THE WOOL INDUSTRY

Poverty Bay Herald, Volume LIX, Issue 17947, 26 November 1932, Page 16

THE WOOL INDUSTRY

AUSTRALIAN PROPOSALS REDUCTION OF TAXATION EXPORTS TO BE CONTROLLED MELBOURNE, Nov. 17. The Federal Government has released for publication the report of the Commonwealth Wool Inquiry Committee, appointed in August last to inquire into the position of the Australian wool industry. The committee was_ composed of Mr. J. Gunn, chairman, Sir Graham Waddell, Means. J. B. Brigden W. L. Payne, R. C. Field, B. A. N. Cole, E. Grayndler, M.L.C. (N.IS.W.), K- A. Ramsay and J. Clark. It heard evidence in Melbourne, Sydney and Brisbane from 72 witnesses and obtained additional information and suggestions from numerous other persons and oiganisations interested in tho wool industry. Its report was completed at Sydney on October 26, and presented to the Prime Minister. The committee in its report referred to wool as the historic foundation of Australian development, and stated that it had fallen in value to unprecedented low levels. The gold price of wool in 1932 had been around 5d per lb. Tho price received had been higher solely because of the depreciation in sterling and Australian currencies. Nevertheless, the value of wool exported in each of the last two years had been less than half the gold' value in 1927-28. This accounted very largely for Australian adversity The value of wool exports had fallen very much more than tho value of all other exports, despite good seasons. The loss had amounted to £34,000,000 a year in Australian currency, yet even now wool provided one-third of our credits overseas. This was the third year of tlieso calamitous prices. Hitherto the wool growers had managed to continue production by getting further into debt, and by neglecting maintenance. The industry could not continue on this liusis. Australia generally had so far escaped a drought, but this good fortune might not continue. The need was imperative for prompt and effective action to relieve the industry.

GAP BETWEEN COSTS AND PRICES

During the last two seasons, the report continued, the average price had been about Bv,d per lb. at the sales m Australia. The average price now was a little higher. Costs within the control of the grower had been drastically reduced, and some other costs had been reduced also. The committee found that the average typical cost of producing wool (exclusive of all interest) was now BJjd at the sheep stations and 9j,d at the sales. These were the costs attributable to wool only. There was therefore an average loss at present of at least id per lb. plus interest. Growers with higher costs were suffering a greater loss. The average typical costs of representative growers under present good-season conditions (representing the cost on efficient medium and large properties, chargeable to wool only) were as follows:

Expenses Per lb. of wool Working expenses, excluding all interest 6|d. Annual maintenance and average drought expenses ... l|d. Cost at sheep stations, excluding all interest Bjd. Rail freight and brokers’ charges Id. Average cost when sold ... 9£d.

Interest actually paid and attributable to wool averaged only l|d per lb. of wool. The payments were taking the place of maintenance. They varied greatly between growers, and higher liabilities were common. In some cases interest was not being paid; in others it was rapidly absorbing the equity of the growers. The amount required to cover interest at 5 per cent, on £3 per sheep area was 4£d per lb. of wool. The £3 was low, but was for wool only. At this figure total wool costs averaged not less than 14d per lb. of wool at the point of sale, allowing nothing for management or for the special risks of the industry. Net revenues from stock and other rates were not now assisting to cover overhead expenses. The evidence upon which these costs were based was from all vStatcs, and covered 668 properties, carrying 8,000.000 sheep. The cost of “working expenses’’ and “maintenance’’ rose from about 4Jd per lb. of wool in pre-war years to B£d in 1915, to Is 11 Ad in the, drought year 1930, to lid in 1925 and 11 Ad in 1930. The expenses on the properties dealt with for the last year fell to 7Jd because of reduced costs, the postponement of maintenance and the comparative absence of drought expenses. Reductions in costs were required for the permanent rehabilitation of tho industry, apart from present urgent necessities. Rail freights were high on wool and live stock. Tho inflated capital costs of railways should not be a reason for maintaining high rates on wool, and the committee suggested that the example of West Australia should l>e followed, where wool rates had been reduced 30 nor cent It recommends the several State Oovcrnments to give these charges and similar matters priority of consideration during the current financial year.

As to private business charges, it was stated that some financial houses had been verv generous and farseeing in their treatment of wool growers, and

the broking houses who have lent money on leaseholds have made much expansion possible. But there was no uniformity. Belief granted by Governments would improve the position of all creditor and agency institutions, and it was in these times that reserves should be used. It was considered that general reductions should be made more quickly. The wool industry needed the lowest interest rates, yet rates had been slow to follow world market conditions. The committee did not feel that Governments only should he asked to meet the situation, and interest was the largest single, item of expense for all except a few fortunately situated growers.

With regard to land tax the committee stated that during the last three years this tax had been collected from capital or from money required for maintenance. It threatened the integrity of the industry. Where both Federal and State land taxes combined to require heavy payments the situation was full of menace. The committee recommended that a substantial reduction of Federal land tax on wool-producing properties should be made forthwith, or that the tax on such properties should bo immediately suspended or abolished. It suggested further that the State Government should consider the question of substantial discrimination in favor of well-improved rural lands.

The evidence indicates, the report proceeds, (hat. the reductions in cost which were recommended, including a fall in interest to the full extent of the market rate, but not including any further reductions in interest, or a lessening of the “burdon of the tariff,” might together amount to about a penny per lb. of wool. More was required for the permanent rehabilitation of the industry. The committee had traversed proposals for the urgent requirements of ihe present emergency, including a loan or bounty to growers, and rejected them both. The evidence was that such assistance was not sought by the growers. Other alternatives were tho successful control of marketing, giving a higher world price, or an increased rate of exchange on sterling, giving a higher Australian price.

COMMITTEE’S RECOMMENDATIONS The committee recommended:—

(a) That a. Commonwealth wool executive be constituted by the Wool Growers’ Council, after a new election of its personnel, comprising ono wool growers’ representative from each State, and its chairman, and two representatives of tho National Council of Wool Soiling Brokers, with five to form a quorum for quick action; and (h) That the Commonwealth Government, by regulation or otherwise, should take to itself power to prohibit the export of wool, except on such conditions ns may bo prescribed, provided that such power should not bo exercised except upon the request of the Commonwealth Wool Executive. The committee considered that these provisions would enable tho wool growers to deal with tho problem generally, and with any special situation that might arise, including negotiations for the acquisition of funds to hold wool in an emergency.

Tho committee goes on to state that the depreciation of the pound Australian and of tho pound sterling at present accounts for 4d out of 9d received for wool. The proportion had increased as sterling had depreciated this year. The position was so extraordinary that a few growers had •doubted whether they received the exchange premiums oh sterling. The committee was emphatically of the opinion that the determination of the rate of exchange should continue to be a function of the Commonwealth Bank Board, hut it recommended that the Government should more positively indemnify the board against loss in accumulating and in holding an adequate balance in London in the interests of the nation as a whole, and to give the board more effective independence of action in those interests. It considered that the Rank Board should bo tho sole custodian of exchange rate responsibility, hut it u,rged upon the hoard that it- should

use its best endeavors to maintain the present rate of exchange for the whole of the wool season, ending in June, 1933, and, further, that, should the catastrophe of a further fall in wool prices eventuate it should increase the rate. It was not urged that the rate of exchange should be determined for the purpose of supporting the wool industry, and it was considered that it would bo dangerous to follow any policy of managing the exchange rate to assist export industries. The committee also reports briefly upon a number of problems, such, as lot-splitting, and in conclusion divides tho industry problems into three main categories, namelv: — fa) A group of problems peculiar to the industry itself, not arising, out of the present crisis, but requiring the careful attention of growers, brokers, buvers and other associated with it.

(b) T,he urgent problem of reducing tho trap between current expenses and world prices; a national question of major importance because of our dependence on wool. (c) The permanent problem of closing flic can between total costs, including a return on capital invested and future prices. This involves a reconsideration of the relations between this basic industry and the many secondary industries which it sunpovts.

All members of tho committee, with one exception, concurred in the report. Tho dissentient is Mr. Grayndler, who in an addendum to the report, states that he does not accept the conclusions of the committee in determining tho cost of wool production. , He declares also that in his opinion there is ample evidence to show that over-capitalisa-tion has lmd, and is having, a serious effect on the wool industry. Until the position is fairlv faced, the losses cut and the industry nlaced on a basis more comparable with that which obtained in 1914, the present unsatisfactory position, he considers, will remain.