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Thursday, 28 October 1993
Page: 2817


Senator SHERRY (Parliamentary Secretary to the Minister for Primary Industries and Energy) (8.59 p.m.) —I would like to thank members of the government and particularly members of the opposition for their generally positive responses in this debate. I have to say that the first line of the last contribution was a pledge of support for this legislation but the arguments in support of that pledge of support rapidly fell away as the contribution from Senator McGauran progressed. I am going to deal with a couple of the points he made shortly.

  I also want to acknowledge the contribution made by the Senate Standing Committee on Rural and Regional Affairs in its examination of this legislation. I will be drawing on a couple of the comments in its report a little later in my concluding remarks.

  As the Parliamentary Secretary handling this matter, I have to acknowledge the very wide support for the government's approach in dealing with this legislation which arises from the recommendations presented to the government in the Garnaut report. I will stress one issue that is very important. The government realised that it had to move quickly to implement the recommendations of Professor Garnaut, and that is why the legislation is before the Senate this evening. Generally, the market reaction to the government's initiatives and legislation has been positive.

  Some honourable senators from the National Party might find these figures quite interesting. Since the government announced its support for the package on 8 September, the wool price has improved. Prior to 8 September the wool price had been on a progressive decline. In the week ending 29 July this year the wool price was 449c a kilogram clean. It then went down to 438c, 432c, 430c, 413c and then 412c per kilogram clean. Then, bingo, on 8 September the government announced that it would implement the Garnaut package and from then we have seen a progressive increase in the price of wool. In the week ending 10 September the price for wool was 423c per kilogram clean. The following week it was 430c, 433c, 434c, 444c, 451c and then 461c per kilogram clean. I understand that as of 7 o'clock this evening the price had reached 492c per kilogram clean. That is a very significant increase.

  It would not be fair to directly attribute the whole of that price rise to the government's announcement, but it certainly had some impact because it provided a positive undertaking to the market about the direction the government intended to take. That has had an effect on the price of wool. The price rise in wool over the last three months has been approximately 20 per cent. I acknowledge the positive impact that the wool industry and the opposition, to its credit, have played in adopting a generally bipartisan approach to the package when it was announced on 8 September.

  The Garnaut report is all about getting the market signals right and removing government intervention from that market. That is really the basic philosophical principle underpinning the legislation that we are considering this evening.


Senator McGauran —You ran away in `90.


Senator SHERRY —I will traverse back to 1990 briefly later. This legislation provides a clear market signal which will impact—and it is already having an impact—on all aspects of the wool industry right through to farmland, environmental management and integrated land care issues that were raised earlier today by Senator Margetts. I will make a few comments about her contribution later.

  I indicate that the government will not be accepting the two amendments moved by Senator Woodley. I apologise to Senator Woodley that I was not here during his contribution early on in the debate. However, I have sat through most of the debate over the last couple of hours. I was regrettably detained listening to some particular problems that the apple and pear industries have and could not be here for Senator Woodley's contribution.

  Basically the approach Senator Woodley is advocating in his amendments is that he wants a more interventionist approach to be taken to the wool market. That is the philosophy underlying his approach. He is seeking to have this legislation send signals to growers to secure production, but at the same time he is proposing a price band approach to the fixed schedule which will mask the signals that the market should be giving to the growers in any free market that is responding to legitimate supply and demand pressures.

  The first amendment that he is proposing is a price band. The government and opposition are supporting a very specific fixed schedule. That amendment has the effect of a fixed disposal schedule operating within a band of 400c to 800c per kilogram. That would be used to smooth out the so-called price extremes in the sale of the stockpile.

  This price band approach would run directly counter to the basic intention of this legislation and to the policy recommendations of Professor Garnaut. It does that in two ways. Firstly, the introduction of price bands would be a direct contradiction to the Garnaut report's intention to stimulate, as far as possible, real market conditions. That is quite critical.

  The price band would retain the scope for a government agency to exercise a market smoothing policy. I commend Senator Panizza for strongly supporting this fixed schedule rather than supporting some variant in the pricing band as is being proposed by the Australian Democrats. In a strong market a ceiling approach could dampen potential market demand for forward purchases and create speculation as the ceiling is approached. We believe that is highly undesirable.

  The second reason for opposing the first amendment is that the market culture and the change to wool ownership transfer and risk management would be significantly impeded by a price banding policy because it implies a floor price and a price ceiling mentality. When the stockpile has been eliminated the industry will have to live with market supply and demand shifts without price smoothing policies.

  The price bands proposed by the Democrats have the potential to master market signals to buyers and sellers. The key point in opposing the proposal by the Australian Democrats is that the fixed schedule proposed by the Garnaut committee is central to the development of a market and a risk management mechanism which may otherwise be hindered by a price band approach. That is a quite critical issue.

  This matter was canvassed by the Senate committee. On page 14 of the report, Professor Garnaut said:

I know there is a view that it is a bit of a waste to have a strong demand for wool reflected in a higher price for a while. I do not think it is, because I think that the balance sheets of our farming community are so weak that cash in there is cash in a good place.

What Professor Garnaut was pointing out was that we have a fixed schedule and as supply decreases demand should increase—and that is already happening—but if we have a price banding mechanism then presumably there would be more wool released from the stockpile and that would deflate the price that the market is paying for that wool. That would take away from growers some of that price—it may not be the price that they would like—improvement resulting from an increasing demand for wool. We strongly oppose the first amendment moved by the Australian Democrats.

  The second amendment proposes to cover Wool International's so-called trading losses. None of the wool tax for debt management will be used for risky wool international commercial activities, as was alleged by Senator Woodley in his speech today. The debt management will simply not be used for that purpose. There is certainly some flexibility within the legislation for some overselling and underselling of the schedule, but it is very minor. Only particular contracts that may require that will be taken into account. It certainly is not going to occur in any significant way. That will be very closely scrutinised by the industry, by the minister and certainly by Wool International.

  The government has made specific arrangements for funding commercial activities by agreeing to allow the revenue stream from non-wool assets managed by Wool International to be used to develop new risk management tools such as futures. So there is provision for those non-wool assets. I would assume that the non-wool assets would include primarily property, warehouses and the like that Wool International may choose to sell. In any case, the risk management mechanisms are designed to reduce risk—not increase risk. I think that is quite a critical factor in the farm business. So it is not inherently risky, as has been suggested by Senator Woodley.

  The wool debt is clearly regarded by the Commonwealth as an industry debt for which the industry is ultimately responsible. At the time of privatisation, the government has confirmed its commitment, through its legislation, to issue shares in Wool International to wool taxpayers. I think that is a commendable approach.

  The government already covers by guarantee the entire debt associated with the wool stockpile, which currently amounts to $2.2 billion. So it is not appropriate to provide an additional guarantee over and above the existing guarantee, as is proposed in the amendment moved by Senator Woodley. Once privatised, Wool International will operate as a full commercial company under the corporations law. The sooner the body accommodates activities in the commercial environment, the stronger it will be at the time of privatisation.

  When I commenced my speech, I referred to some comments by Senator McGauran. I want to say very briefly that there can be no absolute guarantee for the future of the wool industry. But this legislation provides much greater certainty for the markets in their assessment of the future supply of wool and, therefore, the likely demand and price for wool producers.   Senator McGauran tabled a document which says that today's wool price is at a record low and is equivalent to prices during the depression. That is simply not correct. This was certainly true up until six months ago and it was certainly true in the last two years. But the price in the last three months is not far from the average price that was being received from 1975 through until 1987.


Senator Panizza —Oh yes, but—


Senator SHERRY —I am not saying that that price was necessarily a great price, but certainly Senator McGauran's assertion is incorrect on that point.

  I also want to rebut Senator McGauran's criticism that Mr Kerin, a member of the other place and the former Minister for Primary Industries and Energy, presided over the dismantling of the Australian wool industry.


Senator Boswell —He did.


Senator SHERRY —Let us be fair to Mr Kerin, Senator Boswell. There were not too many people criticising Mr Kerin up until 2 1/2 years ago. I certainly did not hear too many critics in this place. There were not too many critics out there in the wool industry.

  I do not think anyone could have foreseen the collapse in demand, which was brought about—this was not the only factor, but it was certainly an important factor—by the collapse of the communist regime in the Soviet Union. One of the ironies of the position we are in today is that the collapse of the former centralist and planned economy of the Soviet Union has led to the end of centralised buying of wool in that country, and I think it will be a long time before it recovers. So in making a criticism of Mr Kerin, let us at least be a little balanced in acknowledging that there were other factors. From my conversations with Mr Kerin, I think he does acknowledge that he made some errors during that period.

  I would like to thank various members of the opposition. I have already thanked Senator Panizza for his contribution. He picked up a very vital point that was made in the Senate report. I think the point was made by none other than one of the critics of these proposals, Dr Lionel Ward, who speculated that we could have a shortage of wool. He said:

You could have a situation in which prices, internationally, for Australian wool, not only rise to the level desired and sought by Australian woolgrowers, but rise to a level which makes wool uncompetitive and causes a substitution out of wool before we have had any decent recovery.

I found that a rather fascinating criticism of these proposals. Senator Panizza quite rightly picked up that point. The honourable senator made the very vital point that if we cannot supply the market we will be in a good position because the price will be very much higher. I see Senator Panizza nodding; he is spot on. I do not think that can be a legitimate criticism of this legislation, as was outlined by Dr Ward before the committee.

  Senator Panizza drew attention to the costs involved in the production of wool. I again pay him credit for pointing out that, whilst he was concerned about shearing costs, he did not necessarily see that that could be addressed by reducing the pay rates of shearers, whom he acknowledged are amongst the hardest workers in our Australian community. I certainly endorse those comments.

  Senator Sandy Macdonald referred to the work of the opposition in looking at the legislation. As I have said, I commend and thank the opposition for its support. I think Senator Macdonald made some grossly unfair criticism of the Minister for Primary Industries and Energy, Mr Crean. I thought it was very unfair to condemn him for being absent without leave. I have been with Minister Crean on a number of occasions over the past couple of months when he has held consultations with the wool industry. Within the confines of the minister's very busy schedule—the minister deals with energy issues and other primary industry, resource and forestry matters; it is a very heavy set of commitments—the government consulted as widely as it could, having regard to the necessary time frame which required a reasonably quick response.

  The government's consultative process commenced within half an hour of the public release of the Garnaut committee's report, and it continued. The process took place over a 2 1/2 month period and involved the minister, members of the minister's office and officers of the Department of Primary Industries and Energy. Meetings were held with representatives of all the wool industry sectors, including producers, traders, processors and manufacturers. Meeting were held with both domestic and overseas representatives of the processing and manufacturing sectors. The Wool Council of Australia also carried out its own consultative process. So I cannot accept Senator Macdonald's criticism of my minister.


Senator Boswell —You have one minute to go.


Senator SHERRY —Thank you, Senator. I want to make a couple of brief points. Senator Margetts drew attention to a whole range of environmentally sustainable economic development issues. They are legitimate issues. But, frankly, if we had to deal with the sorts of issues that Senator Margetts wanted Professor Garnaut and us to consider, I suspect that we would be writing this report for the next 10 years.

  Finally, on the issue of wool promotion, $277 million has been provided over the last 10 years. As Senator Boswell pointed out, there will be a package presented by the minister. He has been exhaustive in his work overseas in this area. This is an integrated package. It represents a significant watershed for the industry. It creates opportunities; it creates a strength for the future of the wool industry. I commend it to the Senate. (Time expired)

  Question resolved in the affirmative.

  Bills read a second time.

WOOL INTERNATIONAL BILL 1993

  The bill.