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Thursday, 24 March 1994
Page: 2264

Senator PANIZZA (5.19 p.m.) —Before I enter this debate with pleasure during National Wool Week, I wish to declare my interest as a woolgrower. In fact, the previous person in the chair, Senator McKiernan, was quite surprised to hear that I am a woolgrower. Because a person does not wear a tweed sports coat, oilskin trousers, elastic-sided boots and an Akubra hat, does not mean he or she is not a woolgrower. My family have been woolgrowers since the 1930s. Perhaps I will begin my remarks by giving the Senate the statistics which show the importance of wool to Australia.

  The Australian woolclip in the 1950 financial year—I might be out by one year but no more—when wool hit that pound for a pound sort of situation, was worth more than all the gold mined in Australia from 1853, or whenever gold was first found in Australia, right through to 1950. In other words, 97 years of gold production in Australia was worth less than the Australian woolclip. That shows honourable senators the magnificent contribution to Australia that wool had made, has since made and will continue to make in times to come.

  I now turn to the wool industry's position at this stage and what it will be in the future. I do not need to tell the Senate that the wool industry is in bad shape at the present moment. That has been pointed out by previous speakers, so I will not go into that again.

  In the disaster of the late 1980s demand for wool had risen, production rose out of control—not that I believe in trying to control production—there was no reserve price scheme so nothing took into consideration the value of the Australian dollar and production took off. The industry had a certain greed. It was quite happy to accept the recommendation by the Wool Council of Australia that the government set a reserve price of 900c a kilo or thereabouts. The government at the time and Mr Kerin, as the then minister responsible for primary industry, accepted that recommendation. Of course, that situation could not have lasted forever and there was a total collapse in prices. Overproduction followed Mr Kerin's ironclad guarantee overseas that that reserve price scheme would not be taken away. When reality hit, the scheme collapsed and the rest is history. The prices collapsed completely. The reserve price went below 400c a kilo clean.

  There has been a lot of trial and error in trying to turn the market around since that time. Fortunately—probably on the third go—a new marketing scheme was set up and put into place by the previous minister for primary industry, Mr Crean. That scheme is only starting to come into play now. The minister's main change was from a fixed debt reduction scheme to a fixed wool stockpile reduction scheme. I give Mr Crean some credit for that, even though I did not give him much credit when he first became responsible for that portfolio.

  I thought our new farmer's friend, Senator Collins, might have taken part in this debate this afternoon. I thought he might have been in the chamber, listening and making a contribution. I think, in time, Senator Collins might even make a contribution to primary industry, as he tells me he is the farmer's friend.

  As I have said, there have been various changes. We now have the fixed wool stockpile reduction scheme. It was supposed to begin on 1 November 1993 with $24,800 bales per month. But, with the price being so weak at the time, it was impractical to carry on along that line. The reduction of the stockpile was put off and a trial parcel was put into some auction sales for a few weeks. I understand that has been reasonably successful. On 1 July 1994 the reduction will be 187,000 bales per quarter.

  I believe in this new scheme to reduce the stockpile because it is a very transparent scheme. The growers and the trade can forecast what will come off the sheep's back when they look at the sort of season they have had and the sort of production there has been. What is coming out of the stockpile is very transparent.

  Then there is the good scheme where, if the demand takes more out of the stockpile than those 187,000 bales per quarter—that is multiplied by four for one year, of course; Senator Boswell might work that one out in his head, but it is just below 800,000 bales—corporations can buy back in. I agree with that. We will keep a certain demand and supply. Of course, if a corporation buys back in it refreshes the stockpile.

  I heard Senator Troeth say that there would be no damage to the stockpile, but from my information there could be a certain amount of damage. If older wool goes out and newer wool comes in the stockpile will freshen up. I agree with that and look forward to seeing how it will work.

  Of course, we are a long way from being able to say that woolgrowers are out of the wood, or out of trouble. The other day when we were talking about presenting this motion to the parliament, one of my colleagues said, `But the price of wool has gone up'. It certainly has, but it is nowhere near being in a viable situation. At present the national wool indicator stands at 564c a kilo, but it was below 400c a kilo in November of 1992, if I have the right month. It has improved slightly since then, and we are probably at a higher rate now than has been forecast for some time. But it is hardly at a rate high enough to cover the costs of production. I can see a future in wool. The price of wool will gradually rise, as it has always done in other depression years.

  I believe that the price has to reach 750c a kilo, otherwise it will only be a holding situation. When woolgrowers reach that point, two issues have to be addressed. The most important issue that has to be addressed—it has been mentioned by previous speakers—is to retire debt. Mr Keating said the other day that, with the improvement in the business sector as a whole, business people and companies now have to start investing or there will be other news for them.

Senator Tambling —And he's getting out of the pig farm.

Senator PANIZZA —Yes, and he is getting out of the pig farm, I hear. How can he say that? When business turns around—there have been depressive years in all industry, let alone wool—a certain debt accumulates. Senator Boswell pointed out the situation of the woolgrowers' debt. When there is a turnaround—I can see it is going to be at least another three years—retiring a debt will be the first major important factor to take place.

  When farmers are in a better situation, farm maintenance and improvement will have to be looked at again. If we go around the rural and remote areas of Australia, as I do, we can see by driving down the country roads the state of disrepair of the fences.

  Another important issue pointed out by Senator Troeth concerns landcare. I know from figures on grazing areas as against cropping areas that there has been a minimal application of fertiliser over those years. I believe that a price of around 750c a kilo has to be achieved before the debt load can be reduced and more spending occurs on the farm. If his family wants to take it on, a woolgrower can pass a well set up and productive farm on to his children.

  If we ever reach that 750c a kilo, the future will be controlled by two points: production and demand. Production is stabilising, and it has been stabilising for quite a while. Certainly since the disastrous happenings in 1989, 1990 and 1991 production in Australia has been going down.

  One of the main reasons why production has gone down is because the fringe growers have disappeared again. By fringe growers I mean those woolgrowers who came in, say, from the cattle industry and from the higher rainfall grain industry areas. When wool reached a guaranteed minimum price of 870c a kilo, they moved into wool growing. When it collapsed, they moved out as fast as they came in. The result was that they took those higher prices and left the debt of the stockpile, which was some four million bales—a record debt. That has been left for the present growers to deal with.

  Some woolgrowers were forced out by massive debts. I suppose we could say that most of that slack caused by the woolgrowers who left was taken up by others who bought their farms, provided that they continued to grow wool on those farms that they had taken over.

  Probably the hardest hit area in the downturn of the last three or four years has been the pastoral area. In the agricultural areas, and in the higher rainfall cattle areas people who had gone into wool were able to go back to cattle and grain. It was easy to change over. But certain pastoral areas can run only sheep; they cannot run cattle. It is very hard to change over from one to the other, and they were locked in. They are the ones who have probably suffered the most.

  I turn to the demand side. We had an economic downturn in western Europe, and in central Europe because of the breakdown of the central government. We also had a downturn in Japan. The world demand for wool has decreased along with the world economic situation in the last three-odd years. If those countries return to strong economies, I believe that the demand for wool will increase again in the next two or three years.

  I turn to countries that have been great customers of Australian fine wool. Italy was a good customer, but its economy has gone down. Perhaps things will improve in Italy after the election next weekend. In Germany and France the economy has gone down. Japan's economy has been declining. They all declined in 1993. The odd one out is the United Kingdom, which seems to have got over the worst of the slump in the economy and is now returning to greater strength. The demand for Australian wool in the United Kingdom has increased in the last few months.

  Fashion is the other factor relating to demand on wool. Whether we like it or not, fashion dictates what people wear. It is not only women's fashion but men's fashion as well, and it is big factor in how much wool is consumed. The average demand per person in western Europe, Japan and the United States in recent years has been for about 2.2 kilos, but that average has now gone down. Hopefully, it will return. Fashion, and how much wool is used, has a great bearing on the market.

  I was speaking to an Italian industrialist, who is based in Sydney for the next three years and who is taking over three or four Australian woollen mills and probably turning them into one, and he mentioned the change in people's clothing because of the cars that they drive—I hardly believed this at the time—particularly with the advent of four-wheel drive vehicles. Not only in Australia but elsewhere people are driving vehicles like the Toyota Landcruiser GLX, or whatever it is called. Canada and the United States are full of these four-wheel drive vehicles. They are called RVs over there, which stands for recreation vehicles. Europe is the same. Even people in Greece, where my friend on the other side of the chamber has his roots, use four-wheel drive vehicles.

Senator Bolkus —Not on the islands.

Senator PANIZZA —We will discuss that at another time. I think he must have had a four-wheel vehicle at some stage. This industrialist was telling me that people driving those cars instead of vehicles such as Mercedes or, say, Holdens wear different clothes. This different clothing requires material other than wool. I was very surprised to hear that. So fashion dictates the fabrics used.

  In eastern Europe and the former Soviet Union they are moving from a central market to a free market or market-based situation. The demand for wool in those countries has virtually dropped to zero whereas in the 1980s they took 10 to 20 per cent of our wool.

  I visited Poland, Czechoslovakia, Hungary and Bulgaria three years ago and looked at their wool industry. I looked at what they were buying and manufacturing from Australia. Unfortunately, their mills are very run-down and will have to be looked to in future so that they can produce and sell products to eastern Europe or back into western Europe. A lot of money has to be spent on these mills to get them to the required standard. To get a demand in those countries will take a long time but I believe it will come. China is in the same situation. It is taking far less wool from us than it used to but hopefully demand will improve.

  We, in this place, tend to think that Australia is virtually the only wool producer in the world. I used to think that Australia grew most of the wool. It grows 80 per cent of the world's marketable wool, not of the world's wool. China, to my knowledge, grows more wool than Australia does, but it is all woven and used on the farms, so it does not get onto the world market.

  Two countries in the world are vastly expanding their wool production and they produce pretty good wool. One is Uruguay and the other is New Zealand. Those countries will have a great bearing on the world wool price in the future. Argentina has been a good producer of fine wool, helped very much by the Australian merino that was imported when the embargo on their export from Australia was lifted. The debate about the merino embargo is for another day. Argentina's production has gone down markedly in the last couple of years. But that was caused by a volcano disaster that wiped out a lot of its stock and the fact that it is replacing its sheep with cattle because of the foot and mouth disease problem.

  So there are a lot of factors that will have a bearing on wool prices that we can expect to receive. I believe there is a future for wool in Australia, because up until about four years ago Australia was producing and exporting $6 billion worth of wool. We are still producing and exporting $3 billion worth of wool. That figure is still greater than for gold production to this stage.

  Senator Troeth mentioned that a lot of wool is used for insulation. It makes good insulation in houses. The point I make is that if wool is cheap enough to use for insulation in houses then it is not worth growing. I admire those manufacturers of insulation made from wool but when wool returns to 750 kilograms, which I believe is necessary for the industry to survive, I believe that product will be priced out of that market. I believe in wool being used as fibre in the clothing and allied industries. It must retain a certain price to keep it in those industries.

  In conclusion, I can see a future for wool and I know that Australian producers and the people that rely on their income, such as the shearers, the local stores and the stockhouses of Australia, have had a bad time in the past. I can see a future and I hope that it will not be too many years before wool gets back to its previous position of earning Australia's export income.

  Question resolved in the affirmative.