War Economy
Long-term Contracts and Lump Sum Payments
Long-term Contracts and Lump Sum Payments
Early in 1944 the United Kingdom Government initiated discussions to arrange long-term contracts for the purchase of meat and dairy produce. Finally, in July 1944, these contracts were completed, providing for substantially increased prices for New Zealand produce and the purchase of the exportable surplus of dairy produce page 327 and meat for a period of four years, prices being firm at agreed rates for the first two years, and thereafter subject to review ‘on substantial grounds’.
In addition to these contracts for meat and dairy produce, the United Kingdom Government agreed to pay a lump sum of £12 million sterling ‘as compensation to meet the abnormal increase in prices of New Zealand imports from the United Kingdom from 1939 to the present.’ Further, the United Kingdom Government agreed to pay New Zealand a lump-sum payment of £4 million sterling per annum for the period of four years towards the cost of economic stabilisation in New Zealand, and in recognition of the fact that benefit accrued to the United Kingdom through New Zealand's economic stabilisation policy.
The 1944 annual report of the New Zealand Dairy Board contained a report of a statement by the Prime Minister:1
1 p. 4.
Both New Zealand and the United Kingdom achieved a substantial measure of price stability from about the end of 1942, but, whereas New Zealand prices were then 14 per cent above their level at the outbreak of war, those in the United Kingdom had risen by 29 per cent. In other words, the United Kingdom stabilised at prices which had risen twice as much as those in New Zealand.
New Zealand, in paying for imports from the United Kingdom, suffered by having to pay the proportionately higher prices. For the most part, the burden of the difference in trading conditions fell on the New Zealand taxpayers, who had to meet the cost of subsidies, which the Government, under the stabilisation scheme, usually paid out to prevent increased prices of imports from reflecting into New Zealand prices.1 The upsurge in United Kingdom prices also depreciated the real value of New Zealand's overseas exchange reserves which accumulated because of lower spending on imports during the war.
These facts affected both the settlement with the United Kingdom and the decision as to the disposal of funds in New Zealand.
Full information concerning the lump-sum payments was given to the dairy and meat industry leaders, who later expressed themselves as satisfied that these payments were not being paid in respect of produce sold to the United Kingdom.2 The sums were not therefore credited to the producers' stabilisation accounts.
1 Subsidies to keep down the prices of imported items entering into farm costs were usually charged to the farm stabilisation accounts, but farmers, along with wage earners and others, benefited from subsidies to keep down the cost of consumer goods and services.
2 Letter of 24 March 1945 to Chairman of the Economic Stabilisation Commission. Copy in New Zealand Meat Producers' Board annual report, 1945, p. 6.