General Articles

BACKSTAGE AT OTTAWA

Price Rocket by the Tail

THE MAN WITH A NOTEBOOK February 15 1948
General Articles

BACKSTAGE AT OTTAWA

Price Rocket by the Tail

THE MAN WITH A NOTEBOOK February 15 1948

BACKSTAGE AT OTTAWA

Price Rocket by the Tail

THE MAN WITH A NOTEBOOK

WHEN THE Government reversed its policy and went back to price control last month, it did so with great bitterness. Most cabinet ministers, especially those like Finance Minister Abbott who had been firmest in their devotion to free enterprise, felt that an important segment of free enterprise had let them down.

They had been driven by rocketing costs of meat, butter and vegetables to adopt the policy that the CCF had been urging on them for more than a year. They’d had to repudiate their own decontrol policy, which the GCF had attacked at every point. Worst of all, they had done so very largely for the reason that the CCF had predicted —because too many dealers were taking advantage of the situation at the expense of the consumer.

The Cabinet knows that its new policy is extremely vulnerable.

On everything except a simple primary product like food, price control has become impossible. The complex machinery of wage control and import subsidy that kept down the price of clothing and furniture and what not had all been scrapped by last fall. So there could be no price control on the things the farmer has to buy; obviously it would be difficult, to maintain control on the food the farmer has to sell. The Government felt it could be done through the winter, when the chief beneficiary of price increases would be not the farmer but the middleman. But it could hardly go on into the new crop year.

Only one thing could really bail the Government out—a break in world prices. The whole decontrol policy had been conceived in the belief that world prices would have passed their peak by the fall of 1947. That forecast turned out to be wrong. The “reconfrol” policy, if that’s the right word tor the change in January, is an attempt to dam the tide until spring or summer of 1948. If world prices are still rising by then, the Government will have the same dilemma all over again. And with the prospect of Marshall dollars to maintain the volume of purchasing at existing price levels, it looks as if its troubles about price control are by no means over.

TWO PARTICULAR events were the occasion for sharp increases in the cost of food. One was the embargo on imported fresh vegetables, which was imposed Nov. 18. The other was the new contract with Britain for beef and pork, announced Jan. 2. In the view of the Government’s advisors neither of these justified an immediate advance in Canadian prices.

When the restrictions came on—with the exception of a small hothouse production—Canadian vegetables had been grown and harvested and a large percentage of them had been bought from the farmers b}' dealers who had them in storage. Cabbage, to take one example, had been sold by Canadian farmers at harvest time for about three cents a pound. By January cabbage was wholesaling at 12 cents a pound and retailing as high as 20.

On Nov. 1 the official price index for vegetables stood at 165.4. By Dec. 1, a fortnight after import controls went on, the vegetable index had hit 186.8—an increase of more than 21 points.

It was suspected in Ottawa that these increases

were only partly due to profiteering. In the opinion of the Prices and Trade Board another factor was the wholesale fruit and vegetable dealers’ dislike of import controls. Many such dealers are also importers and their volume of trade had suffered from the embargo on import of U. S. produce. A runaway market in what green vegetables we had left might conceivably scare the Government into relaxing the embargo.

But it didn’t work out that way. The Government was willing to import a small quantity of Texas cabbages—had always intended to do so when Canadian supplies ran out—but it was set on admitting only enough imports to meet a real shortage—at a controlled price.

At the time price controls came on there were large stocks of vegetables in the country. Stocks in

storage at Jan. 1, compared to those of a month earlier and those of a year previous were:

Jan. 1/48 Dec. 1/47 Jan. 1/47

Potatoes (tons) 375,866 449,677 467,030

Onions ” 13,228 15,902 15,696

Beets ” 1,405 1,722 1,460

Carrots ” 8,261 9,726 11,284

Cabbages ” 2,530 4,559 5,223

Parsnips ” 677 1,041 1,305

Celery (crates) 53,489 179,428 Can. 89,426

2,493 Imp. 4,443

Stocks generally were a bit lower than last year: in the case of cabbage, parsnips and celery, much lower. But. none had reached the point of exhaustion. It was evident that some of the stocks would be exhausted before winter was out and that imports would have to be resumed at some point. But in the Government’s view the appearance of famine that some retailers’ shelves presented early in January was not justified by the level of storage supplies.

THE BEHAVIOR of meat: prices was the Government’s worst headache. Here’s what, happened:

On Jan. 2, Agriculture Minister Gardiner announced the new, higher prices for the British meat contracts. The new contract prices were all higher than the old—but not much higher.

The Government felt beef needn’t go up at all. The last ceiling price on first-quality heef was higher than the new 1948 contract price to Britain. Pork would be driven up about a nickel a pound, carcass price. Veal and lamb weren’t affected at all.

Within a week of the Gardiner announcement pork had climbed to a new high—not a nickel but a dime above the old ceiling price. Beef was six cents above the old level, lamb nine cents and veal 10.

It takes three weeks to turn a fresh-killed hog

into bacon, but Canadian bacon was selling at retail for as much as 20 cents a pound above the previous level within two or three days of the co n tra et annou nee me n 1.

By December the biggest runs of both cattle and hogs had been completed. Meat in cold storage on Jan. 1 was at a peak of 112 million pounds, 30 million more than last year. There were 56 million pounds of pork, 35 million of beef, 6}/% million of veal and 8 million of lamb and mutton.

There are, of course, no official figures on the profit that dealers made on this stored meat. If all of it had been bought at t he old ceiling price, simple arithmetic would tell you that the inventory profit would have been $9 millions. Actual profit must have been less than t hat, for prices started to move in anticipation of the new contracts: some of the meat in storage presumably was bought at different levels along the range of the price rise. But even when full allowance is made for that, you can still see a quick profit here running into millions of dollars.

“You’d think.” said one

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Backstage at Ottawa

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angry minister, “that the meat packers would have seen what they were doing to public opinion. Even if they lost a little money (which they wouldn’t have done) they might have waited at least a few weeks and let the price go up by degrees. But no, they had to take that quick, easy killing. It may cost them plenty before they are through.”

Curiously enough, some dealers did recognize the pit their trade was digging for itself.

It’s well-known here that several months ago a considerable section of the dairy industry was ready to accept a ceiling price on butter. Butter had gone from 60 cents in September to about 75 at the end of the year and sober people in the trade knew that this was too steep.

They knew that Jimmy Sinclair, the Liberal M.P. from Vancouver, planned to introduce a bill into the Commons to legalize margarine, and thus extend to the larger House the fight Senator iuIer has been waging for years in the Red Chamber. They knew, moreover, that the Geneva treaty would oblige the Government to repeal its flat embargo on the importation of margarine and replace that embargo with tariff. They feared that if consumer resentment mounted any further, the drive for margarine would be successful and the butter industry, if not the entire dairy industry, might well suffer damage.

Some others in the food business, even without any specific threat like that of margarine, were equally uneasy.

'hey knew, and they admitted privately, that they were making far too much money. They knew food prices were going too high and that something would inevitably be dene to check them. But, for some unexplained reason, they weren’t able to apply the necessary checks themselves. They had wait for the Government, much against its will, to step in and do it for them. it