CHAPTER 2
Introduction
Importance of the wool industry
2.1 The Australian wool industry remains a major source of export revenue for Australia generating as
much as $4 billion each year. At present there are about 11 000 farms whose principal source of income
is derived from the production of wool. [1]
Background to Wool International
2.2 Wool International (WI) was established by the Commonwealth Government in December 1993.
This body succeeded the Australian Wool Realisation Commission in managing and selling the wool
stockpile and repaying the commercial debt, which is guaranteed by the Commonwealth Government. [2]
2.3 The Wool International Act 1993 provided for WI to have a number of functions in addition to the
actual sale of the wool stockpile. These functions included encouraging the development of a viable
international wool futures market and the provision of services to the Australian wool market. However,
in June 1997 the Act was amended to narrow the tasks of WI to “ … selling the stockpile, elimination of
debt and returning surplus funds to wool growers.” [3] These changes took effect from 1 July 1997.
2.4 As of 30 June 1998 WI employed 67 full time and 11 part time staff. Of these employees, 46 were
employed at Head Office, Parkville, Victoria, with the remaining staff based in five regional offices in the
United Kingdom and China. [4]
Size of stockpile and its reduction
2.5 The official wool stockpile accumulated as a result of the policy of purchasing wool to support the
wool reserve price scheme. As a result of falling wool prices after the scheme was put in place the
stockpile steadily grew from negligible levels at the beginning of the 1989-90 wool season to reach a
peak of approximately five million bales in 1990-91. [5] However, since that season the size of the
stockpile had been reduced to just over one million. [6]
2.6 The Wool International Amendment Act 1996 set down 31 December 2000 as the date on which
the wool stockpile was to be disposed of. [7] This Act also amended section 8 (1) (a) of the Wool
International Act 1993 to read that a major responsibility of WI was:
… to dispose, in accordance with the disposal schedule, of the stockpile wool in a
manner that maximises the net return to the Australian wool growing industry from the
sale of stockpile wool and fresh wool. [8]
2.7 From 1 July 1997 WI was directed by the Wool International Amendment Act 1996 to dispose of
a minimum of 90 000 bales per quarter from the stockpile [9] and a maximum 350 000 bales per
quarter. The aim of the sales was to maximise returns to the stockpile equity holders while at the same
time minimising the impact of the disposal on fresh wool sales. [10]
2.8 Wool International's annual report for 1996-97 stated:
…the Government … set an objective to eliminate the stockpile by 31 December 2000.
The inference is that WI's deliveries must average around 125 000 bales per quarter. A
target date of 31 December 1998 was also introduced for debt elimination which at
forecast prices requires stockpile deliveries of around 140 000-150 000 bales a quarter.
[11]
2.9 During 1996-97 the sale of stockpiled wool represented approximately 16 per cent of total
purchases of Australian wool. [12] For the year 1997-98 sales from the stockpile represented about 13
per cent of the estimated trade clearances of Australian wool during the period. [13] At the end of 1997
there were about 1.35 million bales, or 240 000 tonnes of wool, in the stockpile. This represented about
40 per cent of a season's production of wool. [14]At the time of the freeze implemented on 15 October
1998 the legislated minimum selling rate of 90 000 bales per quarter represented about 8 to 9 per cent of
Australian wool sales. [15]
2.10 By November 1998 the stockpile debt stood at $200 million having been reduced from the original
debt of $2.8 billion. [16] Dr Bob Richardson, Chief Executive Officer with Wool International, told the
Committee on 27 November 1998 that WI's debt will reach a low point of about $180 million in
mid-December 1998. [17] At 30 June 1998 net equity in WI was $529 million. [18] The stockpile is
now estimated to have a value of between $450 and $650 million. The Commonwealth Government
estimates that the freeze of sales from the stockpile will add between $8 to $10 million a quarter to the
stockpile debt. [19]
2.11 By February 1998 the majority of the stockpiled wool was in the range 21 to 23 microns. As of
December 1997 about 22 per cent of the stockpile had been finer than 21.5 microns. In June 1997 less
than 1.5 per cent of stocks had been under 20 microns and slightly more than 8 per cent of the wool was
below 21 microns. [20]
2.12 Dr Richardson, in September 1998, defended WI against charges that it discounted the price of its
wool to meet legislated sale targets. Dr Richardson argued that you cannot make comparisons between
wool being sold by WI and fresh wool. According to Dr Richardson:
It may be the same (AWC) type (of wool) but it's not the same product because we are
selling 60 bales lines of dumped wool which is at least seven to eight years old. [21]
2.13 Dr Richardson went on to detail a number of factors that distinguish wool held in the stockpile from
fresh wool, such as processors having to factor in additional processing and transport costs associated
with the purchase of wool from the stockpile as opposed to the purchase of fresh wool. [22]
2.14 Dr Richardson is of the view that the micron categories in the wool stockpile make it “highly
complementary to fresh wool”. [23]
2.15 The latest annual report of WI commented that; “The quality of the remaining stockpile generally
complements fresh wool production.” [24]
2.16 The Sheep and Wool Council of Queensland supported the view of WI when it stated in its
submission that international customers use the stockpiled wool to supplement orders for wool which is
not available from the fresh wool market. [25]
2.17 The Chairman of Wool International, Mr Dick Warburton, in WI's annual report for 1997-98
advised:
We used all our flexibility to minimise the impact of the stockpile sales on the fresh wool
market and at the same time optimised the value of the stockpile. [26]
2.18 The Victorian Farmers Federation Pastoral Group commented that the Wool International stockpile
would "… simply be replaced by wool from the grower/brokers stores and therefore there is little
expectation of improved prices as a result of the freeze". However, the Committee notes the sales from
the grower-held wool stockpile would put cash in growers' pockets rather than in Wool International's
"piggy bank".
2.19 The grower stockpile, which now stands at approximately 700 000 bales above the estimated
normal 360 000 bales in the wool "pipeline" (totalling more than one million bales), should be brought
back into balance in about December 1999. Evidence was given that already in excess of 70 000 bales
has been sold from the grower stockpile following the second freeze. At current demand and rate of sales
Wool International's stockpile wool will be required to prevent a shortage sometime in early 2000.
2.20 This should give the wool industry, which is currently at a very low level of production (620 million
kilos per annum), time to return flocks to more commercial levels and increase fresh wool production to
satisfy demand of between 720 million and 800 million bales per annum beyond 2000.
Decision to freeze the stockpile
2.21 On 4 August 1998 the then Commonwealth Minister for Primary Industries and Energy, Mr John
Anderson, announced that the Government had decided to legislate for a freeze on all sales of wool from
the stockpile for the remainder of the 1998-99 wool season. Mr Anderson stated that this decision
would provide relief for growers in the short term by removing a substantial volume of wool from the
market. [27] It was the intention of the Government that the freeze would take effect immediately.
However, WI argued that it could not freeze sales from the stockpile at that time because it had an
obligation under legislation to sell a minimum of 90 000 bales of wool by 30 September 1998.
2.22 The Commonwealth Government accepted this view [28] and decided not to introduce the
legislation to freeze sales from the stockpile before the 3 October 1998 Commonwealth election. On 15
October Mr Anderson confirmed that the Commonwealth Government would legislate to freeze sales
from the wool stockpile. At the same time the Minister announced that the Government had decided to
privatise the wool stockpile from 1 July 1999. [29]
Footnotes
[1] Wool International Amendment Bill 1998, Explanatory Memorandum, p. 3.
[2] Wool International Annual Report 1997-98, Wool International, Melbourne, October 1998, p. 10.
[3] Wool International Annual Report 1996-97, Wool International, Melbourne, October 1997, pp.
10-11; see also Wool International Annual Report 1997-98, Wool International, Melbourne, October
1998, p. 10
[4] Wool International Annual Report 1997-98, Wool International, Melbourne, October 1998, p. 33.
[5] Department of the Parliamentary Library, Bills Digest No. 18 of 1997-98, p. 1.
[6] Transcript of interview on radio program PM, 4 August 1998; see also Evidence, Wool
International, p. 1.
[7] Wool International Amendment Act 1996: No. 62, 1996, Section 20, sub-section (1).
[8] Wool International Amendment Act 1996: No. 62, 1996, Section 4.
[9] Wool International Amendment Act 1996: No. 62, 1996, Section 20, sub-section (3) (b).
[10] Wool International Amendment Bill 1998, Explanatory Memorandum, p. 3; see also Department
of the Parliamentary Library, Bills Digest No. 18 of 1997-98, p. 2.
[11] Wool International Annual Report 1996-97, Wool International, Melbourne, October 1997, p.
20.
[12] Wool International Annual Report 1996-97, Wool International, Melbourne, October 1997, p. 6.
[13] Wool International Annual Report 1997-98, Wool International, Melbourne, October 1998, p. 6.
[14] Disposal of the Australian Wool Stockpile, ABARE Current Issues paper No. 98, February
1998, p. 1.
[15] Wool International Amendment Bill 1998, Explanatory Memorandum, p. 3.
[16] Transcript of interview on radio program PM, 4 August 1998.
[17] Evidence, Wool International, p. 1.
[18] Wool International Annual Report 1997-98, Wool International, Melbourne, October 1998, p.7
[19] Department of the Parliamentary Library, Bills Digest No. 18 of 1997-98, p. 2.
[20] Disposal of the Australian Wool Stockpile, ABARE Current Issues paper No. 98, February
1998, p. 2. See comments by Mr G. O'Connor during the bill's second reading debate, House of
Representatives Hansard, 12 November 1998, p. 180.
[21] “WI Chief Tired of Woolly Thinking”, The Land, 17 September 1998.
[22] “WI Chief Tired of Woolly Thinking”, The Land, 17 September 1998; see also Submission,
Pastoral Group, Victorian Farmers Federation, p. 1.
[23] Evidence, Wool International, p. 6.
[24] Wool International Annual Report 1997-98, Wool International, Melbourne, October 1998, p.
16.
[25] Submission, United Graziers Association of Queensland, Sheep and Wool Council of Queensland,
p. 3.
[26] Wool International Annual Report 1997-98, Wool International, Melbourne, October 1998, p. 6
[27] Media release from the Minister for Primary Industries and Energy, John Anderson, 4 August 1998.
[28] Department of the Parliamentary Library, Bills Digest No. 18 of 1997-98, p. 3.
[29] Media Release from John Anderson, Minister for Primary Industries and Energy, 15 October 1998.