WOOL
INDUSTRY
Australia
is the world's largest wool producing country, accounting for about
30% of world production. Wool production has been declining in
Australia and the world for the last 10 years, but the latest data on
sheep numbers suggest that the decline may have bottomed out. Since
1990 Australian shorn wool production has fallen by about 35%, to
around 640,000 tonnes in 1999-2000. Almost all of Australia's wool is
exported, the major markets being China (accounting for around 30%),
followed by Italy, Chinese Taipei (Taiwan), Republic of Korea and
France.
Wool
producers have had to face significant changes over the last decade,
including a decline in the underlying demand for wool, changes to
wool marketing arrangements, disruption of traditional international
markets, and strong competition from other fibres, all of which have
had a major impact on the profitability of all sectors of the wool
industry.
The
decline in the underlying demand for wool reflects changes in
lifestyle (such as the trend to more informal, easy-care clothing)
and the increasing competition from other fibres, particularly high
quality synthetic fibres. On top of this, economic upheaval in many
countries traditionally considered to be large purchasers of wool
resulted in fluctuating demand for wool.
These
factors, together with a very large supply of wool left over from the
high production of the late 1980s and early 1990s, resulted in a
dramatic fall in the price of wool in recent years. However, this
fall appears to have halted, with wool prices generally improving
particularly for finer micron wool, and more recently the broader
types. Reasons for this include a reduction in the quality and
quantity of stored wool and strong demand due to a historically low
value of the Australian dollar against the US dollar.
Demand
for wool has traditionally been a cyclical phenomenon, determined
largely by economic cycles and world-wide trends in clothing fashion.
Attempts to minimise the damaging effect of these short term cycles
on the income of woolgrowers have been in place for many years. In
1970 a wool deficiency payments scheme was introduced, the original
intention of which was to protect wool growers from severe short term
price reductions caused by fluctuations in the demand for wool. A
minimum reserve price was introduced in 1974 to provide growers with
a guaranteed minimum price for their wool. The scheme was funded by a
proportion of the tax paid by growers on the value of shorn wool, and
was administered by the Australian Wool Corporation (AWC), which
purchased all wool not meeting the minimum reserve price at auction.
This wool was later sold during periods of higher prices.
The
reserve price scheme worked well for about 20 years. However a
combination of a sharp fall in demand and a high reserve price (set
during a period of high demand in the late 1980s), resulted in the
scheme being suspended in February 1991, when the size of the AWC
stockpile had reached 4.7 million bales. The Government, with the
agreement of the industry, decided that the scheme could no longer be
maintained.
The
Australian Wool Realisation Commission (AWRC) was initially
responsible for the disposal of the wool stockpile. In December 1993
the disposal of the stockpile became the responsibility of Wool
International (WI), a statutory corporation of the Commonwealth
Government. WI was required to sell the stockpile in accordance with
a statutorily imposed disposal schedule, the last bale of stockpile
wool to be disposed of by 31 December 2000. At 30 June 1998, under
the management of WI, the stockpile had been reduced to 1.2 million
bales. By October 1998, equity in the wool stockpile had reached a
level significantly higher than the wool debt and, therefore, ongoing
Government involvement in stockpile management was no longer
justified.
On
15 October 1998, the Commonwealth Government announced a freeze on
sales of wool from the stockpile, and an intention to privatise WI by
1 July 1999. On this date WI became WoolStock Australia Limited, a
public company limited by shares allocated to previous holders of
units of equity in WI. WoolStock Australia took over the assets and
liabilities from WI and is fully accountable to its shareholders for
the efficient management and sale of the stockpile. The principal
activities of WoolStock are selling the stockpile, and making
distributions to unit/share holders. By 9 August 2001 the stockpile
was completely sold.
A
second reform process was undertaken to replace the Australian Wool
Research and Promotion Organisation (AWRAP) with private sector
arrangements by 1 January 2001. Following the continuing low demand
and prices for wool and a successful 'no confidence' motion in the
Board of AWRAP (in November 1998), the wool industry Future
Directions Taskforce was established to undertake a major inquiry
into the future of the Australian wool industry. The Taskforce
presented its findings in June 1999. While most of the
recommendations of the Taskforce report were focused on individual
farm businesses and what they could do to improve their
profitability, there were recommendations for Government to consider,
including the future of AWRAP and wool tax arrangements.
On
23 September 1999, the Minister for Agriculture, Fisheries and
Forestry announced an Eight Point Plan for progressing those
recommendations of the Taskforce report that related to industry
services and levy arrangements. A key element of the Plan was to
conduct a grower ballot (WoolPoll 2000) to give woolgrowers the
opportunity to vote on their preferences for future industry services
and associated wool tax arrangements. The final result of WoolPoll
2000 was released on 6 April 2000 and showed 61% of votes, based on
an optional preferential voting system, supporting the service model
involving a 2% levy rate. On 1 May 2000, the Minister announced the
next stage in the wool reform process and the reduction of the wool
tax rate from 4% to 3% from 1 July 2000 to cover the costs of
transition. The 1 May announcement included the establishment of a
Woolgrowers' Advisory Group (WAG) and the Interim Advisory Board
(IAB) to drive the next stages in the reform process. The IAB and WAG
worked in conjunction with the Government's Office of Asset Sales and
Information Technology Outsourcing (OASITO) throughout the process.
A
scoping study phase considered a number of possible options, with the
agreed new arrangements taking the form of a company established
under Corporations Law, Australian Wool Services Ltd (AWS), with a
number of subsidiaries, including Australian Wool Innovation Pty Ltd
(AWI) and TWC Holdings Pty Ltd. AWI manages the wool levy and funds
R&D and innovation, and TWC Holdings has taken over the work of
The Woolmark Company, concentrating on the commercial development of
the Woolmark brand and its sub-brands, and the commercialisation of
intellectual property matters. AWS and its subsidiaries commenced
operation on 1 January 2001, meeting the target date set by the
Minister. Woolgrower reaction to the new arrangements was positive,
with over 36,000 woolgrowers applying for shares, representing over
70% of wool tax received at the time of conversion. As of June 2001,
share applications represented about 80% of wool levy receipts.
From
1 July 2001, the wool levy rate was reduced to 2%, in line with the
WoolPoll 2000 ballot result. The new privatised arrangements provide
for:
- increased
contestability and competition in the application of wool levy
expenditure;
- woolgrowers to
have a more direct say in levy expenditure and shareholding in the
commercial activities of the company; and
- accountability to
the Commonwealth in the expenditure of wool levy funds, and the
Commonwealth matching R&D contributions.
See
wool production
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