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Thursday, 7 May 1987
Page: 2842

Mr MOORE(5.31) —The purpose of the Wool Marketing Bill, with which we are debating the Wool Tax (Nos. 1 to 5) Amendment Bills, is to replace the Wool Industry Act 1972. The Bill will govern the operations of the Australian Wool Corporation and the wool auction system. The Opposition will not be opposing the Bills, but I foreshadow that we will be moving amendments in the Committee stage. The wool industry, of course, is one of those great hallmarks of Australia's history. The wool clip was part of the beginning of this nation. The often quoted saying `the land of the golden fleece' was apt. Wool carried this nation from the various statehoods into Federation, through the First World War and the Second World War, and the wool industry gave life to this nation.

I do not think any honourable member in this House would not have been affected in some way by the consequences of the wool industry. My first knowledge of it was in the days of the Korean War when the wool industry was very much in a state of boom. In those times the saying was that wool was selling for a pound per pound and that period put an enormous amount of money into this sector. However, as time goes on, great booms always lead to slumps. As a consequence, there was a lot of criticism about the marketing procedures for Australian wool, the various qualities, and the techniques that were used in those times in shearing, baling, classing and final handling through various stock agents. It was not unknown in those days-regrettably it is still the case today-for a bale of wool to be healthily subsidised by a brick or stone which helped the scales no end.

In the course of the slump a movement got under way to do something about supporting the wool industry and cleaning up its act. This movement was led by a very prominent Queens- lander, Sir William Gunn, who at one stage was the leading light in this area. He was the first Chairman of the Australian Wool Commission and a member of the Board of the Reserve Bank of Australia. Bill Gunn put an enormous amount of work into the rescue operation. It is probably worth repeating some of the history of that matter, because Bill Gunn was opposed by the famous Basic Industry Group. The Basic Industry Group had its heartland here with Charles Russell, from Queensland, as its leading light. He was supported by Mr Crebben, a well known businessman from Sydney, of all places, who probably became better known for Marrickville in his later days, and the late Sir Frank Packer. They ran this group. There was enormous tension within the Country Party and areas of the Liberal Party of Australia in relation to the establishment of the Wool Industry Commission which eventually came about in the 1960s and the 1970s.

It is interesting to note that that was probably the point at which the late Charles Russell, who was a member of this House, left the Country Party, ran as an independent, lost the seat and became quite a maverick operator, both in politics and in business, for the rest of his time. It is probably worth noting that today his son is one of the principal advisers to the Premier of Queensland. That maverick spirit lives on.

Bill Gunn was very ably supported in the establishment of this cause by a number of major operators. On the occasions that I have spoken to Sir William about this period, he has frequently recalled to me meetings of farmers and graziers around Australia at which he was bombarded with tomatoes and eggs. I was looking for the honourable member for Wannon (Mr Hawker), because one of the most well known meetings that Sir William has mentioned to me on a number of occasions was at Hamilton, where he received very vigorous dissent, so much so that the meeting ended up in a free for all. But, as he said to me in his very down to earth Australian way: `It did not really matter, John; we won anyway'. As a consequence of his actions probably more than the actions of any others, the Australian Wool Commission was established, which latterly became the Australian Wool Corporation.

As a consequence of those activities we are now looking at a very sophisticated Australian Wool Corporation and marketing set-up. The Corporation, under the chairmanship of David Asimus, has made a remarkable contribution to the Australian wool industry. I think it has been ably supported by the Wool Council of Australia and the International Wool Secretariat, both of which have intermingled relationship, and the establishment of the joint wool selling organisation, which enabled the wool industry to come together with unions, agents and shippers to create an atmosphere and a market in which they could bring together the various aspects of the product, such as its sale, its transportation and its export, was a credit to them. Today the wool industry probably represents a gross export figure of between $3 1/2 billion and $4 billion a year. Ninety-seven per cent of all wool produced in Australia is exported. Therefore, wool, in itself, is an enormous generator of foreign currency at a time when it is very badly needed. When this legislation comes into force, it is probably significant that the industry would have been heavily consulted and would have approved of such action. I think the Minister for Primary Industry (Mr Kerin) ought to be congratulated for paying attention to the wishes of the industry in relation to the composition of the Bill.

The marketing of wool itself is quite significant. Around Australia, over the past century, marketing facilities have been set up, from very small beginnings. This has been depicted in Henry Roberts's famous paintings of drays taking the wool to the markets. Wool marketing has been established by tradition around Australia. The wool selling centres that have grown up have enabled the Wool Corporation to develop some centres and shut down others and to rationalise the way in which the activities of these centres could most properly be carried out. The Wool Corporation inherited a large portfolio of property from the wartime storage establishment. Some of it was irrelevant and it has been sold, and some very expensive and large storage centres have been established. I noticed in the report of the Australian Wool Corporation last year that a number of new centres have been established, not the least of which was in China, which I will speak about later in the debate.

Marketing has been subject to a number of impacts in recent times. We notice from time to time that wool of equivalent quality varies in price from centre to centre and there have been some very big swings in the price structure in one selling season. We have to look for the reasons for this. Interest rates have to be a prime reason. Quite clearly, buyers of wool will not pay for long periods of storage if they do not have the availability of dumping or access to a shipping connection within a reasonable period of time. These things have impacted on price levels in various areas.

It is the pricing of Australian wool on which the whole support system has been developed. This issue drew most of the fire when the scheme was originally set up. Eight per cent of all the proceeds from wool is deducted by the agents and sent to the Australian Wool Corporation. Four per cent goes on marketing, 3.5 per cent goes into promotion and research and 0.5 per cent goes into general administration. This floor price plan has enabled the Corporation to set out a list of prices for all the categories of wool that are going to be sold. In relation to that, it has been able to play a very significant role in the maintenance of a free market because formerly there were areas in which certain buying groups were acting in concert and producing results which were markedly in favour of the buyers.

Taking into account this activity over the years, the Wool Corporation has judged the market with some astuteness. At times it has had to hold very large quantities of wool in a downturned market or a depressed circumstance. Such things occurred in the 1970s. In the 1980s, when the wool market was feeling the impact of the great desire of consumers around the world to switch to natural fibres and the competition from artificial fabrics was not as strong as it used to be, and as a consequence of the favourable pricing of wool at that time, a lot of work went into wool fabric marketing. As a result, a strong demand was built up and the excess production of wool was gradually taken up, to such an extent that in the last two years the holding of wool stocks by the Australian Wool Corporation has diminished to its lowest point since the Corporation's inception. This is a great credit to its management and its understanding of the wool market.

In terms of financing this operation, as I said before, there is an 8 per cent deduction to the Corporation. Over the period until 30 June 1986, total tax collected was $950m, in round figures. Surpluses of $254m have been added to that. From that sum, $188m has been returned to the growers from the taxation collected-amounts going back to the 1978-79 period. I will cite figures from the financial statement of 6 May-only very recently-of the Wool Council of Australia. It says, as to current policy, that it is possible for 1987-88 to maintain the tax level at 8 per cent and to leave the tax splits at 4 per cent for marketing, 3.5 per cent for promotion and 0.5 per cent for research and development. It also says, as to the revolving fund, that the amount to be returned to the growers in terms of tax for the 1980-81 season will cost the fund $83m. After all that, the balance of the fund today stands at $1.14 billion. Of that amount, some 75 to 80 per cent is in liquid funds. This shows the scale of the success of the management and of the operation. It is an event from which the growers certainly have benefited, the producers have reaped their reward, and users of Australian wool have grown in confidence as to the product we sell. This has been achieved also through the other wing of the Wool Corporation-its promotional activities. Through the International Wool Secretariat, based in London, some very expensive and well-placed advertising programs have taken place.

Our contribution in the year 1985-86 topped the $100m mark. The rewards from this contribution to the promotion of wool world-wide can be seen in the sales figures. China, in the current season, is our second biggest purchaser. That market did not exist in any significant way only a few years ago. This is claimed by the Wool Corporation as one of its significant victories in that time. On top of that, we have seen the build-up of promotional sales in eastern European countries. In the current program, the Corporation is spending money in Spain, Canada and some other areas which have not been tapped to date.

Not only have international markets been pursued, but also here in Australia from 1982-83 to 1985-86 domestic consumption of wool products went up by 53 per cent to a point where we are now consuming two kilograms of wool per head of population-a remarkable achievement which shows the success of the wool promotional activities of the Wool Corporation. Other activities which the Corporation has gone into and which are also adding to the success of the wool industry at the moment include such basic things as pack improvement, training of shearers and research-particularly in pushing the industry gradually but inevitably towards fibre measurement, both for length and for strength. As a consequence of those developments, it is not hard to see that sales in the future will not be in the current form as more and more of this measurement takes place. It is inevitable that computer selling will become a matter of interest to the whole industry. In relation to some other developments, Dr Bob Richardson said:

Developments in wool product manufacturing and retailing also have great potential to influence consumer demand for wool. Some trends in this respect include:

the increasing reliance on brand images and advertising by manufacturers and retailers to raise profits and gain market share;

the emergence of new and different types of companies, which could be called merchandising companies, which control product collections, risk taking and retailing, through franchising, licensing and commission operation, but do not specialise in any of these areas;

stronger vertical co-ordination links by leading established retailers and manufacturers enabling them to control their suppliers and those who sell their products; and

new computer-based technology to improve information flows, speed up product ordering, conversion and distribution and reduce stockholding costs.

Quite clearly, the marketing and research side of the industry has come a long way through the organisation of these matters. It is worth reflecting on the future of the market and projections for it, because I have spoken of marketing, finance and promotion. If we address the physical state of the market for a moment it is interesting to note that since 1982-83 Australian sheep numbers have increased by 20 per cent and shorn wool production by 22 per cent. This clearly indicates once again that the wool industry is increasing its productivity levels which probably means that shearing sheds are better run than they were when the Minister for Immigration and Ethnic Affairs (Mr Young) was there. As I can attest as a former classified wool classer--

Mr Kerin —They have better conditions in them now, that is why.

Mr MOORE —That might well be. They might have wider combs and things like that.

Mr Kerin —We give them mattresses now and all sorts of things, food and all that.

Mr MOORE —I am surprised. The last time I was in a shearing shed it did not look too bad. As a consequence of that and despite the increase in 1985-86, Australia sold over one million bales more than it produced. As a consequence there has been a very rapid rundown in stocks held by the Australian Wool Corporation. In nominal terms the price has increased between 1982-83 and the present by 8 per cent a year which is a very good return to the wool producers of Australia.

The impact of the increase in sheep numbers in Australia and the rapid fall in the Australian stock holding, will mean that available supplies of wool in 1987-88 will probably fall by about 10 per cent in Australia and about 8 per cent in a world sense. Those factors alone must add to the optimistic side of the wool prices equation. This bears out the very optimistic comments made by the Chairman of the Australian Wool Corporation only a couple of days ago when, looking to the future, he said that he could see current price levels being roughly maintained over the next two or three years. These prices are significantly higher than they have been for a number of years and no doubt this not only reflects the supply position, to which I have just referred, the improved promotional activities and the turn-around in consumer demand for natural fibre rather than fabric, but also plays an important part in a reading of the exchange rate position. As Australia's exchange rate has gone down very markedly against the Japanese yen and even against the Italian lira, the price of Australian wool in their terms has become remarkedly cheap. As a consequence it is inevitable that Australian wool prices will be maintained at current levels for that reason alone. The product is marketed internationally as `wool', not as `Australian wool'. It is interesting to note that when one travels overseas and inquires about men's suits-as the Treasurer (Mr Keating) does-quite frequently one is offered Tasmanian wool in a suit as a selling point. That is something that I have not seen done in Australia.

There are three key points in the Wool Corporation's recent activities. The first is the extra intervention in the market place by the Corporation in the last couple of years. In other words, it has bought in the market at prices over the agreed floor level. This activity was engaged in when there was a slackness in the market and the Corporation's judgment was that some of the excess supply needed to be taken out of it. The Corporation acted in that way and time has proved that to be a very profitable and sensible course of action. It is a matter of judgment. From my experience in the share market I would say that going into a market like that can be profitable, but it can sometimes be a losing consequence. The second key point is the push towards the measurement of fibres. While some technical problems have occurred there, it is inevitable and certainly in the best interests of everyone that that program be persisted with. The third element is the question of how we handle shipping problems in the future. Agreement with the Conference Lines certainly guarantees access to availability of transport-at a cost. At a time when the world supply of freighters is vastly over the demand it is inevitable that the Australian Wool Corporation should look beyond Conference Lines to competitive areas in the future.

This legislation is welcomed by the industry. We should all compliment the Minister on the high degree of consultation and understanding that has been achieved with the industry. The Bill removes some of the excessive burdens which had been imposed on the Australian Wool Corporation. The reserve price scheme will now be determined by the Wool Council of Australia in consultation with the Corporation. The Minister will not be as heavily involved as he was before. The wool tax situation now appears to be a matter of consultation between the Corporation and the Council and the market support fund is also a matter of agreement largely within the industry. The funding arrangements now enable the Corporation to borrow up to 50 per cent of its net assets without government approval. As honourable members will recall, I said that by 30 June 1987 those assets would be heading towards $1.2 billion which gives it a healthy amount of leverage before it needs to seek the Minister's approval to go beyond that figure. The wool stores situation is covered by the Bill and some of the loose ends are tied up there. The Bill vests within the Corporation a very substantial property portfolio. The investment in that must be used to the best advantage of the wool industry and it is up to the Corporation to ensure that those properties are properly used and kept to the ever-changing standards required for large storage and for the supply to consumers around the world. These stores are not only in Australia but there is also one in Europe and the latest is in China.

A lot of work went into the selection of the chairman and members of the board of the Corporation. That leads me to believe that perhaps the Minister did not have much faith in some of the members of the board. Otherwise the very particular way in which he went about constructing the selection process would seem to be a very heavy way to go about a filter operation. I do not know the background of that but I have always thought that generally industries put forward their best people. No-one could criticise David Asimus or his contribution. I am not familiar with all the members of the board, but I do know a number of them and I am sure that the ones whom I know would make a most reasonable contribution. Therefore, I wonder about the degree of stress in relation to the selection.

We all approve the desirability of setting up a corporate plan for the Australian Wool Corporation over a five-year period. These days it is very important that all corporations, as well as governments, have some program down the track which they know when they are handling money of this order. The status in which they are held by the community must be appropriate for their position in the future, particularly in relation to ordering requirements and the reporting requirements to the Wool Council of Australia is embraced in this. We also welcome the way in which the Government has backed away from intrusion in the industry and I am sure that this will lead to a happy association and continuing development in this area.

Finally, the Opposition welcomes the proposals in the legislation. This is a contribution to the deregulation of government corporations and a contribution to an industry which is very highly regarded throughout Australia and the world. The industry earns some $3.5m to $4 billion a year in export income. The industry provides an enormous amount of employment throughout Australia. Because of that, if for no other reason, the Opposition supports the Bill. However, I indicate that the Opposition will move some amendments in the Committee stage.