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Comprehensive recovery plan for the wool industry



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JOHN KERIN M.P. CANBERRA

MINISTER FOR PRIMARY INDUSTRIES AND ENERGY

COMMONWEALTH------parliamentary library MICAH ■

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DPIE91/116K 30 April 1991

COMPREHENSIVE RECOVERY PLAN FOR THE WOOL INDUSTRY

John Kerin, Minister for Primary Industries & Energy, announced today the Federal Government’s reforms of the administration of the Australian wool industry after July 1, 1991.

"This comprehensive plan for recovery of the wool industry allows it to retain responsibility for its own destiny while receiving the continued support of the Australian Government,” Mr Kerin said.

Enacting legislation will be presented to Parliament in May. The main elements of today's decision are:

* the Reserve Price Scheme is to be removed permanently.

* the Australian Wool Corporation (AWC) will be replaced by three new statutory bodies:

- a Wool Realisation Commission (WRC), responsible for managing the AWC's debt and stockpile of wool - a new Australian Wool Corporation (wool promotion and facilitation of marketing, including quality control) - a Wool Research and Development Corporation (WRDC).

* A permanent Australian Wool Industry Council will be established to provide coordination and advice to the Minister on strategic directions for the industry.

* The AWC’s expected $2.88b debt will be repaid over a maximum period of seven years, with minimum annual debt reduction targets. Repayment will be made through income earned from a combination of sales from the 4.7m bales of wool in stock, sale of property assets owned by the AWC, and continuation of the

levy on the sale of wool.

* The Commonwealth will facilitate a $200m interest free loan over 2 years as an advance on the sale of the property assets. This will enable the industry to maximise the returns from property sales.

* The wool levy on growers is to be reduced from 25% to 15% from the start of the new season on 1 July, 1991.

* The Realisation Commission will have discretion to determine its policy on sale of wool from the stockpile, within guidelines set by the Government. While sales will be permitted from the currently frozen stockpile from 1 July, it is expected

that there would be few, if any, sales in the early part of the 1991/92 season.

* The Commonwealth's guarantee of the industry's debt will continue for the period of the repayment schedule. *

* Provision is to be made for any surplus after discharge of the debt to be distributed to growers.

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* Pending the new legislation, the current AWC will continue . to operate. The AWC Board will remain for that period. To ensure that the necessary planning is undertaken to have the corporations operational when the legislation is passed, a

representative of the Minister will be appointed to work with the Managing Director of the AWC and with the three Chairpersons designate to develop by mid June draft operational plans for each new institution.

"The Government made its decisions in full knowledge of the fact that the wool industry underpins much of our rural economy and is the main agricultural contributor to Australia's export income, * ' Mr Kerin said.

"These measures responsibly address the biggest crisis our wool industry has faced in modern times: the wool industry is facing a major adjustment to market prices and, at the same time, it is saddled with an enormous debt and huge stockpile of wool.

"We need to put behind us the sometimes bitter debate about how this situation came to pass. I believe most people in the industry are prepared to do that - in my discussions over the past weeks with growers, buyers, brokers and users, their

interest was in building a strong future for wool.

"The package I will present to Parliament provides the basis for that future.

"The seven year debt repayment will mean that there will be no firesale from the stockpile. Seven years is a maximum and it may well be that market circumstances will enable the debt to be paid off earlier," Mr Kerin said.

"The current price levels make wool very competitive against other fibres. This will enable Australian wools to regain market share that we have lost to competitors.

"The process of adjustment will be difficult, particularly next year when the full effect of market prices will be felt by growers for the first time. Grower incomes will be sharply reduced, and be negative for many. Some growers will not be viable at the present price levels.

"The $96m increase in the Rural Adjustment Scheme funding I announced last week will provide direct Government support to assist viable farmers through the difficult period and to assist others to leave the industry.

"The Government has previously provided $300m in February to ensure that growers bringing wool forward after the floor price was suspended were not disadvantaged. That Supplementary Payments Scheme applies for the balance of this season.

"I share the confidence in the future of wool expressed by Sir William Vines in his report on wool marketing. There is great strength and resilience in this industry which, I believe, will see it through the painful period of change," Mr Kerin said.

"The Government is demonstrably committed to supporting the industry through this period. I call on all involved in the industry - individuals and organisations - to match this commitment with the cooperative determination necessary to

achieve the goal of recovery and renewed prosperity."

For more information contact: Simon Grose 06 2777 520

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DETAILS OF NEW WOOL INDUSTRY STATUTORY BODIES

The existing Australian Wool Corporation will be replaced by three new statutory corporations: the Wool Research and Development Corporation, the Wool Realisation Commission, and a new Australian Wool Corporation which will handle promotion and

facilitate wool marketing, including quality control.

Each will have a Board and Chairperson with strong linkages between them. Selection arrangements for the new Boards will commence immediately with appointments pending passage of the new legislation.

WOOL REALISATION COMMISSION

The Realisation Commission is the legal successor to the AWC in respect of borrowings made by the Corporation. The Commonwealth's guarantee on those borrowings remains. The AWC’s expected $2.88 billion debt arising from the Market Support

Fund, the AWC wool stockpile and those of its non-wool assets which are to be applied to debt reduction, will be transferred to the Wool Realisation Commission.

The Commission will manage the borrowings to eliminate the debt over a maximum of seven years, and earlier if circumstances permit, and to meet each year the following minimum targets:

Debt Reduction Debt Outstanding $m $m

1991/92 20 2859

1992/93 300 2559

1993/94 400 2159.1

1994/95 500 1659 k

1995/96 550 1109 V

1996/97 550 559

1997/98 559 0

The Commission will be required to manage the debt so as to reduce the liabilities outstanding at the end of each year by at least the amount required by the announced reduction schedule. The Commission will be expected to take advantage of periods of

strong demand to accelerate the repayment period. At times when the market price is significantly below the level that becomes its mid-term trend, the Commission shall as far as possible, consistent with the debt reduction schedule, avoid selling large quantities of wool.

Provision will be made to return to growers any surplus that may remain after the discharge of the debt.

The timing, terms, and rate at which wool is sold from the stockpile will be decided by the Board of the Commission, consistent with meeting the debt repayment schedule. The Commission should provide as much transparency as possible consistent with its overall charter, including publishing

regular statistics on actual sales from stocks and the level of stocks remaining.

The Government has taken the view that giving a large measure of flexibility to the Board of the Commission to determine its approach, in consultation with the industry, is preferable to having Government-determined release rules.

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The Commission should also manage its sales so as not to impede the development over time of an efficient market for wool, including the development of facilities for growers and buyers to offset risk.

The levy on the sale of wool (the wool tax), which is currently 25%, is to be set at 15% from the start of the new season on 1 July. As at present, this includes provision for a component of the tax to be allocated to wool promotion and research and development.

The sale of AWC’s property assets will be an important component of the debt repayment scheme. The Commission will be required to sell these assets as early in the period as the commercial property market permits, with the expectation that the property would be sold in the first two years. In view of the state of

the present real estate market, in order to give the Commission time to get the maximum value out of the property sales, the Commonwealth will facilitate a $200m interest-free loan over two years as an advance on the sale of the assets. .

The seven year maximum repayment schedule will give the Commission some capacity to judge sales in accordance with the market. In the next season, to meet the target of reducing the debt by a minimum of $20m, the Commission would be required, with prices at around current levels, to sell only a small

amount of wool - in fact around 3-6% of the stocks, given a 15% tax rate, and substantial property sales.

Debt management will also be an important part of the Commission's role, particularly in respect of decisions on the currencies in which the borrowings are to be placed, interest rates, and length of maturities. These will be matters for the Board of the Commission to determine within the overall

requirement that it take a prudent approach to risk management given the contingent liability carried by the Commonwealth.

The Commission will be responsible for the administration of the Supplementary Payments Scheme. Although it ceases to apply on 30 June, payments under the Scheme are not expected to be finalised until some time in August. The Commission will not undertake

any additional commercial borrowing after the final cost of the Supplementary Payments Scheme is known.

THE NEW AUSTRALIAN WOOL CORPORATION

The new AWC will be responsible for the facilitation of wool marketing, including product quality, quality control and standards in the promotion and marketing of wool. An objective of the AWC, over time, will be for the quality assurance and

services functions to be carried out to the maximum extent possible by industry.

The new AWC will also be responsible for wool promotion. It will be responsible for oversighting the International Wool Secretariat (IWS) from an Australian perspective, including monitoring and analysing its performance. It will also channel Australian funds to the IWS and account for those funds to Australian woolgrowers. Members of the Board of the new AWC will be represented on the Board of the IWS.

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The Vines Committee has made a number of specific recommendations about Australia's relationship with the IWS, both in relation to its governance and IWS responsibilities for promotion. It is intended that the governance and management of

the IWS will be taken up with the incoming Chairperson of the new AWC. The Government, however, will not seek an active, ongoing involvement in IWS activities.

THE RESEARCH AND DEVELOPMENT CORPORATION

In February the Government announced its intention to establish a Wool Research and Development Corporation which will be established at the same time as the other institutional changes. Its function will be to plan and implement an effective R&D program and allocate priorities to encourage commercialisation of R&D results. As part of its charter, the R&D Corporation will need to establish direct links and suitable arrangements with the IWS.

AUSTRALIAN WOOL INDUSTRY COUNCIL

The Wool Industry Council will carry out functions relating to co-ordination in the wool industry. It will be required to provide advice to the Minister on matters affecting the interests of the wool industry, propose overall strategic directions for the industry as a whole, and provide a forum , within which the various sectoral bodies can discuss matters of

overall industry significance.

BOARD AND SELECTION COMMITTEE ARRANGEMENTS

A seven-member selection committee (a Presiding Member, plus i ; three appointed after consultation with the Wool Council of Ϊ Australia and three with other expertise) will provide ; nominations for the Boards for the AWRC, the new AWC, and the Wool R&D Corporation to the Minister. The Minister will appoint

each Board member.

The Board structure for the new AWC, the AWRC, and the AWRDCorp will be similar and there will be 9 people on each Board. Each will have a Chairperson, two members who are managing directors/directors of the other organisations, and a Government member. There will be 5 members with special expertise or

experience (eg woolgrowing, quality control, promotion, business/financial management). Two of the total Board membership, one of whom may be the Chairperson, will be required to have demonstrated substantial experience in woolgrowing.

It is proposed the Australian Wool Industry Council comprise a Chairperson (selected by the Minister), the Chairpersons of the new AWC, AWRC, and the WRDCorporation, as well as the Presidents of exporters', brokers', private treaty merchants' and processors' organisations, and a Government member. There will be 3 woolgrower representatives, two nominated by the Wool Council and one other grower nominated by the Minister. The AWIC will be serviced by a small secretariat funded by the Department

of the Primary Industries and Energy and meet quarterly.

For more information contact:

Simon Grose 06 2777 520