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Wednesday, 30 October 1996
Page: 6091

Mr ANDERSON (Minister for Primary Industries and Energy)(9.31 a.m.) —I move:

That the bill be now read a second time.

This bill represents a significant milestone for the very troubled Australian wool industry. It is the culmination of a period of very extensive consultation and the development of very considerable cooperation—which came out of that consultation—within the industry and clearly demonstrates that the industry can come together on issues of critical importance to its future. It reflects a willingness on the part of the industry to work together that I hope will remain a feature of the industry for many years to come, particularly as it grapples with the need to find strategies and directions to secure a realistic living for the people in the industry.

This government has worked alongside the industry during a very difficult period to help reach the consensus approach to the package of measures reflected in this bill. It is a mark of the level of cooperation and the recognition of the need for a consensus which brought the industry and government together to resolve this issue at the successful 30 August round table.

This bill represents the final stage in the disposal of the wool stockpile which was created during the last years of the reserve price scheme. The stockpile and the associated debt are both now at a level which is less than half that which had built up in the early 1990s. To a very large extent—this is, unfortunately, often overlooked in the understand able hurt and emotion of the moment—this is a tribute to the fixed release schedule which has operated since 1994.

This government supported the implementation of the fixed release schedule on the basis that it presented a sound mechanism for disposing of the stockpile and removing the detrimental effect it was having at that time on the entire wool market. Only through the success of this arrangement has the industry been given the opportunity to review and recommend change to the disposal schedule to enable Wool International, as the stockpile manager, to exercise greater commercial flexibility and responsiveness in the interests of the overall wool market.

The bill provides for a package of measures which will see the stockpile finally cleared by 31 December 2000. The package broadens considerably the range within which Wool International is required to sell stockpile wool each quarter. The quarterly minimum disposal requirement is reduced from its current level of 182,000 bales per quarter—first to 135,000 bales per quarter from 1 January 1997 to June 1993, then reducing to 90,000 bales per quarter from 1 July 1997. The quarterly maximum disposal requirement is increased from 192,000 bales per quarter to 350,000 bales per quarter from 1 January 1997.

The intention of broadening the disposal range is to provide Wool International with considerably greater commercial flexibility to sell more in a rising market and sell less in a softer market. The expectation is that this will ease the pressure on the fresh wool market at more critical periods in the wool market cycle. I think we would all acknowledge now that, whilst the focus when Wool International was put in place was very much on debt and on the need to recover as much of that debt as possible, it was appropriate at that time to concentrate on and to recognise in Wool International's charter—through the legislation that put it in place—the need to maximise the value of the stockpile.

There is no doubt now, however, that the urgent priority is to maximise returns to growers in their current very difficult circumstances after some five or six years of wool prices being essentially below the cost of production. It has done immense damage in much of rural Australia. We need to remember that there are vast slabs of this country where the only really viable agricultural pursuit is wool growing. Those entire areas are tragically at very real risk at the moment, with run-down properties, dispirited landowners, towns falling apart, small businesses collapsing and the very infrastructure of communities starting to unravel—a truly tragic picture. The member for Parkes (Mr Cobb), who is in the chamber, would know only too well of what is happening in his area and in many of the towns and communities in western New South Wales.

As I said, the expectation is that the new approach will ease the pressure on the fresh wool market at critical times in the wool market cycle. I point out, on the flip side of the coin—this needs to be kept clearly in mind—that the Wool International Board will need to balance the exercise of this new greater commercial flexibility against three other new elements. First, as a means of ensuring a steady retirement of debt, a target date of 31 December 1998 has been set for the final repayment of the debt. Once this has been achieved, the government's debt guarantee arrangements will also end. This underlines the government's view that it needs to continue to withdraw from the industry to allow the industry to determine its future direction.

That is not to say that we will not work with the industry in the future to achieve the best possible results for it. In broad terms, we are determined as a government to create the best possible economic environment for the industry to operate in with the lowest possible costs, inflation and interest rates. Those sorts of things that have done so much damage to rural Australia in the past will be squarely tackled, as has been made plain in this place on many occasions by the government.

We are committed to more flexible industrial relations. It needs to be remembered that the Garnaut report identified very considerable savings for wool growers through more efficient handling, storage and waterfront arrangements in particular, and we need to pursue those. I see a very important role for government in the area of research and development, and we will continue to contribute very significantly in that regard.

I also see a very important role for government in assisting with trade negotiations and market access negotiations. The pursuit of these sorts of initiatives is reflected by the recent signing of a wool cooperation agreement between Tim Fischer, as Minister for Trade, and Dr Herminio Blanco, the Mexican Minister for Trade and Industrial Development, in which I participated. Under this agreement, wool tops from this country will be exported to Mexico with no tariffs being applied along the way. Our tops, with Australian expertise and skills being used in the process, will be value added in Mexico and then re-exported as finished garments into North America—again, under NAFTA on a tariff free basis. The government has a major role to play in that sort of enlightened approach as we seek to secure for the industry that which it needs most—and I use those terms advisedly—and that is a very significant opening up in market opportunities. If the wool industry is to have a future, it really must, together with government, now focus on the vital prerequisite—the key to that future—which is boosting demand.

I hear a lot of growers complaining about the performance of those who seek to promote their product; yet it is not all bad news. Just by way of example, since the first major shake-out of the IWS in the late 1980s when the reserve price scheme collapsed, the leaned down and much trimmer IWS, with its more carefully targeted programs, has managed not only to halt the erosion of wool share of the apparel markets in our six major customer nations but also to turn that around.

It is very unfortunate indeed. I cannot work out why wool prices are not recovering more strongly now, because the pipeline is freeing up, and both the on-farm stockpile and the in-warehouse stockpile is easing. The signs are there that supply and demand ought to be coming back into a healthier balance. It does concern me that we are not seeing the pick-up that one might have expected out of that relatively happy coincidence of events.

It is regrettable that fibre markets right across the globe are very flat at the moment. The cotton industry is experiencing the same thing; so is the synthetics industry. In part, and this needs to be kept in mind by wool growers, it reflects the fact that there are so many things now competing for the consumer's dollar. Consumers may decide they are going to buy new clothes; they might equally decide they are going to buy some new computer equipment for the kids; or they may decide that, instead of buying a couple of sweaters during the winter, they are going buy one of a higher quality and keep it longer. Changing consumer patterns are very much part of what is happening to the wool market internationally. That needs to be addressed. It needs to be tackled. We need to find innovative ways to operate and to promote the product in that changed environment.

One other thing that concerns me enormously is that, some five or six years ago, research undertaken by the International Wool Secretariat showed, quite plainly, that under-35s in most major Western consuming nations had a very low awareness of the qualities of wool. I suppose in general terms it could be summarised by saying that they thought of it as a natural product. They also thought that wool was expensive, hard to look after, and in general knew very little about it.

I am alarmed to see some more recent work that shows five years down the road it is the under-40s who have no particular appreciation of the qualities of wool; in other words, we are not managing to break that age barrier. In another five years, if we are not careful, it will be the under-45s and in 10 years time it will be the under-50s. Then we really will be looking at a very small market indeed if we cannot get younger people more switched on to the qualities and the desirability of wool as a fibre.

The second point that needs to be kept in mind in terms of new parameters is that Wool International will be required to have sold and delivered the last bale in the stockpile by an end date of 31 December 2000. This is included to ensure that the overhang effects of the stockpile on the wool market can be removed at the earliest possible time, taking account of the many other factors in the market. It is also included to ensure that Wool International and the government's involvement in the statutory authority can be wound up within a reasonable time frame.

Of course, there may well be an opportunity—and I for one sincerely hope there is—for Wool International to clear the debt and the stockpile well in advance of these legislated dates. This would be entirely consistent with the government's objective of an early withdrawal from direct involvement in issues that are clearly matters for the industry and for the marketplace.

Finally, but very significantly, Wool International's objectives have been changed in two ways in order to add a new factor which the Wool International board must take into account in determining the rate of stockpile disposal at any particular time in the future. The requirement for Wool International to foster the long-term profitability and efficiency of the Australian wool industry has been amended to remove the phrase `long-term'. This reflects the increasing need, as the stockpile runs down, of Wool International to foster the short, medium and long term profitability of the industry to the greatest extent possible.

In addition, Wool International is to be required, in providing for the disposal and management of the wool stockpile and in addition to enhancing the ultimate value of the stockpile, to take account of the effect of the disposal of stockpile wool on the Australian wool market. This requirement is repeated in Wool International's functions so as to ensure that there is no doubt as to its importance in the disposal program. As a result, I expect Wool International to review its sales program and, in reaching the decision it makes on a day-by-day basis on the level of sales, to be continuously addressing the issue of the impact of those sales on the wool market.

I had some time in Western Australia last week and I am deeply conscious of the discussions I had there. On one occasion I had a rather interesting and spirited discussion with a large group of growers who were concerned about the impact on the price of fresh wool of Wool International's selling approaches. I undertook with them in good faith to look at this matter very closely and, in particular, to address their proposition that all the wool out of the stockpile ought to be sold at auction. I will shortly be announcing details as to how we will participate in a review and make some decisions in relation to that matter, although I make it quite plain that we will be looking for the best outcome for growers, recognising their need for price relief at the earliest instance.

As I said at the outset, this package is the culmination of a very intense and widespread consultative process. It is a very clear signal that the Australian wool industry is prepared to set its own course and determine its own destiny without relying on government for support. When I came into this portfolio the view that I formed was that the industry was not only dispirited, it was badly divided. There were major problems confronting the wool industry and there were debates at that time over whether the major problem was the stockpile, the way the stockpile was being disposed of or lack of demand. I formed the view that in one sense the greatest problem of all confronting the industry was division because without unity they had no hope of tackling those other problems.

My energies have been devoted towards drawing this industry together, getting them communicating and focusing on the need to speak with one voice, and getting them switched on to the fact that their real competitors—those with whom they need to argue and establish a point of view or a dominance with—are not other sectors of their own industry but their competitors; and their competitors are cotton and synthetic fibres. The industry need to be very conscious of that as we grapple for a future for this vitally important Australian industry.

What we have seen in recent times is a very encouraging sign of the industry's increasing maturity as it forges ahead. Representatives of the industry, including AWRAP and the Wool Council, will be consulting widely on the other issues that are of importance and that were discussed at the wool round tables, such as promotion and the need to address not only the nature of how we are going to target promotion and what we are going to do to increase people's awareness of wool, but also how we are going to fund it. At the moment, on the back of lower wool prices, the level of funding for the wool industry's promotion objectives and campaigns is running at quite a low level, around $130 million globally.

When you compare that with the sort of money that such people as Coca-Cola spend on maintaining demand for their product, $130 million for such a vitally important product worth many billions of dollars annually to the Australian economy is not a lot of money. But finding extra money in the current hard-pressed conditions that growers find themselves in is not easy. The problem with nearly all the options for increased funding that this government and the previous government have participated in trying to identify is that ultimately it nearly all ends up coming out of growers' pockets anyway.

That will be a difficult debate but I do encourage growers to participate in an increased promotion effort, carefully targeted perhaps with an attempt to be as innovative as possible and recognising the very different parameters that confront the industry as it seeks to promote its product in the modern marketplace. Recognising all of those things, I am sure a more effective approach can be adopted in the future—that is not to take anything away from those who are currently seeking to direct promotion at the moment. On that basis, it is with great pleasure that I commend the bill to honourable members and present the explanatory memorandum.

Debate (on motion by Mr Tanner) adjourned.