Time for reflection on wool scheme

Press, Volume CXII, Issue 33064, 3 November 1972, Page 12

Time for reflection on wool scheme

Now was the time not for a continuation of the great debate on the wool marketing issue, but for a pause for reflection, Mr H. P. Ralph, chairman of the Wool Marketing Corporation Establishment Company, told a symposium on wool marketing held in Christchurch this week by the Canter-bury-Westland branch of the New Zealand Society of Farm Management.

This did not mean reflection only on the part of those who opposed acquisition, he said. It would require moderation on all sides before this issue was finally determined.

Mr P. S. Plummer, a former Dominion president of Federated Farmers, who put forward the case against compulsory acquisition, also agreed that it was a time for reflection, as the issue was inevitably going to come up again.

The Wool Marketing Corporation Bill, recently approved by .Parliament, provides that compulsory acquisition should not be implemented before it is endorsed by a referendum, not to be held before April, 1974.

However, it is clear that, in the meantime at least, both men are very much apart in their views on the issue.

Mr Plummer’s opposition to the scheme for compul* sory acquisition seems to be based mainly on the fact that no concrete evidence can be provided that growers will be better off as a result — its acceptance is in very many ways an act of faith.

Mr Ralph noted that over the years four separate groups had come to the same conclusion — that acquisition of the clip was necessary.

These investigations had convinced the Wool Board that action must be taken and they had also convinced a body of more than 50 representatives of woolgrowers in Federated Farmers and the electoral committee of the Wool Board, who had been following the studies. They had also convinced the Government, the Opposition and, he would also venture to add, the man in the street. But the conclusions did not convince all woolgrowers.

In this latter respect Mr Ralph said that the situation was similar to that they had found all over the world. The theme was always the same — “sure the industry needs reform, but our part of it is efficient. Don’t do anything that will upset our operations. It’s the other fellow who needs changing.” Some woolgrowers took the same attitude, but if there was to be reform in wool marketing acquisition was necessary — the price of independence for the woolgrower was an uncertain future.

Farmers today, he said, were much more ready to be guided by their heads in the business of farm management. They must also learn to do the same in the wider world of marketing. “A single marketing corporation, selling standard lines of New Zealand wool, backed with assurances as to quality and delivery, can build a reputation and secure a better return for the woolgrowers — provided it is not being under-

sold and undermined by any significant group in this country,” he said. “From all the evidence that the establishment company collected there is an obvious and urgent need for someone to provide a strong and vigorous marketing effort on behalf of all the growers. What better than a growers’ corporation.?”

“I have been against the compulsory acquisition of our wool right from the time of the first wool study group’s report several years ago,” said Mr Plummer.

“I have read all of the information on this subject that I have been able to get hold of since then and I am more than ever convinced now that a scheme which includes compulsory acquisition of our clip is not in the best interests of our woolgrowers, or in fact of New Zealand. I go so far as to say that compulsory acquisition is quite unnecessary and has no proven benefits or advantages to the growers. “Every progressive organisation or industry is always looking for ways of improving its marketing, but so far as I know there is no parallel for suggesting that marketing reform can only be achieved by placing the total New Zealand wool output under control of a corporation with sole buying and selling rights.

“We would be foolish to change a system which has served us well and which suits our customers, when there is no alternative with proven economic of financial benefits. Change for change sake is silly.

“The corporation has had an appeal to many, but those who favour it have never been able to spell out how a monolithic corporation will save costs, improve the returns to the grower, influence the price on the world market or remove the threat of synthetics.

“The Action Group asked for a cost/benefit analysis. And this is the answer it got from the Wool Board — ‘the board’s investigators have looked at this and it’s just not on because it’s not possible to predict just what the corporation will be able to achieve in the way of streamlining flow and influencing demand, or the extent to which costs will rise. What is certain is that the need for marketing reform exists, and that the growers will gain substantially from it.’

“In the audience today > there are no doubt scientists, farm advisers and extension officers, and I am told also bank managers. If they provided that sort of evidence in support of a research project or a development plan for a farmer they would certainly not expect acceptance.” Mr Ralph told the seminar that to survive the com-mercially-oriented corporation would have to produce

profits, but Mr Plummer questioned whether it would be able to extract any more from the market over a period of years than the present fairly sophisticated system under which any woolbuyer in the world had the opportunity to buy wool if he wished.

Noting that the organisation was to be a selfbalancing one, living within its means apart from funds that it would take over from the Wool Commission or which it might borrow, Mr Plummer suggested that to show a profit it need only adjust the price that it paid to the grower, so that he would be the person who would pay.

Mr Plummer said those who supported the corporation should remember these words from the Wool Board —“the corporation will be basing its price on market expectations — it won’t be setting its schedule to keep the grower afloat and functioning. If additional funds are required for that purpose it will be a national responsibility.”

Although some of the opponents of acquisition had challenged it, there was no argument that large cost savings were to be made in wool handling and marketing, said Mr Ralph. The possibility was somewhere of the order of $6 per bale or sl3m a year. That, he regarded, as the first step. But how much of this saving could be achieved

without compulsory acquisition, asked Mr Plummer.

Mr Plummer, however, said he could not see any great savings being made through putting wool up in large lots unless the stage was reached where wool characteristics could be very much more accurately measured.

Giving a woolbroker point of view Mr I. S. McLeod, managing director of de Pelichet McLeod and Company, of Hastings, said he could not see any major savings being made up to the point of shipping. Savings might be made in one direction but would be lost in another, or might be made at the expense of someone else.

However, Mr Ralph said that the prospect of cost savings without acquisition were limited. He said that there were people in the industry who were taking a profit out of wool without adding value to it and nobody should be in wool handling without adding value to it.

The greatest cost by far took place between the moment the wool arrived in the country of manufacture and when it reached the retail counter, said Mr Plummer. At that point the corporation would have lost control. There did not appear to be much hope of substantial savings between the sheep and ship. One of the problems that the corporation was going to have, Mr Ralph said, was that as a com-mercially-oriented organisation it would not be able to tell its shareholders—the farmers —about what it was going to do. It would not be able to operate commercially if it told everyone its plans. On the sl3m estimation of cost savings in handling and marketing, Mr Ralph said there was a basis for this figure but he could not reveal it because there could be a section of the industry that was up against this being achieved and would not want to see it done. Mr Plummer had spoken about a cost-bene-fit analysis. This sort of thing had been done but they would not be telling everyone about it.

On the question of a commercial organisation not disclosing all of its plans,

Mr Plummer was in agreement with Mr Ralph and noted the tendency in New Zealand, particularly in activities relating to farming, to appoint people to do these things and then expect them to tell everyone what they were doing, which brought a rejoinder from Mr Ralph that on the wool marketing issue the recommendations had been taken to the industry leaders including the Wool Board, electoral committee and meat and wool council of Federated Farmers, who had endorsed them by an overwhelming majority, but

Saying that he thought that the Wool Board had shown good sense in shying away from making a costbenefit analysis on the proposed wool marketing scheme, Professor Ross, professor of agricultural economics at Lincoln College, said that it had been said—“lies, damn lies and cost-benefit analyses.” Questioned about how empire building would be prevented in the corporation, Mr Ralph said that because of the dominance of grower representatives on the board of the corporation it would only occur with their knowledge. In fact, he said, that the corporation would not require many more staff members than the existing Wool Commission and it would not need anything like the number of people—more than 300— whom New Zealand’s contribution to the International Wool Secretariat—could provide to undertake wool promotion.

What would have been the new corporation’s reaction to the recent prices for wool? Mr Ralph said it would have been one of joy. But he said he regarded the level of prices for wool as still being too low. The average price at the recent Invercargill sale was 109 c per kilogram. It would not be unreasonable at this stage to assume an average of at least a dollar a kilo for the season. If this figure was deflated to allow for

increases in on-farm and domestic costs since 1961. a figure of just under 65c was obtained. Between 1961 and 1966 comparable returns ranged from 75c to 95c, before falling to 65c on the eve of the slump starting in 1966-67. “So today’s prices, in terms of purchasing power, are just what they were on the eve of the slump.” But what was so damaging was the fluctuation in prices, Mr Ralph said. He had been astounded in the United States at just how damaging this could be where a manufacturer sold his products at firm prices for about 12 months ahead. It was bad for wool-

When questioned about the problems faced by a farmer because of uncertainty about the size of his income from wool in a season like this, Mr Plummer said that while prices under the corporation scheme would be stable for a year, they could vary from year to year and people would not be told about this six' months ahead, and in any case the prices given in July could be wrong.

Mr Ralph said that the prices for a new season would be announced earlier than in July, but he admitted that there could be mistakes made in setting them and they could be wrong as often as they were right. As to whether people other than farmers should have a say in decisions relating to wool that were of national importance, Mr Plummer said that as taxpayers they had such a right through the Government, but other sections had a strong say when matters affecting them came up and in reality the woolgrower was quite a peaceable animal. He had, however, always had the right to decide when he would sell his wool, and he would not like to give that up. Mr Ralph pointed out that under the corporation the grower would still be able to hold on to his wool if he chose to.