Acquisition Of N.Z. Clip Recommended

Press, Volume CVII, Issue 31530, 18 November 1967, Page 8

Acquisition Of N.Z. Clip Recommended

The purchase of all wool produced in New Zealand by a wool marketing authority is recommended by the wool marketing study group of the Wool Board and Wool Commission in its final report. The group was set up nearly three years ago. It is proposed that the authority dispose of its wool through the existing channels.

The objective of the proposals is to stabilise prices to growers. It is believed that a scheme to stabilise prices both to grower and user is beyond the capacity of the growing industry alone.

The recommendations also incorporate a comprehensive scheme for the improved presentation of wools for sale. Steps have already been taken to implement this.

Although the scheme retains the auction system as the major method of disposal, it is considered that wool merchants would be retained as one of the channels of disposal. The group’s report contains suggestions of ways in which private dealers could continue to operate alongside a marketing authority.

The study group considers that the fluctuations which have occurred in wool prices in the past have had an adverse effect on the growth of the sheep farming industry. These price changes have created problems both of liquidity and credit and have generated changes in the confidence of farmers and lending institutions alike. It considers that stabilisation of wool prices would create a more favourable climate for farm development. The implementation of efficient development programmes could proceed (with the confidence that has been charactertistic of the dairy industry. The group has concluded that stability of wool prices represents a desirable improvement in the present system of marketing. The group has examined the means by which stability of prices might be effected. Preliminary investigations into the causes of price fluctuations indicated that the elements of demand were of more importance than the elements of supply. The group has explored the possibility of containing market fluctuations by the regulation of the supply of wool on to the market. It has concluded that to achieve meaningful stability of market prices, the stabilising authority would have to buy and sell extremely large volumes of wool.

Consequently the group has concluded that while there is evidence to suggest that stability of prices to the wool user

is a desirable objective, it is not feasible for sheepfarmers alone to undertake this. The most that woolgrowers can achieve in isolation is the stabilisation of their own returns. This conclusion raised the question as to the methods by which wool should be sold. The group considers that at present there is no method more suited to the disposal of the majority of the New Zealand wool clip than the auction system. However, the group is of the opinion that as far as the grower is concerned, the auction system has disadvantages, in that there is no equity in prices received by growers of comparable wools either between sales within a season, or even within a single sale as premiums and discounts for style and preparation are obscured by random price fluctuations. Therefore the group considers that any scheme designed to stabilise prices to growers should be designed to overcome these problems. The group has also studied the ways in which the marketing of wool can be improved in the future. It considers that the establishment of a series of standard New Zealand types, which are both accurately described and are guaranteed to the trade, would represent an improvement to the present classification system. The group believes that the standardisation of types would enhance the long-run demand for New Zealand wool and reduce the costs of marketing. For wool types to be successfully standardised, it recognises that a system of objective measurement of wool properties such as fibre length, fibre diameter and staple length must be developed. The group, therefore, fully endorses the action at present being undertaken at the Wool Research Organisation of New Zealand to develop such a system.

The group has concluded that the system of marketing best suited to the present and future interests of the New Zealand wool industry is:—

(a) Appraisal and purchase of all wool produced in New Zealand by a wool marketing authority. Purchase prices would be based on a bareme set with the objective of providing complete withinseason and relative be-tween-season stability of prices to the grower. (b) Sale of the wool by the authority through existing channels of disposal. The difference between the cost of the authority’s purchases and market realisations would be financed from a stabilising fund, with the aim of making the fund selfbalancing in the longrun. This system is recommended because it fulfills the following objectives: (a) The provision of stability of wool prices to the grower. (b) The provision of equity as between growers of comparable wool types through the maintenance of consistent premiums and discounts for style and preparation. (c) The establishment, maintenance and guarantee to the trade of a series of standard New Zealand types. (d) The ability to regulate the flow of wool on to the market. (e) The expansion of desirable avenues of sale. (f) The active promotion in world markets of New Zealand raw wool. The study group says that grower-owner slipe wool sold through auction would be covered by the normal operations of the authority at the auction centre. It also considers that appraisal and purchase of all other slipe wools is desirable. The group also proposes the establishment, by the Marketing Authority, of a market intelligence system. Complete and accurate information is a prerequisite to: (a) the setting of a seasonal payout price and (b) the operation of a flexible reserve price in the market. The authority would have power to pass wool at auction using a bareme of reserve prices. It could also, in the interests of the industry or in the interests of maintaining is funds, seek to change these reserve prices whenever this was deemed necessary. This would have no effect on the growers’ pay-out price. In determining the seasonal pay-out price the group says that the authority should have

regard to the following objectives—that the pay-out accurately reflects long-term price trends, with only a minimum element of net subsidy or levy over the years, and that fluctuations in seasonal payout are minimised. Some of the following criteria could also be incorporated in the price-fixing procedure —that movements in the industry accounts be limited to a definite range, that movements in pay-out price be limited to a definite range, and that movements in the pay-out prices tend to reflect current movements in market prices. The group accepts the desirability of the use of an agreed and widely-understood set of decision rules for establishing the pay-out. The

use of discretionary powers by the authority, in the light of market information, should be restricted to exceptional circumstances.

If these proposals are to be implemented, decisions at a policy level will need to be made, says the final section of the report. The group says that this does not fall within the compass of its terms of reference and therefore it recommends that a wool marketing committee consisting of members of the Wool Board, the Wool Commission and the Government should be established. The functions of the committee would be: (a) To examine the findings of the wool marketing study group. (b) To discuss these find-

ings with interested organisations in New Zealand. (c) In the event of these findings being accepted, to draft legislation and define the administration necessary for the appropriate authorities to implement improved methods of marketing. The group suggests that the committee should be assisted in its examination by a research executive, staffed with suitably qualified personnel.

The estimated additional cost of administration of the proposed scheme over and above that of operating the Wool Commission is put at $50,000 a year, and it is estimated that the cost of employing at the most 15 additional appraisers would be about $90,000 a year.