 a rapid expansion has occurred in shipments from the marginal supplying countries, particularly Prance, Ireland and the Argentine. As shown this augmentation of exports has been effected at dumping prices made possible by State subsidies. It will be seen that French consignments to the British market during the first half of 1961 were ten times as great as in the corresponding period in i960. The same applies in the case of Ireland, whilst Argentine exports have risen by well over 40 per cent. In contrast Denmark's share of total supplies to the British butter market during the period in question were smaller than in the previous year, because Denmark has not pushed butter sales to the United Kingdom in order not to aggrevate the market situation. Consequently Denmark has been obliged to increase her butter stocks.
During a long period in the first half of I96I, Danish suppliers maintained a firm price of about 305/- per cwt. (ex quay) on the British market, but as from the first week of July 1961 it has proved necessary to gradually lower the quotation, so that on 27 July 1961 it was Z]0/- per cwt. This price is not far from the very low figure reached during the butter crisis in 1958.
As far as the marginal countries of supply are concerned, butter exports to the United Kingdom constitute only a small proportion of their total butter production, whereas in the case of Denmark the butter exported to the United Kingdom traditionally amounts to about 60 per cent of the total Danish butter production. When the prices for Danish butter exported to the United Kingdom are forced down due to competition from non-commercial MOT(61)24 Page 6
suppliers, the Danish dairy industry suffers considerable injury because the drop in prices immediately hits a very large proportion of total sales. Furthermore, the income deriving from butter exports constitutes a significant share of Denmark's total earnings of foreign currency. Consequently a fall in prices on the British butter market is also a blow to the Danish economy as a whole.
The below figures showing the trend of Danish butter exports to the United Kingdom since 1956 are giver, to illustrate quantitatively the injury suffered by Danish butter exports:
Jan. - June 1956 1957 1958 1959 I960 i960 1961 1000 tons . 89 87 96 97 102 57 50 MLll.Dan.Kr.' 593 48l 435 655 577 324 275
The table shows the injury to Danish sales resulting from the over supplying of the British market. In 1956, for instance, when the market was not characterized by non-commercial suppliers, Danish exports amounted to 89*000 tons and earned 593 million Danish kroner. In 1958 on the other hand an export of 96,000 tons earned only 435 million kroner, and in i960 an export of 102,000 tons earned 577 million fcroner. In the first half of i960 a total of 57*000 tons exported to the United Kingdom earned 324 million kroner. During the same period In I96I, 50,000 tons earned only 272 million kroner. If the price of butter on the British market is not increased, the value of Danish butter export to the United Kingdom in the ourrent year will be more than 100 million kroner below the value of a similar quantity exported in 1956 - the last year in which extraordinary circumstances did not prevail in the butter market. When judging the detrimental effect upon the Danish producer, consideration must also be given to the general increase in costs which have occurred in agriculture in recent years, which on the whole corresponds to the rising costs in other sectors of the economy. The increase in the costs of Danish agriculture has amounted to about 12 per cent since 1956. MGT ( 61)24 Page 7
TABLE 1
WHOLESALE PRICES IN RESPECTIVE HOMEMARKETS IN RELATION TO WHOLESALE PRICES IN UNITED KINGDOM (sh. pr. cwt. ) IV III II I Medio Ultimo Primo Primo 1961 July April March January London Provision Exchange Quotation ex 230/- 250/- 235/- 240/- 260/- French quay, cold stored butter Paris-quotations, Les Halles, Best French 498/4 512/- 518/6 588/- quality, Charentes
Ex store Great Britain h First glass Irish 253/- 250/-5 248/- 280/- Irish butter butter Wholesale quotations, Dublin 466/6 466/6 466/6 466/6 London Provision Exchange Quotations ex quay (92 234/- 255/- 258/- ;235/ - 239/- Argentine score) unsalted butter Wholesale quotations, Buenos Aires. Best 338/- 331/- brand box butter
Source: Commonwealth Economic Committee and reports by correspondents in the respective markets.
In practice, French butter is often sold under the above London quotations for French butter when expected sales so warrant.
This price includes 28/- (estimated) for normal trade profit, freight and customs duties.
This price 13/- (estimated) for normal trade profit and freight. 3 _. Thimi s price includes 37/- (estimated) for normal trade profit, freight and custom;u s duties. 4 Medio June.
Medio April. MOT (61)24 Page 8
TABLE 2
BUTTER QUOTATIONS ON LONDON PROVISION EXCHANGE LTD. (SH. PR. CWT. EX QUAY), BEST QUALITY
Danish New Zealand 1. quarter 1956 423 3 369 5 2. 339 10 317 3 5. 367 11 308 10 4. 420 1 291 4 Yearly average 388 1 320 7 1. quarter 1957 308 2 259 0 2. 305 3 291 9 5. 336 3 311 6 4. 326 9 276 6 Yearly average 319 6 284 9 1. quarter 1958 267 8 243 0 2. 222 11 207 9 3- 261 10 230 8 4. 339 9 263 5 Yearly average 273 10 236 7 1. quarter 1959 350 8 290 0 2. 315 6 306 7 3. 403 4 372 7 4. 463 9 405 10 Yearly average 384 4 344 11 1. quarter i960 373 3 365 4 2. 295 2 291 6 3. 313 7 299 7 4. 333 2 285 10 Yearly average 329 3 310 9 1. quarter 1961 332 7 260 0 April 306 4 250 0 May 306 l 250 0 June 306 0 250 0 July 27 270 0 250 0 î"GT'6l)24 Page 9
TABLE 2
PRODUCTION AND IMPORTS OF BUTTER INTO THE UNITED KINGDOM' 1934-38 AND 1956 TO I960 AND FORECASTS OF COUNTRIES' EX PORTS TO THE UNITED KINGDOM IN I96I (thousand metric tons)
Fore i960 1961 casts^ Jan.- Jan.- Country 1934-38 1956 1957 1958 1959 i960 1961 June June New Zealand 138 159 149 173 166 149 160 80,7 86,3 Australia 93 77 54 50 65 59 56? 38,6 3^,5 Ireland 22 - 14 16 11 7 19 1,1 11,6 Denmark 117 90 88 97 97 100 95 56,9 53,6 Finland 8 9 20 14 12 23 20 12,3 8,0 Poland 6 - 1 16 17 21 18 11,5 7,3 Netherlands 30 10 13 31 14 17 17 7,2 7,3 Argentina 5 10 12 5 14 16 16 8,4 11,0 Norway- - - - 2 3 5 5 3,9 2,1 Sweden 11 1 14 12 - 4 •• 2,0 - France l 1 1 3 l 4 20 0,1 11,9 Other countries 56 2 3 3 13 6 -. 3,6 7,9 Total imports 489 360 370 429 407 4i4 •• 226,9 241,5 4 Production 20 26 35 30 14 38 46
"Tigures have been rounded to nearest thousand.
T?he figures in this column (except for that showing United Kingdom production are individual supplying countries' estimates of their respective exports to the United Kingdom in 1961. They are therefore not comparable to the data for earlier years, these being the United Kingdom's import figures.
Estimate of quantity to be landed in the United Kingdom. 4 Factory or creamery production.
Source: GATT doc. L/1514 of 30 June 1961 and OEEC doc. C(6l)l30. MOT(61)24 Page 10
SUBSTANCE OF NEW ZEALAND APPLICATION FOR IMPOSITION OF DUTIES
In an application to the United Kingdom Board of Trade submitted on 8 August 1961 the Government of New Zealand has asked for the imposition of anti-dumping and/or countervailing duties on imports of butter into the United Kingdom from Finland, France, the Republic of Ireland and Poland. In support of its application and in terms of the United Kingdom Customs Duties (Dumping and Subsidies) Act 1957 the New Zealand Government submits that
(i) dumping or subsidization (as defined in section 1 of the Act) of exports to the United Kingdom of butter from Finland, France, the Republic of Ireland and Poland is, and has been talcing place;
(ii) such dumping or subsidisation is causing and threatens to cause material injury to the dairy industry in New Zealand, a country which is exporting like goods to the United Kingdom; and
(iii) anti-dumping or countervailing duties should be imposed on the imports of butter into the United Kingdom from Finland, France, the Republic of Ireland and Poland; and that such curtailment of supplies of dumped or subsidised butter in the British market is a matter within the control of :the United Kingdom Government and is not inconsistent with its international obligations.
While the present application relates to imports from the four countries named the New Zealand Government is concerned that tutter from a number of other countries is also being dumped or subsidised for sale in the United Kingdom market. The four countries named are however, in the view of the New Zealand Government, examples of suppliers which through substantial subsidization, or dumping, have greatly increased their share of the British butter market.
Over the past year the situation of the United Kingdom bubter market has been discussed in'a number of forums. The Committee of Deputies of the OEEC Ministers of Agriculture made a number of recommendations in September i960, which, if widely adopted, would have done much to restore fair trading practices. Subsequently the New Zealand Government made approaches to various European suppliers and expressed the hope that the appropriate authorities would implement the OEEC recommendations. New Zealand has also sought and obtained special consultations in terms of.Article XXV:1 of GATT, which, it was hoped, would lead to a solution of the problem. In the view of the New Zealand Government these recommendations, approaches and consultations have failed to have any appreciable effect on the serious situation of the British butter market and this led to the present application. MGT(61)24 Page 11
The New Zealand Government makes the following points in support of its contention that dumping or subsidization is taking place and that this has led to rmd threatens further material injury to the New Zealand dairy- industry. Dumping or Subsidization
Finland Exporters of butter from Finland are paid an export subsidy in addition to various production subsidies, as is evident from the General Agreement on Tariffs and Trade (GATT) document C0M.il/ll2 page 4jJ: "Aids to Exports (4) Subsidy - See column (5) (5) Financing of Losses - In order to reimburse losses on exports of butter, cheese and powdered milk, exporters are paid the difference between the controlled domestic price and export price." The wholesale price of butter in Finland in July 196l was 489/9d. The c.i.f. prices quoted for butter exported from Finland were 222/- and 238/- on 14 July 1961 and allowing an estimated 10/2d. to cover freight, insurance and other charges, the f0o.b. equivalent of the London Provision Exchange price on 14 July 1961 would be 21l/l0d. and 227/lOd. per cwt. This indicates the payment of a subsidy of the order of 26l/lld. to 277/lld. per cwt on exports of butter from Finland to the United Kingdom.
France
Ample evidence exists of subsidization by the Government of France of its butter exports to the United Kingdom. The Commonwealth Economic Committee publication "Dairy Produce" of March 1961. states, in a section on France oh page 136: "The finance to support the operations of Interlait is derived mainly from a Milk Market Re-organization Fund which receives Government credits covered by part of the proceeds of a sales tax on meat. The Fund is also used to provide subsidies on exports to meet the difference between the level of French prices and those on export markets. Butter, oheese and casein have all benefited from - - export subsidies". , :•
In GATT document COM.11/112 (j5 March 196l), the following summary of subsidization measures in France is given: "Income and Price Support (1) Production Subsidy - The Milk and Dairy Products Stabilization Fund is a Treasury Fund to regularize,and direct the market' for dairy products. It is only to the extent that interventions by the Fund result in campaign prices being maintained that these are considered to be support or subsidies to production. Page Id
"Aids to Exports '5) Fir:.r.oing of Losses - Exports may be allowed, under certain conditions, to receive assistance from the Milk and Dairy- Products Stabilization Fund. "Other Non-Tariff Devices and Remarks (3) Milk and Dairy Market Stabilization Fund: To finance government interventions in domestic and export markets. The Fund is financed by a percentage (6$) from the proceeds of the "single meat transportation tax". (Similar information is given in GATT document L/llJl/Add.l, 18 February i960, pages 10 and 11.)" In GATT document Spec(6l)203 page 4, the amount of subsidy on exports of butter from France is given as 7 million francs in 1959 and the same figure again for i960.
The wholesale price of butter in Paris for domestic consumption was quoted at 498/4d. on 3 July 1961. On 29 June 1961 the price for French butter was quoted on the London Provision Exchange at 24o/- to 246/- per cwt (ex quay). Allowing an estimated 30/4d. for freight, duty and other charges in the price, 209/8d. to 215/8d. would be the approximate f.o.b. equivalent in France. This indicates that a subsidy of the order of 283/- to 289/- per cwt is being paid on French exports of butter to the United Kingdom.
Ireland
Evidence of subsidization by the Government of the Republic of Ireland is contained in the OEEC publication "Problems in Dairy Policy", Volume II, March i960, page 239: "(ii) Exports 45. The Butter Marketing Committee has been obliged to dispose of half or more of its stocks on the export market (mainly Great Britain) at the best price it can obtain there. Since these prices are well below the Irish domestic price, heavy subsidies have been necessary. In the year 1956-57 these export subsidies amounted to £1.1 million. In 1957"58 they amounted to £2.8 million, and they are expected to cost about £2.0 million in 1958-59. "46. In view of the heavy burden on the Exchequer, the Government announced that in 1958-59* the farmers themselves must bear one-third of the loss on exported butter."
In the publication of the Commonwealth Economic Committee referred to earlier, it is stated (page 124) - "Since May 1957, when wholesale and retail prices were freed from Government control, the butter market has been supported by the Butter Marketing Committee, a statutory body set up before the war. This Committee offers to buy butter from creameries at a support price determined by the Government. The Butter Marketing Committee is obliged to dispose of a large part of its stocks on the export market and heavy subsidies are required from the Government. In view of the heavy burden on the Exchequer, one-third of the losses on export sales was the responsibility of producers in 1958-59". r1GT'6l)24 Page 13
The report goes on to say that - "A Bill was introduced into the Dail in November i960 to permit the establishment of a Dairy Produce Board whose general duty will be to endeavour to improve and develop the marketing of milk products in export markets; the products to be covered by the Board are not defined in the Bill but will be specified by the Minister of Agriculture"; and that "The Board will establish a Dairy Produce Fund which will be credited with the money received by the Board from sales of milk and milk products and from levies on milk and butter. The Fund will be used to pay for the purchase of milk and milk products and any expenses connected with the purchase or sale. Each year the Government will pay a grant to the Board which must not be used to defray more than two-thirds of any loss incurred by the Board on export sales or of any subsidy or payment made by the Board in relation to the export of milk products." The new organization has now been established, but details of its operations are not yet available.
In his Financial Statement of 19 April 1961, under the heading "Current Budget, 1961-62 - Detail - Farmers", the Minister of Finance of the Republic said, "I propose to allocate an additional £825,000 for assistance to agriculture, of which £600,000 will be a charge against this year's revenue. The original estimate contains a provision of £1 million for the marketing of dairy produce. As milk production so far this year is at a high level and the export price for butter is. depressed, I consider it a necessary precaution to increase the provision in the estimate by £300,000."
The extent of subsidization is indicated by the difference between the wholesale price in the Republic of Ireland., which was 466/6d. per cwt in the first part of July 1961, and the Liverpool wholesale market price, which was 252/6d. ex quay, at that time. If an estimated 9/~ per cwt is deducted for freight, insurance and other charges, the f.o.b. price in the Republic of Ireland would be of the order of 243/6d. per cwt, or 223/- less than the domestic wholesale price. Even if one-third of this difference is borne by the farmers (and the mechanism of this arrangement may require examination), the subsidy apparently paid indirectly by the Government of the Republic of Ireland through its contribution to the Dairy Produce Fund was of the order of 149/-.
Poland
Butter for domestic sale and export is purchased by a state organization. It is not possible to ascertain in detail how the buying and selling price policy of that organization is.operated. In the report on the consultation wit;h Poland held by Committee II of the General Agreement on Tariffs and Trade on 3 May 1961 (GATT document L/1484 of . 23 May 196l, page 3) it is said that: "The representative of Poland explained that the intention of the Government was to control the agricultural market by the establishment of prices at a relatively low level, covering, however, costs of production. This was done in fage 14 consultation with the -"gri cultural co-operatives, and consumer co opérai, /of. » .a-'o^.v. :.L ";.;:..7. prices had no influence on the formation of prices in Poland. Approximately 90 per cent of agricultural products were purchased by the Government at these established prices. He emphasised again that a: the time the Government purchased from the producer there was no way of kaowing whether the product would be destined for export or for domestic consumption". The Polish representative went on to say that the aim in fixing prices was "to satisfy a predetermined pattern or level of consumption based on estimated nutritional requirements". He said that "prices paid to the farmer covered the cost of production" and later that "there was no question of exports being subsidised although at times when international prices fall below domestic prices dumping would arise".
It seems that this latter situation has arisen and that, in so far as the exporting agency is an organisation buying on behalf of the state, subsidization is in operation.
On 25 April 1961 the wholesale price of butter in Poland was about 897/6d. per cwt (based on 59.52 zlotys per kilogram and an exchange rate of 67.38 zlotys/£l). Recent checks indicate that the domestic wholesale price is not likely to have varied greatly since April. On 19 July the London Provision Exchange price for Polish butter was 2j4/- per cwt ex quay. Allowing an estimated 35/Id. per cwt to cover freight, duty and other charges the f ,o.,b. Poland price would be about 198/lld. for butter exported, making a difference of rl8/7d. per cwt between the domestic price and the f-o.b. price for exports. This difference appears to be met in one form or another by the Polish Government. Material Injury to the New Zealand Dairy Industry Prices and Quantities The substantial decline in prices on the United Kingdom butter market is- causing material injury to the New Zealand industry and threatens to cause even greater injury. This decline in prices is directly attributable to the increased quantities imported and to a higher volume of production in the United Kingdom itself. Table A (attached) shows the relationship between imported supplies arriving monthly on the United Kingdom market and the monthly changes in butter prices on the London Provision Exchange»*
During the past year the price for New Zealand butter on the London market has fallen from 310/- a cwt (July-August i960) to 250/- a cwt, the level reached in February 1961. This decline in price has been brought about by a general increase in supplies, but it is clear that a substantial part of this increase comprises dumped and subsidized butter (especially from the four countries named); which has a significant effect in depressing prices.
Among other factors which can influence prices in the short term is the level of stocks but this itself is a reflection in the longer term of the quantity of domestic product:en ::x imported supplies. MGT(6l)24 Page 15
Supplies from the Four Countries Named
Table B (attached) shows that supplies from Finland, France, the Republic of Ireland and Poland have risen from a total of 5*703 tons in 1954 to 36,417 tons in 1957 and 54,551 tons in i960. Table C (attached) indicates that total supplies from these four countries are expected to rise still further in the current year to 77,000 tons.
Of the increase in total impo: ts into the United Kingdom from 1957, when prices on the butter market first began to deteriorate, to the year 196l for which the OEEC estimate is given - an increase of some 73*000 tons - dumped or subsidized supplies from the four countries will have accounted for well over one half, or 41,000 tons. (A comparison with the years immediately preceding 1957 shows a similar proportionate contribution by these four countries to the increase in total supplies imported into the United Kingdom.)
Not only is the increase in dumped or subsidized supplies from these four and from other countries seriously depressing prices: it is creating the threat of a further decline.
British Market, Second Half 1961
It is shown in Table C that total supplies on the United Kingdom market in 196l are estimated to be 519»000 tons.
According to Commonwealth Economic Committee statistics off-take amounted to 8,720 a week in the first quarter of 196l, or 113,000 tons in total. Market reports suggest there has been little evidence of any increase in consumption in the second quarter of this year. If, however, there has been an average off-take of 9»000 tons a week in the April to June period, there will have been an off-take of 117,000 tons during the second quarter.
It is probable therefore that supplies in the second half of 196l will be of the following order:-
Thousand tons Estimated total supplies (including stocks) in 1961 519
Less estimated off-take January-June 1961 230
Supplies July-December 1961 289 (including provision for stocks)
If the United Kingdom stocks at the end of 196l are not to exceed the comparatively high figure at the end of i960 (35,000 tons), some 254,000 tons will have to be consumed during July-December inclusive. i';Lr._ • ... ! '2 Page 16
Ti:is would i-oquiro an average weekly off-take of just under 9>800 tons.
It is unlikely that consumption in the second half of this year will reach the required level of 9*800 tons, or 9 per cent more than at present, unless there is a further substantial reduction in price. It is impossible to estimate how great a reduction would be involved, but it would appear that, after taking seasonal factors into account, the price of butter on the United Kingdom market could decline to the levels of the second quarter of 1958. In that quarter consumption was estimated to have reached 9*790 tons per week, at a time when New Zealand butter was being offered at 206/- per cwt on the London market.
New Zealand Export Receipts
Largely as a result of those additions to supplies which dumping practices and subsidies have encouraged, New Zealand's overseas exchange receipts for butter are falling substantially.
New Zealand - Overseas Exchange Receipts for butter
Calendar Years First Half 1958 1959 I960 1961 (£ million) Total receipts 42. J 60.4 44.7 21.0 United Kingdom only 40.9 55.1 40.2 20.1 (per ton) Average ex-store :- price (London) £234 £344 £307 £254
Deficits in Dairy Industry Account
It is estimated that, because of the fall in the export price for butter, the New Zealand Dairy Industry Account will show a deficit of approximately £7 million for the 1960/61 season and an even larger deficit, estimated at approximately £9 million, if present prices and if the present annual rate of export from New Zealand continue, for the 1961/62 season.
New Zealand Dairy Industry Account
Season Annual surplus (+) or deficit (-)
1957/58 - 21.3 1958/59 + 9.5 1959/60 + 6.7 1960/61 (est.) - 7.0 1961/62 (est.) - 9.0 MOT'61)24 Page 17
This deficit represents a debt which the New Zealand dairy industry will have to repay without financial assistance from the Government. The dairy industry has agreed, and this will shortly be enacted in legislation, that where there is a trading surplus in any year 50 to 75 per cent of such surplus should be used towards the repayment of any accumulated deficit in the Dairy Industry Account* Even so, this is a burden which will be carried for many years and which is directly the result of the heavy dumping and subsidizing of butter, by suppliers which have greatly increased their share of the market over the past decade, on the United Kingdom market.
Dairy Farmers' Incomes
For a short time after bulk purchase ended in 1954 relatively fair trading conditions existed and the extent of dumping was negligible. Under these conditions satisfactory prices for butter prevailed and the price to dairy producers in New Zealand was adequately covered by a figure between J7d. and j58d. per pound butterfat. With the deterioration in trading conditions and the onset of substantial dumping and subsidization, this price has had to be reduced in successive stages to the present level of J2d. per pound butterfat. By accepting these reductions the New Zealand dairy industry has displayed a constructive and responsible attitude to assist in overcoming the difficult international butter situation. Had it not been for this attitude (at a time when the incomes of many of its competitors were rising), the industry's difficulties would have become apparent at a much earlier stage.
The situation of a large number of dairy farmers is serious and is already a matter of concern to the New Zealand Government.
In recent years the total number of cows in milk in New Zealand has fallen. This has taken place over a period when seasonal conditions have been favourable to dairy farming.
New Zealand - Cows in Milk
As at January (000)
1957 1,998 1958 1,967 1959 1,951 i960 1,887
Where higher production has been achieved, despite this fall, it has been the result of improved productivity and favourable weather conditions.
Attempts to Limit Exports
The New Zealand Government recognizes that the situation might be eased by the diversion of butter from the United Kingdom to other markets and is continually making efforts towards this end. These efforts are frustrated by the restrictive measures imposed by almost every other MGT(6l)24 Page 18
country in the world (including the four countries named) with the aim of keeping prices at a high level in order to maintain or improve the incomes of their farmers. The level of support prices in these countries is such as to induce substantial increases in production, or to maintain production at high levels. At the same time, the resultant high retail prices have the effect of discouraging consumption so that substantial surpluses arise. These are disposed of on the only major open market in the world, the United Kingdom. It is obvious that, in the absence of dumping or sabsidization by the cour, ries in question, their export prices would be so high that they would have no opportunity of disposing of any of these surpluses on the United Kingdom market.
A substantial transfer of resources from butter to other milk manufactured products cannot be accepted, as a satisfactory remedy. It is likely that the alternative exports ivould themselves be affected soon by conditions of over-supply and by falling prices, Moreover, some of the alternative products, such as casein and skim milk powder, still leave the butterfat content of the milk to be disposed of - probably as butter.
The transfer to other forms of production would involve heavy capital losses on farms, in factories and in transport facilities because of the scrapping of old, and the purchase of new equipment, without the assurance that the nett return would be any more favourable.
The land farmed by the group of the dairy industry referred to is in general unsuited to intensive crop production and in any case the demand for such crops is limited. Their holdings are too small for sheep and beef cattle farming. Any attempt to transfer to such activities moreover would involve considerable capital expenditure and would be confronted, in the short run, with a shortage of suitable breeding stock.
Dependence on the United Kingdom Market,
Despite continuing endeavours to increase the diversification of both products and markets, except in times of shortage of supplies on the British market as in 1959* the New Zealand dairy industry remains dependent on the United Kingdom as its principal market.
In no other country is the dairy industry so large and important a sector of the total economy as in New Zealand. The New Zealand dairy industry's main product, butter, provides from 15 to 20 per cent of total export earnings. New Zealand exports about 80 per cent of the butter it produces and of that quantity over 90 per cent is sold in the United Kingdom. For these reasons it is not only the dairy industry but the stability of the whole economy of New Zealand that is adversely and seriously affected by a protracted period of depressed prices for butter in the United Kingdom market.
If the adverse trends referred to are allowed to continue, they will impair New Zealand's capacity to sustain a high level of trade. MGT(61)24 Page 19
The last occasion when an upsurge in butter dumping and subsidizing on the British butter market caused prices to fall to an exceptionally low level was in 1958, and the sharp intensification in the restriction of imports which New Zealand was forced to adopt as a result of this and other developments is reflected in the trade figures for 1959 when New Zealand imports fell substantially. Other factors contributed to this result but the sharp fall in the price of exports, particularly dairy produce, was most important. In 1961 the New Zealand Government has again been forced, with the greatest reluctance, to intensify its import restrictions. Because of the time lag involved; the effect will bo more noticeable in the trade statistics for 1962.
A further decline in the revenue of the dairy industry will have other serious effects. Much of Ne?/ Zealand's economy is closely linked with the level of activity in the dairy industry. A fall in spending by farmers has a multiplier effect of several times. This reduction in the ability of the consumer to buy would in turn react adversely, directly or indirectly, on exports from the rest of the world, including the United Kingdom to New Zealand.
Hardship to the New Zealand Industry
It cannot be too strongly stressed that New Zealand dairy farmers, including those in the group referred to above, are by world standards efficient producers. Even when the New Zealand dairy industry has been relatively prosperous the butterfat and other prices paid; to producers have been extremely low in relation to the prices received by dairy farmers in virtually every other country. It is undesirable that they should be obliged to suffer further reductions in income and increasing hardship because of the unfair trading practices of other countries.
On the evidence presented, it is established that the New Zealand dairy industry is suffering material injury as a result of the decline in butter prices in the United Kingdom and unless this situation is^ quickly remedied the injury already suffered by many New Zealand dairy farmers will be aggravated. *• to O TABLE A - 1957 1958 1959 I960 .., I96I Imports Prices / Imports Prices / Imports Prices / Imports Prices / Imports Prices / 000 tons shgs. 000 tons shgs. 000 tons shgs. 000 tons shgs. 000 tons shgs. per cent per cent per cent per cent per cent January 42.2 274 40.3 260 36.4 290 37.2 410 40.6 280 February 39-2 260 38,-9 240 35.0 290 42.3 370 41.8 260 March 36.2 268 36.2 240 42.7 290 37-4 350 41.5 250 April 25.8 258 43.6 220 40.2 290 41.0 290 34.4 250 May 36.2 276 32.3 206 31.6 290 31.2 290 37.7 250 June 17.7 316 33-8 206 32.9 320 33-5 290 33-5 250 July 19.8 320 33-8 215 34.7 344 34.1 310 250 August 21.3 310 34.5 235 27.0 360 20.9 310 September 21.6 310 35-5 235 27.0 392 24.7 290 October 27.2 310 30.1 235 27.0 392 28.5 290 November 32.4 280 30.0 264 31.4 410 36.3 290 December 45.7 260 31.2 284 34.8 410 41.2 280 / First week in month, New Zealand butter finest grade. Source: Commonwealth Economic Committee TABLE B Imports of Butter into the United Kingdom from Finland, France, the Republic of Ireland and Poland First (TONS) Estimated six months 195^ 1955 1956 1957 1958 1959 i960 I96I 1961* Finland 1,693 3 9,390 20,218 13,559 11,888 22,262 6,186 20,000 France 38 3,894 581 815 2 683 1,162 3,689 11,131 20,000 Irish Republic 3,805 1,036 284 14,474 16,175 868 7,187 11,027 19,000 Poland 167 3,061 i3 910 15.774 16,653 21,433 7,230 18,000 Total, four countries 5/703 7,994 10,268 36,417 58,196 30,571 54,551 35,574 77,000 Total imports into United Kingdom 281,181 307,486 354,074 365,309 422,656 400,848 408,331 227,094 438,000 ^figures for June are estimated. Source: Commonwealth Economic Committee TABLE C Figures obtained from OEEC, supplying countries and from other sources and agreed at a meeting of the Committee of Deputies of the OEEC on 8 and 9 June 1961. These figures were used as a basis for the GATT consultation on butter in June 1961. Estimate of Total ""utter Supplies on the United Kingdom Market in 1961 (000 tons) Opening stocks 35 Domestic Production in United Kingdom M 81 Imports: New Zealand 160 Australia 56 Republic of Ireland 19 Denmark 95 Finland 20 Poland 18 Netherlands 17 Argentina 16 Norway- 5 France 20 Austria 2 South Africa 6 Other 4 4j8 Estimated total supplies: 519