You asked for a memorandum on the dairy situation with particular reference to the present low price of butter, and the benefit which accrued to the producer from the comparatively high price received for butter before the recent drop.
You will recall that the eight cent tariff against New Zealand made effective October, 1930. had the# effect of raising the price level in this country to about 29 cents, because practically all our purchases of butter were from that dominion. Late in the year the special arrangement with Australia was entered into, whereby they were to sell at not less than 32 cents, pending the ratification of a new trade agreement or at least till the close of the winter or butter import season. Some firming of the world price in London brought New Zealand offerings practically in line with, or slightly above, this artificial price which was maintained within narrow limits till April. The produce trade of this country had offers of butter from Australia for delivery January to April at prices around 22 cents per pound, and this would have been the price level in
this country had the special agreement with Australia not been effected.
Into the nature and merit of this agreement I will not enter for you naturally know more about it than I do, but I merely remind you that it was highly artificial and inelastic, and those connected with the industry soon concluded that this price fixing agreement would be highly effective till it broke down and that then the breakdown would be complete.
We thus had our wholesale butter market maintained all winter at a level from seven to ten cents over world parity, and most of the time at the latter figure. During the period in question about 75,000,000 pounds of butter was produced in this country. We have no accurate statistics of monthly production, but this is a composite of many estimates, and is not far from the truth. All of this production received the full benefit of the artificial price level which thus resulted in an extra return to the producers of about $7,000,000. This, of course, came from the consumers pocket direct, and the consumer in addition paid the extra ten cents on the relatively small amount of Australian butter which entered the country during the period in question.
This figure of $7,000,000 applies to butter only, and does not take account of the fact that prices of whole milk, sweet cream, ice cream, etc., could not have been maintained at the level actually paid if butter had been selling for 22 cents instead of 32 cents. The actual benefit received by dairy producers last winter in the form of extra income was therefore greater than the above figure. I could not hazard a guess at the real total, but am very sure that it was over $10,000,000.
This extra income was invaluable in helping to tide over a critical period for very many farmers, and great credit should be claimed by your government for the action which made this possible.
Let me now discuss the very abrupt fall in the price of butter which took place a few weeks ago, resulting in a fall of 10 cents per pound in as many days, and a later drop which finally took the price down to an extreme low of 19 cents per pound. A number of factors conspired to increase our own make of winter, or fodder butter. Some of these were:-
(a) The very mild winter in the west.
(b) The very low price of grain acting both by reducing the cost of raw material, and by forcing farmers to exploit every source of income other than grain selling.
(e) The direct encouragement of a relatively high price, and the assurance of protection.
(d) The diversion of milk and cream formerly shipped to the states, and now shut out by the United States tariff, and by over supply, and low prices across the line.
As a usual thing the supplies of domestic butter coming forward are not much in excess of current consumption till May. It must also be remembered that fodder butter cannot be stored as it is not of good keeping quality, and for similar reasons cannot be exported to advantage. At this time also. New Zealand was selling in London at about 23 cents per pound, which would have meant a price of 20 cents, or less, here for our butter if sold for export. During the month of April the storage stocks at Montreal only declined from 37,702 boxes to 25,933, and most of this decline was
iu the first half of the month This showed that at the end of April the current make was sufficient to take care of the consumption. We had then the following picture:-
(1) The prospect of a very large summer make.
(2) The fact that buyers realized that the market was far above world parity, and would have to reach that level before export could take place.
(3) The receipts mounted rapidly at the last, and were in excess of current requirements.
(4) No buyer was willing to allow 32 cent butter to accumulate on his hands.
When the break started buyers held off in spite of the, or rather because of the, daily declines till a level was reached at which they had confidence. This was around 19-20 cents at which level export would have been possible, even if not desirable because of the doubtful quality.
The stored stocks which as stated above amounted to nearly 26,000 boxes on May 1st suffered a loss in value of 10 cents per pound, or roughly $150,000.
I have written rather fully in the hope that a clear understanding of all the factors may remove the suspicion which exists in some quarters that the price decline was due to manipulation.
Butter is a perishable commodity, and its market will always be a highly sensitive one. The longer such a market is restrained from moving freely the more violent is the reaction.
The probable increase in production for this year is 15 per cent, or more which would make export possible if not necessary.
If the tariff against Australia (the only one now in doubt) be fixed at a high level there will be great incentive to store butter at present levels, especially if enough be sent out of the country to insure a shortage next winter.
I have the floor. The gentleman who wrote this letter is a most responsible and respected citizen of this country, and he should be free from such imputations as are contained in the remarks of the hon. member for Comox-Alberni. In his letter he says, "You have asked me for a memorandum." I certainly did so. Had I no right to ask for it?
At my request Mr. Robinson called upon me to discuss matters having regard to the export trade of this countiy. It is my duty to keep in touch with such matters. In discussing the question he made certain statements and certain observations regarding the general market conditions affecting butter. I asked him if he would be good enough to put his statements in the form of a memorandum which I might have, and he said, "I shall be very glad to do so over my own signature, and you are at liberty to use it." It has been used by the minister in a perfectly proper manner.
While Mr. Robinson was perfectly at liberty to make that statement, in his address to the dairy council in Winnipeg last March he said:
At this point I wish to remind you very definitely that we took the view' that a tariff of 4 cents per pound against the southern dominions, where the imported butter all came from, was about as high a tariff as the industry could obtain any permanent benefit from.
Many statements have been made and written, blaming the council for asking for any tariff at all, and others blaming us for not having asked for more than 4 cents. . . .
In July the present government took office, and in September we were asked about the butter duties, as they had been amended by the Liberal government before 'going out of office. We told the government that 4 cents was enough, for the reason that it vras all that could be permanently advantageous.
I will not read it all; it is almost eleven o'clock, but Mr. Robinson qualifies that statement however, by saying that during a certain period, about September when butter was being rushed intoCanada even under the Tory government, the 8 cents duty was of benefit. He takes the ground that the 8 cent tariff was a temporary benefit, but he follows that up by saying:
We therefore accepted the situation as it was, but we are on record, both verbally and in writing, with the Prime Minister, the Minister of Agriculture and the Minister of Trade and Commerce, that the 8 cent tariff will prove to be dangerous and unworkable in the future.
I could quote more, but I think that is almost enough.