Wool Board promises to stand by responsibilities

Press, 2 November 1985, Page 5

Wool Board promises to stand by responsibilities

PA Wellington The Wool Board will not defy the reality of the market in its intervention at auction sales, but it will stand by its responsibility to both woolgrowers and international textile manufacturers to establish price stability, says the board’s chairman, Mr Doug Mcllraith. He told the Meat and Wool Section of Federated farmers in Wellington that the strength of the New Zealand dollar posed as equal a problem for board market support as it had for wool exporters seeking to negotiate advance contracts with their clients.

“With a volatile currency situation creating such uncertainty, it was always likely that board purchases would increase substantially,” he said. The strength of the New Zealand dollar against both the United States and Australian currencies meant the board had bid on 64 per cent of the 284,000 bales offered for sale during the first four months of the present season, It bought 30 per cent of them, increasing its stocks threefold since the start of the season.

“Board levels of support are based on an assessment of the medium term position that we believe represents the highest support level that will stabilise the market over a reasonable period of time, but without artificially impeding buying by our markets, or encouraging speculative stock holdings,” he said. Mr Mcllraith said that the board would vigorously defend prices in times of downturn if the views which

determined the board’s support levels had not changed. “We will not, however, rigidly defy market reality indefinitely,” he said. “The key to board support is providing, over a reasonable period of time, an equilibrium to the market that is as important for grower equity as it is for the businesses of overseas manufacturers.”

Recent delegations from the Belgian and United Kingdom carpet industries had made it clear how important they rated that factor of stability, Mr Mcllraith said.

“Such stability is not achieved by big changes in our support levels every second week. “The situation has not been easy, especially with our early season wools competing so directly against the Australian market and the continual strengthening of the New Zealand dollar against the Australian dollar making their prices so much cheaper, relatively, than ours.” Mr Mcllraith said that while it was not the board’s deliberate intention to withhold large amounts of wool from world markets, a reduction early this month in board price support levels had been negated by currency movements within only days. “The problem is that noone knows when currency stability will be restored or whether or not the current strength of our dollar represents that stability.”

He warned that if the New Zealand dollar remained stable at its current levels the signs were ominous for the wool market.

Market indicator levels could fall to 400 to 420 c a kilogram clean equivalent to compensate for the current level of the dollar. The indicator at the last wool sale last week was 475 c down from 531 c clean at the last sale of the 1984-85 season. Mr Mcllraith said the lower price levels this season were a reflection of the effect of high exchange and interest rates in artificially reducing the auction prices bid in New Zealand dollars. “We should be capitalising on the price strength of last season and the continuing demand internationally

for our fibre,” he said. “Instead the strong international demand for the great bulk of our crossbred production is leading to overseas buyers paying more while New Zealand woolgrowers are paid less. “All the demand we have built up with the international industry, and all the money we have paid to build up that demand is going to waste,” he said. “We should be achieving returns on our investment of higher domestic price for our wools. “We are not, and high interest and exchange rates are the main reason why we are not,” Mr Mcllraith said.