CONFIDENTIAL
39
Butter
3. Mr. Marshall saw continuity of sales of dairy products to Britain as the major problem. He suggested that this trade currently running at about 176,000 tons of butter and some 75,000 tons of cheese per annum might be expressed in milk equivalents. This would give flexibility as between butter and cheese. Mr. Rippon questioned the figure of 75,000 tons of cheese, pointing out that we were uncertain of the exact breakdown as between New Zealand and Australia of their joint allocation.
4. Mr. Marshall said that maintenance of the current volume was of fundamental importance. New Zealand could not accept half the volume at twice the price. Such a solution would be an easy one for the Community, but to New Zealand it would mean the complete dislocation not only of the dairy industry but also of the economy. It would mean directing every second dairy farmer or dairy factory to close down; or telling every dairy farmer and every dairy factory to halve production.
5. Mr. Marshall asked Mr. Rippon to imagine the social problem as well as the scrapping of huge investments that this would cause. The New Zealand Government had therefore decided to aim for the present volume subject to review. They were not too pessimistic about the chances of the Community reducing if not eliminating their current surpluses. There were powerful economic forces working in their favour. It cost the Community NZ$1,000 million per annum to produce agricultural surpluses which could not then be disposed of. Progress towards a more rational system had not been as rapid or as effective as had been hoped. Nevertheless a quarter of a million dairy cows had been taken out of production in the EEC last year, compared with the 5 million which Dr. Mansholt wanted to get rid of. People were moving out of the countryside into the towns. M. Giscard d'Estaing, whose own electorate was a rural one, had told Mr. Marshall that this would be an important factor. The percentage of the French population who made a living off the land had decreased sharply in recent years. Sir Con O'Neill pointed out that this reduced percentage produced more. Mr. Marshall said that nevertheless this increased efficiency made possible price reductions which in turn offered a possibility of increasing consumption. The Community's ridiculous agricultural policy was already being eroded. In 7-10 years the pressure on New Zealand might be relieved. In terms of volume and price New Zealand was the most efficient producer of butter and cheese in the world. In pure economic terms New Zealand had a contribution to make and it was only sensible to allow her to do so.
This contribution was worth £100 million per annum, in terms of the difference between the New Zealand prices for the volumes of dairy produce currently being sold to Britain and the prices paid by the Community. Mr. Rippon remarked that if this amount was regarded as equivalent to the levy imposed on agricultural imports by the Community, it had to be paid for by the consumer which in this case would be Britain. Sir Keith Holyoake said that the levy went to the agricultural fund rather than to the farmer. Mr. Rippon saw no reason why Britain should pay so heavily to encourage the production of unsaleable surpluses. He hoped that this would not happen.
Diversification of New Zealand's markets
6. Mr. Marshall turned to diversification of New Zealand's markets. No one could say that New Zealand had not tried. Most of their mutton now went to Japan, and most of their beef to the United States. They had developed a major forest industry and were developing a steel industry. They would lose no opportunities to sell butter, cheese and lamb elsewhere, but there were no
CONFIDENTIAL