Wool And The Market

Press, Volume CVII, Issue 31530, 18 November 1967, Page 4

Wool And The Market

[Reviewed by J.D.S.]

Wool. By G. 8. Le Couteur. Cheshire. This book Is written by an Australian, mainly for Australians, although much of it will be interesting for New Zealanders whose lives are touched in any way by wool, and this means nearly all of us, as we are at present painfully aware. The author makes two principal hypotheses. First, that the way to keep wool to the forefront as an international commodity is to expand its production and to promote its sale aggressively and imaginatively. Second, that the way to stifle the free flow of wool into trade, and to allow man-made fibres to make even deeper inroads, is to interfere with the auction system. On the subject of production Mr Le Couteur asserts that, just as wool got the Australian economy off the ground originally, it is still capable, with sympathetic economic policies, erf remaining Australia’s most important product He argues, however, that the cost/price squeeze to which the Australian pastoralist has been subjected in recent years, and which of course is very familiar to the New Zealand sheep farmer, is creating a set of conditions in which investment is being severely restricted. He asserts that this squeeze is due to Australia’s protectionist policies in manufacturing, resulting in wage and general cost inflation. Unless there is a margin of profitability in wool production, then the principal source of Investment funds, residual profits, dries up.

This argument is again of direct relevance to the New Zealand sheep industry, where, in spite of the sharp increase in State lending for development in recent years, the major source of develop-

ment funds is ploughed back profits. The author argues that little can be done to affect the price of wool on the market, other than through promotion and research, so that the vital need, if a margin of profit is to be achieved, is that costs be contained.

On the subject of marketing Mr Le Couteur’s views are particularly timely, in the New Zealand context. He strongly opposes any interference with the free auction system, and quotes at length supporting views from industry leaders. He believes, that the “invisible hand” of the price system is necessary to ensure that the industry responds sensitively to market stimuli, and to ensure the free flow of wool in trade channels. He is particularly adamant in his opposition to any acquisition scheme, but does not seem strongly opposed to a reserve price system aimed at smoothing out short term fluctuations. However, such a reserve price should be a very conservative one.

In reviewing the different systems of marketing, Mr Le Couteur does not pass final judgment on the New Zealand reserve price and acquisition scheme, but he is clearly somewhat sceptical. The latest information he had when his

book went to press was that the New Zealand Wool Commission had acquired 200,000 bales in the 1966-67 selling season. Had the final figures been available to him he would have had stronger views.

The major deficiency of this book is the lack of objective evidence to sustain the principal hypotheses. For example, what is the effect of fluctuating revenue on sheep farmers’ investment decisions, and what is the effect of fluctuating wool prices on manufacturers’ buying decisions? Mr Le Couteur cannot be blamed for basing his views on opinions, especially as many of them appear to be well informed and shrewd, for very little research has been done in this field. But we may hope for some light on the decision-making framework in the wool pipeline to come from the present work of the New Zealand Wool Marketing Study Group. Finally, Mr Couteur strikes an optimistic note on the future of wool provided its production and promotion is prosecuted vigorously. But the New Zealand reader will be very much aware that his optimism is directed more towards high-quality Merinotype apparel wool than it is towards cross-bred types.