Senator SANDY MACDONALD(12.12 p.m.) —I have been listening to Senator Bob Collins. It is a rare occasion when you can get up and say that you agree with almost everything a member of the opposition says, but in this case I think Senator Collins's contribution was extraordinarily useful. The level of bipartisanship on this issue is very important in terms of showing to the industry that, whilst there are no easy solutions, there is agreement both in the government and the opposition that there are very few easy options and what these amendments propose may provide some assistance to the industry. Let's hope that they do.

The wool industry continues in its sixth year of crisis. The amendments I want to address are those concerning the Wool International Act 1993 in that they provide that Wool International be given the power to undertake through a subsidiary, Wool International Holdings, wool marketing activities including forward trading and the use of futures and currency contracts for hedging purposes. The amendments would facilitate Wool International undertaking a limited program of forward trading to assist in the development of a broader range of risk management options for the industry.

This legislation is separate from the problems with the fixed disposal program of Wool International. I will keep my comments to the proposals to set up Wool International Holdings. There are a number of reasons for these changes. Firstly, the lack of forward marketing or price risk management tools have been a major weakness in the Australian wool marketing chain. Secondly, despite years of crisis, around 90 per cent of the Australian clip is still sold and priced for spot delivery at the auction market.

Thirdly, in the wool industry the spot or auction price is the determinant of the value of woolgrowers' production and also of their major asset, the wool stockpile. Fourthly, it is interesting to note that, in comparison, the value of the cotton stockpile, which is substantially owned by processors, is determined by a forward market price on a given day. It is not determined by a spot price, however important that spot price might be in determining a futures price.

Fifthly, in the current season—coming to an end on 30 June this year—wool prices have continued to deteriorate; they have done so since April 1995. This decline highlights how exposed woolgrowers are in the post floor price deregulated market. That is particularly so when demand is as low as it is now. Some woolgrowers—hopefully an increasing number—would like the opportunity to sell forward or to lock in a price prior to shearing or two to three years out, which is essential for what I understand is a viable futures market, a true forward market. While there are some opportunities today to sell forward, hedge prices with wool futures, take a basis trade, or take an options contract, these price mechanisms are very much underdeveloped, undercapitalised and frequently not encouraged by some brokers and some buyers who rely heavily on the continuation of the auction system in its present form.

This legislation proposes to fill this void in that a subsidiary of Wool International, to be known as Wool International Holdings, will have the ability to conduct a two-year development and evaluation program in forward marketing. The proposal has two objectives. Firstly, as a dedicated forward marketing agency, Wool International Holdings will hopefully provide a stimuli for sufficient forward market throughput; in other words, get the idea of forward marketing up and running in a user-friendly manner. Critics of this proposal say forward marketing tools have always been available. In response, as a woolgrower, I say that growers and the trade simply have not used them because they don't understand them, and they have not encouraged their clients to use them. This must change. Perhaps in 10 years time or so, this initiative may well be seen as a catalyst of what must be an essential change within the industry.

Secondly, this proposal will also have the advantage of showing whether or not forward marketing can be a viable business for a privatised portion of Wool International's non- wool assets, which are presently estimated at $250 million. This is a controversial aspect of the question of whether Wool International will have a future role, and that is for another debate. But the share of the assets that is being proposed in setting up Wool International Holdings is minor compared with the overall view of whether growers will wish to take their equity, as soon as they possibly can, out of the assets of the stockpile when they are sold.

The financing of Wool International Holdings' proposal is to be provided out of the section 51 reserve funds, which come from warehouse rents and a number of other non-core marketing activities. It is these funds that are available for Wool International's commercial activities. The reserve funds stand at about $40 million. Wool International Holdings will be provided with a maximum of $24 million from these section 51 reserves.

There is a misconception that woolgrower levies have been invested in these warehouses. Wool International warehouses are basically a legacy of World War II, when the British government acquired the whole of the Australian clip, funded the construction of storage in Australia and, as far as I understand, gave the stores to the Australian wool industry. During the 1960s, 1970s and 1980s the income from these warehouses, many of which were leased out to non-wool tenants, was used to redevelop and help supplement other wool industry initiatives; namely, research, development and promotion.

This legislation gives Wool International Holdings the ability to proceed past its pre-planning stages. We will have to wait and see whether they come up with a proposal which is commercially responsible, beneficial to woolgrowers and the industry and not reliant on a further government guarantee.

The minister, Mr Anderson, is on record as saying that the sooner he can let the wool industry get on without government involvement, the happier he will be. Unfortunately, this has not been possible with the continuing government responsibility in terms of its guarantee over the remaining stockpile debt. I remind the Senate that that debt is still in excess of $1 billion, and the wool stockpile is in excess of 2.2 million bales.

There has been considerable discussion in the industry about the pros and cons of the proposal. The Senate rural and regional affairs committee heard from a range of people and organisations, some of whom were for and some of whom were against the proposal. The peak grower body, the Wool Council of Australia, at its half yearly meetings in October 1995 and May 1996, endorsed the proposal and the funding. Subsequent woolgrower meetings at state and district level have either endorsed the proposal or defeated resolutions that have sought to oppose the proposal. The New South Wales Farmers' Wool Committee, Victorian farmers, Western Australian farmers and the Queensland farmers' sheep and wool council have all supported the proposal. Some woolgrowers, particularly the Pastoralists and Graziers Association of Western Australia—although not opposed to the development of the forward marketing—are opposed to a statutory authority, namely, Wool International, conducting this trial.

I must say to those who oppose the proposal, some of whom are very knowledgeable and have some status in woolgrower circles: go and sort out the problems of the industry and industry representation. If the people who spoke to the rural and regional affairs committee are not representative, as they allege, surely it is for the wool industry to fix. Leadership must come from the wool industry itself. I listened with interest to Senator Woodley's comments that the Wool Council of Australia represents maybe only 50 per cent of growers; it may be as low as 40 per cent, he said. As is the case with any industry body, you cannot make people join a representative body. The Australian union movement has that problem, woolgrowers have it, everybody has it.

Senator Collins might recall that during the committee meeting I said to him that the world is ruled by people who attend. As politicians we understand that. There may be a lot of people out there who are much more able than us, but we were the people who actually happened to put our hands up at the time. That applies to the Wool Council and to any other representative body. Any government that does not take the advice of its peak grower body would be acting at its peril. It would be doing its growers and its major representative body a great disservice.

Simply put, the bickering between sectors of the industry just has to stop. We all have to work together to find a suitable and long term solutions. It is early days and I will be following the development of Wool International Holdings very closely, as will the minister. He has expended a great amount of time and effort getting the agreement together generally and with the industry. I am sure that senators on both sides of the chamber, especially Senator Collins and Senator Crane, will be wishing this proposal well. For too long Australia has had a selling system for wool—and I stress a selling system. What we need now is a marketing system for wool and this will certainly help.