Agricultural support policies in a small open economy: New Zealand in the 1920s
T he erratic behaviour of international commodity prices during the 1 920s posed special problems for small developing open economies. Economic growth in these countries was dependent on their ability to accumulate foreign exchange and import capital equipment necessary for development. However, the instability of export income meant that many countries faced low or unstable growth rates and recurrent balance of payments difficulties (in the sense that the supply of foreign exchange hindered capital accumulation at potential output). This was especially the case for the agriculturally based economies of the British Dominions (including Australia and New Zealand) which, between 1916 and 1920, had enjoyed the stability of export income associated with the bulk purchasing agreements of the Imperial Government Supplies Department. A return to the uncontrolled marketing of agricultural products in world markets brought with it fluctuations in export and national income and a constraint on growth. One solution to the income instability problem (in agricultural economics terms, the farm problem) was for government to play a greater role in establishing institutional conditions conducive to agricultural growth; in particular, for the state to provide finance at low, concessional interest rates and to sponsor industry-wide control over the marketing of primary products.2 This article examines the first attempt at public and private sector solutions to the problem of export income instability in a small open economy. In the early 1920s New Zealand farmers and politicians saw the farm problem as the most significant obstacle to growth, and implemented several agricultural support policies designed to stabilize and/or increase farm income. The New Zealand case is important because, apart from being the first attempt by a country to address the problems of primary producer income instability in a small economy based on agriculture, it became the model for organization of the export sector in similar countries. As Capie notes, both Australia and Argentina adopted variations of the New Zealand marketing board structure in the 1930s.3 The article is organized as follows. Sections I and II outline the