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Wool Legislation Amendment Bill 1990



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House: House of Representatives

Portfolio: Primary Industries and Energy

Purpose

To allow the Australian Wool Corporation (AWC) to use money from the Market Fund for schemes for the disposal of sheep and a scheme for making payments to woolgrowers whose wool could not be marketed until after 30 June 1990 because of the flooding which occurred in NSW and Qld. The Bill will also allow the AWC to vary determinations regarding the apportionment of the wool tax, exempt carpet wool producers from paying the Market Fund portion of the wool tax and from the Reserve Price Scheme.

Background

A wool tax is payable by growers on the sale value of shorn wool. The bulk of the wool tax is used to fund the Reserve Price Scheme (RPS). The RPS guarantees a minimum price for wool sold at auction in Australia. The objective of the RPS is to provide stability and predictability of prices for Australian wool at the maximum sustainable long-term level. Under the RPS, the AWC buys wool that fails to attract bids at or above the Reserve Price (also referred to as the floor price). Wool bought by the AWC is held in store until market prices rise, when it is re-offered to the market. The Reserve Price is set for each wool selling season by the AWC. In 1989-90, the wool tax raised $464.1 million compared with $434.5 million in 1988-89. The rate of wool tax has been increased from 8% to 18%

from 1 July 1990 and from 18% to 25% from 4 October 1990.

After reaching a peak of 1257 cents per kg (c/kg) in April 1988, wool prices have fallen with the market indicator averaging 722 c/kg in the first eight weeks of the 1990-91 season. An average of 720 c/kg is forecast for the 1990-91 season as a whole . The value of wool exports in 1988-89 was $5.939 billion. Preliminary figures for 1989-90 estimate the value of wool exports to total $3.706 billion, representing a fall of $2.233 billion. The value of exports in 1990-91 is forecast to be $3.882 billion. Australian wool production is expected to total 1106 kilo tonnes (kt) in 1989-90, up 147 kt on the 1988-89 total, but is forecast to decline slightly to 1087 kt in 1990-91. The number of sheep shorn is expected to increase slightly in 1990-91, from 215 million to 216 million. The national sheep flock is forecast to total 174 million in 1990-91, representing a fall of 1 million sheep on the 1989-90 total. To support the RPS, AWC stocks have grown from 188 000 bales at June 30 1989 to 3.4 million bales in September 1990. The AWC stockpile is forecast to exceed 4 million bales in 1990-91.

Between 1986-87 and 1988-89 the minimum reserve price for wool increased by 71% from

508 c/kg to 870 c/kg. It was announced on 31 May 1990 that the minimum reserve price for wool would be lowered to 700 c/kg in the 1990-91 season. The fall in wool prices and increase in the AWC stockpile has been attributed to a number of factors, including: a slump in demand, particularly from Asian buyers (e.g. Australian wool exports to China from July to November 1989 were 14 kt less than half the volume in the corresponding period of 1988); and over-production by growers.

The current down-turn in demand and maintenance of wool production levels is likely to place the wool industry under a number of short to medium term pressures, including:

*a build-up in AWC stocks with corresponding stock holding costs (e.g. the direct cost to the AWC of handling and storing projected wool stocks over the medium term, 1990-90 to 1994-95, is estimated to be $375 million and the opportunity cost of using grower funds and the interest charges on borrowed funds amount to $2.4 billion);

*a run down in AWC funds with the need for outside borrowings and corresponding debt servicing costs;

*an increase in the level of the wool tax to help fund stock holdings and provide additional equity for borrowings; and

*a significant reduction in farm-gate returns.

A number of options have been canvassed by various commentators that could alleviate the industry's current position, including:

*raising the wool tax to fund further purchases and stock holding costs;

*lowering the Reserve Price;

*suspending the 10 c/kg premium for wools which have been additionally measured until the market recovers;

*the AWC announce that its stocks will not be available for sale until the market has recovered substantially;

*the AWC increase funding for wool promotion;

*abolish and replace the Reserve Price Scheme with a system of sale by Dutch type auction; and

*develop counter-trade (barter) agreements with other countries under which Australia would be able to trade wool for goods and services.

Initiatives which have been taken, or have been stated will be taken, by the Government and the wool industry to alleviate the industry's current position include:

*increasing the wool tax;

*lowering the minimum reserve price;

*establishment of a wool policy council;

*increasing the AWC's borrowing limit;

*imposing a surcharge on the wool tax;

*introducing export control and quota mechanisms;

*reducing the quantity of wool which can be offered at auction;

*institution of a sheep slaughter scheme;

*exempt carpet wools from the market support component of the wool tax and the RPS for a two year period; and

*increase promotional activities and explore ways of restoring and increasing access to the Soviet and Chinese markets.

Since the introduction of the RPS in 1974 there have been two periods during which there has been a significant down-turn in world demand and the AWC has accumulated large stockpiles of wool, In 1974-75 stocks built up to 1.87 million bales. Recovery of the world market for wool in 1976 boosted demand and stocks were dissipated within five years. Between 1981-82 and 1983-84, stocks built up to 1.59 million bales. This stockpile was dissipated within four years following a recovery in the world market for wool. These experiences suggest that dissipation of the current stockpile will take a number of years.

Main Provisions

Amendments to the Wool Marketing Act 1987

Clause 6 provides that the AWC Chairperson may allow AWC directors to participate in meetings by telephone, closed-circuit television, or by any other means of communication and that the AWC may regulate its proceedings as it considers appropriate.

Section 46 of the Act allows the Wool Council to determine the percentage of the sale value of shorn wool that is to be paid into the Market Fund, to the AWC for wool use promotion, the AWC's general purposes and the Research Fund. The effect of sub-clause 7(a) will be to exempt carpet wool producers from paying the Market Fund portion of wool tax. Basically, the effect of sub-clause 7(d) will be to allow the Wool Council to vary during a financial year the percentage of the wool tax that is to be apportioned to the Market Fund, the AWC for wool use promotion, the AWC's general purposes and the Research Fund. Variations are to be notified in the Gazette as soon as practicable and will have effect from Gazettal. Clause 7 will have effect from 4 October 1990 (clause 2).

Clause 9 provides that money from the Market Fund may be used for the implementation of schemes for the disposal of sheep and, with the agreement of the Wool Council, in the implementation of a scheme for making payments to woolgrowers for wool the marketing of which was delayed until after 30 June 1990 by the flooding that occurred in NSW and Qld in April and May 1990. The AWC will not be allowed to provide for the implementation of schemes for the disposal of sheep, more money than approved by the Minister for that year. The proposed payments to woolgrowers for flood-affected wool will only apply to wool produced during the 1989-90 financial year which, in the AWC's opinion, could reasonably have been expected to be offered for sale at auction in 1988-89 had the flooding not happened. Clause 9 will have effect from 4 October 1990 (clause 2).

The effect of clause 13 will be to exclude carpet wool from the RPS. Clause 13 will have effect from 4 October 1990 (clause 2).

Amendments to the Wool Tax (Administration) Act 1964

`Carpet wool' is defined in clause 16 to be: not less than a bale of shorn wool that has been certified by a registered laboratory to be not less than 32.0 microns in thickness; or shorn wool bought, other than at auction, by a registered carpet wool co-operative or a registered carpet yarn manufacturer for exclusively manufacturing carpet yarn; or shorn wool bought, other than at auction, by a registered wool-dealer, for sale to a registered carpet wool co-operative or to a registered carpet yarn manufacturer.

Wool will not be taken to have been purchased exclusively for the manufacture of carpet yarn unless the buyer has given the seller a certificate signed by or on behalf of the buyer stating either that the wool is bought for use exclusively in the manufacture of carpet yarn (clause 16).

Wool bought by a registered wool-dealer will not be taken to be bought for sale to a registered carpet wool co-operative, or to a registered carpet yarn manufacturer, unless the wool-dealer has given the seller a certificate signed by or on behalf of the wool-dealer stating that the wool is bought for sale to a registered carpet wool co-operative or to a registered carpet yarn manufacturer (clause 16). Clause 16 will have effect from 4 October 1990 (clause 2).

A new section 16A will be inserted into the Act by clause 17. Basically, clause 17 sets out the administrative requirements which will have to be complied with for registration as a carpet wool co-operative or as a manufacturer of carpet yarn. Clause 17 will have effect from 4 October 1990 (clause 2).

References

The statistics used in the `Background' to this Digest come from the following sources:

the Australian Wool Corporation, Annual Report 1989-90, p. 7.; the Australian Bureau of Agricultural and Resource Economics, Agriculture and Resources Quarterly, Vol. 2, No. 3, September 1990, pp. 247 and 248; and the Australian Council of Wool Exporters, The Current Wool Market Situation - Policy and Institutional Implications, January 1990, pp. 34 and 35.

Bills Digest Service 9 November 1990

Parliamentary Research Service

For further information, if required, contact the Economics and Commerce Group on 06 2772462.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1990

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1990.