Bert Kelly series exploring ways government could help farmers:
1. There’s no satisfying Farmer Fred (February 20, 1970)
2. Counting the cost of wool compensation (February 27, 1970)
3. Eccles keeps his cool with a $100m cheque (March 6, 1970)
4. Economists are queer about money (March 13, 1970)
i. If bread fails to rise, cake makers get burnt (November 25, 1977)

1.
A Modest Member of Parliament [Bert Kelly], “There’s no satisfying Farmer Fred,” The Australian Financial Review, February 20, 1970, p. 3.

There is only one word to describe adequately the attitude of farmers in my rural electorate, and that is that they are “sour.”

I do the best I can when at meetings and talk about the boom on the stock exchange and the 7 per cent annual growth of the Gross National Product.

I am not sure what I am talking about when I refer to the G.N.P., but it is part of the jargon that I have picked up from Eccles, the economist, and it sounds rather good, I think.

But it doesn’t seem to help me as I hoped.

The other night, after I had finished a polished (for me) exposition about the booming economy, Fred the farmer got to his feet in the back of the hall and in a loud, slow voice said that he was sick of this kind of talk.

“The economy may be booming in the cities but it isn’t on the farm and that’s where I live,” he growled.

He then went on to say that I was their member and they wanted me to do something about it, and to stop making stupid statements.

When he sat down, he was loudly applauded and I gathered the distinct impression that my constituents expected me to do something.

So I hurried over to Canberra and told Eccles of my determination to press for subsidies on all agricultural products and asked him how I should go about it.

At the mention of the word “subsidy” Eccles went grey about the gills.

When he recovered he asked me querulously whether I wanted to see the Government do to other industries what it had done to dairying.

I have known for some time that the dairying industry is in a mess, but I also know that the industry asked for the subsidy so I thought it must be a good thing.

But Eccles went on to explain that because of the subsidy the dairy industry was producing more and more butter which it had more and more difficulty in selling.

He didn’t claim that the industry was inefficient but he did claim that it was encouraged, by subsidy, to continue to produce butter which no one wanted.

“And if that’s helping the industry,” he squeaked, “then I don’t know what ‘help’ means.”

I said that I was sure that the Government was on the right lines by offering $5 million a year to bring about consolidation of dairy holdings.

Eccles, for once, conceded this, but pointed out that the industry was receiving assistance at the rate of $100 million a year by industry subsidy, devaluation compensation and domestic price arrangements.

This had the effect of keeping people in the industry and, with $100 million a year keeping them in, it was hardly surprising that the industry hadn’t embraced with open arms the $5 million a year to get out.

He then went on to talk about margarine and said that the restrictions on margarine were offensive to him, as an economist, but he understood the political motivation of the restrictions when a lot of the vegetable oils from which margarine is made were imported.

“But in a very few years,” he prophesied, “Australia will be producing more vegetable oils than we can use when the good wheat farmers bring their plant and know-how to bear on safflower and linseed.

“There has been no pressure to do this until now, but with wheat production so drastically limited, there will be a big swing to these two crops. And how you will be able to justify margarine quotas then, I don’t know.”

He then went on to say that the subsidy props under the industry would then break and there would be an awful mess which would be the result of the government subsidising the industry and so insulating it from the demand.

“And now I expect you want to do the same for wool,” he growled.

But wool must wait until next week.

***
2.
A Modest Member of Parliament [Bert Kelly], “Counting the cost of wool compensation,” The Australian Financial Review, February 27, 1970, p. 3.

Last week Eccles was critical of the manner in which the dairy subsidy had affected the dairy industry.

He has asked me to emphasise that he was not critical of the industry, but of the effect of unwise (if popular) Government action to help it.

He then threatened that he would deal with the projected wool subsidy this week.

But before getting going on wool, he made a brief review of what he had previously told me about the effect of the wheat subsidy, how it had encouraged people to grow wheat with the world demand falling and that this insulation of the industry from the demand situation had the same serious effects for wheat as for butter.

“And now you want to do the same thing for wool,” he whined, “you ought to be ashamed of yourself.”

I replied that the projected plan I had heard about was not a subsidy plan but a “cost compensation plan.”

But Eccles just snorted at this excuse, which I admit was a bit lame.

I think we ought to think of it as a straight out subsidy and not try to make a silk purse out of a sow’s ear.

Eccles’ main complaint about this subsidy scheme was that it would inevitably do the same for wool as for wheat and butter.

It would insulate the industry from the world around it. If the world demand for wool dropped, the subsidy would rise; so production would keep up, with demand falling.

“This is the kiss of death for any industry,” he complained.

Then he went on to give some figures.

He pointed out that a subsidy of 5c a lb for wool would cost about $100 million a year, and to offer the woolgrowers less than this would certainly not be either politically popular, nor indeed would it make much difference to the growers’ position.

He then said that 75 per cent of this $100 million would go to 25 per cent of the growers and that there would be political problems if the grower of 1,000 bales of wool was going to get the same percentage subsidy as the man who grew 10 bales.

On the other hand, limiting the subsidy to the small grower would be economically silly because those of us in the industry know that one of the ways we may get out of our trouble is to produce more wool, in other words, to become larger growers.

Any limitation of the subsidy to small woolgrowers would be working in exactly the wrong direction.

Also I know my woolgrowers well enough to know that if only the smaller grower was to receive a subsidy then there would be an awful lot of “fixing” going on by dividing clips into two so as to get the subsidy.

The chap mooching along behind a slowly moving mob of sheep has a lot of time on his hands to devise methods of getting around regulations drawn up by harassed Civil servants!

Summing it all up, the theory behind the cost compensation scheme is that it is supposed to insulate the industry from increasing costs, while Eccles says that we should never do that but what we could do if we would is to do something about the costs.

While Eccles was unloading this long lecture I was getting angry. At last I could stand it no longer.

“Look here, Eccles,” I said, “I know you know more about economics than I do, I know you are probably right in theory, but I also know that I am getting into very hot water among the electorate. My farmers don’t want lectures about economic philosophy, they want help.”

That shook old Eccles a bit. Living in his ivory tower as he does, it is always a shock to him to find that there are lowly people like me who want to be popular.

He is inclined to think everything that is popular must automatically be wrong. Funny warped mind the man’s got!

But after he had digested my complaint for a while he said that he could think of a lot of things that he could do to really help the industry with $100 million a year — things that would really help and not hurt.

I told him he had better trot them out next week and they had better be good!

***
3.
A Modest Member of Parliament [Bert Kelly], “Eccles keep his cool with $100m cheque,” The Australian Financial Review, March 6, 1970, p. 3.

Last week, Eccles promised me that he would do his best to spell out how to help the rural industries in general, and the wool industry in particular, in ways that were not hurtful, as he felt the wool subsidy plan would be in the long run.

I told him that he could use the projected $100m annual subsidy for wool to splash around, if he wanted it.

Economists are funny people. I would have thought that he would have rushed out with the $100 million in his hot little hand to make a good fellow of himself, by giving away a bit here and a bit there.

But not old Eccles!

According to him, the important things would cost no money at all and would leave the lovely $100 million untouched.

For instance, he said that the Government, if it wanted to help the economy as a whole, the rural industries as a whole, and the wool industry in particular, it would do something effective about combating inflation.

When I first became a Member of Parliament I used to think inflation was something to do with tyres. But I have gradually learnt that inflation means that money becomes worth less.

This didn’t worry me much until I realised that inflation makes the position of the exporters worse because Australian costs go up, so the exporter pays for inflation in the end.

So I knew what Eccles was talking about when he said that inflation was a real problem.

He said that the Government ought to risk unpopularity by being prepared to dampen down the economy when it was flaring into a boom.

He also said that any deficit financing to pay for any social service (however desirable) added to the inflationary pressure and so added to the exporters’ problems in the end.

I suppose this is all very well in theory but, as I pointed out to Eccles, we now have two elections every three years and people seem to love us more if we give away more and more of their money.

So I know that clamping down on inflation isn’t going to be popular and popularity is what I like most.

And then Eccles said that an important component in the rising cost was the high protection given to some industries. I knew the wretched man would get going on tariffs if he got the chance.

I have doggedly refused to rush off after the tariff hare, mainly because it would be awful hard work to catch up with it and when I had caught it I wouldn’t know what to do with it.

So I told Eccles that I had been told that tariffs didn’t increase costs much — indeed I had seen some figures which showed that the tariff had only increased woolgrowers’ costs by 85c a lb of wool.

I thought old Eccles would have a seizure when I gave him this figure.

He said it was completely wrong because, even if it did include all the tariff included direct costs to the woolgrower (which he very much doubted), it ignored the impact of the tariff on wages and on indirect costs that the woolgrower incurred.

His informed guess would be closer to 10c a lb, certainly not 85c. [sic?]

So evidently tariffs are important.

Eccles says that he is not a free trader but he doesn’t want to see protection handed out with a shovel as it has been in the past.

He says that a more realistic attitude to tariffs would be of great benefit to the economy as a whole, and to woolgrowers in particular.

Then he went on to talk about wages. He objected to wages going up faster than productivity. If this happens, then prices go up and this makes the exporters’ situation more difficult.

Then he mentioned restrictive trade practices legislation which he didn’t think was working very well. He was bubbling over with examples but these will have to wait.

I stopped him there and told him all these things, though imminently sensible, would only be helpful in the long term.

“What I want is something that will help me now,” I grizzled, not in 10 years.

“Instant popularity is what I want, not long term solutions. And you haven’t touched that $100 million pile yet.”

But he said that would have to wait until next week.

Economists are, as I said, funny people.

They are also awful long winded.

***
4.
A Modest Member of Parliament [Bert Kelly], “Economists are queer about money,” The Australian Financial Review, March 13, 1970, p. 3.

Old Eccles has had a whole week to concentrate on the one simple subject of spending $100 million in ways that would help the wool industry and not hurt it.

That is the kind of task I would love, but no one asked me to engage in any popular exercise of that sort. But spending taxpayers’ money is evidently something that economists don’t view with the same enthusiasm that politicians do. Queer people!

Eccles’ first suggestion was so surprising that I feel uncertain whether to put it down.

He has a suspicion that an important reason why the Government was not able to do a deal with the U.S. about the abolition of their devastating duty against our wool was our anxiety to protect the Australian tobacco industry.

He has calculated that the assistance that the tobacco industry gets in one form or another works out at about $10 million a year, or $400 for every acre of tobacco grown.

His suggestion is to pay the tobacco grower $400 an acre not to grow tobacco. This would cost $10 million of Government money, but if by doing this we could get our wool into the U.S. duty free and so avoid the duty of 26.25 U.S. cents a lb, then surely great benefits would flow to the wool industry.

Last year we sold the U.S. over 80.5 million lb of wool which paid a total duty of over $21.5 million. This is a very grave impost which we may well be able to get rid of, if we were more realistic about tobacco.

The next thing Eccles suggested was that we should have another look at the death duties on primary producing land.

We only get about 1 per cent of our total Commonwealth revenue from probate. If we removed probate from all rural properties and did a deal with the States to do likewise, then great good would be done to the wool industry as well as to other rural industries.

And it would assist the aggregation of holdings which Eccles thinks is vital to the health of the industry — politically unpopular though it may be.

He said he was pleased with the start the Government made in this matter during the last Budget, but says it could very well go further yet.

He then said it would be a very useful thing to use some of this $100 million to set aside credit specifically for land aggregation and for improvements in properties to make them more efficient.

Then he went on to speak about local government rates which have spiralled alarmingly.

According to Eccles, they have increased by over 10 per cent every year in the last 20 years. Farmers are well aware that these rates are a heavy burden to bear. The Commonwealth Government could do a deal with the States in this area.

On the same line of argument, Eccles pointed out that the interest burden for the N.S.W. Railways works out at $34.5 million a year.

Doing a deal with States to write off their interest burden on railways on condition that they removed road restrictions, which they would be able to do because rail freights would then be more competitive, would have a dramatic result on wool freights.

Eccles then went on to say that woolgrowers were incurring very high costs in wool handling all along the line. As labour becomes more expensive there is a great need to substitute capital for labour.

Shearing, for instance. A lot of research goes into packing more wool on to a sheep, but practically none to getting it off. So shearing costs are becoming devastatingly high.

Generous Government backing (financial and otherwise) for research into mechanical and chemical shearing methods would be a step in the right direction.

The wool industry is also heavily burdened with unnecessary handling costs from shed to ship.

A start has been made to streamline these by establishing wool villages, but generous credit at low interest to expedite modernising of wool handling would really help. This would include core testing, of course, but also providing efficient rail and ship connection.

Eccles says that, if provoked, he could add to this list, and I have no doubt he will if I don’t stop him as I had to today.

But he asked me to particularly note that all the things he suggested today would add to the health of the industry, and make it better equipped to meet the challenges of the world around it, and would not insulate it from these pressures as wool subsidy would.

***
i.
A Modest Member of Parliament [Bert Kelly], “If bread fails to rise, cake makers get burnt,” The Australian Financial Review, November 25, 1977, p. 3.

I often receive letters from well-meaning constituents who ask me why I do not propound what they call “The Petersen Plan” as a solution for inflation.

They then become more specific and suggest that the Government should subsidise many key products in order to keep prices from rising.

They point out that this method was used during the war.

“Why not use the same method now?” they ask. “Inflation is only constantly rising prices so if we stop prices going up by this method we will have beaten inflation.”

I took this problem to Eccles. He may be a pain in my political neck but he is very good at breaking up complicated problems into their constituent parts so that simple souls like me can understand.

He said that this method of subsidising prices down had two almost insoluble components: how high should the subsidy be and from where should the subsidy money come?

I suggested that we take as an example the problems of subsidising downwards the price of meat, but when we started to think about this it was clear that it would be impossible because it would need different prices in different geographical and climatic locations, and with variations in export prices also.

So Eccles said that we should take a very simple product such as bread, which is much easier because it hasn’t many competitors.

And there is a fixed home consumption price for wheat which keeps the price of flour steady.

“If you can’t do it with bread, you couldn’t do it with anything,” Eccles said sourly.

So let’s assume the Government decides that the price of bread is to be kept at today’s level.

If the cost of producing bread rises by 2c a loaf, the Government would pay the baker 2c a loaf if he didn’t raise his price.

So bread would stay at its present price while the price of cake and other goods that compete with bread would rise.

Consequently the price of these products would have to be subsidised down also or their competitive position would be gravely weakened because a particular advantage would be given to bread bakers to the disadvantage of cake makers.

Before you knew where you were you would find yourself subsidising biscuits and then perhaps confectionery.

And who is to measure the changes in the cost of producing bread?

Some bakers are better at their job than others so they produce either cheaper or better bread.

When costs of production rise, are we to measure the good or bad bakers?

There is another problem inherent in this system of keeping prices down by subsidy and that is it encourages resources to be used in uneconomic ways.

Let’s assume that we hold the price of petrol down in this way.

This would encourage people to use more petrol than they would if the price was allowed to adjust to the real supply and demand level.

Eccles gave me a clear illustration of the system in operation. Until recently New Zealand subsidised the price of dairy products.

Eccles was there two years ago and he said that everyone fried their eggs in butter because it was cheaper than cooking fat, and New Zealanders seemed to pretty well bathe in milk.

The second part of the problem is from where is the money coming?

It must come from taxation in some form or another, or by printing more money as our present deficit is so big.

If we increase indirect taxation this would increase the cost of living so making inflation worse.

If we increase income tax it will dampen down the incentive to produce and make inflation worse.

If we print more money or create more credit or call it some other fancy name we should realise that this was what Jim Cairns did and so make inflation worse.

So Eccles said I wasn’t to support the solution of subsidising prices down.

And the experience we gained during the price freeze does not make us hopeful that such a system would be effective in combating inflation, except in the very short term.