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Prices Justification Tribunal - Report on price increase proposed by Brick and Pipe Industries Limited



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PRIME MINISTER

PRICES JUSTIFICATION TRIBUNAL

REPORT ON PRICE INCREASES PROPOSED BY BRICK AND PIPE INDUSTRIES LIMITED

I have received the attached report of the Prices Justification Tribunal on certain price increases notified by Brick a,nd Pipe Industries Limited.

The report is available to the public and may be inspected at the offices of the Prices Justification Tribunal, 10 Queens Road, Melbourne- or 100 William Street, Sydney.

Canberra

PRICES JUSTIFICATION ACT 1973

BRICK AND PIPE INDUSTRIES LIMITED

Matter No. N74/2009

(Proposed higher prices for bricks $7.20 per 1000 over product range)

5 AUGUST 1974

REPORT BY PRICES JUSTIFICATION TRIBUNAL

PRICES JUSTIFICATION ACT 1973

BRICK AND PIPE INDUSTRIES LIMITED

Matter No. N74/2009

(Proposed higher prices for bricks $7.20 per 1000 over product range)

5 August 1974 .

REPORT BY PRICES JUSTIFICATION TRIBUNAL

This public inquiry conducted by the Prices Justification

Tribunal pursuant to the provisions of the Prices Justification

Act 1973 relates to a notice by Brick and Pipe Industries Limited

(the Company) on 23 May, 1974, that the Company proposed to

increase the prices of clay bricks over its entire product range

in Melbourne, Victoria, by -#7.20 per 1000.

Representative types of bricks, together with prices

as at the date of the Companyls notice and proposed prices per

thousand, are set out:- ,

Wirecut bricks Scoresby plant

Present Proposed

Flame pink $80.50 $87.70

Flame pink rocktex 78.50 85.70

Driftwood 97.50 104.70

Jamaican tan 83.50 90.70

Vintage range 107.50 114.70

Northcote plant Sage 91.50 98.70

Antique cream 87.50 94.70

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Pressed bricks Present Proposed

Northcote plant Tumbled greystone $84.50 $91.70

Pink 76.50 83.70

Beige coloured clinkers 89.50 96.70

New Gamble plant Red 69.50 76.70

Auburn plant Cream colours 73.50 80.70

On 14 June, 1974, the Tribunal by notice advised the

Company that it intended to hold an inquiry as to whether the

prices proposed were justified and that intention was duly

advertised in the Australian Government Gazette and various

newspapers. On 28 June, 1974, the Honourable Mr. Justice Williams,

Chairman of the Tribunal, made a determination that for the

purposes of an inquiry and report in relation to this matter

the powers of the Tribunal may be exercised by a Division

constituted by the Honourable Mr. Deputy President E. A. Chambers

and Mr. R. N. R. Johnston.

The inquiry commenced in Melbourne on 4 July, 1974,

but to meet the convenience of the Company was adjourned until

23 July, 1974. Mr. N. Jacobson, solicitor, appeared for the

Company and Mr. A. R. 0. Rowlands, of counsel, appeared as

counsel assisting the Tribunal. No other person or organisation

sought to be made a party to the proceedings.

Prior to the inquiry questions were submitted to the

Company by officers of the Tribunal and these questions were

answered fully. Submissions by the Company contained both

public and confidential material and this information was

considered at appropriate sessions of the inquiry.

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In respect of a separate notification by the Company

the Tribunal in special circumstances approved an increase of

$5.00 per thousand bricks but on the basis that such approval

was without prejudice in any way to the outcome of this inquiry.

The Company is the largest brick manufacturing company

in Victoria with a production capacity in that State of

approximately 225 million bricks per annum. In the Melbourne

area the Company operates eight plants. The Company has a

number of subsidiaries mostly incorporated in Victoria but

there are five in South Australia, Hallett Brick Industries

Limited and subsidiaries, and one in the A.C.T., Multibricks

Proprietary Limited. The Company's total Australian production

is approximately 330 million bricks per annum. The consolidated

balance sheet as at 31 March, 1974, shows that total share

capital and reserves for the group were $34,619,473 and total

assets were $49,258,921. For the Company total share capital

and reserves were $22,103»358 and total assets $27,462,804.

For the Company, profit before tax and extraordinary items was

$2,024,605. Authorised capital is 30,000,000 shares of 50 cents

each. From the material supplied it is gathered that of the

issued share capital of 20,777,099 shares, 12,045,913 shares

have been made to shareholders at an average cost of 71 cents -

the great bulk of the remaining shares being issued to acquire

brick plants, pipe plant and clay pits.

The Company in the latter part of the 1950's pioneered

the modern tunnel kiln method of brickmaking. Its large new

plant at Scoresby involving a capital expenditure of some $10m.

has greatly increased production and, with additional labour­

saving machinery being installed now, further advances in

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production capacity are anticipated later this year. .

The Company’s principal submissions were sworn to by

Mr. J. P. Shergold, Managing Director, and additional evidence

upon specific matters was given by Mr. H. J. Desler, Chief

Production Engineer, and by Mr. G. M. Beaton, Industrial Officer.

The Company’s proposal for increased prices is based

upon increased wages and salaries which have occurred recently.

The total of these increases including related items such as

holiday and sick pay, payroll tax, workers’ compensation insurance,

etc., in the original submission amounted to $1,616,229 on an

annual basis. This additional cost applied to an anticipated

production of 225,710,000 bricks is reflected as approximately

$7.20 per thousand. No other items of expense were included

although the Company made it clear that there is an accumulation

of other costs for clay, fuel oil, various stores and spare parts

and further labour charges, etc. which may have to be considered

in the future.

The total labour cost of $1,616,229 was amended to

$1,565,338 by the Company following discussions in the proceedings

and this had the effect of reducing the proposed increase of

$7.20 per thousand bricks to approximately $6.94 per thousand.

In the adjusted figures cost items which were not previously

listed were included and Mr. Rowlands suggested that they should

be disregarded. We appreciate his argument in this respect

but in view of the overall situation we have to consider in this

particular case we think that we should have regard to them.

It is clear that, as Mr. Jacobson submits, in spite

of heavy development in plant the Company’s productivity during

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the past year has been severely retarded by labour difficulties.

Production for the year 1972/3 was 221 million bricks and for

1973/4 214 million. The drop in production last year was not

due, in the Company’s submission, to lack of demand but to labour

problems and strikes. Since the date of the notification the

Company’s position has changed in a number of significant

respects and it now appears that the estimated production of

223 million cannot possibly be achieved. There has been a down­

turn in demand and there is a different market situation from

that existing in recent months. On the day this inquiry

resumed the Company was, in Mr. Jacobson’s words, "compelled to

lay off approximately 100 workers at its Northcote plant". This

represents a reduction of the Northcote labour force bf approxi­

mately 40% and a reduction in the production of the Company of

600,000 bricks per week or, on an annual basis, between 25m.

and 30m.

It would appear from the information available that

the Company pays regard to efficiency in the organisation of its

production processes and this is demonstrated particularly at the

Scoresby plant which we were able to inspect. With some of the

older installations it is not reasonable to expect that economic

plant improvements could be achieved. As to efficiency and

productivity generally it is evident that benefits could be

obtained by more satisfactory industrial relationships.

The Company states that if the proposed price increase

were approved it could not operate for commercial reasons before

31 August, 1974. This would mean that for the period 14 March,

1974, to 31 August, 1974, the Company would have absorbed cost

increases of $713,786.

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The Company's calculations of additional wages

expenditure are based upon a total of 812 factory employees -

722 affected by the Brick Trade Determination and 90 by the

Metal Trades Award. In addition there are 148 office

administration and sales employees. There are, of course,

variations from time to time - in the factory total particularly -

but for our purposes the figures relied upon by the Company are

acceptable. The principal cost is that resulting from a new

Brick Trade Determination which together with the recent National

Wage adjustment meant an increase of $20.91 per week or $785,045

annually. The Metal Trades increase with National Wage

amounted to $19.60 per week or $91,728 annually - a total of

$876,773 annually on the amended basis. Overtime costs were

$245,548 and an increase in incentive payments amounted to

$88,290. In addition there are related costs but there appears

no need to list them. By comparison the office and administrative

additional costs claimed, $67,956 including holiday and sick pay,

payroll tax, workers' compensation insurance, etc., are fairly

nominal.

The real question for our consideration is whether or

not the additional wages costs incurred for the 812 factory

employees were reasonably unavoidable. The Metal Trades

increase with National Wage adjustment is consistent with the

general recent movements for metal classifications and does not

call for further comment.

It would appear from the material available that

following a turbulent industrial period for the Company and

others the Brick Trade Wages Board considered it necessary to

vary the Determination increasing the rates by $16.46 per week.

For some time the Company has been experiencing labour problems

of one kind or another, including a strike for four weeks by

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members of The Federated Brick Tile and Pottery Industrial

Union of Australia affecting all the Company’s Victorian plants

and a Metal Trades strike for six weeks at the Scoresby plant

and as a consequence production has suffered. However, it

cannot be said that the Company failed to resist the increase

granted by the Wages Board although it had been under considerable

pressure.

The Company has been faced with a practical situation

of some difficulty. Labour turnover has been particularly high

and in the competition for labour of the class concerned the

Company, by the nature of its industry, is not in a position to

offer ideal conditions of employment.

In all the circumstances we regard the additional

wages costs as unavoidable. However, regardless of the method

by which the additional wages costs were imposed, we consider

that the Company should absorb a proportion.

We do not propose to comment upon all the topics

raised but in coming to our opinion we have considered all the

material presented in both the public and private sessions of

the inquiry. As we have indicated, we regard the additional

wages costs for factory employees as being the most significant

aspect for attention.

In the particular and somewhat unusual circumstances

we are of the opinion that the Company's amended proposal for a

price increase of $6.94 per thousand bricks is not justified

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but we are of opinion that an increase of $6.50 (that is, $5.00

previously approved plus a further $1.50) is justified.

We are of the opinion that the additional price

increase of $1.50 should not operate before 1 September, 1974.

DATE: 5 August,1974. .

E. A. CHAMBERS Deputy Chairman

R. N. R. JOHNSTON Member