High Prices Restrict Wool Textile Usage

Press, Volume CIV, Issue 30745, 8 May 1965, Page 8

High Prices Restrict Wool Textile Usage

The higher prices charged for New Zealand wool textiles is a major reason for declining consumption in recent years. This is the conclusion reached by Professor B. P. Philpott in a bulletin released this week by the Agricultural Economics Research Unit, Lincoln College.

The Agricultural Economics Research Unit has been studying trends in wool textile consumption in 20 countries with the assistance of a research grant from the Wool Research Organisation. In most countries it has been found that per capita wool textile consumption has been rising by slightly more than 1 per cent per annum. In contrast consumption in New Zealand has been declining since about 1954-55, until it is now not much higher than the pre-war level in spite of the much higher levels of real income compared with that period. Professor Philpott found that the major reason for this decline is the far greater rise which has occurred in wool textile prices at the wholesale and retail level, compared with changes in the prices of other textiles. The bulletin also shows that the reason for the relatively greater rise in wool textile nrices is to be found in the ' substitution of more expensive locally produced wool textiles for cheaper imports—a nrocess which did not occur to the same extent with cotton and svnthetic textiles. In addition there is considerable evidence to suggest that profit margins for wool textiles have been rising in manufacturing and retailing of these products.

■ Professor Philpott says that there is some evidence 'to suggest that rising costs and margins in the New Zealand. woollen mills are a natural result of the shelter i'rom competition due to imi nort control and to the tendency, again under the shelter of import control, for New Zealand woollen mills to diversify their production far too much into products which, with a small New Zealand market. involve high costs for much shorter runs compared with overseas.

■ In considering the implications for New Zealand of I these results, Professor Philpott says that for a country whose economy is as vitally dependent on wool as is New Zealand, a high and growing level of wool consumption is most desirable. .The evidence presented in this paper suggests that the reverse is occurring and consumption has been declining due to import control and the higher prices for locally produced wool textiles which this has caused. If all wool textile prices were to fall to equality or near equality

with imported prices, it can be shown, using the demand function presented in section IV of the bulletin, that consumption per capita would rise about 17 per cent. In terms of fibre content this amounts to about 4m lb of greasy wool, which can be regarded as the extra worldwide demand for wool generated by cheaper wool textiles in New Zealand. But over and above this, the long term health of the world wool economy depends vitally on ensuring the greatest possible freedom in world trade for wool and wool textiles. and New Zealand should want to encourage the rapid development of thriving wool textile exporting industries in countries which, because of low costs, can effectively compete on world markets, says Professor Philpott. Restrictions on world trade in wool textiles and the building up of high cost protected wool textile industries can only impede the competitive power of wool in relation to synthetic fibres. New Zealand’s chances of successfully prfessing for abolition of such trade restrictions are fairly remote while this country itself persists in being, perhaps, the most restrictionist.

It would of course be quite unrealistic to suggest that all protection should be immediately removed from the New’ Zealand wool textile industry, any more than it should from a whole host of other basic New Zealand industries. A desirable move would, however, be to replace import control with a moderate tariff. There was a time when the wool textile industry stood on its own feet, with only a modicum of protection by means of a moderate tariff: but, as a basic New Zealand industry, it has suffered, as have all basic industries, from higher costs, caused partly by indiscriminate protection granted to a whole range of new high cost industries.

There is a major case, therefore, for a return to protection of this, and all other industries. A moderate tariff would ensure, as it did in earlier years, that the New Zealand wool textile industry concentrates on making those products in which individual firms are competitive with imports; or in w’hich a competitive position can be secured by some desirable rationalisation and concentration of production.