29 May 1985 Professor Ross gives keynote at Lincoln College Farmers Conference

Politically-determined protectionism could be responded to in two ways by maximising income within the circumscribed limits which reduced export opportunities imposed, or by finding an acceptable way to reduce agricultural protection, the Principal of Lincoln College, Professor Bruce Ross, told the Lincoln College Farmers Conference.

"And perhaps we should be pursuing both responses at once," he said . 

Professor Ross said the first response was to consider protectionism as a fact of life and go about maximising income within the limits.

"We know that we should be better off if there were no restraints on trade.

"But given these restraints we should make the best of the opportunities we have," he said.

This meant accepting the cut in real income imposed from abroad through relatively-lower returns from certain primary products, Professor Ross said.

Real incomes could be maximised by adjusting exchange rate and general economic policies, and distributing resources between different industries to "pay our way in the world."

Some people responded to protectionism abroad by wanting to impose higher protection in New Zealand.

However, except for special circumstances, this would be “cutting off noses to spite our faces," and real income would be reduced even further.

Trade restrictions could be seen as a useful bargaining counter in getting rid of other's restrictions.

Unfortunately, New Zealand was seen as such a small market for manufactured goods, while being such a potentially large supplier of agricultural products, Professor Ross said.

Such a trade-off never appeared to be very attractive to "our potential partners."

The last two decades had shown that New Zealand would do well to adapt to permanent restrictions on being able to sell to those wanting to buy.

Stabilising prices to producers should not be a guise to continuously pay higher prices than world markets justified.

The guise of stabilising prices encouraged resources to remain in industries producing difficult to sell products.

Nothing should be done to prevent the flow of resources into high value, out-of-season products, he said.

These may be the best long-run prospects for sales in the northern hemisphere.

Accepting the idea that the economy should be managed to cope with the worst in full-scale protectionism did not mean not agitating to have levels of protection reduced.

The second response to politically determined protectionism was to find an acceptable way to reduce agricultural protection, Professor Ross said.

In his two years in Paris with the Organisation for Economic Co-operation and Development, from which he had returned earlier this year, he had been working on such a project.

The basic philosophy of the project was that it might be possible to negotiate reduced levels of agricultural assistance and protection if all countries agreed to act at the same time.

''We have reached the point where people try to justify increased assistance to farmers in countries such as New Zealand and the United States as being needed to off set effects on world prices caused by assistance to farmers in the European Economic Community," he said.

"The higher production resulting from the generally increased levels of assistance tend to force world prices down, leading to demands from farmers for still more assistance,"

Professor Ross said that as a result people had been asking if all countries might back-track a little on the level of assistance to agriculture.

This would mean all countries agreeing on a simultaneous and co-ordinated reduction in assistance to agriculture.

Then, after a lag of two or three years, levels of production could be expected to "fall somewhat."

Lower production would mean some increase in world prices.

This would at least partly off set the effects on farmers' income of reduced government support.

"In general, this is only likely to happen if all governments acted together," Professor Ross said.

"If one government acts alone, then the effects on the world price will be small.

“The farmers in that country are likely to feel the full effects of reduced government support on their income."

Professor Ross said that just a few years ago co-ordinated action would have seemed foolish and pointless.

The chances of a real breakthrough were remote, but the chance of O.E.C.D. countries agreeing to start dismantling agricultural protection was much greater than for a long time.

One reason for his mild optimism was the cost to governments of present agricultural support.

Professor Ross said justifying a system of support providing high incomes for wealthy grain growers north of Paris and big United Kingdom farmers was increasingly difficult with about 13 million unemployed within the Community, some of whom were not particularly generously treated by their governments.

The support was seen as a reward for producing commodities already in surplus, which have to be dumped on the Russians or the world market at give-away prices.

A second reason for some optimism that there might be some general reduction in levels of support for agriculture was linked to the concern that the United States had on the cost of its support policies.

Professor Ross said American politicians had at last become aware of the extent U.S. policies had been reducing the cost to the Europeans of the Common Agricultural Policy.

U.S. support policies for cereals had mostly been based on reducing the supplies of grain reaching international markets.

The idea was that by reducing supplies reaching the market the price would rise to an acceptable minimum level.

Traditionally these policies had been formed without much regard to external consequences.

But the dominant role of the United States in the grain market tended to raise world prices to the same level.

One consequence was that all grain exporters had benefited from U.S  restrictions on supply.

Professor Ross said with minimum U.S. prices being set in U.S. dollars, the strength of the dollar meant that, in other currencies, minimum cereal prices had been very attractive indeed.

This had been particularly useful for the E.E.C. at a time when the Community was moving into becoming a substantial exporter of grains.

Last year the E.E.C. was able to export about 15 million tonnes of grains with almost no export subsidy being required.

This was because the world price had been pulled up so high by the U.S. policies.

Meantime, the Americans had been acquiring large stocks and spending more money than could be afforded, given the size of the overall government deficit.

Professor Ross said that since the Americans had opposed the Common Agricultural Policy for years, they found making it easier for the Europeans to finance existing policies particularly galling.

One of the ideas being promoted in this year's Farm Bill was that regardless of prices paid to U.S. farmers, all production surplus to American requirements should be sold on world markets rather than put into store.

This would have the effect of pushing world cereal prices down, and, the Americans hoped, putting additional strain on the Common Agricultural Policy, he said.

Professor Ross said a third reason for believing that some change in protection levels was not impossible was because of changes within agriculture in some countries .

These meant that the political importance of changes in agricultural policies had been reduced somewhat.

Professor Ross said that in Japan,for example, farm incomes accounted for only 21 per cent of the income of farm families.

In the United States five per cent of farmers, whose average net income was $US186,000, produced about 50 per cent of total output.

Seventy-one per cent of farmers, producing about 12 per cent of U.S. agricultural output, earned more off-farm than from farming.

The remaining 24 per cent of farmers, producing 38 per cent of output, was seen by the U.S. Department of Agriculture as the group to which support should be given.

Professor Ross said the large farmers were seen as being able to look after themselves, and the smaller farmers were seen as fringe or part-time farmers.

The idea that assistance and support should be targeted almost certainly meant some overall reduction in expenditure was contemplated, he said.

Even within the E.E.C. the trend to off-farm employment now had only 35 per cent of farmers getting their full income from farming, with 40 per cent of farmers getting only half their income from farming.

Professor Ross said farmers tended to be over-represented in the parliaments of most countries, so formidable problems had to be overcome before any significant cuts to agriculture were likely to be seen.

However, there was no doubt that the overall significance of farm income as a political issue had been reduced.

Professor Ross said that another encouraging sign was there were concerted moves under way to get a new round of trade negotiations started under the auspices of the General Agreement on Tariffs and Trade.

Two of the co-sponsors of the move for a new round of world trade talks were the United States and Japan.

The United States had indicated that if it did not see significant progress in areas regarded as important it was likely to withdraw from G.A.T.T. and negotiate bilaterally with individual countries.

"Given the formidable bargaining strength of the United States, this is a very serious threat which will be hovering over the G.A.T.T. negotiations if these get under way" Professor Ross said.

"Given that a new round of G.A.T.T. negotiations is, on balance, likely, the challenge will be for us to ensure the talks have the greatest possible chance of success by using every legitimate political device available.

"This is the greatest possible opportunity for a generation to reverse the drift into agricultural protectionism in the developed world," he said.