Senator WATSON (7.43 p.m.) —I rise tonight to draw attention to the state of Australia's wool and textile industries, and to highlight the concern expressed by many in our community that Australia no longer rides on the sheep's back; nor does it reap the immense benefit we once drew from our dominant position in the world as a wool and textile producer. I have no argument with those who would say that our economy needs to continue to diversify its output and that we especially need to put ourselves in a position where major negative natural events, such as the recent serious drought, cannot drive our economy into a disaster zone.

However, it is worrying to see that Australia's sheep flock is at its lowest level since 1947. With a national stock of around 98 million head, we are currently suffering from a run-down caused by the drought and from a decline in the number of wool-producing farms around the nation. The overall size of the Australian sheep flock has declined by over a third since a peak of 173 million in 1990. While the relative scarcity of wool has meant that wool prices have remained at reasonable levels in recent years, the overall production has declined markedly. Wool prices rose by 27 per cent in 2002-03. The market is traditionally a volatile one. Market participants will respond to changes in future supply information and to revisions of Australian flock numbers which will flow from the ending of the drought.

A predicted improvement in world economic growth in the current year is expected to strengthen the demand for textiles and maintain fibre prices close to current levels. But the present strength of the Australian dollar compared to the American dollar and some other currencies will eat into the profits of those whose incomes come mainly from the export market. While I decry the decline of our past ride on the sheep's back, I also believe that the more open world trading environment tends to make us look at what products we have a natural advantage in producing. We have the expertise and the natural resources to be world leaders in wool production and, compared with many other industries, changes to technology, transport and industrial development among our foreign competitors are unlikely to see this natural advantage decline in this particular industry. It is good to see that, despite the overall reduction in sheep numbers, almost a third of Australia's commercial farms continue to produce wool. The wool industry remains one of Australia's most important agricultural industries, contributing around 11 per cent to gross farm production and $3.8 billion in export income in 2002-03.

One of the worrying results from the decline in wool production in recent years is the corresponding decline in the output of textiles from our Australian mills. As someone who has a personal background in the textile industry, and as a resident of the city of Launceston where textile mills were once the main employers, I believe the decline in our textile output is sad to see. I understand that there are many reasons for this declining output, but the past few years have seen our textile industry output severely reduced. This is not an industry in which we have any particular natural advantage over many other countries around the world and, unlike in wool production, we are struggling to maintain our position in the world market. Over the past six or seven years our output of scoured and carbonised wool has dropped from 165,000 tonnes to 88,000 tonnes, wool yarns have dropped from 18,000 tonnes to under 15,000 tonnes and wool broad woven fabric output has declined by more than half over the same period.

The world economic recession, a dramatic surge in Chinese processing capacity and the strengthening of the Australian dollar have combined with a shortage in local wool production to put pressure on wool processing and textile producers. As we read good news about the areas of Australia which are working positively to recover from the recent serious drought, I trust that wool production and the associated textile output will start their recovery in the strong positions they held in earlier years.

In every downturn there is always an exception. Accordingly, I am pleased to report that the Launceston based Waverley Woollen Mills, which I recently visited, is such an example. Machinery is modern—over $1 million has been invested in a new European manufactured tenter—and most sections of the mill are operating on a three-shift basis. An additional building in the suburb of Invermay houses the increased spinning capability, and exports to overseas countries include sales of innovative products to places such as China and the US.

While there has been a great deal of volatility, albeit at the lower end of the wool price range in recent years, the sheep meat export market has rewarded Australian producers handsomely. This has been largely due to our government's initiative in opening up the US market. Live sheep exports have also contributed to keeping sheepmeat prices high—and here I must declare an interest. The Prime Minister's recently announced signing of the Australia-US free trade agreement will further benefit our lamb and sheep meat exports. On commencement of the agreement, tariffs on most lamb and sheep meat will be zero, clearing the way for continued success in a market where Australian producers see great prospects for the long term. We do have a natural advantage in wool production and with a flourishing sheepmeat industry it will be in our best interests to again see these industries thriving and taking a bigger load of our prosperity on the sheep's back.