Scepticism About Support Schemes For Wool

Press, Volume CX, Issue 32352, 18 July 1970, Page 16

Scepticism About Support Schemes For Wool

(NT P .4 -Reuter—Copyright) LONDON, July 15. There is a growing conviction among international woolbrokers in London that none of the schemes currently being considered by the Australian Government to support the price of wool is likely to materialise. One well-informed source told Reuter the Australians themselves are still unconvinced that any of the schemes could be made workable and expressed their scepticism in private talks with woolbrokers here after the International 'Wool Textile Organisation annual conference in Monaco last month. The scepticism is born out of several unsuccessful attempts before to set up a wool price support mechanism, years of talk and no action and the failure of New Zealand’s attempt to launch a similar scheme. Brokers are convinced it would be impossible to get a new marketing system off the ground or to make it' function effectively with consumer countries so strongly opposed to any move which would interfere with the current system of free auction and the forces of supply and demand. Recommendation The Australian Wool Boards advisory committee recently recommended to the Australian Government a day-to-day declaration of

I minimum prices acceptabl* at auction. It suggested that .wool not reaching the reserve price should be purchased by a statutory authority, stockpiled and then sold latei when prices were favourable to the grower. The scheme is designed to protect wool farmers from steadily declining world prices for wool which have dropped between 10 per cent and 15 per cent during the {current bearish market cycle which has lasted between 18 and 21 months. While wool growers are putting increasing pressure on the government to take ; action in their interests, wool {consumer countries, led by Japan, which imports 30 per -cent of Australia's wool clip, {have warned that a reserve price system could lead to a tremendous stockpiling of wool which could result in an even more depressed market in the future. Brokers here also point out that in New Zealand, which introduced a reserve price system some years ago, non- | co-operation from buyers forced the wool authorities ‘to stockpile about 700,000 bales of wool with adverse consequences for the wool industry and the New Zealand economy. At best, woolbrokers here expect the Australian Government to appease the growers by yielding to pressure for increased financial aid and to implement recent recommendations of the Wool Board's advisory committee for grants to growers in relation to losses incurred

.through the fall in wool ' prices. Little Impact Developments in Australis .have as yet had little impact lon the London wool terminal [although dealers have noted some inhibition in dealings las well as slightly fewer for.ward offers of next season’s dip than is usual at this time I of the year. When the auctions begin again, brokers forecast some hesitancy at the start of the {season but increasing stability and steadiness in prices j as the season progresses. Even if the Australians decided to implement a reserve price scheme, it would take months to organise and would have little impact on next season's values. i Some brokers feel the bearish cycle has now bottomed-out and could be poised for a bullish upswing. Should this happen over the coming months, the need for a wool price support system would be avoided. But world economic indicators show this is unlikely to happen in the near term and, if it did, the reversal of the current trend would be slow. High distanct futures indicate broker optimism that wool prices will tend to stabilise in the coining season despite the fact that the 1970/71 world clip is expected to show a further rise over 1969/70, when it reached a record 6136 m lb on a greasy basis and 3547 m lb on a clean basis—margin-

ally higher than the previous year. One inducement to hedge is that a reactivation of the United States economy would provide support for wool prices and by reducing world interest rates would encourage consumers to- hold stocks. Opinion, generally, however, is that wool prices have been too low for too long and having remained untouched by inflationary trends for so long, must soon be caught up in the world inflationary spiral.