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Wednesday, 4 December 1935

Senator A.J. MCLACHLAN (South

Australia - Postmaster-General) [-9.31] . - I move -

That the bill be now read a second time.

This is a measure to approve the sugaragreement made on the 19th July last, between the Commonwealth and Queensland governments whereunder, for five years as from the 1st September, 1936 -

(a)   the prohibition of imports of foreign sugar is to continue;

(b)   the present selling prices for sugar, golden syrup and treacle required for Australian consumption are to remain;

(c)   the contribution by the sugar industry to the fruit industry is to be increased from £200,000 to £216,000 per annum;

(d)   the conditions applicable to the wholesale discount are to be amended with the object of creating fair competition between wholesale merchants and also amongst all classes of retailers; and

(e)   other usual conditions of previous sugar agreements will be continued.

I shall not go into the details of the ramifications of the sugar industry. These, I feel sure, are well known to all honorable senators. Suffice it to say that over 32,000 people are directly engaged in the industry, and it is estimated that about 60,000 additional people are dependent upon it.

The present method of protecting the sugar industry commenced in July, 1915. From 1915 to early in 1921, and again in 1923 and 1924, the Commonwealth Government's sugar agreement policy saved to the consumers millions of pounds, and was so effective that Australia was one of the very few nations that did not have to endure sugar shortages and severe ration- ing. For part of the time, sugar prices in Australia were much lower than in other countries. This led to phenomenal exports of goods having a high sugar content, such as jam and condensed mills.

Since 1924, however, the world's freemarket price of sugar has steadily fallen. As a result, it is not surprising that recent sugar agreements have operated to the very substantial benefit of the producers, that is, if one is fair, as well as theoretically correct, in calculating the cost to the community as being the excess of the Australian price over the world's free-market price. On this basis, the latest authoritative estimate of the excess cost of Australian sugar is that of Professor Giblin who, in January last, fixed it at £5,100,000 per annum. Should the coming international sugar conference in London succeed in restoring the free-market price to a remunerative level for the principal black-labour countries, this excess cost will be considerably reduced.

Eight previous sugar agreements have been concluded by four different governments, representing every political party in the federal arena. The agreement has been renewed by the Lyons Government for the ninth time, because the agreement plan has been proved by Australian experience during the last twenty years to be the most effective arrangement for all interests concerned.World freemarket sugar prices have fluctuated enormously during those years, having gone so high as £137 a ton for raw sugar and so low as £4 a ton. Obviously the customs tariff method of protection, in such circumstances, would result in alternating periods of excessive prices to consumers and insufficient returns to producers, thus destroying any stability in the sugar industry, and in the many industries in which sugar is an important raw material.

I now come to the reasons actuating the Government in continuing the present prices for another five years. The first consideration was the financial position of the producers of sugar cane and raw sugar. In this connexion the last inquiry into the sugar industry - the investigation by the Commonwealth Sugar Inquiry Committee of 1931 - issued two reports. The majority report found that the cost of production, up to 1930, justified no reduction of the then retail price of 41/2d. per lb., and the minority report considered that a reduction equivalent to id. per lb. could be made. These opinions were based upon a cost of efficient production of raw sugar fluctuating between £19 and £22 per ton. Since then, of course, the economic depression has brought about lower wages in the sugar industry, and also lower costs of commodities required by sugar producers for their productive and living purposes.

On the other hand, the Lyons Government secured, by voluntary agreement with the producers themselves, a reduction of the Australian price as from January, 1933, equivalent to1/2d. per1b. retail. I had the honour of representing the Government at the negotiations at which this agreement was made. This reduction represented a yearly loss of £1,250,000 of the revenue of the sugar producers. Furthermore, the net return on the raw sugar exported has fallen appreciably. The result of these two factors is that the average return for all raw sugar last year was only £15 10s. 9d. a ton, which was found, on examination by the Government last February, to be definitely less than the present cost of efficient production, plus a reasonable return to farmers on their capital investment.

The trend of the economic position of sugar producers is revealed by increasing liens on farmers' crops. Figures definitely prove that the industry is not in a position to stand the only reduction that could be of any practical benefit to consumers, viz., another1/2d. per1b. Such a reduction would be equivalent to a reduction of £1,250,000 per annum of the revenue of the producers. The growers' share of such a reduction would be £S75,000, which is more than the total net income of £780,251 of the 1,S91 growertaxpayers as revealed in the last annual report of the Queensland Commissioner for Taxes, and much more than their taxable income of £569,194. for the year ended the 30th June, 1934. A reduction of id. per lb. would, therefore, eliminate practically all cane-growers from the income tax field. In the light of these facts, the Government felt that there was no case whatever for a further reduction of the income of the sugar producers.

I turn now to the position of Australian sugar consumers. Is the renewal of the sugar agreement at current prices fair and reasonable from their point of view ? To answer this question it is necessary to consider pTe-war and present prices of sugar and other Australian commodities, and also wages. The pre-war retail price of sugar to the consumers was usually 3d. per lb. It is now 4d. per lb., and will remain at that figure under the new agreement, representing an advance of 33 per cent, on pre-war prices. However, the average retail price of all foods and groceries has increased since 1911 by 46 per cent., or 13 per cent, more than sugar. Indeed, only two important foodstuffs have increased since 1911 to a lesser degree than sugar. They are butter and cheese, in which industries relatively low wages are paid, owing to the substantial absence of wages awards, whereas all sugar employees have to be paid Arbitration Court wages.

Whilst the retail price of sugar has advanced by 33 per cent., the basic wage has increased by 45 per cent, since 19.1.1. Obviously, this means that all citizens of Australia working under wages awards are better able to pay 4d. per lb. for sugar now than they were able in 1911 to pay 3d. per lb. The same contention applies to all sheltered primary and secondary industries - this means most Australian industries' - and to wholesalers, retailers and the community generally. This is substantially proved by the rise of the average retail price of all commodities, wages and house rents.

Honorable senators will, doubtless, be interested in the sugar retail prices in other countries. The Australian capital city price of 4d. per lb. is less than the average retail price now being charged in the nineteeen principal countries of the world, viz., 5.44d. per lb. expressed in terms of Australian currency. Even with exchange at par, this average price abroad would be approximately 4-£d. per lb., or slightly more than the basic retail price in Australia.

That the present sugar retail price of 4d. per lb. is not out of step with purchasing power and the prices of other goods, is confirmed by the fact that the per capita direct consumption of refined sugar has increased, from 74.3 lb. for 1928-29 to 74.5 lb. for 1934-35, and remains the highest in the world. Such a result could not occur, if sugar were too expensive, relatively to other prices and purchasing power.

The new sugar agreement, and all its conditions as to prices, rebates. &c, will operate for five years. I may state that five years is a usual period for bounty legislation such as the present Wine and Baw Cotton Bounty Acts, and several other bounty acts previously in force. The Papua and New Guinea Bounty Act has a term of ten year3. The Sulphur and Iron and Steel Products Bounty Act3 operate indefinitely.

In the case of the sugar industry, a term of five years represents the normal crop and seasonal cycles for Australian sugar. Correct farm practice for most of the production is one plant crop, followed by three ratoon crops, and one year for fallowing - making a total of five years. The same period is necessary to experience typical or average seasonal conditions.

A five-years' sugar agreement was recommended by both sections of the Commonwealth Sugar Inquiry Committee of 1931, and there can be little doubt that this -period is warranted from the producers' standpoint because of the productive circumstances mentioned, and because of the necessity for ensuring a reasonable measure of stability for the industry.

The Government carefully considered the probable position of consumers under a domestic price fixed for five years. In this connexion, I would remind honorable senators of my earlier figures showing that the price of sugar has advanced less since 1911 than the average price of all other foods and groceries, and the basic wage. At present, therefore, the retail price of 4d. per lb. is slightly favorable to consumers.

As to the future, it is necessary to consider the probable trend of food price indexes and wages. Most authorities hold that prosperity and full employment will not be attained unless improved prices, especially for primary products, are secured. A marked tendency in that direction is now in evidence.

In December, 1932, when the 4d. per lb. sugar agreement was approved by this

Parliament, the all items index figure for food, groceries and housing, which the Commonwealth Arbitration Court uses for fixing wages, was 1,363. Three months later it reached its lowest for many years, viz., 1,330. It has since steadily risen to 1,433 points for September, 1935, which is 70 points above the index when the 4d. per lb. for sugar was approved.

Price indexes have at least been stabilized, and there are indications that they will rise during the next five years. Nevertheless, sugar at 4d. per lb. retailwill remain at only 33 per cent, above the usual pre-war price. Such a result will cause the new sugar agreement to be a distinctly favorable proposition to consumers. The present trend towards higher price levels means that sugar wages will probably rise, and also the cost to the sugar producers of the commodities which they require for productive purposes and for personal consumption. Hence, the cost of producing sugar may be expected to increase. Under the new sugar agreement, however, the producers will not be able to claim or secure a higher price for domestic sugar sales: they will be compelled to meet the situation by improved efficiency and a readjustment of their total output.

The Government has also considered the possibility of export values improving during the term of the next agreement. Some improvement of current export prices may, of course, be expected, as a result of international efforts or the natural adjustment of world ' production to demand, but progress in that direction is bound to be slow. However, the maximum likely improvement - averaged over the five years - would not be sufficient, of itself, to enable the Australian price to be reduced to consumers generally and, should it develop to a sufficient extent at any stage, it is not unlikely that it would be offset by a partial reduction of the present tariff preferences granted on Empire sugars, in the interests of budgets and consumers in the United Kingdom and Canada. Apart from these considerations, the present average price received by the Australian producers is lower than efficient production costs plus a reasonable return on the ' capital invested.

Finally, it appears to be only equitable that, if the variable factor of better export prices is to be applied in favour of a section of consumers - and it will probably be sufficient for only a section - other variable factors, such as higher sugar wages, a shorter working week, increased costs of machinery, implements, &c, should be applied in favour of the sugar producers. For these various reasons, the Government has decided to allow anyimproved returns from raw sugar exports to remain with the sugar industry.

The Government's announcement regarding the new sugar agreement eighteen months before the expiration of the current agreement has been questioned in certain quarters. The position is that most of the previous agreements were signed from nine to twelve months before they were due to commence, and that the agreement now under discussion was signed in July last, or thirteen months before it will become operative. An early announcement or decision as to the future, even if not essential, is suitable to the general circumstances of the sugar industry, especially at a time when the producers are, as has already been shown, in a somewhat difficult position. In this connexion, much land has had to be prepared and cane planted during the last few months for the crop that will be harvested under the new agreement. The current agreement now covers only the crop at present being harvested and crushed, operations which will end either this month or in January, 1936.

For new planting and attention to existing crops during the next eight to ten months, much expenditure by the growers will be necessary, and a fairly large part of the requisite funds will have to be borrowed, and secured by crop liens and other means. For the purpose of such loans, it is essential to have a reasonably firm value for the next crop. The conclusion of the new agreement gives a definite value to the homeconsumption portion of the crop representing about 55 per cent., and the average value of each ton of sugar cane produced may be computed with sufficient accuracy for loan transactions by adopting a conservative value for the export surplus.

It is significant that the British Government decided some months ago that, in view of the peculiar circumstances of the cane-sugar industry throughout the Empire in regard to the heavy expenses necessary for preparation of land, planting, and attention to growing crops, no future alteration of the tariff preferences of the United Kingdom on Empire sugars would be made without first giving eighteen months' notice in advance.

The annual contribution by the sugarproducers to the fruit industry is to be increased from £200,000 to £216,000. This fund is administered by the Fruit Industry Sugar Concession Committee, which committee distributes the money in the following manner : -

(1)   A domestic sugar rebate to manufacturers of fruit products of £2 4s. a ton of refined sugar used. This rebate reduces the cost of sugar to fruit processors from the ordinary price of £32 10s. 9d. to £30 6s. 9d. a ton, and costs approximately £60,000 per annum.

(2)   An export sugar rebate on the sugar contents of all manufactured fruit products exported from Australia, for the purpose of reducing the cost of those contents to the Australian equivalent of the world's freemarket price. The rates of this rebate vary from month to month inaccordance with fluctuating world prices, and the annual cost is about £60,000.

(d)   Special export assistance to manufactured fruit products, in addition to the domestic and export sugar rebates mentioned. This assistance takes the form of either ordinary export bounties or guarantees of manufacturers' production costs. Approximately £96,000 per annum will be available for this work and that covered by the next paragraph.

(4)   Subsidizing scientific or industrial research for the purpose of increasing the yield per acre of fresh marketable fruits required for manufactured fruit products. This is a new responsibility for the committee, and is obviously of value and importance to the fruit industry and, ultimately, to consumers, from the standpoint of lower production costs.

Payment of the domestic sugar rebate and special export assistance will, as heretofore, be conditional upon manufacturers paying growers for fresh fruit not less than the prices declared each season by the committee to be reasonable prices.

The operations of the Fruit Industry Sugar Concession Committee have been most successful. The committee enjoys the confidence and support of both the primary and secondary phases of the fruit industry, and also of the employees therein, as is evidenced by many letters and resolutions, representative of well over 90 per cent, of all interests affected, which have been received by the Government during the last few months.

The increase of £16,000 per annum in the contribution by the sugar industry is considered necessary in view of Australia's expanding export trade in canned fruits especially, and also jams - a trade which has been greatly assisted by the committee. For fuller details of this work, I invite the attention of honorable senators to the fourth annual report of the chairman of the committee, Mr. A. R. Townsend, which was recently tabled in the Senate.

The new agreement contains a clause, at page 3, which is designed to promote fairer competition between wholesale merchants, and also between all classes of retail grocers. I shall deal, first, with the position of wholesale merchants.

The sugar discount is intended only for merchants who trade on legitimate wholesale lines and, in particular, carry the important credit responsibilities essential to most country districts and numerous suburban grocers. The wholesale cash sugar discount was reduced many years ago from31/2 per cent, to 2 per cent., which is much the lowest rate for any grocery commodity, since other goods carry discounts ranging from 5 per cent, to 15 per cent., and averaging from 8 per cent, to 10 per cent. It is important to remember that the low sugar discount is in the interests of the ultimate consumers. A discount of 8 per cent, or 10 per cent., for example, would cause the retail price of sugar to rise ii. per lb. Discount cutting or other concessions on sugar by certain wholesalers who refuse to take their fair share, and frequently no share, of the credit trade, is no great achievement, as they are virtually acting as brokers, not wholesalers. Such practices merely have the effect of depriving legitimate wholesalers of the only sound portion of their sugar business, thus reducing their total turnover and weakening their ability to continue their essential credit facilities to retailers at the current charge of 2 per cent, on the list wholesale price,. The credit charge of 2 per cent, is not all profit; it covers selling costs and administration, as well as bad debts which at present average about 1^ per cent.

The normal circumstances of the agricultural community are such that most primary producers require to obtain their supplies on credit for part of the year. This aspect has been accentuated by the low prices of primary products in recent years. The credit requirements of primary producers, in turn, compel country storekeepers to purchase a considerable portion of their goods on credit terms. This credit is often not available from banks or other financial institutions, and must be obtained from wholesale traders. Wholesale merchants are thus an important factor in the credit structure of the grocery trade of Australia. Therefore, any plan to maintain the cash discount intact is a reasonable protection for legitimate wholesalers, and is in the interests of sound trade. It is also beneficial to the people in country districts who might be expected to bear higher credit charges if the whole burden of bad debts were carried by the credit trade only, as it would be if wholesale merchants were deprived of their cash trade in sugar.

Experience has shown that the wholesale merchants' clause in the present sugar agreement requires strengthening and it is believed that the clause in the new agreement will meet the position satisfactorily. In future therefore, the cash discount on sugar will be available only to wholesale merchants who, in the opinion of the Queensland Sugar Board, engage to a reasonable extent in the credit trade and comply with the prescribed conditions forbidding the sharing of the discount with, or giving cartage or other concessions to their customers.

The wholesale discount has not been, and is not intended to be, reserved to a limited number of merchants. Any merchant who at any time complies with the prescribed terms and conditions is entitled thereupon to be added to the approved list.

The other purpose of the new wholesalediscount clause is to promote ' f air competition among all classes of retail grocers. At present, several chain organizations of retail stores are virtually receiving the discount through the agency of wholesale companies operating under a different name. This means, in effect, that the owners of certain chain stores receive 13s. 3d. a ton more profit for retailing sugar than do thousands of individual grocers. Obviously, that constitutes unfair competition. The modern chain-store movement is of. comparatively recent growth, and i3 creating new problems. There are two methods of restoring fair competition in the retailing of sugar. One method is to make the sugar discount available to syndicates of retailers, and this has been formally requested by the Retailers Federation. Seeing that the discount is equivalent to only one-fourteenth of Id. per lb., and, therefore, cannot be passed on to domestic consumers, and that the consequent loss of most of the cash trade to wholesalers - if retail syndicates were allowed to have the discount - would inevitably re-act unfavorably on many country storekeepers, and, in turn, on the farming community, the Government considers that it is not advisable that retail syndicates should be permitted to receive the discount. Moreover, all retailers would not be able to join these syndicates, and completely fair trade would not, therefore, be possible. The only effective means of restoring fair competition between retailers is to exclude from the wholesale discount list those concerns that are directly or indirectly associated with retail stores and, in future, to prevent any chain store or other retailers from receiving or sharing in the discount either directly or indirectly. Accordingly, the Government decided to adopt this method. The new wholesale merchants' clause means that the sugar discount will not be available to wholesale merchants in respect of any sugar or sugar products which they directly, or indirectly, through any associated person, firm, or corporation, retail to the public. This clause will be interpreted by the Queensland Sugar Board in its widest sense, with a view to promoting fair and equal competition between all classes of retail grocers. Further, as chain store competition in the retail trade is becoming increasingly acute, the following arrangement has been made by the Queensland Sugar Board : -

That the approval by Parliament of the recently-signed new sugar agreement will be regarded by the Sugar Board as indicating the present will of Parliament in respect to the wholesale sugar discount and fair competition for retail grocers. Consequently, although the new sugar agreement will not commence to operate until" the 1st September, 193(i, the Sugar Board, at the earliest convenient opportunity after it becomes law, will give effect to Parliament's decision by suitably revising the prescribed conditions for the wholesale sugar discount, so that no retailer, or group of retailers (chain stores), shall directly or indirectly receive the discount.

The Retail Grocers Federation has requested that the free delivery areas in the various capital cities be extended to the outermost suburbs. Such a provision could not benefit retail consumers, as even the maximum, cartage charges involved are only 10s. a ton. Moreover, completely free delivery would cost the sugar producers a large sum of money, which they cannot reasonably be called upon to bear at present. Moreover, while grocers in the outer suburbs have to pay cartage on their sugar deliveries, in nearly all cases they pay lower rents than do city grocers, and employ less outside labour. In many cases, no labour at all is employed. In these circumstances, the request for entirely free delivery could not be granted. However, the Government's investigation of this position disclosed that a somewhat anomalous position existed in Melbourne compared with other capital cities. This position will be rectified shortly after the new sugar agreement has been approved by Parliament, by adopting the city zone as the approximate centre of the free delivery area, and extending that area to include a number of thickly-populated suburbs. At the same time, the cartage rates to grocers in all suburbs outside the extended free delivery area will be slightly reduced.

Before concluding, I desire to say a few words concerning the Colonial Sugar Refining Company. At the outset, it should be stated that that company is not a party to the sugar agreement, and is not consulted regarding its terms and conditions. The company's receipts, fees and profits for its services in refining and distributing sugar throughout Australia are fixed by separate agreements each year between the Queensland Government and the company.

The Colonial Sugar Refining Company receives payments in respect of four operations in connexion with refining and distribution, all of which are checked each year by the Queensland Government Auditor. Two of the payments - refining costs £2 13s. lid. a ton, and selling costs 7s. 3d. a ton - are merely reimbursements of actual expenses incurred in labour, materials, &c, in doing the essential work of refining and distributing sugar throughout the Commonwealth. The first of the other two payments is the item of 6s. 4d. a ton for interest on money borrowed by the sugar pool so that the sugarmills may be paid cash for raw sugar when placed on board ship. Without this payment, the mills would not be able to pay growers promptly for their sugar cane,, and many growers would thereupon find it difficult, and sometimes impossible, to pay cane-cutters' wages. The Colonial Sugar_ Refining Company, with its many diverse interests in Australia and overseas, has large liquid cash resources available during the Australian sugar season, which enable it to advance the necessary money, the peak amount each season running up to £6,000,000. The company finds these advances on raw sugar a convenient means of investing its cash resources, and it does so always at les3 than bank rates of interest. The final payment to the company is the 15s. 4d. a ton for administration, taxation and profit. In terms of raw sugar, this payment gives a net profit of 14s. 9d. a ton, and is part of the long-established fee of £1 a ton on raw sugar melted for home consumption.

The remaining5s. 3d. of the £1 represents depreciation on refineries, and is more appropriately included iti the foregoing amount of £2 13s.11d. for refining costs. Ail the foregoing facts were unanimously reported by the Commonwealth Sugar Inquiry Committee of 1931, Apart from the company's profits on refining and distribution, it earns profits from raw sugar manufactured in its four Queensland and three New South Wales mills. The company's output of raw sugar ranges from 22 per cent, to 25 per cent, of the total Australian production. In this regard, however, it is on the same footing as all other raw sugarmills.

The Commonwealth Sugar Inquiry Committee of 1931, on which there were separate representatives of housewives, manufacturers and fruitgrowers respectively, unanimously found that the company was then earning from all its Australian sugar activities a profit of 7.1 per cent, (subject to income taxation) on thetotal capital utilized. The 1933 retail price reduction of1/2d. per1b. would reduce the company's profits by about £75,000 per annum, and there have been smaller compensation reductions of its Australian costs since then. Consequently, the percentage ofthe company's total profits to capital in regard to its Australian sugar operations should now be slightly less than 7.1 per cent. That the Colonial Sugar Refining Company has made, and is still making, high, rates of profit from its sugar interests outside Australia, and possibly in non-sugar activities also, has nothing whatever to do with the sugar agreement or the Government's policy. Consumers and the Government can be concerned only with the question as to whether the company's essential services in respect of Australian sugar are given at no more than a reasonable profit. In this connexion, it is of interest to note that the recent report of the United Kingdom Sugar Industry Inquiry Committee of 1935, in urging an. amalgamation of British refining institutions for the purpose of reducing costs in the United Kingdom, recommended a fee to refineries of £1 10s. a ton to cover depreciation, and a reasonable return on capital. The Colonial Sugar Refining Company, however, is paid £1 a ton for these two items and the net profit portion, viz., 14s. 9d. a ton, is equivalent to one-twelfth of a penny per lb.

The Australian sugar industry is extremely efficient. No other primary industry, except wool, has made such progress in increasing its unit output. The production of raw sugar to each acre of sugar cane harvested is double the output of 35 years ago, and is now one of the highest in the world. No Australian industry has been so frequently investigated as sugar. Nearly all the members of the royal commissions and other investigating bodies, have been citizens of the southern States yet, with almost complete unanimity, these members have recorded opinions highly favorable to the economic and national value of the sugar industry to the Commonwealth. No other product has yet been discovered which can replace sugar in the vulnerable and fertile coastal lands of the far north. Tropical populations reveal the national importance of sugar. In Western Australia there are about 6,000 white people in the tropic zone, and in the Northern Territory 5,000, but in North Queensland there are over 170,000 people, most of whom live on the coastal fringe, and are directly or indirectly dependent on the sugar industry. Current international events emphasize the urgent need for developing sparsely-populated regions that are capable of . productive effort. I believe that the Senate fully realizes the general merits of the industry, and the particular circumstances in which the new sugar agreement is made, and that it will accordingly approve of the agreement contained in this bill.

Debate (on motion by Senator Collings) adjourned.

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