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Bills Digest No. 16 1998-99 Wool International Amendment Bill 1998

Numerical Index | Alphabetical Index

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
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details

Passage History

Wool International Amendment Bill 1998

Date Introduced: 11 November 1998

House: House of Representatives

Portfolio: Agriculture, Fisheries and Forestry

Commencement: On Royal Assent

Purpose

The major purposes of the Bill are to:

prohibit Wool International from entering into contracts for the sale of stockpile wool between the commencement of the Bill and 30 June 1999; and
require Wool International to assist, including financially, in the privatisation of the organisation.

Background

The official wool stockpile

The official wool stockpile accumulated as a result of purchasing to support the wool reserve price scheme grew from a negligible level at the start of the 1989-90 season to a peak of approximately five million bales in 1990-91. In the subsequent eight years, despite several changes to the stockpile disposal mechanism, a steady reduction in the stockpile was achieved to bring it down to its current level of just over one million bales. For most of this period up until the last year, the disposal program was accompanied by a rising trend in wool prices.

The disposal program came under increasing pressure in 1997-98 with the Asian crisis and weaker European demand pushing down wool prices. The Eastern Market indicator fell from 738 cents/kg clean a year ago to 544 cents at the start of the 1998-99 season and continued falling to the current 481 cents on 30 October.

The current debt on the stockpile is approximately $230 million and the stockpile itself is estimated to have a value of between $450 and $650 million. The Government's decision to freeze sales from the stockpile would, according to the Government, add $8 to $10 million a quarter, to the wool stockpile debt. The current stockpile represents about one quarter of annual production.

Wool international

Wool International is a statutory authority established by the Commonwealth Government under the Wool International Act 1993. Its mission is to sell the official wool stockpile, subject to certain conditions (outlined below), and to undertake these sales in a manner which maximises the net return to the Australian wool growing industry from sales of new, as well as stockpile, wool.

From 1994 to 1996, Wool International was required to sell wool from the stockpile according to a fixed schedule. A new, more flexible, wool stockpile disposal schedule was introduced with the Wool International Amendment Act 1996. That Act required Wool International:

to dispose of all of the stockpile wool by 31 December 2000
to impose upper and lower caps on its quarterly sales of stockpile wool. The current minimum sale is 90 000 bales per quarter and the maximum is 350 000 bales per quarter, and
to retire the debt associated with the stockpile by the end 1998.

In the Second Reading Speech for the Wool International Amendment Act 1996, the then Minister for Primary Industries and Energy noted the target date set for the final repayment of the debt associated with the stockpile. The Minister said that when repayment of the debt is achieved, the Government's debt guarantee arrangements will also end and that this underlines the Government's view that it needs to continue to withdraw from the industry to allow the industry to determine its own future direction.

Origin of Bill

The current Bill is necessary to provide legislative backing to the Government's decision, announced on 4 August 1998, that it will freeze all sales of wool from the stockpile for the remainder of the 1998-99 season.

The Government's intention was that the freeze on wool stockpile sales would take effect immediately. Wool International responded that it could not immediately freeze sales because it had a legislative obligation to sell a minimum of 90 000 bales by 30 September. The Government accepted this and announced that legislation would be introduced into Parliament as soon as possible after the Federal election.

Responses to the stockpile freeze announcement

The responses by industry representatives and by commentators to the Government's announcement to freeze wool stockpile sales have been, for the most part, negative.

The stockpile freeze has been opposed by:

Wool International.(1)
Wool Council of Australia who found the decision 'basically inexplicable' and that only a vocal minority of growers supported it.(2)
Australian Council of Wool Exporters.(3)
State woolgrower bodies in NSW, Victoria, Tasmania and Queensland and the Pastoralists and Graziers Association in WA.(4)

Support for the stockpile freeze has come from:

Liberal backbenchers, particularly those from WA.(5)
Several Queensland National Party members.(6)
Australian Woolgrowers' Association.(7)
WA Farmers Federation.(8)
SA Farmers Federation.(9)

Media commentators have referred to the decision as being driven by politics rather than economics. Few commentators have accepted the argument that it was an appropriate policy response targeted at arresting the downward slide in wool prices.(10)

It was reported in The Australian of 5 August 1998 that the move to freeze the stockpile was backed by Prime Minister John Howard and other senior ministers, including Ian McLachlan.(11)

On the impact of the decision itself, the Executive Director of the Wool Council of Australia said that it offers no relief to cash-strapped growers, no guarantee of any increase in prices, and creates great uncertainty in the international marketplace, which has become increasingly concerned at the constant government changes to stockpile policy.(12)

The Government made two other important decisions concerning wool marketing in 1998:

On 30 March 1998, the then Primary Industries Minister John Anderson announced that the target date for repayment of the wool stockpile debt had been extended by up to six months to June 1999, and
On 15 October 1998, John Anderson announced the Government had decided to privatise the stockpile from 1 July 1999. The Minister stated:

Equity in the stockpile is now significantly higher than the wool debt, even at today's depressed prices, so there is no justification for ongoing Government involvement in its management. Wool International will be replaced by a private shareholding company, with shares allocated on the basis of individual equity entitlements in the stockpile. The new company will take over all the assets and liabilities of Wool International.(13)

Main Provisions

Section 3 of the Wool International Act 1993 (the Principal Act) sets out the objects of the Principal Act. The effect of item 1 of Schedule 1 of the Bill is to make it an object of the Principal Act to enable Wool International, as required by the Minister, to assist in the privatisation of the organisation.

Item 5 of Schedule 1 of the Bill inserts a new section 20A, dealing with the freeze on wool stockpile sales, in the Principal Act. The main effect of proposed section 20A is to prohibit Wool International from entering into contracts for the sale of stockpile wool between the commencement of the Bill and 30 June 1999. Proposed section 20A does not affects contracts entered into by Wool International before the commencement of the Bill that require delivery between 1 October 1998 and 30 June 1999.

Item 7 of Schedule 1 of the Bill inserts a new section 22ZG in the Principal Act which requires Wool International, at the written direction of the Minister, to provide certain assistance in the privatisation of the organisation. Such assistance may include technical, informational and financial support.

Endnotes

The Australian Financial Review, 6 August 1998, p. 13.
The Australian, 5 August 1998, p. 23.
Ibid.
The Australian Financial Review, 6 August 1998, p. 13.
The Australian, 5 August 1998, p. 1.
Ibid.
The Age, 6 August 1998, p. 1.
The Canberra Times, 6 August 1998, p. B2.
Ibid.
The Australia, 5 August 1998, p. 12.
Ibid., at p. 1.
Ibid., at p. 23.
Minister for Primary Industries and Energy, Media Release, 15 October 1998.

Contact Officer and Copyright Details

Mike Emmery and Ian Ireland
17 November 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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Published by the Department of the Parliamentary Library, 1998.