Bills Digest 161 1996-97 Wool International Amendment Bill 1997


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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History

Wool International Amendment Bill 1997

Date Introduced: 28 May 1997
House: House of Representatives
Portfolio: Primary Industries and Energy
Commencement: On 1 July 1997, except for the provisions reducing the board of Wool International from 8 to 2. These come into effect from 1 January 1998

Purpose

  • To liquidate Wool International once the wool stockpile has been disposed of and the debt retired, with equity being returned to wool-tax payers;
  • To allow wool growers to trade their future entitlements to equity, or use it as security for a loan;
  • To gradually reduce the functions of Wool International as the stockpile disappears, and pare back the size of the board from 8 to 2.

Background

Wool International was set up by the Wool International Act 1993. It is a commercially-oriented statutory body which took over from the Australian Wool Realisation Commission. Its main function is to reduce the wool stockpile, and repay the government-guaranteed debt.

The stockpile was the result of the spectacular collapse in wool prices six years ago, coupled with high levels of production which were largely triggered by the policy of maintaining a wool reserve price at 870c/kg clean, and later 700c/kg - even when the price of wool dropped to a low of around 380c/kg.

By 1991, the stockpile stood at 4.72 million bales, associated debt, at $2.8 billion, and something had to be done.

For most of its history the wool reserve price scheme had been funded by growers through a modest levy on wool sales. At one stage during the 'wool crisis' the levy reached 25 per cent.

The Wool Realisation Commission was established in 1991 to sell off the stockpile, essentially according to a debt-reduction schedule. That was then scrapped, and between 1993 and 1996, wool was sold at the fixed rate of 180,000 bales per quarter. At the end of last year, it was decided to take a more commercially oriented approach, with quarterly sales of between 90,000 and 250,000 depending on the market, with all the stockpile to be sold by the end of the year 2000.

The stockpile has gradually shrunk, and now stands at about 1.6 million bales, with associated debt at under $660 million. The price of wool has also recovered somewhat, with the Eastern market indicator standing at 753c/kg at the week ending Thursday, June 19, 1997.

Under this Bill, wool growers who paid more than $20 towards the debt will be entitled to get back money. In order to do this, they will be given equity in Wool International, apportioned to growers as the authority is wound down. The first payment will be of $81 million, with the total pay-out estimated to be about $850 million. The last payments will be made before Wool International and its assets are liquidated, and after the stockpile has been disposed of.

Wool growers paid a total of about $351 million under the levy. So, if expectations are met, that will represent a return of about $2.4 for every $1 paid.

The Bill will also allow farmers to trade their future entitlements, or pledge them to a financial institution as security for a loan. The loan facility is to be negotiated by Wool International by 31 December 1997.

Traditional rivals Wesfarmers Dalgety and Elders Australia have proposed establishing a new wool logistics and merchanting vehicle in conjunction with wool growers, called Global Wool. The Bill enables growers to invest their initial pay-out in Global Wool, through a growers trust. Wool International is empowered, with the permission of the Minister for Primary Industries, to establish the trust, and invest up to $1 million in establishing the investment vehicle and developing the Global Wool proposal. Its involvement is to cease by 30 June 1998.

The proposal needs the approval of the Australian Competition and Consumer Commission because it would give Wesfarmers and Elders a 60 per cent share of the market. The commission is considering it.

Main Provisions

Items 1 to 11 in Schedule 1 amend the Objects of the Wool International Act 1993 and the functions of Wool International.

Item 3 repeals subsection 3(3) and inserts a new one. The new subsection says the Act is intended to:

  • give wool growers who contributed to the management of the stockpile the right to share in the surplus funds of Wool International;
  • make it easier for wool-tax payers to obtain loans using their entitlement to the surplus funds as security;
  • encourage investment by wool-tax payers in Global Wool, although the company is not mentioned by name.

Item 9 inserts a new section 5A which defines what 'contributions to Wool International' means. This is important because the entitlement to equity in Wool International is governed by this definition. It ensures that the assessment will be made according to the amount of money paid as the debt component of the wool tax from 1 July 1993 to 30 June 1995, including voluntary contributions between 1 July 1993 and 20 June 1995.

Item 10 repeals subsection 8(1)(f), (g), and (h) and inserts new subsections 8(1)(f) and (g). The new subsections say it is a function of Wool International to keep a register of equity holders, and to distribute surplus money to them.

Item 12 inserts new Parts 4A, 4B, 4C, 4D and 4E into the Act.

New Part 4A spells out who is entitled to a share in the money from Wool International.

New section 22B obliges Wool International to keep a register of equity holders.

New section 22C spells out who is entitled to equity, specifying that an individual's contribution must have exceeded $20.

New section 22D obliges Wool International to allocate units of equity to anyone included on the register. New section 22F makes it clear that any registered equity holder is entitled to receive a share of any money distributed by Wool International.

New section 22G gives the formula by which each unit of equity will be calculated.

New section 22H allows an equity holder to transfer her/his rights to another.

New section 22J specifies that a charge may be taken out over a unit of equity, and details how the charge should be recorded on the register.

New Part 4B deals with the distribution of money among registered equity holders.

New section 22O says money not required for other functions may be distributed to equity holders. The first distribution is to take place before 1 January 1998, with a further distribution or distributions after the repayment of accumulated debt, and a final distribution after the disposal of the wool stockpile.

New Part 4E deals with two new functions for Wool International.

New section 22ZB authorises Wool International to negotiate a loan facility for wool-growers wanting to use their future equity entitlements as security.

New section 22ZC authorises Wool International to conduct a feasibility study into Global Wool, although the entity is not mentioned by name. If the study is favourable, Wool International must, with the approval of the Minister, establish a unit trust to enable wool growers to invest in Global Wool.

New section 22ZE limits to $1 million the amount Wool International may spend on the study and establishing the fund.

Part 2 of Schedule 1, items 15 to 19 reduce the number of members on the board of Wool International from eight to two, and specifies that the members must have expertise in either:

  • wool production;
  • administration and disposal of assets; or
  • business management.

Contact Officer and Copyright Details

Bronwyn Young
30 June 1997
Bills Digest Service
Information and Research Services

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1997

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 14 July 1997


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