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War Economy
Evaluation of Farm Stabilisation Policy
Evaluation of Farm Stabilisation Policy
Substantial funds accumulated in the dairy and meat industry accounts, especially in the last two years of the war. The total reached approximately £17 million by the end of the 1945–46 season. The following table shows the influence of these accounts in keeping a portion of overseas earnings out of circulation in New Zealand.
| Balances at End of Year | ||||
| July Year | Dairy Industry Stabilisation Account | Meat Industry Reserve Accounts | Total | Increase in Balances During Year |
| £(m.) | £(m.) | £(m.) | £(m.) | |
| 1941–42 | 0·7 | 0·7 | 0·7 | |
| 1942–43 | 1·9 | 1·9 | 1·2 | |
| 1943–44 | 1·1 | 4·3 | 5·4 | 3·5 |
| 1944–45 | 4·7 | 9·2 | 13·8 | 8·4 |
| 1945–46 | 4·7 | 12·2 | 16·9 | 3·1 |
There was no stabilisation pool account for wool,1 though a portion of the 1942–43 and 1943–44 seasons' wool receipts was paid in government bonds and stock and into National Savings accounts in the names of individual farmers. The different stabilisation arrangements for wool as a possible cause of reallocation of resources within the farming industry were discussed in Chapter 8. No doubt the varying intensity of the actual application of stabilisation to various commodities had other effects on the allocation of resources, both in the farming industry and between it and other industries.2
Stabilisation meant not only divorcing prices paid to farmers from export parity; it also required that many ascertained increases in costs of farm requisites should not be allowed to affect farm running expenses. Many of the farmers' major costs were held for a number of years, and substantial subsidies were paid on fertilisers and other farm requisites to bring this about.
2 The prices fixed for bulk purchase arrangements were in any case likely to be somewhat arbitrary, and the procedures adopted to switch production from butter to cheese and back (see Chapter 8) illustrated the expedients which may be necessary where a change in the relationship between supply and demand does not communicate itself, through price, to suppliers.
A record of stabilisation subsidy payments, including those on farm requisites, appears on page 305. The importance of the farm subsidies is indicated by the following totals:
| Year | Total Stabilisation Subsidies Paid (March Year) | Farm Cost Subsidies Charged to Farm Industry Stabilisation Accounts1 (July Year) |
| £(m.) | £(m.) | |
| 1942–43 | 3·6 | |
| 1943–44 | 4·2 | 1·6 |
| 1944–45 | 6·7 | 2·5 |
| 1945–46 | 8·9 | 2·5 |
Nearly £7 million of subsidy payments was debited to farm stabilisation accounts up to July 1946. The gross sums held back in these accounts totalled £24 million, leaving balances of £17 million as shown on page 331.
The increasing balances in the stabilisation pool accounts give a measure of the anti-inflationary effect of farm stabilisation policy. This was money diverted away from the private sector of the economy, where incomes were already too far in excess of goods available.2 Since the balance in each account was to be held for the benefit of the producing industry, it meant also that there were substantial funds which could be used to support prices during bad times.
The need for equity between farm incomes and wages has already been discussed as the primary reason for divorcing farm payouts from export price parity. Farming policy was, in fact, an integral part of the stabilisation scheme.
1 Wheat subsidies were charged to the Consolidated Fund.
2 Most of the reserves were invested in Government stock or bills. To the extent that this enabled the Government to make internal expenditure it would not otherwise have made, the anti-inflationary effect on the economy as a whole was lost.