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Tuesday, 27 October 1970


Mr ANTHONY (Richmond) (Minister for Primary industry) - I move:

That the Bil! be now read a second time.

The object of this Bill is to establish a statutory body to be known as the Australian Wool Commission, empowered to operate a flexible reserve price scheme for wool sold at auction and to perform a number of other functions relating to the whole clip aimed at improving the marketing of Australian wool. I explain the background to the Bill. The idea of setting up a statutory wool marketing authority originated with the woolgrowing industry itself. As a result of a severe decline in wool prices during the last 18 months, strong advocacy arose among wool growers in Australia for a body which would strengthen the position of sellers and reduce the irrational fluctuations which occur in wool prices. The proposal for such a body was supported at mass meetings of wool growers throughout Australia. The 2 federal wool grower organisations - the Australian Woolgrowers' and Graziers' Council and the Australian Wool and Meat Producers' Federation - resolved to press for such a body as did the national body of the wool growers, the Australian Wool Industry Conference.

At the request of the Conference, a special Advisory Committee of the Australian Wool Board prepared an outline plan suggesting the principles on which a statutory wool marketing authority could be established. The special Advisory Committee of the Wool Board is a body representative of all sections of the wool industry including wool-selling brokers, wool buyers and wool textile manufacturers. The Advisory Committee recommended that a statutory body be set up and operated along the lines proposed in its report and this recommendation was adopted in principle by the Wool Board, the 2 federal wool grower organisations and the Wool Industry Conference. The report and recommendations of the Advisory Committee of the Wool Board were presented to the Government by representatives of the industry in July of this year The Government decided that it would be desirable to have an independent assessment made of the proposal by a highly qualified person who could also fill in the details of the broad principles recommended by the Advisory Committee. To this end, I arranged for Sir John Crawford, Vice-Chancellor of the Australian National University to undertake the task.

After considering Sir John Crawford's comprehensive report the Government put to the industry the terms on which it would be prepared to set up a statutory wool marketing authority. These were accepted early this month by the 2 federal wool grower organisations and by the Wool Industry Conference which voted overwhelmingly for the implementation of the scheme. This, then, is the background to the Bill which we are about to consider.

The need for establishing a statutory wool marketing authority with powers relating to the whole clip was argued in some detail in Sir John Crawford's report which has been made public. Wool marketing must be considered in the wider sense of the word which includes not only the method employed in the physical selling of wool but also embraces many other aspects such as the preparations and handling of wool for sale, its transport and the use of scientific and technological aids to increase efficiency in the marketing process. Even though the free auction system has been regarded as an efficient means of transferring wool from the producer to the user there is an urgent need for strengthening the position of sellers, that is wool growers, by eliminating the serious deficiencies which have developed in the auction system. These deficiencies have developed by its failure to keep pace with the changes which have taken place and will continue to occur in world commerce and business organisation. In particular some of the deficiencies which call for attention are:

1.   Under the present auction system wool growers are in a weak selling position as they have no means of effectively judging the strength of the market or of testing it. On the other hand, there has been a disturbing trend on the buying side, with a steady and alarming decline in the number of bidders at auction. There is no sign that this trend is at an end.

2.   There is no lack of evidence to demonstrate that auction prices are excessively unstable. Prices not only fluctuate over a season but often show considerable variation within sales and even within a single selling day.

3.   There is also evidence to suggest that many successful bids are below what the market is prepared to pay, due, in the main, to a decline in effective competition and in part to errors associated with the appraisal of wool.

4.   The periodic surpluses at some sales in both total quantities of wool and more especially in some specific types contribute to the demonstrable price instability of the auction. This is particularly so for wools affected by vegetable fault. The case for sensible regulation of the flow of wool onto the market has become increasingly obvious.

Irrespective of what type of system is used for selling wool it is of paramount importance to ensure that the most modern and advanced techniques are applied to make that system as efficient as possible. As matters stand now, where the control of auction selling is decided upon jointly to wool growers, selling brokers and buyers there are obvious difficulties in obtaining a consensus of the interests concerned in order to obtain the ready application of new techniques. An example of the innovations needed is the development of commercially acceptable sampling and testing methods to enable the application of objective measurement of wool's characteristics prior to sale. It does not need much imagination to visualise the savings, particularly in handling costs, which could accrue from the sale of wool by sample. Also, as I mentioned previously, errors which occur in the appraisal of wool by subjective methods are an important factor contributing to instability in wool auction prices. It follows, therefore, that pre-sale objective measurement of wool would be an important aid in this regard. 1 might mention here that the Government attaches great importance to this aspect and as announced in . the last Budget it is providing about $1 1/2m for the development of techniques for pre-sale objective measurement and for trials to prove their commercial applicability.

The auction system in itself cannot be held responsible for the depressed state of the wool market. This is the function of the relative strength of supply and demand. On the other hand, the introduction of a flexible reserve price scheme can help to reduce the instability of auction prices, prevent wool from being sold at sacrificial prices due to purely temporary slackening of competition and so avoid considerable losses to individual growers.

Of equal importance is the confidence which a flexible reserve price system could engender in the market as a whole, particularly in the circumstances we are witnessing today. The psychological factors which operate in such circumstances lead buyers to hold off in bidding for fear that their competitors will obtain wool at a lower price later. In this way the decline in prices feeds upon itself. In situations of this nature there is a great need for a strong holder of wool who is able to exercise a restraining influence against these temporary depressive factors. In such a manner a measure of badly needed confidence can be restored to the market. For a body to perform this role it must have the necessary powers and standing and be backed with adequate financial resources.

Similarly there is a pressing need for a body to pursue a positive programme of cutting the high costs associated with the handling, transport and marketing of wool. I have already referred to the advantages which can come from the pre-sale objective measurement of wool. Another is the establishment, where appropriate, of integrated wool selling complexes. Because of the many interests involved, a strong co-ordinating body is required to obtain early and tangible results in these and other fields. I shall now turn to outlining the main provisions of the Bill.

The composition of the Australian Wool Commission is dealt with in Part II of the Bill, lt is proposed that the Commission should consist of 7 members comprising a Chairman, 2 members to represent Australian wool growers, a Commonwealth government representative who would be drawn from the Public Service, and 3 other members. The 3 other members would be persons with special qualifications. They would be required to have experience in the fields of marketing of wool or wool products; in the processing of wool or the manufacture of wool products; or in commerce, finance or economics. All members, including the Chairman, would be appointed by the Minister for Primary Industry. The Chairman would be a full time member appointed for a period of 5 years. All other members would be part time and would be appointed for a period of 3 years.

The Chairman would be appointed by the Minister after consultation with the Australian Wool Board. The 2 wool grower representatives would be appointed after consultation with the Australian Wool Industry Conference. The 3 members with special qualifications would be appointed after consultation with the Wool Board. Provision is made in the Bill for the appointment of an interim Chairman pending the appointment of the full time Chairman. The main reason for this provision is to facilitate the early inauguration of the Commission as it may take some time to secure a person suitable and willing to serve as a full time Chairman. Provision is also made in the Bill for the appointment by the Minister of a Deputy Chairman from amongst the members of the Commission.

The Government gave careful consideration to the composition of the Commission and concluded that in the interests of efficiency it was necessary to keep the membership as small as possible, consistent with the need to obtain an adequate range of skills relevant to the work of the Commission. In view of the nature of the functions of the Commission, it is considered that the main emphasis should be placed on commercial and technical skills. I am sure that it will be agreed that every endeavour must be- made to secure for the Commission men of the highest expertise and ability. The Government recognises the importance of maintaining a close liaison between the Commission and the Australian Wool Board because of the relationship between the functions of the 2 bodies. For this reason the Bill provides that the Chairman of the Commission should automatically become a member of the Wool Board.

The functions and powers of the Commission are dealt with in Part III of the Bill. The principal function of the Commission is to operate a flexible reserve price scheme in respect of wool offered for sale at auction. I should like to emphasise that the reserve price scheme operated by the Commission would be on a flexible basis and not one with reserve prices fixed for a whole season. Under the scheme reserve prices for the various types of wool offered at auction would be determined daily or at less frequent intervals. Reserve prices would be determined having regard to the most recent prices bid by commercial buyers at auction and after taking into account all market intelligence available to it. If the bidding on any lot did not reach the Commission's reserve price, the Commission would be prepared to purchase the wool at that price. Wool so purchased by the Commission would be re-offered at auction or otherwise disposed of by the Commission. The grower would retain his right to place his own reserve price on his wool, except in the case of wool included in the price averaging plan or voluntarily pooled.

The purpose of the flexible reserve price scheme would not be to defy or force the market but to test it with the objective of securing the best price obtainable at the time and of minimising the losses associated with the growing instabilities in the auction system. The operation of the scheme in this way should mean a significant reduction in sales crf wool at under-valued prices, in relation to prevailing rates, and the prevention of sales of individual lots when bidding on those lots has ceased to be competitive; that is preventing the occurrence of 'potholes' in the course of auction sales. The Government decided that no quantitative or financial limits should be placed on the amount of wool which could be purchased and held by the Commission, as such a limitation could adversely affect the operations of the Commission. For example, to declare and publicise a fixed limit to the level of stocks which the Commission would be permitted to hold could lead to embarrassing pressure on the Commission as stocks approached or were thought by buyers to be approaching the fixed limit.

On the other hand the Government, because of its financial commitments under the scheme, to which 1 will reFer later, must be assured that the Commission pursues a sound policy in its wool market operations. To this end the following provisions are included in the Bill in respect of the reserve price and re-selling policies of the Commission: A government representative is to be on the Commission; the government is to have the right to appoint the Chairman and the Deputy Chairman of the Commission; the Commission is to report fortnightly to the Minister for Primary Industry and the Treasurer on its reserve prices, on wool purchased and held by it, as well as sales of wool made and proposed offerings; the government is to have the right to issue directions to the Commission on its reserve price and reselling operations when this is considered necessary. Steps would, however, be taken to provide the Commission with guidelines in respect of its reserve price and re-selling operations so that the provision for directions need be invoked only as a last resort.

To assist it in the operation of its reserve price scheme, the Commission is empowered to establish and operate a market intelligence unit. Since the flexible reserve price scheme will not involve long range price forecasting, this unit will be primarily concerned with the examination of short term developments which affect wool prices. The Bill provides for the Commission to take over the functions of The Australian Wool Marketing Corporation Pty Ltd. These functions include the formulation of standards of clip preparation for wool sold at auction or otherwise and the making of arrangements to secure their observance; the elimination of small lots (except specialty wools) from sale at auction to the extent desirable; the operation of a Price Averaging Plan for wool from small lots; the payment of advances to growers whose wool is included in the Price Averaging Plan; the operation of the Wool Statistical Service; and the operation of a scheme for the voluntary registration of woolclassers.

The Commission is to be given the following additional functions and powers under the Bill:

To operate, when judged appropriate by the Commission, a voluntary pool for wool other than that in small lots (that is, for wool in lots exceeding three bales) and pay advances to owners of such wool:

To formulate the terms and conditions governing the sale of wool at auction and make arrangements for their adoption:

To make arrangements concerning wool auction sale, rosters and offerings and to pay advances to growers the sale of whose wool has been delayed because of the arrangements made by the Commission. Provision is made in the Bill that the Commission in exercising this function will not direct wool from one selling centre to another except within such limits, or in such circumstances, as are approved by the State Government concerned:

To have power to sell wool outside the auction system or have wool processed before sale in cases where such wool cannot be sold advantageously at auction. This provision means that the Commission will have power to dispose of any wool purchased by it, or entrusted to it, in any way the Commission deems fit. The Commission is empowered to purchase wool in two ways - through the operation of its flexible reserve price scheme after the wool had been offered at auction or, with the consent of the grower, before the wool is offered at auction in cases where it is considered that the wool cannot advantageously be sold at auction. In the latter case, the Commisison would pay the grower a price equivalent to its most recent reserve price for the particular type of wool or such higher price as the Commission may determine:

To encourage the progressive adoption of proven and practical technological aids to more efficient wool marketing. Examples of the aids envisaged are the pre-sale objective measurement of wool and, in cooperation with the Australian Wool Board, the establishment of integrated wool selling complexes:

To register firms at present operating outside the auction system which purchase wool direct from growers and sell it to local and overseas buyers, and obtain from these firms information on matters such .is the type, yield and price of wool handled by them. The precise nature of the information to be supplied would be subject to the approval of the Minister for Primary Industry. The information provided by the individual firms will be treated by the Commission as strictly confidential. The reason for obtaining this information is to enable the Commission to keep the private buying and selling of wool under review and assess its effects on price formation in the auction system:

To make recommendations to the Government for suitable action to be taken if and when it can be clearly demonstrated that private buying and selling is having detrimental effects on wool marketing generally:

With the approval of the Minister for Primary Industry, to participate in negotiations concerning charges associated with the marketing of wool, including freight rates:

To co-operate with authorities and organisations in other countries in measures aimed at more efficient marketing of wool. An important matter envisaged under this function is to consult with the New Zealand and South African Wool Commissions in the operation of their flexible reserve price schemes:

To co-operate with the Australian Wool Board and other authorities and organisations in regard to wool promotion and research, including inquiries into methods of marketing wool:

Such other functions conducive to the object of the Bill including functions conferred by a State Act, as the Minister approves.

I have had discussions with the State Ministers for Agriculture, through the Australian Agricultural Council, and they have expressed unanimous support in principle for the establishment of the Australian Wool Commission. 1 have raised with them some matters, which may ultimately require supporting State legislation, such as giving j compulsive power to the Commission to set the terms and conditions governing the sale of wool at auction; the control, if it should become necessary, of the private buying and selling of wool outside the auction , system; and the enforcement of standards of clip preparation for wool sold outside the auction system for use within a State. The State Ministers have agreed to consider these matters and provision has been made in the Bill for possible State legislation.

The Australian Wool Industry Conference has asked for an assurance that the Commission should not have the power to establish quotas on wool production in Australia. Such a power has never been envisaged for the Commission and, in any event, the Commonwealth Government could not, for constitutional reasons, confer it on the Commission without the approval of the States. The Commission will, of course, require adequate and reliable financial backing to carry out its functions. The Commission would need working capital for its activities involving the purchasing of wool and advances to woolgrowers as well as finance to meet its operating costs. lt has been estimated that the Commission might require in the region of Si 15m by way of working capital for a full year - to operate flexible reserve prices, make advances to growers etc. - and about $18.7m to meet its likely annual operating costs. I would like to mention that the assumptions used in making the estimates were on the libera] side and in practice the financial requirements could be smaller. Moreover, the estimates include the finance which is already required for the operations of the Wool Marketing Corporation, mainly for the elimination of small lots and the price averaging plan. Details of the estimated working capital requirements and of operating costs are set out in paragraphs 44 to 47 of Sir John Crawford's report which has been distributed to members of both chambers of Parliament and released to the public. However, the relevant extract from the report is available to those who require it. lt will be noted from the report that after allowing for the financial requirements of the present Wool Marketing Corporation the net additional working capital required is about $66m and the net additional operating costs are about $6£m per annum. The total operating costs of $ 18.7m would represent S3. 12 per bale or 1.04c per lb. The net additional operating costs of $6.33m would be $1.06 per bale or 0.35c per lb. It should be mentioned that the estimates for operating costs include a component for possible losses which, of course, may not eventuate.

The financial arrangements for the Commission are dealt with in Part IV of the Bill. The Bill makes provision for trading banks to participate in providing the finance required for the working capital of the Commission, and the Government would guarantee such loans as trading banks may make available to the Commission on acceptable terms and conditions. The Government would make available such finance as may be required by the Commission beyond any funds provided by the trading banks. In regard to the operating costs of the Commission, the Government would meet any losses resulting from the resale of wool purchased by the Commission. Such losses would include interest payable by the Commission on capital borrowed for purchasing wool as well as storage, handling and selling costs, as approved by the Minister, which could not be recovered from the resale of wool lt is quite probable that the Commission will make profits. The first charge on such profits would be for meeting any losses which the Government has borne on behalf of the Commission. Remaining profits would be set aside as a contingency for meeting any future losses. Profits and losses of the Commission would be calculated on a financial year basis and certified by the Auditor-General. (Extension of time granted).

Provision is made in the Bill, however, for the Government to make advances to the Commission during a financial year for the meeting of losses and a suitable provision is made in the Bill for the appropriation of any funds which may be required for this purpose. In regard to the other operating costs of the Commission, the Government will continue to make available the funds required to meet one-half of the rehandling and brokers' administration charges for the elimination of one-, twoand three-bale lots covered by the present Price Averaging Plan. The Government's commitment for these costs is estimated at $3.7m in a full year. In regard to the voluntary pooling of wool, which would be an extension of the Price Averaging Plan, growers concerned would be expected to meet all the costs involved themselves. The balance of the operating costs . associated with the operations of the Commission comprises interest on money borrowed for making advances to growers, one-half of the rehandling costs and brokers' administration charges for the elimination of one-, two- and three-bale lots under the Price Averaging Plan and the total administrative costs of the Commission. These costs would be met by woolgrowers through appropriate deductions, by arrangement with woolselling brokers, from the proceeds of the sale of the growers' wool.

I would like to make it clear that woolgrowers would not be called upon to make any contribution for the capital requirements of the Commission. Provision is made in clause 31 of the Bill that until 30th June 1971 there may be paid to the Commission out of the Consolidated Revenue Fund such sums as the Treasurer is satisfied are necessary for the Commission in carrying out its responsibilities under the Act. Normally, a limit would have been placed on the payments to be made but in the present case this has not been possible because of the difficulty of estimating, at this stage, the amount of money that may be required during the current financial year. Accordingly, to allow the Commission to commence operations without delay it was necessary to meet the situation by the provision made in clause 31. To protect the public interest, however, the Treasurer and the Minister for Primary Industry will closely scrutinize any proposals for payments to the Commission before approving them. Part V of the Bill covers miscellaneous matters associated with the opera tion of the Commission. These include provision for the employment of staff by the Commission; safeguarding the interests of staff now working for the Australian Wool Marketing Corporation who would be employed by the Commission, auditing of the accounts of the Commission by the Auditor-General; annual reports to the Minister on the operations of the Commission which would be required to be tabled in Parliament; and the provision for making regulations.

In introducing this Bill the Government is acting in accordance with the wishes of the woolgrowing industry. The original resolutions passed by the woolgrowing industry organisations calling for the establishment of a statutory wool marketing authority used the term a 'single' marketing authority. This term was still used by the Advisory Committee of the Australian Wool Board in keeping with its terms of reference. The outline of the authority drawn up by the Advisory Committee and which was endorsed by the Industry and put to the Government clearly did not envisage a single body with monopoly powers to buy and sell the whole Australian wool clip, which the term 'single' implies.

What was put to the Government was a body which should be given certain powers relating to the whole clip but working within the existing marketing arrangements in which a number of private firms carry out the physical task of selling wool. The Government has very largely adopted the proposals put to it by the industry and they have been embodied in this Bill. In considering this Bill, we should keep in mind the critical position in which the wool-growing industry now finds itself. Due to the catastrophic drop in wool prices over the past 18 months, the average price being received by wool growers today is the lowest for 24 years. On the other hand, wool growers' costs have increased very considerably indeed over this period. I think it can be said that the position of most wool growers is a parlous one and in many cases, due to the advent of drought, a desperate one.

Because of the substantial contribution which wool makes to our export incomestill some 20 per cent despite the extremely low wool prices - and because of the almost total dependence of large regions of Australia on woolgrowing, the wool industry must, by all measures available, be restored to a viable condition. The Government considers that reform of the present marketing system, although not the complete answer to the problems facing the wool industry, can do much to safeguard woolgrowers against losses which they often sustain under the present marketing arrangements. The marketing reforms which this Bill aims to bring about, in conjunction with other measures now being pursued as a matter of urgency by the Government - such as debt reconstruction and farm adjustment - will assist materially in the rehabilitation of this great industry. 1 commend the Bill.

Debate (on motion by Dr Patterson) adjourned.







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