Earlier Payment Factor

Press, Volume CIV, Issue 30680, 20 February 1965, Page 9

Earlier Payment Factor

**pHE second major reason given by growers for setling privately was price certainty—the avoidance of the delays associated with selling at auction, given as the fourth reason, is closely allied to this.

“It appears that private sales are often contracted before the wool is shorn. Payment is sometimes made immediately and always within 14 days of delivery of the wool. On the other hand when wool is submitted for auction it may be two months or more before it is sold and the proceeds received by the grower. Thus, by selling privately, a grower avoids the risk of a fall in prices between the times of shearing and auction; conversely of course he also foregoes any possibility of a gain through a market rise. Advantageous “The earlier receipt of proceeds from private selling can be advantageous to a grower with financial commitments to meet, where the only alternative may involve borrowing and consequent interest payments. The Australian Wool Board in its recent report on wool marketing has noted this advantage and recommends a close examination of methods by which advance payments might he made to growers on their wool after it has been received into store for sale by auction.

“The third most important reason was the saving in marketing costs. When wool is sold to a dealer a grower does not have to pay the usual marketing costs associated with selling at auction, but as the dealer will incur these charges in some form allowance will be made for them in the price he pays to growers. Some dealers who operate on small margins and have low overhead costs may be able to pay slightly more than the comparable net auction price and still profit from their transactions. There may, however, be a real saving to small growers who would normally incur bulk-classing charges if they sent their wool for auction; this assumes that any deductions from their selling price made by dealers to cover costs of reclassing are less than the equivalent charges made by brokers.

“Other reasons for favouring private selling referred mainly to dissatisfaction with some aspect of the auction system or to the con-

venience of private selling as a means of disposing of odd, broken or small lines. The latter reason was given by a number of growers in South Australia. Dissatisfaction with the auction system was expressed chiefly in Western Australia where strong grower support has always been forthcoming for moves to introduce a change in the marketing system . . .

"The Australian Wool Board listed most of the above advantages of private selling in its report, and, in addition suggested the following: ‘the producer retains individual control of marketing his own product’ and The user has access to wool during periods when auctions are not being held.’

“The board then pointed out the following disadvantages which it considered resulted from private selling: ‘(1) the producer is not able to satisfy himself that the price paid by the private buyer is the full price that the market will pay; (2) if private selling were to grow to the same extent in eastern states as it has done in Western Australia it would undermine the auction system, which would no longer be a guide to the market price for wool; (3) it disrupts the even flow of wool onto the market; (4) wool purchased at a lower price privately than at auction can be sold forward at a lower price than wool purchased at auction and therefore depress the auction price.’ Because of the danger to the orderly marketing system inherent in the second disadvantage listed the board has recommended that it be made obligatory for all shorn wool to pass through the auction system at some stage before being exported. Change “Some change in the pattern and extent of private selling may occur if recommendations made by the Wool Board are put into effect The introduction of a reserve price scheme could well cause many growers who sell privately because of dissatisfaction with the present marketing system to revert to auction selling. Such a scheme would reduce the price uncertainty inherent in auction selling, and the recommendations regarding advance payments could reduce the time a grower selling at auction has to wait to receive the proceeds of his wool.

“It is of interest that in New Zealand where a reserve price scheme has been

continuously in operation since the end of World War II more than 11 per cent of the clip was sold privately in 1962-63 and this proportion has been growing rapidly.

“Implementation of the board's recommendations that auction selling be made obligatory for all wool exported would reduce the outlets available for dealers* wools. Dealers would, however, still be able to sell at auction and to local manufacturers.

“The boad has also suggested that the proposed Marketing Authority might make use of the facilities of private buyers for the handling of wools which require reclassing before auction.”