WOOL CONFERENCE REPORT AND RECOMMENDATIONS OF CONFERENCE OF REPRESENTATIVES OF THE UNITED KINGDOM, THE COMMONWEALTH OF AUSTRALIA, THE DOMINION OF NEW ZEALAND, AND THE UNION OF SOUTH AFRICA, LONDON, 16th APRIL TO 28th MAY, 1945

Appendix to the Journals of the House of Representatives, 1945 Session I, A-10

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1945 NEW ZEALAND

WOOL CONFERENCE REPORT AND RECOMMENDATIONS OF CONFERENCE OF REPRESENTATIVES OF THE UNITED KINGDOM, THE COMMONWEALTH OF AUSTRALIA, THE DOMINION OF NEW ZEALAND, AND THE UNION OF SOUTH AFRICA, LONDON, 16th APRIL TO 28th MAY, 1945

Presented to both ITomen of the General Assembly by Leave REPORT OF NEW ZEALAND GOVERNMENT DELEGATION The following delegation was appointed by the New Zealand Government to represent them at the Conference : — . Mr. George A. Duncan, Director of Export Division, Marketing Department (Leader). Mr. E. L. Greensmith, First Assistant Secretary, New Zealand Treasury. Mr. N. R. Jameson, Chairman, New Zealand Wool Board. Mr. W. Horrobin, Vice-Chairman, New Zealand Wool Board. Mr. H. M. Christie, Member, New Zealand Wool BoardMr. C. G. Trotter, President, New Zealand Wool Brokers' Association. Mr. Albert Smith, Vice-President, New Zealand Wool Buyers' Association. Mr. H. E. Davis and Mr. N. S. McClumpha, New Zealand Marketing Department (Export Division), London. Mr. W. M. Wilson, New Zealand Marketing Department (Export Division), (Secretary to delegation). The report of the delegation is as follows :— London, 31st May, 1945. The Hon. the Minister op Marketing, Wellington. Sir, — WOOL CONFERENCE, 1945: REPORT OF NEW ZEALAND GOVERNMENT DELEGATION Following our participation in the Conference of representatives of the Governments of the United Kingdom, Australia, South Africa, and New Zealand, we have the honour to submit the following report: — 1. The Conference met continuously in London from 16th April to 28th May, 1945, and the deliberations comprised meetings of the full Conference and of special committees, which engaged all members of our delegation. 2. The Conference reached the unanimous conclusion that a Joint Organization should be formed by the four Governments, to take charge of the marketing of the old wool and to support the marketing of current clips throughout the period of disposal. The recommendations of the Conference to be presented by the respective delegations to their Governments, covering the formation of the Joint Organization, the methods of marketing, and the financial plan, are embodied in the Conference report attached hereto. This report comprises the following (a) A general statement expressing in broad outline the conclusions reached : (b) Appendix A, " Facts of Accumulation and Prospects of Disposal " : (c) Appendix B, " Methods of Marketing " : (t?) Appendix C, in three parts — I. " Disposals Plan." 11. " Constitution and Functions of Joint Organization." 111. " Financial Plan,"

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Facts of Accumulation and Prospects op Disposal 3. The problem facing the Governments of the United Kingdom, Australia, South Africa, and New Zealand, and the woolgrowers of the Dominions, in the disposal of United Kingdom owned stocks and Dominions' current clips, is outlined in Appendix A, " Facts of Accumulation and Prospects of Disposal." It is pointed out in this Appendix that whilst stocks held by other countries, notably the United States of America and South America, must be taken into account in any calculation of the period likely to be required for disposal of United Kingdom stocks, and that whilst the influence on the general wool situation of an independent marketing policy for South American wools cannot be altogether disregarded, the United Kingdom and the Dominions will nevertheless exercise a preponderant influence over post-war values for both Merino and crossbred wools. Appendix A gives figures of estimated stocks, production, and exportablesurpluses, and discusses prospects for disposal. The Appendix assumes(a) That there will be a substantial increase in world purchasing-power compared with pre-war, by reason of the successful prosecution of policies of full employment and expansion of world trade; (b) That the price of wool and wool textiles is a reasonable one, which encourages consumption ; and (c) That use is made of every aid, such as long-term credits to needy countries and publicity and scientific research, in order to facilitate sales and expand consumption. It is not thought impossible that total world consumption of apparel wool might increase to a level of 12 per cent, above pre-war. This will represent an increase of 20 per cent, in the consumption of Dominions and South American wools over pre-war levels. If this aim is achieved, the period required to dispose of existing stocks, alongside new clips, at the estimated rate of future production, would be on average thirteen years from 30th June, 1945. Existing Contract Arrangements 4. Early in the Conference discussions consideration was given by all delegations to the question of allowing the existing contract for purchase of woo] by the United Kingdom during the Japanese war and for one season thereafter to continue, and only then to enter into arrangements for joint disposal of wool stocks. In favour of the continuance of existing contracts was the possibility of some increase in " divisible profits," and of little material increase in accumulated stocks. Against continuance, it was pointed out on behalf of the United Kingdom that its stocks represent £170 million sterling, that it is prepared to enter now into a joint disposal plan involving further purchases extending over some twelve years, but could hardly be expected to incur any such commitment if the contracts were allowed to run their course. The reference to " divisible profits " is to net profits which have been made by the United Kingdom, from sales of Dominion wool to other countries, and which are to be shared equally between the United Kingdom and the Dominion. The question was raised by the delegation whether these profits could not be withdrawn and held as a reserve against the future losses and costs. It was pointed out, however, that the profits are not actual, in the sense that they have always been stipulated to be payable only after realization of all United Kingdom stocks. This dependence upon ultimate realization of stocks, obviously, might result in a substantial reduction of the profits assessed to date, especially if the proposals for joint disposal were not agreed to. In the circumstances it was agreed that the appropriate use for the divisible profits is to apply them in reduction of the original costs of the opening stock. The result is that the profits are in fact being used as a' reserve against possible ultimate loss. Upon consideration of all factors, including the great advantage of having the United Kingdom as a partner on equal terms, and interested in obtaining the best returns from realization of the wool stocks, as well as the consideration that the United Kingdom, would meet half the cost of purchasing the unsold portions of each season's clip over a period of up to twelve years, it was agreed that a joint plan on

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the lines proposed was in the best interests of all parties. In regard to the continuance of the existing contracts, it should be noted that the United Kingdom has the right to ask for a revision of prices in the light of prevailing circumstances, and this aspect was mentioned by the United Kingdom representatives. Disposals Plan 5. Appendix C, I, " Disposals Plan," recommends the setting-up forthwith of a Joint Disposals Organization, and outlines the procedure recommended for buying, holding, and selling wool, by the Joint Organization on behalf of the four Governments concerned, for determination of total quantities of wool to be offered from time to time, and for the fixation of reserve prices at which the Organization will itself be willing to acquire wool. In view of the fact that the concurrent marketing of stock and new clips by the method of auction cannot be introduced in full immediately after the 31st July, 1945, the Dominions 1945-46 clip will be taken up as a whole by the present methods of appraisement and bulk purchase. Constitution and Functions of Joint Organization 6. Appendix C, 11, " Constitution and Functions of Joint Organization," outlines the proposal for the Joint Organization to be incorporated as a private registered company, and for this company to have three active subsidiaries in the Dominions, to act on its behalf, which may be registered companies or other legal entities. The functions of the Joint Organization and its subsidiaries are set out, and details are given of the recommended shareholding basis and constitution of the board of directors. Subsidiary Organization in each Dominion 7. It will be observed that in the Appendix B, " Methods of Marketing," and in the Appendix C, 11, " Constitution and Functions of Joint Organization," the question of the particular form of subsidiary organization in each Dominion is left open. It was recognized that particular circumstances in any one Dominion, in the organization of the wool industry and in its relationship with the Government, might necessitate a variation from the procedure in the other Dominions. The only essential requirement would be that the particular form of Dominion " subsidiary " decided upon would conduct the operations of the principal company (the Joint Organization) in the .Dominions, in accordance with its policy and decisions. The New Zealand delegation regards the question as one for determination by the Government, in consultation with the New Zealand wool industry. Methods op Marketing 8. Appendix B, " Methods of Marketing," discusses the alternative procedures which might be adopted, and records the unanimous conclusion of the Conference, that the interests of the grower will best be served by a return to the auction system, as soon as conditions permit them to be freely attended by buyers from consuming countries. Financial Plan 9. Appendix C, 111, " Financial Plan," outlines the provisions for capital contributions, operating expenses, repayment of capital, sharing of ultimate profit and loss, and procedure during the interim period—the 1945-46 wool year. The financial plan provides as follows : — (a) The scheme when agreed upon will come into force as from Ist August, 1945. During the wool year 1945-46 the United Kingdom will be responsible for the purchase of the whole clip, the management and sale of which will be entrusted to the Joint Organization as soon as constituted. The United Kingdom will be reimbursed by each Dominion for one-half of the cost of that part of the new clip of that Dominion unsold at the end of the wool year. The net proceeds of the sales of old wool during 1945-46, plus the net profit or minus the loss on sales of new clip wool, after meeting the whole operating costs of the Joint Organization, and such incidental costs (including interest at the rate of l{ per cent, per annum on the monthly balance of the working capital provided by the United Kingdom), as the United Kingdom may incur in connection with the purchase of the new clip, will be allocated to capital repayment.

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All sales to consumers, whether in the partner countries or elsewhere, will be on the basis of the selling prices determined by the Joint Organization. (b) The United Kingdom and the Dominion concerned will each take up equal shares in the capital ownership of the opening stock of wool handed over to the Joint Organization as at Ist August, 1945, as well as of additional new wool not sold in the normal manner, but purchased by the Joint Organization from time to time at reserve prices. (c) The opening stock in the Dominions will be taken in by the Joint Organization at its original overall average appraisement cost, including f.o.b. charges and any processing costs, but less the amounts accumulated in the divisible profit accounts. No charge for interest on stock is included in the cost at which it is proposed to transfer the stock. Charges for storage and insurance on stocks in the United Kingdom and the United States of America have been written off. In the case of opening stock wool located in the United Kingdom, an additional charge is added representing the estimated post-war transport and landing costs to the United Kingdom. In the c&se of opening stock wool located in the United States of America, the valuation is as for wool located in the United Kingdom, but less the freight, insurance, and landing costs from the United States of America to the United Kingdom. Stocks purchased prior to 30th June, 1942, are taken in at the lower prices then current. (d) Payment of the Dominions half share of the original capital represented by the opening stocks, will be made in four annual instalments. In addition, as mentioned above, each Dominion would provide half the further capital required by the Joint Organization during the operation of the scheme, for payment for bought-in new wool of that Dominion. This capital responsibility of each Dominion in respect of its wool is to be met from its half-share of the proceeds of sales by the Joint Organization and from its half-share of the net profit during the year 1945-46 while the present procedure of acquisition and sale by the United Kingdom continues, but subject to a minimum payment in each year of one-quarter of the total of the Dominion's half-share of the original capital represented by the opening stocks. No interest will be charged by the United Kingdom on outstanding instalments. (e) The operating expenses of Joint Organization will be borne equally between the industry and Joint Organization itself. The share of the industry will be paid by the Dominion Governments, primarily from the proceeds of a contributory charge on all sales of new clip wool; the share of Joint Organization will be met by deduction from the proceeds of sales by Joint Organization before application to capital repayment. No charge will be made for interest in the operating expenses of Joint Organization. Operating expenses in any year shall include all current expenses, such as costs of administration, storage, reconditioning, insurance, and selling expenses. The storage expenses will include an annual sum sufficient to cover over ten years, the cost of stores, and other capital plant and equipment transferred to Joint Organization. Operating expenses shall also include provision to cover depreciation of bought-in wool. This provision shall be calculated at a rate to be determined by Joint Organization on wool bought in and taken into stock each year, and shall be credited to a Suspense Account. As bought-in wool is sold, Joint Organization will assess the amount of difference between the price realized for it and for new wool of similar type and yield, both to be calculated at time of resale. The amount of difference so assessed will be withdrawn from the Suspense Account, and added to actual proceeds of sale for the purpose of capital repayment.

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The reference above to the inclusion in operating expenses of a charge on all wool bought in by the Joint Organization in that year to cover any loss of value on resale requires explanation. It is considered that in the operation of the scheme current clip wool bought in by the Joint Organization and held over for some time will inevitably acquire a measure of " old wool" aspect, and thus may have to be sold at some small discount compared with new wool of same types sold during the season in which they are produced. Accordingly, it is desired to provide from operating expenses a depreciation fund to meet this contingency, which is in the nature of an " operating expense " of the scheme, rather than a " discount on old stock," since the passing-in of this current clip wool unsold at auction arises from the principle of maintaining growers' prices by fixation of auction reserve prices. The delegation draws attention to the fact that the financial plan embodies the principle that the operating expenses are to be borne equally between the industry and the Joint Organization. If " industry" and " Dominion Government" are regarded as synonymous terms for the purpose of considering financial provision, it will be seen that the final apportionment of operating expenses is 25 per cent, to United Kingdom and 75 per cent, to New Zealand. This apportionment evolves from consideration of the fact that although only half of the expenses is to be met from direct contribution by the industry, the other half is to be charged against capital proceeds of the Joint Organization, in which New Zealand and the United Kingdom share 50-50. Thus the proportions become—New Zealand 75 and United Kingdom 25. Ample justification for this basis of apportioning operating expenses is to be found, however, in the respective quantities of wool in which the United Kingdom and New Zealand have direct interests. It is estimated that during the full term of the joint venture New Zealand will produce some 3,900,000,000 lb. of wool, of which 370,000,000 lb. may pass unsold at auction to the Joint Organization, which will, of course, already have the opening stock assessed at 540,000,000 lb. If these estimates are realized, the comparative quantities would be —3,530,000,000 lb. for the industry, and 910,000,000 lb. for Joint Organization (in which the industry also has an interest). When it is remembered that the whole price level for wool will be supported by the conduct of the new scheme, it will be appreciated that the apportionment referred to above is likely to be considerably in New Zealand's favour. (/) Finally, it will be noted that after deduction of the one-half of operating expenses to be paid by Joint Organization the proceeds of all sales by the Joint Organization, together with the amount drawn from the Depreciation Suspense Account referred to above, will be used for repayment of capital equally between the United Kingdom and the Dominion Government concerned. The ultimate balance of profit and loss arising from the transactions of the Joint Organization in the wool of any Dominion will thus be shared equally between the United Kingdom and the Government of that Dominion. 10. The delegation is sensible of the magnitude of the task to be undertaken by the United Kingdom and the Dominion Governments in partnership in the handling and sale of wool over the next twelve years in terms of the scheme now recommended, but is encouraged by the unanimity at the Conference to believe that its inauguration and success can be achieved. There were many signs during the proceedings of the Conference that those present, including particularly the woolgrower representatives, realized the necessity for action in terms of this report, and our delegation appreciates the great advantage of partnership with the United Kingdom and association with the other Dominions in the solution of the problem.

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11. All members of the New Zealand delegation subscribe to the unanimous approval given by the Conference as a whole to the report attached hereto, which is accordingly submitted for the consideration of the Government. The members of the New Zealand delegation desire to record their appreciation of the efficient service rendered by the Secretary, Mr. W. M. Wilson, both in his work for the delegation and as Secretary to a number of the Conference Committees. The visiting members were greatly assisted by the two members of the delegation resident in London, Messrs. Davis and McClumpha. It is appropriate, also, that mention be made of the continuous help so readily given by the High Commissioner (Mr. Jordan), and the Official Secretary (Mr. R. M. Campbell). At the concluding session of the Conference, members of the New Zealand delegation expressed their high appreciation of the co-operation of the United Kingdom Ministry of Supply and the Wool Control officials, which contributed in a large measure to the success of the Conference. REPORT OF WOOL CONFERENCE A Conference of officials and experts from the United Kingdom, the Commonwealth of Australia, the Dominion of New Zealand, and the Union of South Africa was held in London between I.6th April and 28th May, 1945. The purpose of the Conference was to discuss matters arising out of the accumulation of wool purchased by the United Kingdom from the Dominions under the wartime arrangements, and the disposal of stocks concurrently with future clips of Dominion wool. The following delegates and advisors attended the Conference :— United Kingdom : Mr. H. J. Hutchinson, C.8., C.8.E., Under-Secretary, Ministry of Supply (Leader); Sir Harry Shackleton, Wool Controller ; Mr. R. F. Bretherton ; Mr. C. M. Jones, 0.8. E. ; Mr. P. A. Clutterbuck, C.M.G., M.C. ; Mr. G. Kimber ; Mr. R. W. B. Clarke, 0.8. E. ; Mr. H. J. Habakkuk; Mr. M. H. Pickles ; Mr. F. S. Arthur; Mr. C. F. Naylor; Mr. F. D. Haggard; Mr. John Balme; Mr. R. L. Hall; Mr. R. Belford ; Mr. S. H. Levine. Australia : Mr. J. F. Murphy, C.M.G., Secretary, Department of Commerce and Agriculture (Leader) ; Mr. G. S. McFarlane, C.M.G. ; Mr. Justice W. F. L. Owen ; Mr. N. W. Yeo ; Mr. H. R. Cowdery ; Mr. F. E. Hitehius; Mr. A. G. Hard Mr. J. D. Macfarlane ; Mr. F. C. Pryor ; Mr. A. L. Senger. New Zealand : Mr. George A. Duncan, Director of Export Division, Marketing Department (Leader); Mr. E. L. Greensmith ; Mr. N. R. Jameson; Mr. W. Horrobin; Mr. H. M. Christie; Mr. C. G. Trotter; Mr. Albert Smith ; Mr. H. E. Davis ; Mr. N. S. McClumpha ; Mr. W. M. Wilson. South Africa : Dr. C. H. Neveling, Under-Secretary for Department of Agriculture and Forestry, and Deputy Chairman, National Marketing Council (Leader); Mr. A. P. van der Post; Dr. D. H. Steyn ; Mr. G. S. Mare ; Mr. J. H. Moolman ; Colonel W. L. King well ; Mr. J. C. K. Erasmus; Mr. E. H. Green ; Mr. T. J. Easton ; Dr. F. J. C. Cronje. The Conference appointed Mr. H. J. Hutchinson as its Chairman, and Mr. Murphy, Mr. Duncan, and Dr. Neveling as its Vice-chairmen. A report for submission to the Governments represented at the Conference was agreed upon unanimously at the final plenary session of the Conference on 28th May, 1945. This report is as follows :■ — 1. We were appointed by our respective Governments to examine at the official and expert level the situation created by the stocks of Dominion wool accumulated in the hands of the United Kingdom Government, and to recommend what arrangements should be made in the common interest in regard to the disposal of this stock in conjunction with current clips.

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2. We have considered the facts of the accumulation and the prospects of disposal, and our conclusions are set out in the memorandum attached (Appendix A). The stock is equal to two years' consumption, and on reasonably optimistic assumptions the complete disposal of the stock and of current clips in conjunction may be expected to take twelve or thirteen years. 3. The holding of a stock of this size is a serious burden and its existence is a cloud hanging over the market. It is consequently necessary in all our interests that it should be reduced as rapidly as possible, while at the same time being firmly held. It is no less essential that its disposal should be carefully integrated with the marketing of the current clips. We are satisfied that the right and only sound way of handling this matter is in partnership. 4. We accordingly recommend the formation by the four Governments of a Joint Organization, which shall take charge of the marketing of the old wool and support the marketing of current clips throughout the period of disposal of stocks. 5. We have given thorough consideration to the question of the method of marketing. During the war the United Kingdom Government has bought the clips at fixed prices and has distributed at fixed prices among the restricted number of purchasers such part as could be sold in wartime. With the return of peacetime it will be necessary to restore a closer touch with buyers and consumers, and consideration for their needs and preferences, if the largest possible consumption of wool is to be encouraged at prices which reflect its full value. We have examined all possible methods of marketing, with the results set out in Appendix B. Our unanimous conclusion is that the interests of the grower will best be served by a return to auctions as soon as conditions permit them to be freely attended by buyers from consuming countries. 0. We envisage then that current clips will all be offered at auction as in the past, and that in addition the Joint Organization will offer selections from stock, with the aim of maximizing total sales and turning over stock. The quantities of old wool to be offered alongside the new wool should be determined in the light of technical considerations and the economical and efficient management of the scheme. This brings us to the question of price. In the past it has been the practice to dispose of the available supplies in the season and for prices to fluctuate to the extent required to equate supply and demand in that period. Witli the existence of the stock, even though only a pari- is put on the market in any one season, some steps will be necessary to ensure that prices are not artificially depressed. We contemplate, accordingly, that the Joint Organization shall be in the market to buy in any wool for which no other buyer bids up to a reserve price assessed by the Organization as appropriate to its type and quality. The reserve price for each type will be related to the general level of selling-prices for wool which circumstances justify. The trend of wool prices must move in accordance with general world conditions and the need to expand consumption. Assuming reasonable stability in the price level of commodities generally, wide fluctuations, both during the season and from one season to another, can be avoided by the joint measures of adequate offerings and reserve prices, while at the same time full scope can be given for selection and for reflection of special value in prices obtainable. 7. The return from wartime to peacetime conditions of demand and consumption is now beginning, and the, disposal policy adopted from now on will be formative for the future. We are of opinion that the peacetime partnership should begin at once. There will, of course, have to be an interim period during which the changeover from wartime to peacetime methods is effected. For practical reasons it will be necessary that the 1945-46 clips shall be taken up in the same manner as hitherto, and for at any rate the early part of that season the auction system will not be generally practicable and disposal will have to follow wartime methods. But we regard it as of the highest practical importance that the Joint Organization should be constituted and take over from the United Kingdom Government at once. The. existing agreements would cease as from the end of July, 1945, and would be replaced by the agreement under which the Organization is constituted. The terms which we recommend for this agreement are set out in the present report and in Appendix C hereto. 8. The terms proposed for this agreement express the mutual interest of the four Governments in the orderly disposal on reasonable terms of wool, both, old and new, the United Kingdom Government accepting considerable limitations on freedom to sell old wool, and new responsibilities extending into the post-war period and the Dominion Governments on their part accepting a share of responsibility in respect of the existing stocks. This involves a sharing of the capital cost of the wool held by the Joint Organization, of the cost of holding and marketing it, and of the ultimate profit or loss. We have endeavoured to frame our recommendations so as to ensure equity arid a close community of interest. 9. The existing agreements are separate ones between the United Kingdom Government and each of the Dominion Governments. While in the future separate financial accounts should be kept by the Joint Organization for Australian, New Zealand, and South African wool, it is obvious that in policy and its execution the Organization must act as an undertaking in which the four Governments are joined together in a common enterprise. 10. We set out in Appendix C the constitution and functions which we recommend for the Joint Organization and the financial basis which we recommend for the scheme. Its operation should, we propose, be reviewed between the four Governments at the end of five years in the light of experience. 11. We recommend that the existing fixed purchase prices paid by the United Kingdom should be. maintained for the clips of the 1945-46 season subject to any adjustment which may be decided upon by the South African and United Kingdom Governments in the case of South African wool. 12. In. view of the progress of the restoration of normal conditions in regard to sheep-skins it is recommended by the representatives of the Governments concerned that the agreements between the United Kingdom Government and the Australian and New Zealand Governments for the purchase of sheepskins should be terminated at the 30th June, 1946.

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13. It must be emphasized in conclusion that the success or failure of the Joint Organization will rest not merely upon its securing orderly marketing, but upon the progress it is able to make in reducing the huge accumulation of wool which overhangs the market. The wool industry cannot be in a safe or healthy condition until this has been achieved. To this end it must be one of the main concerns of the Joint Organization to encourage the fullest consumption of wool by all means in its power. For the United Kingdom Delegation : (Signed) H. J. Hutchinson. For the Australian Delegation : (Signed) J. F. Murphy. For the New Zealand Delegation : (Signed) G. A. Duncan. For the South African Delegation.: (Signed) C. H. Neveling. London, 29th May, 1945. APPENDIX A. -WOOL CONFERENCE : FACTS OF ACCUMULATION AND PROSPECTS OF DISPOSAL 1. Introductory This memorandum will be primarily concerned with the problem and method of disposal of U.K.owned post-war stocks and Dominions' current clips. Obviously stocks held by other countries, notably U.S.A. and South America, must be taken into account in any calculation of the period likely to be required for disposal of U.K. stocks and the influence on the general wool situation of an independent marketing policy for South American wools cannot be altogether disregarded. The U.K. and the Dominions will, however, exercise a preponderant influence over post-war values of both Merino and crossbred wools, and it is assumed for the purposes of this discussion that South American prices will fall into line with those set for Dominion wools. If, however, the Dominions' price was set too high, the success of any plans adopted as a result of this conference would be gravely prejudiced. The strategic reserve of Dominion wool created by the U.S. administration has now been largely liquidated, but the purchase by the U.S. Commodity Corporation of the annual U.S. domestic clip has resulted in the holding of abnormal stocks. But, as will be seen from the summary of stocks below, those are insignificant in relation to total stocks, and their disposal cannot influence the problem with which both the U.K. and Dominions are confronted. This problem has arisen as a result of the unexpected course taken by the war. During the 1914 -18 war, in spite of the occupation of Northern France, the French Army remained intact to the last and required clothing and equipment. Certainly no worse course of events was expected in the present war, and the U.K. Government in September, .1939, entered into its arrangements for purchase of Australia's and New Zealand's annual wool production in the confident expectation that such purchases were necessary to ensure an adequate supply of raw material for the clothing of its Forces and those of its Allies. The defeat of France in 1940 fundamentally altered the situation and threw a burden on the U.K. never contemplated in the original arrangement for purchase of the annual production of Dominions' wool. In fact, had the French official estimates of annual requirements of wool materialized, the surplus to-day which is set out below would have been largely non-existent. Up to June, 1940, both France and Britain found it necessary to buy some quantities of South American wool.

2. Estimated Stocks Estimated Stocks at 30th June, 1945 (In millions of pounds actual, greasy and scoured)

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n i rn • • a t v New South Argentine United Country of Origin. Australia. Afrf and R w U.S.A. Total. Uruguay. U.K. owned in Dominions .. 1,605 370 505 .. .. .. 2,480 U.K. owned in U.S.A. .. .. 225 20 110 .. .. .. 355 1,830 390 615 .. .. .. 2,835 U.K. owned in U.K. .. .. 230 150 30 .. 70 .. 480 2,060 540 645 .. 70 .. 3,315 U.S.A. Government owned in U.S.A. .. .. .. .. .. 200 200 South American owned .. .. .. .. .. 500 .. .. 500 2,060 540 645 . 500 70 200 4,015

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It will be seen that the total stocks of U.K.-owned wool at 30th June, 1945, are estimated to be 3,315,000,000 lb., of which 3,245,000,000 lb. is of Dominions' origin, comprised of lb. (Millions). 63 per cent. Australian .. .. .. ■ ■ ■ • • • 2,060 17 per cent. New Zealand .. .. .. . • ■ ■ 540 20 per cent. South African .. .. .. .. • • • • 645 100 per cent. 3 > 245 3. Production (i) World Production * Annual pre-war world production of wool was approximately 4,000,000,000 lb. of which 3,200,000,000 lb. was apparel wool (Merino and crossbred) and 800,000,000 lb. carpet wool. Practically every country in the world is a wool producer, but the U.S.A., with a production of 450,000,000 lb. and European and Eastern countries with productions of about 1,200,000,000 lb. largely consume their wool internally, and 85 per cent, of the wool entering world trade —i.e., exported -is accounted for by the three Dominions, Argentine, and Uruguay.

(ii) Production and Exportable Surpluses of Dominions' and South American Wool

The average annual Australian wool production over the next twelve years is calculated on the basis that due to the recent drought production in 1945-46 will be 880,000,000 lb. and that in 1946-47 and in 1947-48 it will be 900,000,000 lb. and will recover to an average of 1,050,000,000 lb. a year for the remainder of the period. For South Africa it is assumed that post-war production will average 228,000,000 lb., the approximate figure for the 1944-45 clip. Under the incentive of war domestic consumption in Australia has almost doubled since 1938-39, but it would perhaps be unwise to reckon on the maintenance of this volume of local manufacture, and for the present purpose post-war domestic consumption in Australia is estimated to be 50 per cent, above the 1934-38 average—viz., 100,000,000 lb. The Dominions' post-war exportable surpluses may therefore by reckoned as averaging:— lb. (Millions). Australia .. .. .. .. 910 New Zealand .. .. • • 310 South Africa .. .. •. 220 1,440 which is in total equal to the pre-war exportable surplus. As, in spite of fluctuating demand and prices, Dominions' clips were on average cleared annually, this figure may be said to represent approximate pre-war world consumption of Dominions' wool (exclusive of Dominions' consumption). 4. Prospects for Disposal Obviously, any calculation of the period required for disposal of post-war accumulations and current production must be subject to a variety of assumptions. Pre-war consumption was always a variable factor, but the war has introduced many influences, not the least being political instability throughout Europe, which make predictions about the future extremely uncertain. It is known that Belgian and French textile machinery is, fortunately, practically intact. Some portion of the plant in these countries has been running on substitute fibres, but the bulk of it has been standing, and comparatively little in the way of ancillary replacements is expected to be necessary

* Annex I: " World Production of Wool." f Imperial Economic Committee ; " World Production of Woo] " and " World Consumption of Wool,"

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(In millions of pounds, excluding wool on skins) 1934-38 Actual.t 1939-44 Actual. 1945-68 Estimated. Total Domestic Exportable Total Domestic Exportable Total Domestic Exportable Production. Consumption. Surplus. Production. Consumption. Surplus. Production. Consumption. Surplus. Australia .. 974 67 907 1,087 128 959 1,010 100 910 New Zealand .. 296 7 289 323 16 307 326 10 310 South Africa .. 244 .. 244 258 8 250 228 8 220 1,514 74 1,440 1,668 152 1,516 1,564 124 1,440 Argentine .. 350 60 290 440 1.00 340 Uruguay .. 105 5 .100 118 10 108 1,969 139 1,830 2,226 262 1,964

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before, it can be put into full running order again. The experience of both countries, however, may well bo an example of the difficulties likely to confront all liberated countries, because in France and Belgium, in spite of undamaged plant, lack of fuel and transport, combined with political uncertainty, have caused unexpected delays in effecting a partial resumption of activity in their textile industries. However, after these initial difficulties in France and Belgium, indications point to a fairly rapid recovery and a return to their pre-war position as the most important Continental consumers of Dominions' wool. Little is at present known about wool textile plant in other occupied or liberated countries, except that German combing plants have been mostly destroyed or seriously damaged by bombing, and the future is, in general, so uncertain as to render it unwise to reach any optimistic conclusions regarding consumption of wool in Continental countries in the two years immediately following the end of the war with Oermany. In the U.K. and U.S.A. the war has resulted in considerable changes in consumption of wool compared with pre-war. U.S.A. wartime consumption, at approximately 1,200,000,000 lb. greasy, is double pre-war as a result of the need to clothe the Services, and the maintenance of civilian consumption. It is difficult to estimate what proportion of this increased wool consumption will be retained after the war by a population which pre-war, largely because of different climatic and living conditions, consumed wool to the extent of only half the per capita consumption of the U.K. The estimate made by the U.S. Tariff Commission of post-war consumption is 25 per cent, more than pre-war —viz., 750,000,000 lb. (greasy) of wool from all sources, including domestic production, which would necessitate annual importation of some 300,000,000 lb. of Dominions' and other wool. In the U.K. the release of wool for Civilian consumption has averaged no more than 35 per cent, of pre-war, and the labour force of the industry has been reduced from, some 240,000 operatives before, the war to approximately 130,000. No sudden and considerable return of workpeople is to be expected immediately after the end of the war with Germany. Many married women now in the industry will promptly return to home life when the urgent need for their services no longer exists, and for a time this loss may well balance the return of workers from the Services and from munitions. U.K. consumption (civilian and Government), plus export of wool and tops during 1944, was some 450,000,0001b. (greasy), of which approximately 400,000,000 lb. was Dominions' wool. This represented machinery activity of approximately 60 per cent, of machinery capacity. In the immediate post German war period an increase of 40 per cent, in current consumption of Dominions' wool would seem to be the maximum, to be expected. Pre-war Continental activity was about 70 per cent, of capacity, and for the, first year after the end of the German war consumption of 75 per cent, of pre-war in liberated countries and 50 per cent, in enemy countries is as much as on the average can be expected, and this assumes that textile machinery is largely intact. In the following year a return to approximately pre-war consumption might be expected. After the first two post-war years it seems reasonable to expect a quite appreciable increase in pre-war consumption for some time to come. The replenishment of stocks of raw material and of wartime depleted wardrobes will be an important factor in post-war consumption—i.e., after the re-establishment of industry at full capacity, though by no means a permanent factor. Long-term future consumption of wool must rest on a sounder basis than the temporary provision of relief or the first flush of spending by individuals and countries who can afford the initial replenishment of their wardrobes with, clothes and their factories with raw materials. A pre-requisite to the maintenance of an increased demand for wool compared with pre-war is a sustained increase in world purchasing power. This must depend on the success of national and international policies for full employment which in the final analysis must be dependent on the breaking-down of barriers to international trade and the opening-up of new outlets for consumption goods. But the price of wool and wool textiles will have, to be one which encourages and does not retard consumption. Whatever is done to facilitate consumption of wool in backward countries, it must not be overlooked that many countries in the world will finish the war substantially poorer than when it began. Extreme poverty will face many populations in the devastated countries of Central Europe and the Far East, and if any substantial increase, in wool consumption is to be achieved the price must be a reasonable one. 5. Period oi? Disposal On the assumptions that—■ («) There is a substantial increase in world purchasing power compared with pre-war by reason of the successful prosecution of policies of full employment and expansion of world trade, (b) The price of wool and wool textiles is a reasonable one which encourages consumption, (e) Use is made of every aid, such as long-term credits to needy countries, publicity, and scientific research in order to facilitate sales and expand consumption,— it is not thought impossible that total world consumption of apparel wool might increase to a level of 12 per cent, above pre-war. This will represent an increase of 20 per cent, in the consumption of Dominions and South American wools over pre-war levels. If this aim is achieved the period required to dispose of existing stocks, alongside new clips, at the estimated rate of future production, would be on average thirteen years from 30th .lime, 1945,

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Average Period of Disposal Any estimate of the period required for the disposal of stocks must necessarily at this stage be based upon somewhat arbitrary assumptions. lb. (Millions.) Stocks, 30th June, 1945 .. .. .. .. 3,245 Exportable surplus .. .. .. .. .. 1,310 4,555 Consumption .. .. .. .. 1, 390 Stocks, 30th June, 1946 .. .. .. •• 3,165 Exportable surplus .. .. .. .. 1,330 4,495 Consumption .. .. .. .. 1,620 Stocks, 30th June, 1947 .. .. .. .. 2,875 Exportable surplus .. .. .. .. 1,330 4,205 Consumption (pre-war plus 20 per cent.) .. .. 1,730 Stocks, 30th June, 1948 .. .. .. .. 2,475 It will be seen, therefore, that by 30th June, 1948, stocks may be 2,475,000,000 Ib. Thereafter, with future annual consumption at pre-war plus 20 per cent., the surplus will be reduced by 250,000,000 lb. per annum and the estimated period of disposal will be thirteen years from 30th June, 1945. This would result, for example, in a stock of 1,975,000,0001b. at 30th June, 1950. It is felt this estimate as a maximum is not unreasonable, having regard to the difficulties of reorganizing an industry which on the Continent has been standing for almost six years and which in the U.K. will not receive its pre-war complement of labour until after the end of the war with Japan. If consumption can be increased beyond 20 per cent, over pre-war to, say, 33-| per cent, the period becomes eight years, but, on the other hand, failure to achieve the conditions set out in (a) to (c) above would add immeasurably to the problem of disposal. It will be seen that Dominions' production during the war period (1939-44) has averaged 1,668,000,0001b., compared with 1,514,000,0001b. in the five pre-war years. Estimated post-wai exportable surpluses, however, show a substantial decline to pre-war levels as a result of the serious drought in Australia and its likely future consequences. In addition, the trend of production in South Africa is downwards, and is not thought likely to be reversed. 6. CONTBOL IN THE UNITED KINGDOM In October, 1939, the Wool Control acquired all stocks of wool and tops in the U.K. (not in the hands of spinners and manufacturers), and became the sole owner of wool, tops, and noils until these were sold to consumers against rationing certificates authorizing consumption for Service and essential civilian needs. With the purchase of Dominions' clips for the duration of the war, the Wool Control became the sole importer of wool except for a limited quantity of East Indian wool required for blanket manufacture, &c., which the U.K. Government did not buy and which continued to be imported through private channels against license. The normal function of the importer of Dominions' (and South American) wool vanished with control, and with it the London wool auctions. Neither of these sections of the industry has, therefore, operated during the war. Practically all processing up to and including combing (apart from spinner combers) has been done for the Wool Control on a commission basis, tops being made to Wool Control's and not to individual topmaker's standards. There has been some limited right of selection of wool and tops by manufacturers and spinners within the range of material which the Wool Control could make available, except that in the case of Government manufacture the Wool Control itself specified the tops and wool blends which it required to be used in the production of Service cloth, blankets, &c. Obviously no reliance could be placed on shipping to obtain regular supplies of the most suitable wools from the Dominions, and the Wool Control had therefore to ship only high, clean, content wools and to direct use of wools in stock which, possibly by deliberate alteration of cloth specifications, could be made to serve the purpose. Issue prices for wool tops and noils were fixed by the Wool Control, and, in spite of increases in the cost of the raw material and expenses of transport and holding, these have remained unchanged since September, 1940, for material used in the manufacture of goods for Government contracts or for U.K. civil consumption, the difference being borne by the Treasury for the purpose of keeping down the cost of living. When material is used for export orders, a higher price, covering costs, is charged.

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In the interest of an expansion in the consumption of wool it is of paramount importance that every encouragement be given to the revival of export trade in wool tissues, yarns, tops, &c., and to this end an early restoration of complete freedom of selection of wool is essential. The purchase of wool must necessarily be a matter of individual judgment and choice, and however high the standard of wartime appraisement—and a high standard has been achieved— any attempt to continue the arbitrary and rigid methods of wartime control can but result in a restriction of demand and deflection to other sources when the situation calls for a bold policy of encouragement and expansion. 7. Foreign Sales During the war the responsibility for sales of wool to countries other than the U.K. has been in the hands of the Essendon Committee working in close co-operation with the Wool Control and other Departments concerned. The volume of sales has been necessarily restricted by shipping and economic warfare considerations, but has, nevertheless, been substantial, especially to U.S.A., where the doubling of pre-war wool consumption has resulted in unexpectedly large purchases of Dominions' wool. Details, of wartime sales to U.S.A., Empire, and foreign countries are provided in the statements of accounts submitted to the Conference. The significant features are :—

Sales to 30th June, 1944, are

The U.S.A. was by far the largest buyer from Australia and South Africa, taking 78 per cent, and almost 90 per cent, respectively of the total direct sales. Canada was the largest buyer from New Zealand, with almost 50 per cent, of the total sales. Sales ex the U.K. were almost wholly to Prance, and ceased completely in 1940. The sale of 302,000,000 lb. of Australian wool to U.S.A. was to the Defence Supplies Corporation, who purchased the wool as a strategic reserve. For delivery during the first half of 1945 approximately 120,000,000 lb. of Australian, 21,000,0001b. of New Zealand, and 11,000,0001b. of South African wool have been allocated to France and Belgium from control stocks in U.K. and U.S.A. No attempt has been made to direct sales to overseas countries of any particular Dominions' wool, and distribution of sales has therefore been a matter of choice by the purchasers, subject, of course, to availability of shipping. Recently, for example, sales have been made of relatively large quantities of wool to Spain and Portugal, but as shipping has had to be found by the purchasing countries in their own vessels, sales have been confined to South African wool. Advantage was taken during the second and third years of the war to utilize back loading from Australia and South Africa, and to a relatively minor extent from New Zealand, in order to establish a stock pile of U.K.-owned wool in U.S.A. amounting to approximately 450,000,000 lb. of Australian, 125,000,000 lb. of South African, and 25,000,000 lb. of New Zealand. Whilst the primary purpose was to provide a reserve against possible interruption of Pacific transport, the desirability was also in mind of having stocks readily available to meet the needs of liberated Europe at a time when shipping from the Dominions would likely prove difficult. It has never been possible to build up a large reserve stock in the U.K., but with the aid of the stock pile in U.S.A. the supply of wool to various liberated countries has been steadily progressing since early in 1945, when, as mentioned above, agreement was reached with the Governments concerned to supply France with some 50,000 tons (greasy) and Belgium with 20,000 tons (greasy) from U.K. and U.S. stocks, delivery if possible to be completed by 30th June, 1945. Arrangements have also bsen concluded for supply of wool to both countries, on a " mutual aid " basis for manufacture into service fabrics, &c. Initial difficulties have naturally been encountered, notably shortage of transport, fuel, and ancillary requirements such as combing and carding oils, soaps, &c., but it is expected that by 30th June, 1945, the textile industries in both countries will be running at a fair rate of activity.' U.N.R.R.A. requirements for liberated European countries are considerable, and preliminary arrangements have been made to meet their initial needs from the U.K. and the stock pile in U.S.A. as and when the military and shipping position permits. Much of the U.K. stock in U.S.A. is in Continental types, particularly as a result of an exchange effected with wool from the U.S.-owned stock pile in order to. facilitate liquidation of the latter in the U.S.A. In order to avoid immobilization of these wools and heavy charges accruing on them, it would be desirable to dispose of the U.K. stock pile in the U.S.A. as soon as possible. In any event, movement of wool between the Dominions and European countries will probably be restricted by shipping and other difficulties for some time to come, during which period the U.K. may well be looked to as the main source of supply for some considerable portion of initial European needs. The process

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Australia. New Zealand. South Africa. lb. (Mill.). £ (Mill.). lb. (Mill.). £ (Mill.). lb. (Mill.). £ (Mill.). Direct .. .. .. 1,283 96-4 363 26 185 13-4 Ex U.S.A. (to U.S.A.) .. 302 19-1 Ex U.K. .. .. .. 22 1-6 50 3 1,607 117-1 413 29 185 13-4

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of rehabilitation of industry on the Continent will be a long one, and present indications point to continuation of some form of import control in foreign countries, certainly during the first postwar year. The urgent need will be for direction of production to ensure manufacture of those types of clothing, &c, best suited for immediate relief, and this, combined _ with financial considerations, will necessitate Government control over imports, if not in certain cases actual Government purchase. Whilst, therefore, in the first two post-war years there will be a rising potential demand lor wool, in practice sales will be complicated by many difficulties which will require time and. patience to remove before the free movement of wool can be restored.

ANNEX I. —ESTIMATED WORLD PRODUCTION OF WOOL

Source : Imperial Economic Committee, " World Production of Wool."

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(In millions of lb. actual) Type and Country. I93T38. 1938 ~ 39 ' 1939-40. 1940-41. 1941-42. 1942-43. 1943-44. Merino — Australia . . 825 808 930 862 864 874 872 South Africa .. 250 264 271 260 260 250 250 United States .. 224 232 214 218 228 229 223 Argentine .. .. 55 54 45 53 62 72 73 Uruguay .. .. 15 15 17 18 15 16 16 Brazil .. .. 15 12 17 14 14 14 14 Spain .. .. 11 12 12 7 7 10 13 Hunearv .. .. 13 17 19 18 18 15 15 Germany .. .. 12 13 14 18 17 18 18 France .... 8 8 6 4 5 5 4 New Zealand .... 10 7 9 7 7 7 Total, Merino ' .. 1,438 1,442 1,554 1,479 1,497 1,510 1,504 Crossbred — Argentine .. 319 331 330 356 411 439 445 New Zealand .. .. 277 321 293 326 329 324 314 United States .. 228 232 214 218 228 229 223 Australia .. .. 177 177 191 215 244 246 260 Uruguay .. .. 102 95 117 121 100 104 104 United Kingdom 110 110 111 109 92 91 89 France .. 46 46 33 26 25 35 24 Spain .. ■ • 30 24 24 24 18 1.8 35 Italy .. • • 33 32 39 44 41 40 40 Chile . ■ ■ 32 33 35 35 35 37 36 Germany .. .. 26 32 28 25 28 30 38 Canada .. 19 19 16 16 16 18 19 Brazil • ■ 22 22 24 26 26 26 26 Eire.. .. •• 17 18 17 17 16 13 14 Others . . ■ . 60 62 62 50 50 50 40 Total, crossbred .. 1,498 1,554 1,534 1,608 1,659 1,690 1,707 Total, Merino and cross 2,936 2,996 3,088 3,087 3,156 3,200 3,211 bred Carpet— Soviet Union .. . . 181 303 300 330 340 270 230 China .. HO 110 90 90 90 90 90 India .. 100 100 84 80 80 80 80 Balkans 117 118 118 118 117 117 117 French Africa 87 69 40 40 40 40 40 Iran .. .. 46 38 50 50 35 35 31 Turkey . •. 47 59 63 63 68 60 55 Spain .. .. 27 24 24 16 16 20 32 Syria .. .. 9 13 5 12 5 8 8 South America .. 30 32 26 26 26 28 30 Total, carpet .. 754 866 800 825 817 748 713 Grand total .. 3,690 3,862 3,888 3,912 3,973 3,948 3,924

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APPENDIX B. —REPORT OF THE COMMITTEE ON METHODS OF MARKETING ADOPTED BY THE WOOL CONFERENCE Present:— United Kingdom: Sir Harry Shackletoii; Mr. Bretherton; Mr. Arthur; Mr. Pickles Mr. Balme ; Mr. Levine. Australia : Mr. Justice Owen ; Mr. Yeo ; Mr. Hitchins ; Mr. Senger. New Zealand : Mr. Duncan ; Mr. Horrobin ; Mr. Smith ; Mr. Trotter ; Mr. Wilson. South Africa : Dr. Neveling ; Mr. Moolman ; Mr. Easton ; Mr. Green. 1. Sir Harry Shackleton was elected Chairman of the Committee, and Mr. Levine and Mr. Wilson, Joint Secretaries. Terms of Reference 2. The terms of reference of the Committee were to consider the following alternative methods of marketing which had been placed before the Conference by the Leader of the Australian delegation on 26th April and had been accepted by the Conference as a complete summary of possible alternative methods of marketing : («) Appraisement and auction by growers with the Reserve Price as the floor. (b) Appraisement, acquisition, and bulk auction with the Reserve Price as the floor ; (0) Appraisement, acquisition, and resale at an Issue Price,and to examine the advantages and disadvantages of each of these systems ; to report to the Conference which system it recommends as having the greatest number of advantages and the fewest disadvantages, and to make observations as to the time at which it considers an auction system, if recommended, could be brought into operation, partially or wholly. Selection 3. The Committee agreed that, whatever method of disposal was apopted, buyers must be afforded full opportunities and facilities for inspection and selection. It was appreciated that with the changeover in consuming countries from production for governmental purposes to production for civilian purposes a method of arbitrary allocation by type which had of necessity been used during the war would not suit the requirements of buyers, who, under conditions of competitive trade, must have the right to exercise their own judgment in the selection of wool best suited to their varying needs. Elasticity of Price 4. It was agreed that some elasticity in the price relationship between different types of wool was necessary. Under the system which had operated during the war both the purchase price to the grower for individual types and the selling price to the commercial buyer for the same types had been based on an arbitrary and artificial relativity, which, owing to the absence of opportunity for competition amongst buyers, had not reflected the true commercial price relationship between different types. In addition, fixed Issue Prices could not provide for the unavoidable changes in fashion which have their effect on relative values and therefore on relative prices for different types of wool, without necessarily affecting the general average of prices. Moreover some elasticity in price as the result of the influence of an open market for wool was considered useful in so far as it provided a guide to growers regarding the demand for different types of wool. There is the further factor of different rates of freight between the Dominions and the various consuming countries and the absence of such charges in the case of purchases made by Dominion mills. Under an auction system these differentials are reflected as a result of competition between buyers in the price different buyers can pay. During the war Dominion f.o.b. prices have necessarily been based on an average rate of freight, a practice winch, under peacetime conditions, would result in arbitrary differences in landed costs in different countries. On the other hand, any attempt to meet these difficulties by having different issue prices for the different purchasing countries would be impracticable and would, in addition, raise international questions of price discrimination. Alternative Methods of Disposal Method A : Appraisement and Auction by Growers with the Reserve Price as the Floor 5. The procedure under this method would be as follows:— (1) Wool is delivered, as before the war, to brokers for display and subsequent auction. (ii) The wool is appraised by the Joint Organization (J'.O.) at that stage to determine the reserve price for each particular lot. (iii) J O. regulates the offerings at auction in conjunction with grower, buyer, and broking organizations. (iv) Wool sold at auction to commercial buyers, at the Reserve or higher price is no further financial concern of J.O. (v) Wool bought in by J.O. at the Reserve Price is taken into stock for subsequent disposal. (vi) Concurrently J.O. as owner is selling wool.

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The advantages of Method A are considered to be : (a) Open bidding and the publicity attendant thereon avoid the practical difficulties of discriminating between buyers for the same lot of wool and the possible abuses inherent in any system of disposal of wool at fixed issue prices or by methods involving sales by private treaty or tender. (b) A grower gets the benefit of a sale of his wool above the .Reserve Price. (e) An auction method gives freedom to the grower to refuse the Reserve Price offered by J.O. or the price offered by commercial buyers. (d) The cost to the Dominion is limited to its share in the operations of J. 0., which has no financial obligation in respect of any wool sold to private buyers at the Reserve Price or better. G. The Committee considered the following possible disadvantages of an auction system : — (a) The operation of " Pies " or Buyers' Rings. (b) Fluctuations in price. (c) Some inequalities in prices to individual growers. The Committee considers that as a Reserve Price would be operating and as J.O. would be able to maintain a ceiling to prices by regulating offerings at auctions, fluctuations would be reduced to a minimum and'inequalities between growers would be confined to the comparatively narrow margin between the Reserve Price and the upper limit. It points out also that the operation of " pies " is not confined to the auction system only and would not be avoided by any method of disposal by private treaty or tender ; indeed these methods might afford greater scope for abuses of this kind. The opinion was expressed that the quantity of wool affected in the past by the operation of " pies " has been a small proportion of the total sold and that the operation by J.O. of a Reserve Price system might be expected to minimize and perhaps remove inducement to the formation of " pies." 7. Preliminary Acquisition of Dominion Clips.— Before considering in detail Methods B and C the Committee wishes to point out that the adoption of either of these methods by any Dominion would involve the setting-up of a Dominion Acquisition Authority in that Dominion. The responsibility for the total acquisition of Dominion clips and the additional administrative and other costs involved would not be accpeted by the U.K. as a partner in J.O. The setting-up of such an Acquisition Authority would, therefore, be the sole responsibility of the Dominion concerned. It was mentioned that in the case of Australia certain legal difficulties might arise in that (a) There was some doubt as to the power of the Commonwealth Government in time of peace to acquire growers' clips ; and (b) If such power existed, administrative and other difficulties might arise by reason of the "just price" provision in the Constitution. Method B : Appraisement, Acquisition, and Bulk Auction with the Reserve Price as the Floor 8. The procedure under this method would be as follows : — (i) The Dominion Government would appraise and then acquire the clip. (ii) This would mean that the Dominion Government would have to establish, or continue, an Acquisition Authority of its own. (iii) The Acquisition Authority of the Dominion would offer the wool for sale by auction (or for sale by tender or private treaty) in bulk lines according to type. (iv) J. 0., at this stage, comes in as a prospective buyer, and must appraise the clip in order to fix the Reserve Price for guidance of its buyers. (v) The cost of administration of the Acquisition Authority and any loss on the sale by that Authority arising from any differences between the Authority's acquisition price and J.O.'s Reserve Price, falls on the Dominion Government concerned. (It seems unlikely that the Reserve Price of the bulk lines would coincide with the original appraisements of the original lots.) (vi) J.O. has no financial interest in any wool except that which it buys in at the Reserve Price. (vii) The wool bought in by J.O. is dealt with similarly to that bought in under Method A. The advantage of this method was considered to be that it would remove the possibility of price inequality between growers arising under the auction system from — (a) Varying demands for approximately similar types of wool offered at the same or at different times, or (b) Possible changes in J.O.'s Reserve Price during the season. The disadvantages of Method Bare — (a) Either there would have to be two appraisements of each lot of wool (one by the Acquisition Authority and one by J. 0.) or the Acquisition Authority would have to accept the appraisement made by J.O.'s appraisers. The former would involve the Dominion concerned in substantial costs in addition to those which it would incur as a partner in J.O. ; the latter might involve J.O.'s appraisers acting in a dual capacity. (h) The employment of J.O. appraisers in a dual capacity may be regarded as unsound in principle and may have the effect of destroying the confidence of both growers and consumers in J.O.'s impartiality. It would be difficult, if not impossible, to find a ' suitable number of technical experts to provide two sets of appraisers at a time when the buying trade would have resumed its normal function. (e) There would be a heavy increase in the volume of documentary work required with a corresponding increase in costs which would fall on the Dominion concerned.

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(d) The Dominion's Acquisition Authority's appraisement values would probably not coincide with J.O.'s appraised Reserve values, and any loss arising from this discrepancy would fall ou the Dominion Government concerned. (e) Separate appraisement of growers' wool by the Dominions Acquisition Authority, with the attendant documentary work required for acquisition, would probably delay the subsequent offering of the wool for appraisement by J. 0., and also delay disposal, which would result in serious congestion of show floors and stores in general. Method C: Appraisement, Acquisition, and Resale at an Issue Pnce 9. The procedure under this method would be — (i) The Dominion Government would appraise and then acquire the clip. (ii) This would mean that the Dominion Government would have to establish, or continue, an Acquisition Authority of its own. (iii) The Acquisition Authority of the Dominion would sell what it could at Issue Prices presumably determined by itself. (iv) J. 0., presumably, would be expected to buy, at the Reserve Price, what the Acquisition Authority of the Dominion concerned could not sell at its Issue Price. (v) The cost of administration of the Acquisition Authority and any loss sustained due to differences between the Dominion Issue Prices and J.O. Reserve Prices would be borne by the Dominion concerned. (vi) J.O. has no financial interest in any wool except that which it buys in at the Reserve Price. (vii) The wool bought in by J.O. at the reserve price is taken into stock for subsequent disposal at an issue price. The advantage of this method was considered to be the same as under Method B—viz., that it would remove the possibility of price inequality between growers arising from— (a) Varying demand for approximately similar types of wool offered at the same or at different times ; or (b) Possible changes in J.O.'s Reserve Prices during the season. This method was considered to have all the disadvantages of Method B as detailed above and, in addition, the following — . (f) A. Fixed Issue Price method must inevitably cause difficulties in connection with the allocation of wool and must necessitate discrimination between buyers in competition for the same lot, with the possibility of abuses such as have been previously mentioned. (g) There would be a danger of undesirable competition arising between the Dominion Acquisition Authority and J. 0., each of which would be a large-scale seller of wool in the same market. (7>) A Fixed Issue Price cannot satisfactorily allow for freight differentiation nor for different labour and conversion costs in different countries. (i) The opportunity for selection by buyers would be more limited than under method B. ( j ) The regulation of the total quantity of offerings of old and new wool would be difficult, since these would be under the control of two separate Authorities. Inequality of Price 10. The Committee discussed at length the general question of inequality in price as between individual growers. As the appraisal of wool depends on human judgment based upon skill and experience and not on scientific measurement it is impossible to devise any method of marketing which will entirely eliminate inequalities in price. Indeed, the inequality which results from growers getting different prices for similar wools is as likely to occur under an appraisement system as under any other. Under Method A the price obtained by each grower will be that paid by the buyer who puts the highest value on his wool. In so far, therefore, as there is inequality it will be due to higher prices being obtained by growers than they would get under methods B or C, inasmuch as the price offered under either of these latter methods would approximate to the Reserve Price and so be below the price offered by those buyers who are prepared to go above the Reserve Price. The operation of a system of Reserve Prices, combined with the spreading of sales over the season and the regulation of offerings in accordance with demand, would tend to stabilize the prices obtained and minimize inequality. The Committee considers that, provided that the differences between the Reserve Prices and the actual selling prices can be kept within reasonable limits (and it is of opinion that, having regard to the weight of the Reserve stock, J.O. should be able to achieve this object), inequalities in price obtained for clips of similar type and quality would not be appreciably greater under method A than under methods B or C The necessary extension of the selling season may result in some differences in value for similar wools dependent 011 the time at which individual clips are marketed. The intention of J. 0., however, should be to hold its Reserve Price for the season and to refrain from making other than minor changes in relative prices during the course of the season in so far as conditions permitted. Freedom op Growers to Offer and Sell 11. The Committee is of the opinion that the grower should have the right— (i) To withdraw his wool if he regards the price offered as inadequate. (ii) To re-offer at a subsequent date on original appraisement as to type and yield subject only to re-examination for deterioration,

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The Committee desires to point out, however, that it might become necessary for J.O. to exercise some control over the growers' right of withdrawal and re-offering if the practice should become so • extensive as to interfere with the successful and efficient working of J.O. Prices 12. The Committee considers that it is an essential part of any marketing scheme that the grower should get at least the net equivalent of the Auction Reserve Prices fixed by J.O. for his wool. If no buyer was forthcoming at the Auction Reserve Price or better, the lot would be taken up by J.O. at the Auction Reserve Price, subject to the grower's right of withdrawal. The Auction Reserve Price will be a minimum, and the auctions will afford the opportunity for competition above the minimum. Private Buying 13. The Committee wishes to draw the attention of the Conference to the possible danger of private buying from growers and its effect on the maintenance of a system of Reserve Prices. Some action might eventually require to be taken by the Dominions to control buying of this description. Recommendation of the Committee 14. After full consideration of the advantages and disadvantages of the three methods put forward; the Committee unanimously agreed that Method A was the only practicable plan likely to provide for - economical and efficient marketing of future clips and the concurrent disposal of accumulated stocks, while at the same time imposing the minimum financial burden on the Dominions and on J.O. The Committee has noted the possibility that one or more of the Dominions' Governments might wish to undertake the acquisition of its entire clip and so to be interposed between growers and J.O. under Method A. It considers that, from the point of view of J. 0., there would be no objection to action on these lines provided that the price at which the Dominion acquired its clip from growers was not such as to lead to increased production, which would raise disposal difficulties and increase the financial burden of J.O. Commencement of Auctions 15. The Committee is unable to express an opinion regarding the probable date when conditions will permit the resumption of auctions. It wishes to stress, however, that in its opinion the successful resumption of auctions must depend upon the availability of adequate shipping facilities and the existence of sufficient buying strength and competition between buyers. 16. If the recommendation of the Committee in favour of Method A is accepted, the procedure to be adopted in the interim period will require to be considered. APPENDIX C I. Disposals Plan 1. The stock of Dominion-grown wool in the ownership of the United Kingdom Government at 31st July, 1945, will be transferred to the joint ownership of the United Kingdom Government and the Dominion Government concerned, and all wool subsequently acquired under this scheme will be in joint ownership. This wool will be held and disposed of by the Joint Organization referred to below. 2. A Joint Disposals Organization will be set up forthwith for the purpose of buying, holding, -and selling wool on behalf of the United Kingdom and the Dominion Governments concerned. As part of the plan it will be required :— (a) To determine total quantities of wool to be offered from time to time concurrently in the Dominions and elsewhere, to be made up of all new clip wool and an appropriate proportion of wool from the Organization's stock. (b) To prepare schedules of reserve prices at which the Organization will itself be willing to acquire wool. (c) To lift from the market such quantities of new wool as cannot be sold at these reserve prices. , (d) To hold and dispose of stocks as the agent of the Governments concerned and, where necessary, to acquire and own stores, plant, and equipment for this purpose. (e) To facilitate the sale of wool in every way possible, with a view to stimulating demand. 3. As soon as practicable the method of marketing wool by auction will be resumed. All growers' wool from current clips will be offered at auction, alongside such quantities from stock as may be determined by the Organization. The quantity of new wool required to be taken in by the Organization will be affected by the quantities of old wool offered from time to time. This cannot be prescribed in advance, but will be determined by the Organization in the light of technical considerations and the economical arid efficient management of the scheme. 4. The relative prices realized for different types of wool at auctions will reflect the valuations of the market. The general price level of wool will, however, be made effective by th£ Organization. It will prescribe minimum reserve prices at which it will be willing to take up any unsold new clip, and it will offer at auction wool from its own stocks in such quantities as will prevent prices from rising .much above the desired level. In some circumstances the Organization may make standing offers to

3—A. 10.

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sell from stock outside the auctions at a fixed percentage above the auction reserve prices, and thus impose a ceiling on prices actually obtainable at auction. Some extension of the selling seasons in the Dominions will be desirable, and special sales of old wool, or sales comprising mostly old wool, may be held during the off-season. The Organization will be prepared, possibly at short notice, to increase or hold back its offerings from stock in some or all of the selling centres to meet fluctuations of demand and to check their influence upon prices. 5. The object of the Organization will be to secure a progressive reduction in stocks while maintaining reasonable stability of price having regard to the conditions of world demand. Reduction of stocks will be achieved as long as the total demand exceeds the supplies of new clip wool which come forward to auction, though in any given year the Organization will be both a seller of old wool and a buyer of new wool. 6. It will be for the Organization to recommend to the Governments the initial level of reserve prices at which auctions of growers' wool shall commence and any major changes which may thereafter be necessary. The Organization will endeavour to maintain the general price level unchanged within a single season, though it may be necessary to meet a definite trend in demand which appears to be of' a lasting character. Changes in the relative prices of different types of wool may also, of course, be necessary. The Organization will ha ve to pay particular attention to securing that the relative reserve prices for wool originating in the three Dominions are properly adjusted. Towards the end of each season the Organization will consider in the light of past experience and future forecasts what changes may be necessary, either in the general level or in relative prices. 7. The Organization will build up the structure of selling prices upon the basis of " c.i.f. Europe," preparing a corresponding schedule of reserve prices "ex store "in the Dominions. Reserve prices will be calculated for the London market, and as soon as practicable growers will be free to forward wool to London for sale there alongside wool from the Organization's stocks. 8. At auction, if no buyer is forthcoming at the reserve price or higher, the lot will be passed in and taken over by J.O. at the auction reserve price, subject to the grower's right of withdrawal. 9. It is recognized that the concurrent marketing of stock and new clips by the method of auction cannot be introduced in full immediately after the 31st July, 1945, since the necessary conditions of free demand and adequate organization and personnel will not then obtain. The Dominions 1945-46 clip will therefore be taken up as a whole by the present methods of appraisement and bulk purchase. On the disposals side, however, it is desirable that auctions should be restarted to a limited degree in the U.K. and possibly elsewhere in the course of the season. This would have the great advantage of providing the Organization with practical experience as to the appropriate differentials between the prices of different types of wool in advance of the commencement of general auctions. It is, in any case, certain that sales of wool will be of much greater importance and complexity during 1945-46 than at any time since 1939, and that during this period foundations will be laid and trade contacts established which will be of great importance in future years. Responsibility for the management of sales should therefore pass to the Organization at the earliest possible date. It will be for the Organization to determine the selling price during the interim period before auctions of growers' wool have commenced. 10. In order to facilitate and expand the consumption of wool the Joint Organization will maintain, close contact with the appropriate bodies interested in such matters as furthering the rehabilitation of the wool textile industry in consuming countries and in securing the replacement and improvement of machinery. It will also maintain close contact with the International Wool Secretariat and other institutions concerned with research, publicity, and development designed to increase the uses of wool,, and with the reduction of costs of wool production, processing, manufacture, and distribution, and. in general will give attention to the removal of any obstacles to consumption. • 11. Constitution and Functions of Jotnt Organization 1. The Joint Organization will be incorporated as a private registered company, with a nominal share capital of eight shares, held as to four by nominees of the U.K. Government, two by nominees of the Government of Australia, and one each by nominees of the New Zealand and South African Governments. This company will have three active subsidiaries in the Dominions to act on its behalf, which may be registered companies or other legal entities. The Directors of the principal company will consist of an independent Chairman, appointed by the four Governments in agreement ; four directors appointed by the U.K. Government, two by the Government of Australia, and one each by the Governments of New Zealand and South Africa. In addition, the Chairmen of the three Dominion subsidiaries will be ex officio Directors of the principal company without additional voting power. The functions of the principal company will be primarily to buy, hold, and sell wool as agent for the four Governments and generally to administer the scheme agreed upon between them. 2. There will be constituted in each of the Dominions a subsidiary for the purpose of conducting; the operations of the principal company in the Dominion in accordance with its policy and decisions. The functions of each subsidiary will include the following : — (а) To hold wool in the Dominion as the agent of the principal company. (б) To sell wool from stocks in the Dominions, and to arrange for the regulation of sales of current clips by auction. (c) To assess on the basis laid down by the principal company the appropriate reserve prices for the individual lots of wool (from stocks or current clips) being offered for sale. (d) To take up wool offered at auction for which the reserve price or better is not offered by" a commercial buyer.

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(e) To conduct the financial operations of the principal company in the Dominion. (/) To furnish to the principal company annual reports on its activities, including statements of its accounts and information regarding its purchases, sales, and stocks. 3. Representatives of the four Governments will meet prior to the opening of each wool year and at such other times as may be required to agree upon the general level of reserve prices in the light of the advice of the Board of the principal company. The Board will have discretion to make minor changes in the general level from time to time. It will be the duty of the Board to fix the relative values of the different types of wool in accordance with the general level of reserve prices of wool, and to adjust them as may be necessary from time to time. 4. The International Wool Textile Organization will be invited to nominate representatives to form, with the addition of representatives from major consuming countries not members of the Organization, a Committee to act in a consultative capacity to the board of the company from the point of view of' wool consumers. 111. Financial Plan 1. The scheme will come into force as soon as it has been agreed by all the Governments concerned,, and will take effect as from Ist August, 1945. Capital Contribution 2. (a) The United Kingdom and the Dominion concerned will each take up 50 per cent, of the original capital represented by the opening stock of wool grown in that Dominion to be handed over to J.O. (b) The opening stock will be taken in by J.O. at its original cost (including f.o.b. payments) less the amounts accumulated in the divisible profits accounts. Except in the case of South Africa, these amounts are estimated fully to cover depreciation of that stock. (In the case of South Africa, where the estimated depreciation exceeds the accumulated balance, the stock will be taken in at the original cost less an agreed figure representing the full amount of the estimated depreciation.) The balances in the divisible profits accounts will be retained by the U.K. Government. (c) Payment of the Dominions' shares of the original capital will be made in four annual instalments, to which will be applied the Dominions' shares of the proceeds of sales by J. 0., and of the net profit during the interim period referred to in paragraph 6, but subject to a minimum payment in each year of one-quarter of the total. (If a Dominion's share of the proceeds and net profit in any of the first three years exceeds onequarter of its initial capital share plus that Dominion's share of any new capital to be provided in any one year, the excess of proceeds and net profit will be paid to the U.K., and the payment necessary in the fourth year will be correspondingly reduced.) The payment necessary to reach the minimum in any year will be made at the end of that wool year. No interest will be charged by the U.K. Government on outstanding instalments. (d) Each Dominion and the U.K. will share equally in the provision of any further capital required - by J.O. during the operation of the scheme for payment for bought-in new wool of that Dominion. Operating Expenses. 3. (a) The operating expenses of J.O. will be borne equally between the industry and J.O. itself. The share of the industry will be paid by the Dominion Governments primarily from the proceeds of" a contributory charge on all sales of new clip wool; the share of J.O. will be met by deduction from the proceeds of sales by J.O. before application to capital repayment. (b) No charge will be made for interest in the operating expenses of J.O. (c) Operating expenses in any year will include all current expenses, such as costs of administration, storage, reconditioning, insurance, and selling expenses. The storage expenses will include an annual sum sufficient to cover over ten years the cost of stores and other capital plant and equipment transferred to J.O. (d) Operating expenses will also include provision to cover depreciation of wool bought in by J.O. as indicated in this paragraph. This provision will be calculated at a rate to be determined by J. 0.. on bought-in wool taken into stock each year and will be credited to a Suspense Account. As boughtin wool is sold J.O. will assess the amount of difference between the price realized for it and for new wool of similar type and yield—both to be calculated at time of resale. The amount so assessed will be withdrawn from the Suspense Account and added to the actual proceeds of sale for the purpose of capital repayment. Repayment of Capital 4. After deduction of one-half of the operating costs, the proceeds of all sales by J. 0., together with any sums added in accordance with paragraph 3 (d), will be used for repayment of capital equally between the U.K. and the Dominion Government concerned. Ultimate Profit or Loss 5. The ultimate balance of profit or loss arising from the transactions of J.O. in the wool of any Dominion will thus be shared equally between the U.K. and the Government of that Dominion.

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Procedure in Interim Period 6. During the wool year 1945-46, in place of the procedure indicated in paragraphs 3 and 4 above, ffche following procedure will apply : — (a) The U.K. will be responsible for the purchase of the whole clip, the management and sale of which will be entrusted to J.O. as soon as constituted. The U.K. will be reimbursed by each Dominion for one-half of the cost of that part of the new clip of that Dominion unsold at the end of the wool year. (b) The net proceeds of the sales of old wool during the interim year, plus (or minus) the net profit (or loss) on sales of new clip wool after meeting the whole operating costs of J.O. and such incidental costs (including interest at 1J per cent, per annum on the monthly balance of the working capital provided by U.K.) as the U.K. may incur in connection with the purchase of the new clip, will be allocated to capital repayment. (c) All sales, whether to consumers in the partner countries or elsewhere, will be on the ba,sis of the selling prices determined by J.O. Taxation 7. Payments will be so adjusted that each Government will receive the sums to which it is entitled under the above scheme irrespective of any tax chargeable by the U.K. Government or a Dominion Government on profits arising from the operations of the Joint Organization or its subsidiaries. Exchange 8. In the event of any change in the exchange rate between sterling and any Dominion currency, the Governments concerned will consult together concerning the effect, if any, which the change has on these financial arrangements.

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Explanatory Note on Omission of 8.-7 and 8.-7 a (Appropriations chargeable on Consolidated and Public Works Funds and other Accounts) The appropriations chargeable on the Consolidated Fund and on the Public Works Fund and other accounts have prior to the year 1939-40 been published in the Appendices under the description 8.-7 and 8.-7 a respectively. The appropriations are compiled from the estimates of expenditure chargeable on the respective funds or accounts which have been submitted to and passed by the House. The estimates consist of the main estimates and the supplementary estimates. For reasons of economy the appropriations have not been printed separately. If it is desired to ascertain the amount appropriated for any particular item of the estimates, there must be added to the amount shown on the main estimates the amount, if any, for the same item shown on the supplementary estimates. The total amount appropriated for each vote {e.g., Vote, " Legislative ") is shown in the summary published in the supplementary estimates. For the separate items, however, both main and supplementary estimates must be consulted. Commencing with the financial year 1942-43 a further change was made in the presentation of the estimates of expenditure. The estimates for the Public Works Fund were not submitted separately, but were incorporated in the one estimate of expenditure. The word " Fund " was dropped, and the public-works estimates are under the heading of the Public Works Account. The same relative order is maintained in the supplementary estimates as in the main estimates.