THE REPORTS OF THE SUGAR ENQUIRY COMMITTEE.

I. The Committee. 11. Unanimous Conclusions.

111. The Majority Report. IV. The Minority Report. V. The Renewal of the Sugar Agreement.

I. In August, 1930, the Commonwealth Government appointed

a Committee of Enquiry to investigate the economic condition of the sugar industry, and to make recommendations for any variation in the terms of the Sugar Agreement which seemed desirable. The Committee consisted of the Commonwealth Director of Development (Mr. Gunn), an officer of the Public Service, and representatives of the various interests concerned in the regulation of the sugar industry. It was not t o be expected that such diverse interests could be fully reconciled, and the schism which split the Committee has occasioned no sur- prise-perhaps was a foregone conclusion.

the

The report as presented is divided

11. The ground is first of all cleared Committee found that they were

into three parts.

of all matters on which not a t variance. I t is

agreed that wages and conditions of employment in any industry which receives direct benefit under the Sugar Agreement should be fixed by arbitration. All concur in the policy of restriction of alien immigration. There are some remarks on land-values and by-products. But on the whole unanimity is achieved only in matters of minor interest; on the major issues opinions diverge, and are marshalled against each other in the two opposing reports.

111. The majority recommend, subject to certain qualifications,

the renewal of the Sugar Agreement and the continuance of the present retail prices. They are then to be regarded as the defenders of the present order of things. But one looks in vain for any judicious array of vindications. One finds, rather, a

262

NOV. 1931 THE SUGAR ENQUIRY COMMITTEE 263

breathless and unordered muster of f o r m u h : White Australia, Protection, Tropical Development, the Asiatic Menace, and so on through the whole weary rigmarole. It is pleasing to know that the majority are good orthodox Australians, and subscribe to all the articles of our national creed. But it is open to doubt whether this subscription is compatible with the principles that should direct critical investigation. For where a body of credos forms the basis of any inquiry, be it ever so searching, the con- clusion of that inquiry cannot be more acceptable than the basis from which it starts; so that what is necessary in such a case is a criticism that will apply itself also to these fundamentals of faith, and set out their justifications, their limitations, and their effects. This is the only logical course; and it is vitally import- ant when, as in this case, a whole nation is called on to suffer for its faith.

Take as an elementary instance the treatment of Develop- ment in the report. Its value is regarded as axiomatic. Sugar fosters development, therefore sugar is to be encouraged. But surely development is only a means, the principal end to which is the extension of the field of profitable production. This is the justification and limitation ’ of development. To advocate un- profitable production in the interests of development is to make development an end in itself, and to invert the proper relation of values.

When they go on to consider the effects of the embargo the majority bring forward two arguments which must be resisted:

1. The “actual facts” in the case against the domestic consumer are set out in a table (No. 7, Appendix) compiled by the Commonwealth Statistician, which compares the retail price of sugar with the Melbourne retail price of certain household commodities a t various intervals from 1911. The retail price of sugar in 1930 is found to have increased only 67 per cent. on the 1911 price, a smaller increase than any of the other com- modities except butter and milk. These results appeared to dis- pose of the suggestion that the embargo had penalised the con- sumer.

Obviously this reasoning rests on the assumption that the retail price of sugar in 1911 was a fair and reasonable one. But the Royal Commission of 1912 admitted that the price of sugar to the consumer was “very materially enhanced owing to the existence of the present protective scheme. ” This material enhancement of the domestic price was probably of the order of

264 THE ECONOMIC RECORD NOV.

25 per cent.'; that being so, it could hardly be contended that the price was fair and reasonable. Thus, so far from disposing of the suggestion of exploitation, the table merely goes to show that relatively to the retail price of other household commodities the consumer has been consistently exploited throughout the whole period 1911 to 1930.

2. It is contended that sugar provides up to E2m. of exports annually ; that the present critical position of Australia's inter- national account makes it imperative for her to maintain exports a t their fullest volume; that therefore Australia should main- tain her sugar exports, and the scheme that makes these exports possible. But this logic ignores the fact that the scheme imposes a severe strain on all other export industry, a strain sometimes too great to be borne ; for so much of our export production, even in normal times, is marginal or nearly marginal, that any addi- tioniil burden, however small, will tend to destroy a dispropor- tionately large amount of exports. So that in normal times, if the burden of surplus sugar were removed, other exports would replace, and more than replace, the E2m. from sugar. In our present difficulties, when so much export production is on the verge of extinction, the lifting of the extra burden, even if it did not stimulate any new production, would a t least ensure the pre- servation of a volume of export production much greater than the sugar exports destroyed.

The estimate given by the majority of the cost of produc- tion of a ton of raw sugar is shown in the table at the end of this article. It wiU be noticed that, apart from the cash costs, which were supplied by the Central Sugar Cane Prices Board, the allowances made by the majority under the various heads are on a more liberal scale than those of the minority.

IV. The minority report opens with an interesting survey of cer-

tain significant factors in the sugar situation. The present over- production of sugar is to be ascribed, roughly, to the fluctuating competition between beet and cane, tariffs, and improved cul- tural and extractive processes. I n Australia production has increased rapidly since 1923, the moving cause being the high price for raw sugar (€30 6s. 8d.) which prevailed from 1920 to 1922. Certain measures to limit production had been taken

1. The net protection to sugar in 1911 wan € 6 6r. Od. per ton.

1931 THE SUGAR ENQUIRY COMMITTEE 265

by restricting the areas assigned to cane, and by the “Peak Year System,” under which the production from any mill was not to exceed the highest production attained by that mill in any year since 1915. Thus the Queensland sugar interests are taking voluntary steps to curb output. Their forbearance is very much to their credit. We have every reason to be grateful-in the same way as the medieval patient mas grateful when his phle- botomist decided to open no more veins.

After an examination of the possibilities of diverting sugar land to other uses, the report turns to consideration of the embargo. The embargo is an assurance of stability and de- velopment. Its removal would involve the sacrifice of 230m. capital invested in the sugar industry, and would result in a tremendous increase of unemployment. This makes out a prima facie case for the embargo. Evidence in rebuttal was summed up under two heads:

1. General principles of economics. These appear to have been dismissed on the grounds that “such objections as are based on a mental prepossession in respect of the policy of protection of Australian industries are merely begging the question. ”

2. The net cost of the embargo. Estimates of cost are cited, ranging from S4m. to E8m. per annum. But, the report goes on, “if the Australian people espouse a policy of economic self-containment, and, in conformity with that policy, desire to produce their own sugar, the cost to them cannot be measured by any such method of dry calculation. . . . The people of Aus- tralia have designedly embraced such a policy . . . and are pre- pared to be mulcted in higher prices for the home-produced article.’’ Here again we have an appeal to the fundamental articles of our creed, and an implication that their rationale passes computation and is independent of the results they entail. It is a position that must be strenuously combatted.

The minority go on further to explicate their prepossession3 in respect of protection, and advance a thesis implicit in the system, but not usually so boldly maintained: “The conserva- tion of an industry when it has been nursed to maturity is as important to a community as the protection accorded it during infancy,” so that the shelter which made its youthful growth possible must be continued in its bloated adulthood.

On these grounds, therefore, the minority recommend a continuance of the embargo, but they add two important pro-

266 THE ECONOMIC RECORD NOV.

visos: firstly, that the industry has overreached itself in pro- ducing sugar beyond Australia’s needs ; secondly, that it has impaired its claim to the continuance of the embargo t o the extent that the Australian consumer is paying a price that yields more than a reasonable return. The expansion into export is condemned as unprofitable, while the domestic price is found to have been greatly in excess of costs of production for many years.

The estimation of costs of production is a careful and valu- able piece of work. Calculations start from figures supplied by the Central Cane Prices Board, although it was thought that the labour costs shown were very high. Grower’s labour, therefore, is allowed only a t award rates. Interest is charged at 5 per cent., which seems more reasonable in the case of an industry stabilised by an embargo than the 7 per cent. allowed by the majority. The final cost in 1931 per ton of raw sugar is given at El8 7s. Od., which, it is claimed, is “certainly not an under- estimate. ” The minority, therefore, recommend a reduction of €2 6s. 8d. per ton retail, or ad. per lb., of refined sugar, which it holds, will do justice to all parties, tend to curtail production, and yet will have no disastrous effect on the industry.

V. Following on the presentation of the two reports the Com-

monwealth Government has decided to renew the sugar embargo for five years from 1st September, 1931; and to maintain fo r three years the present selling prices of sugar, and the export rebate, which provides export manufacturers with sugar a t world parity, and the fruit industry assistance scheme, under which a sum of €315,000 is provided by the sugar growers as a com- pensatory aid to the fruit processing industries. This decision by the Government, at the present juncture, was rather unex- pected; but the overhaul of the sugar agreement has been so milch delayed that it is almost futile even to expect it.

The main objections to the perpetuation of the terms of the Sugar Agreement a t the present time may be summed up as follows :-

1. The heavy reduction in the National Income calls for an equitable distribution of the loss involved over all industrial groups. The sugar industry, if the embargo continues, will be protected against the effects of this curtailment of income, in

1931 THE SUGAR ENQUIRY COMMITTEE 267

so far as the regulation of the Australian price can protect it, and will leave to other industries its share of the loss.

2. Moreover, even in normal times, the sugar industry succeeds in passing on part of its burdens to unsheltered and unprotected, especially export, industry. In times of stringency, if its privileges remain intact, it passes on the same, and a relatively heavier, burden. In particular, under the existing system of Arbitration by which the basic wage is fixed with reference to the quarterly movements in the Retail Price Index number, the maintenance of the retail sugar price will retard the natural fall of wages. Sugar is the third most important item in the composite unit on which the index is based, so that if sugar remains stationary, while other prices are trending rapidly downwards, the index is likely to show a much more sluggish fall than it should. This point is all the more important in that the composite unit includes only a selection of items, so that the effects of a stationary sugar price in the midst of rapidly falling prices will be intensified.

3. At the present time, also, the production costs of sugar are falling, just as they are.falling in all other industries; so that, with a fixed price level for sugar, the margin between costs and returns will go on increasing steadily as costs fall. The increase will perhaps be counterbalanced by export losses ; but in general it will result that while the margin between costs and returns will be decreasing in other industries owing to falling prices it will tend rather to increase in the sugar industry. Thus the increase in the relative burden of sugar on other industries will be associated with an increase in the direct benefits to sugar.

On the whole, however, it must be admitted that no drastic alterations in the sugar agreement are possible under present conditions; for if the supports which have so long bolstered up the industry were to be suddenly removed, it would collapse suddenly and catastrophically, and not without danger to the whole industrial structure. But the situation calls for sterner measures than those now adopted. If the embargo is conceded for the sake of present stability, but a reduction is made in the retail price of sugar, and a further reduction threatened should exports not disappear, it is probable that a considerable amount of sugar production would be abandoned, and effort would be concentrated on the more efficient holdings, to satisfy Australian needs only. This may be severe treatment; but it seems t o be

268 THE ECONOMIC RECORD NOV. 1931

the only effective way to curtail the volume of production, and to impress on the sugar growers that Australia cannot bear any longer the burden of surplus sugar production.

J. M. GARLAND. University of Melbourne.

ESTIMATES O F COST O F PRODUCTION OF RAW SUGAR PER TON.

1926-28. Cash Costs . . . . . . . . Grower’s Labour . . . Value of Cane used for

Planting1 . . . . . . . . Depreciation . . . . . . . .

Interest @ 6% . . . . . .

Cost of Milling (excluding interest) . . . . . . . .

Interest @ 5% . . . . . .

Interest (Grower’s and Miller’s) @ 7% . . . .

Total Average Costs, 1925-28 . . . . . . . . . .

March, 1931. Estimated Reductions . . Total Cost, March, 1931

Majorit ’er Ton Cane.

€ 5. a. 1 3 0 010 0

0 1 5 0 3 0

117 5

- -

010 2

-

Report. Per Ton

Sugar.

€ s. d. - - - -

13 16 1 -

511 3 -

19 7 4

315 0

23 2 4

014 7

22 7 9

Minority Per Ton

Cane.

€ s. d. 1 3 1 0 0 6 5

- 0 2 8

1 12 11 0 4 9

117 8

- 0 2 4

0 7 1

-

Report. Per Ton

Sugar.

€ s. d. - - - - - -

13 18 0

516 0 017 2

-

20 10 2

2 3 2

18 7 0 1. If this Item in not charged separately then cosb per ton of cane must be

calculated from the net amount of cane produced. Cs.. production less requirements for planting, and not from the prous number of tons of sugar produced. The minority therefore comDute from a net. the majority from n m08s basis. This m u t be borne in mind when comparing particular itarm.