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Statutory wool marketing authority



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M9INISTER FOR

I?. ' Lt

J AQST AL.IA S TRY

T A T E M EN T »N <^^

PRIMARY I N

EMIBA RGJ D s ^4ot for -Dub licatioi . 'o fore 00 m. ,

Win . Oc to b er ,^ t fl, .

STATUTORY WOOL TJ[.RK:E TING AUTHORITY

The Minister for irimary Industry,

Mr. Anthony, announced today that the Commonwealth

Government had agreed to the establishment of a statutory wool marketing authority to be - known - as the ''Australian

Wool CommissionSR.

He said the proposed authority would

have important but _ - . limited powers and functions

to administer the marketing of the Australian wool clip.

The powers and functions envisaged

were broadly in keeping with those recommended by the

Advisory Committee of the Australian Wool Board in July

of this year.

The Government also was prepared to

lend financial support to the operations of the authority.

Mr. Anthony said that the proposal

involved certain fundamental elements which posed for the

Government important Questions of principle and policy.

The Goverment felt that it was

necessary for it to take a decision on these important.

matters so that the. industry would know the basic lines

on which the Government would be prepared to establish

a statutory wool marketing authority.

Mr. Anthony said the idea of establishing

a statutory wool marketing authority originated with the

woolgrowing industry itself,

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The concept was supported by both

federal woolgrower organisations (the Australian Woolgrowers'

and Graziers' Council and the Australian Wool and Meat

Producers' Federation) , the Australian Wool Industry

Conference, the special Advisory Committee of the

Australian Wool Board and the Wool Board itself.

Mr. Anthony said: ,, After the Advisory

Committee's report was submitted to the Government I

arranged for Sir John Crawford, Vice-Chancellor of the

Australian National University and an eminent economist,

to make an independent assessment of the proposal and to

comment and elaborate on the broad principles recommended

by the committee. In carrying out his task Sir John

consulted a wide range of authorities and interests.

''The views expressed by Sir John in

his report are broadly in keeping with those arrived at

by the Advisory Coriuriittee of the Wool Board. Sir John's

conclusions have been accepted by the Government virtually

in all respects."

Mr. Anthony said the Government was

grateful to Sir John for his excellent analysis of the

main issues involved in setting up a statutory authority

to administer the marketing of the Australian wool clip.

By spelling out the details of the

proposal he had clarified the issue in a way which had

been extremely helpful to the Government.

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Mr. Anthony said he was sure that

Sir iohn's report would be similarly helpful to the

industry.

°'The Government agrees that there is

a good case for establishing a body with appropriate

powers and financial backing, which would complement and

improve the existing wool marketing arrangements," he said.

"It must be recognised, however, that

such a body cannot and should not be expected to lift

the general level of wool prices beyond that which is

determined by the world supply and demand relationship.

"Nevertheless, a body of this nature

could, by the prudent operation of a flexible reserve

price scheme, do much to moderate the instability of

wool prices at auction, protect woolgrowers against

having their wool sold at sacrificial levels, combat

the effects of the continued reduction in the number of

effective bidders in the auction room, and engender

confidence in the market as a whole.

"Of no less importance is the service

which such a body could render in co-ordinating effectively

the present marketing arrangements and in promoting the

application of all proven technical aids which would

reduce handling, selling and transportation costs. This

applies particularly to the application of pre-sale

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objective measurement of wool and the establishment

of integrated wool selling complexes.

"The Government has concluded that

the proposed authority most have the necessary standing

and powers if it is going to effectively carry out the

functions envisaged for it. Because of legal and

practical considerations this can best be achieved by

making the authority a statutory body:

"The original resolutions passed by

industry organisations called for the establishment of

a 'single' marketing authority. This term was still used

by the Advisory Committee of the Wool Board in keeping

with its terms of reference.

However, the outline of the

authority drawn up by the committee and which was

endorsed by the Wool Board and gout to the Government

clearly did not envisage a single body with monopoly

powers to buy and sell the whole clip, which the term

'single' implies.

'What was proposed to the Government

was a body which should be given certain powers relating

to the whole clip but within the existing marketing

arrangements in which a number of private firms carry

out the physical task of selling wool.

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"Accordingly, the use of the term

'single' is inappropriate. Such a term could be

applied to a body charged with the compulsory acquisition

of wool, but thiswao not contemplated. under the industr ':'s'' p proosals, Mr. Anthony said the Government's

decisions would be immediately conveyed to wool industry

organisations and he understood that they would be

considered by the Australian tool industry Conference

shortly.

Mr. Anthony said that, in his view,

the Government's decisions proyic^ed .- - sound-basj.s.; for strengthening the auction system and for effective

marketing reform. He trusted that the industry Y iould -

look upon. them in the sane light..

( rther detailed information on the

proposed authority is contained in the attached supple-mentary statement.)

Canberra, 6th October, 1970.

ATTAChME NT

STATUTORY WOOL MARKETING AUTHORITY

isir. Anthony said the Government would

be agreeable to legislate to establish a statutory wool

marketing authority.

Such a body would be an independent

entity, separate from the Australian Wool Board, It would be known as the Australian Wool Commission.

The statutory body would administer

the marketing of the Australian wool clip and be given

functions and powers in the broad field of marketing

related to the whole clip.

These would include the present

functions of the Australian Wool Marketing Corporation

Pty. Ltd., which would be absorbed by the Commission.

PUnctions and Powers

Specifically the functions and powers

of the Goy seiAn would be to

(a) operate a flexible reserve price system in respect

of all wool presented and normally held suitable for sale at auction; (b) operate a market intelligence unit;* (c) after due consultation, to set and enforce standards

of clip preparation for wool submitted for sale at

auction and for wool sold outside the auction system;* (d) after consultation with appropriate industry bodies to.

These functions are at present performed by the Australian Rol Marketing Corporation Pty. Ltd. In respect of function (c), however, the Corporation's activities are confined to wool submitted for sale

at auction.

(i)

set the ter=ns and conditions governing the

sale of ,-cool at auction;

(ii) control. wool auction sale rosters and offerings;

(e-) eliminate .small. lots (except specialty wools) from

sale at auction to the..extent desirabie;*

(f) operate .a Price Averaging Plan for wool from 1•, .2.

and 3 bale lots;*

(g) operate, when judged appropriate by the Gommiasion, a voluntary pool for wool in lots exceeding 3 bales.

(This would be an extension of the -Price Averaging

Plan.)

(h) pay advances to growers whose wool was included in the Price Averaging Plan;* (i) pay advances to growers whose wool had been delayed

beyond its normal eligibility for auction sale

because of the requirements of the Oommissioi;

(j) have power to sell wool outside the auction system or have wool processed in cases where the class of

wool concerned was being neglected at auction; (k) be responsible for the progressive adoption of proven and p ractical technological .aids to more efficient wool marketing; (1) register firms, at present operating outside the

auction system, which purchase wool direct from,

growers and sell it to local and overseas users,

and obtain information from such firms on the type, yield and price of wool handled by them -- the

nature of the information to be supplied to be

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Normal eligibility for sale is established by the date and order or receipt of each consig ment of wool into :fool selling brokers stores.

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subject to the approval of the Minister for Primary Industry;

(m) provide for machinery which would enable the Commission to keep under constant review the

practice of private buying and selling of wool. and,

as necessary, to recommend to the Government

suitable action when it can be demonstrated that

private buying and selling is having detrimental

effects;

(n) be empowered, if called upon by the Government, to

participate in negotiations on all service charges

associated with the marketing of wool, including freight rates;

(o) co-operate with organisations in other countries

in measures aimed at more efficient marketing of wool;

(p) co-operate with the Australian Wool Board and

other organisations conducting wool promotion and research, including enquiries into methods of marketing wool; (q) operate a wool statistical service;* (r) operate a scheme for the voluntary registration of

woolclassers ; *

(s) have such other functions as may be necessary to achieve the objects of the Commission, as may be approved by the Minister for Prirmary Industry.

Mr. Anthony said: Two of the above

functions, namely the control where necessary of private buying and selling of wool outside the auction system, and the setting of the terms and conditions governing the sale of wool at auction, fall outside the Commonwealth's

constitutional power to legislate and would require supporting State legislation,

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"I shall be discussing the question

of such supporting legislation with the State Ministers for Agriculture at the earliest opportunity.

"This, of course, need not delay

the establishment of a statutory wool marketing

authority to carry out the other important functions envisaged for it. °3 Finance

The Commission would require adequate

and reliable financial backing to carry out its proposed functions.

It has been estimated that the

Commission would require about $115 million by way of working cUit_al for a full year (to operate flexible reserve prices; make advances to growers etc.) and about $18.7 million to meet its likely annual. o cpratin ,g costs .

Both of these figures include the

finance which already is required for the operations of the Wool Marketing Corporation (mainly for the P.A.P.

wool marketing scheme).

Details of the estimated working

capital requirements and of operating costs are set out in paragraphs 44 to 47 of Sir John Crawfordfs report,

which has already been released. It will be noted that

after allowing for the financial requirements of the

present Wool Marketing Corporation the net additio nal working capital required is about $66 million and the

net additional operating costs are about $6a million

per annum.

The total operating costs of $18.7

million would represent $3.12 per bale or 1.04 cents

per lb. The net additional operating costs of $6.33 million would be $1.06 per bale or 0.35 cents per lb.

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These costs, as I will explain later, would

be borne

jointly by the Government and woolgrowers.

So far as c Ltal re frement s are

concerned the Commonwealth Government would be prepared to provide all the funds needed for the purchasing of wool by the Commission and for making advances to growers beyond the funds which trading banks may be prepared to

make available.

Trading banks would be afforded the

opportunity to participate in the financing of the operations of the Commission. The Treasurer and myself

will negotiate with the trading banks with a view to securing their participation in the financing of the operations of the Commission.

Mr. J nthony said . "In regard to

oneratin; the Government would be prepared to

meet any losses resulting from the resale of wool

purchased by the Commission. Such losses would include

interest payable by the Commission on the capital

borrowed for purchasing ;wool, but which could not be

recovered from the resale of such wool. The losses also would include storage, handling and selling costs

which could not be recovered from the sale of wool." Tie. Anthony said the Government would continue to meet one-half of the handling costs and brokers' administration charges on PJL.P. wool.

However, all costs associated with the voluntary pooling of wool would be met by the growers concerned.

The balance of the operating costs

associated with the proposals - that is, net interest on money borrowed for advances to growers, one-half of the handling costs and brokers' administration charges for the elimination of 1, 2 and 3 bale lots under the P.A.P., and the total administrative costs of the proposals -

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would be net by woolgrowers,: This would be done by

making an appropriate d duct±on from the proceeds of

the growers' wool_. Woolgrowers would not be expected

to make any contribution for the capital requirements of the Commission. lir, Ant Cony ea do "It is quite probable that the Comn_iss i on. would make profits at times.

c1 The first charge on such profits

would be for meeting any looses which the Government

had borne on behalf of the Co miosioi Remaining

profits would be set aside as a contingency for meeting

any future losses." 0 oration of Flexible T^ ^rj^^^ ^ri^c^^

The reserve price system operated by

the Commission would be one of ' le.` ible reserve prices.

The function of the flexible reserve

price scheme is not to defy or force the market but to

test it with the ob jective of producing the optimum

result at the time and to minimize the losses associated with the growing instabilities es _Ln. the auction system, The operation of the scheme in this way should mean a reduction in sales of wool at undervalued prices (in

relation to prevailing rates) and the prevention of

sales when bidding has ceased to be competitive (i.e.

"plugging holes" in the course of sales), To this end the Commission would fix

reserve prices on a ciayto .day basis ; having regard

to the results of the previous day and after taking into

account all market intelligence available to it, -Under the flexible reserve price

system woolgrowers would retain their right to place

their own reserve prices on their woo _. The Commission's reserve would prevail in such oases only if it were the

higher. In this event., and if the bidding did not reach

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the Commission's reserve, it would be open to the grower

to accept the Commission's higher reserve price.

If the grower's reserve were higher

than the Commission's and was not reached he would

have, as now, the right to decide to re-offer.. He would also be allowed, within a specified time limit, to accept the Commission's reserve.

The right of a grower to place his

own reserve price on his wool would not, however, apply to P.A.P. wools, nor to wools voluntarily pooled.

Re-selling Pol, Normally the Commission would re-offer wool which it had purchased under its reserve price

operations through the auction system. However, it would

also be empowered to resell such wool privately or have

it processed. The Commission would not have any undue

restraints imposed on it with regard to the timing of

resale, but it must be its objective not to hold wool for

any prolonged period.

Where wool was of a type which was

being consistently neglected at auction (i.e. bringing no bids or unreasonably low prices) the Commission would

be empowered to purchase such wool, with the grower's consent, without the wool being submitted to auction.

Wool so purchased by the Commission

could be sold by private negotiation or it could be

processed. Where the Commission had the consent of growers to dispose of wool in these ways the owners

would be paid by the Commission a price equivalent to its most recent reserve price for the particular type

of wool.

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Under the proposed scheme the risk

of accumulating large stocks of wool would be minimized

as the reserve price would not be a fixed one (as was the

case until recently in Now Zealand and South Africa) but

would be flexible and so move with the general trend of

the market. The setting of such flexible reserve prices

would not require any long-range forecasting and the risks associated with it.

Mr. Anthony said o "the Government

has 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 limit-ation could adversely affect the operations of the

Commission.

"On the other hand, the Government

must be assured that the Commission pursues a sound

policy in its wool market operations."

To this end, the Government would

require the following provisions:

(a) Have a Government--nominated member on the Commission.

(b) Have the right to appoint the chairman of the Commission and the deputy chairman.

(c) The Commission would be expected to report fort-nightly to the Minister for Primary Industry and the Treasurer on the quantity of wool which it had purchased and held.

(d) The Government to have the right to issue directives to the Commission on its reserve price operations when this is considered necessary. Steps would be taken to provide the Commission with guidelines in respect of its reserve price operations so that this provision need be invoked only as a last resort.

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In view of the fact that the Government

would be prepared to meet any losses incurred by the ,

Commission on the sale of wool which it had purchased, it would require an understanding with the Commission

on its reselling policy. This understanding would

oblige the Commission to report fortnightly to the

Minister for Primary Industry and the Treasurer details

of its resale operations and proposed resale programmes.

The Government would also have the right to issue

directives to the Commission on its re--•selling operations

when considered necessary. Again, steps would be taken

to provide the Commission with guidelines in respect of

its re-selling operations so that this provision need be invoked only as a last resort.

Composition of CaLmission The Government has decided that

the Commission should consist of seven (7) members.

The composition and method of

appointment of r.orn'oers would be as follows

(i) Chairman - appointed by the Minister

for Primary Industry after consultation with the Australian Nool Board,

(ii) 2 woolgrower -- appointed by the Minister representatives for Primary Industry after consultation with the Australian Wool Industry

Conference.

(iii) 3 members with - appointed by the Minister special for Primary Industry after

qualifications consultation with the Australian Wool Board, (Special qualifications include experience in the marketing of wool or wool

products; in the processing or manufacture of wool pro-ducts; or other experience in cormnercial, financial or economic matters considered to be helpful to the Commission.)

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(iv) A representative - appointed by the Minister

of the Common- for irimary Industry.

wealth Government (The representative to be

drawn from within the Commonwealth Public Service.)

The chairman of the Commission would

be full-tine and would be appointed for a neriod of five

(5) years. He would have a deliberative vote as well as

a casting vote. All other me mbers would be part-time

and would be appointed for a period of three (3) years.

A part-time deputy chairman would

be appointed by the Minister from among the m embers.

The Government rec gnises the

importance of maintaining a close liaison between the

Commission and the Australian. Wool Board. For this

reason it has decided that the chairman of the Commission

should automatically become a member of the Wool Board, Private Bu inKr and Selling

Hr. Anthony said "There is no real

evidence at this stage that the present extent of private

buying and selling is detrimental to the price formation in the auction system nor is it possible to say at what

point this practice may have a detrimental effect.

"ln the circumstancas ^ the Government

has decided that th e appropriate course to adopt at this stage is to provide for the machinery which would enable

the Commission to keep the matter under constant review and to recommend to the Government suitable action when

it can be demonstrated that private buying and selling is having detrimental effects, The proposed machinery for this

purpose is outlined above in iterris(l) and ( r_) of the

powers and functions envisaged for the Commission.

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"In this matter the Government took

the view that woolgrowers should not be prevented from

selling wool through channels of their own choice

unless it is clearly evident that some of these channels

operate in a way which would prevent the Commission from

effectively carrying out its functions and react to the detriment of woolgrowers generally."

Canberra, ,

6th October, 1970.