Baldock Larry: Wool Industry Restructuring Bill — First Reading 
Baldock Larry: Wool Industry Restructuring Bill — First Reading 
[Volume:607;Page:4252] 
LARRY BALDOCK (United Future) 
: 
 This bill is the ultimate response to the decision made by growers at the Wool Board’s 1990 annual general meeting to employ a consultant to undertake an independent review of the sector with the aim of exploring options to increase the profit potential and the autonomy of growers. As a consequence the McKinsey report recommended that the Wool Board be dissolved and that the commercial and the industry-good activities—for example research and development and on-farm training—be the responsibility of separate entities. 
Growers endorsed those recommendations by 91 percent in an August 2000 referendum. Since then new commercial and industry-good structures have emerged to supersede the current New Zealand Wool Board making it for the most part unnecessary save for its levying and accountability functions. Following consultation on the precise nature of proposals and after some delay a second referendum resulted in 97 percent support for the board’s dissolution. The turn-out was only 35.5 percent of all growers but is comparable with that in other referenda conducted in the primary sector. 
United Future supports the first reading of this bill because there has been a need to address the situation for some time. Woolgrowers have been waiting for some time to rid themselves of the Wool Board. The recommendations of the McKinsey report to dissolve the board and to divide the responsibility for commercial and industry-good activities into separate entities were endorsed by the growers not by one referenda but by two as I said previously. United Future will look for the final evidence of growers’ support for those proposals and for the proposals in this bill to come through in the submissions to the select committee from the growers themselves. 
The wool industry has been riven by conflict for some time. Perhaps the only unifying force has been a deep-seated lack of confidence in the Wool Board. There has been concern in the wool industry for several years about the industry’s financial performance and the fact that on behalf of growers the Wool Board spent millions of dollars of growers’ levies on promoting wool to little or no effect. With that in mind there is some concern about the board’s role in managing its own dissolution. The unpopularity of the board means that any proposal that is put up for the board to disband itself will be popular. It is our job as MPs therefore to ensure that the details of the transition are carefully scrutinised. 
Even in the final stages of its life there continue to be concerns about the Wool Board’s finances. The board’s reserves were depleted from $160 million in 2000 to $109.1 million in 2001 and $79.5 million in 2002 and are forecast to drop to $67.3 million by the time the board dissolves. Of that growers will receive only about $35 million in the form of redeemable preference shares in Wool Equities with the rest of the money going towards setting up the two commercial companies and the wind-up costs of the board. Divided out amongst the 16000 growers that equates to an average payout of just over $2000. It hardly constitutes a windfall for growers and ultimately they will meet the wind-up costs of the board because those costs reduce the amount available for payouts. However as long as the Act exists the board will be required to undertake a range of accountability and reporting functions that currently cost growers several million dollars per year. 
Such is the cynicism that pervades the industry that growers might rightly ask how much of the wind-up costs will be used for golden handshakes for people who will then be re-employed under the new system. Growers are concerned that the Wool Board could reinvent itself under another name—Wool Equities and its subsidiaries—and conduct commercial activities funded by grower assets in the Wool Board. For example why should growers’ funds be used on entities such as Ovita the proposed biotech research company when the industry could contract out that research? There is also concern that the Wool Board is setting up structures with growers’ money that could be on-sold at a reduced price leaving growers selling to a cost-plus industry player. 
Farmers want to be the ones who make decisions on whether to invest in wool marketing companies or biotech. It is a fair bet that many growers who did not vote in the referenda will withdraw their money as soon as it is available. The alternative proposals being put forward by the Wool Corporation must have the backing of the majority of growers if they are to be considered by the select committee. Therefore United Future will look to see whether submissions are received along those lines and at the support that is given to them. I share in the comments made by the previous speaker that this is a time for woolgrowers in the country to get involved in the submissions process. If they do not participate they will not achieve the outcomes that they desire. 
Growers might be arguing that given the board’s poor record of managing growers’ money all the remaining funds should be returned to farmers rather than being invested in companies whose likely commercial success may be in doubt. For instance the bill seeks to achieve all the findings of the McKinsey report except on strong wools where it recommends the establishment of an integrated structure for buying and marketing most of the wool clip. It could be argued that that was one of the main reasons that growers voted for the McKinsey report’s recommendations but the board has not been successful in its attempts to form a successful strong wools company as witnessed by the successive failures—Strong Wool Growerco and One Wool initiated by Wrightsons. Growerco alone cost half a million dollars of the board’s reserves. 
The flaw in those approaches was the attempt to control wool prices by creating a giant cooperative to control supply. The industry is too fragmented for it to be able to collect a big enough proportion of the total clip to do that without the will on the part of growers to unite. It also ignores the fundamental problem which is not supply but demand. Strong wool holds a tiny share of the international fibre market and virtually the sole remaining users of it are carpet manufacturers to whom the price of wool has become insignificant. 
The way to create demand is to come up with more innovative uses for wool and that comes down to investment in research and development. We support the continuation of industry-good activities through the reduced levy on growers under the Commodity Levies Act. In some cases the market can be relied upon to conduct research and development but only where it sees an opportunity to generate quick revenue. It has been suggested that instead of being used on commercial activities the board’s reserves could be used to fund research and development by supplementing the levy for as long as those reserves last. It should be noted that the proposed levy is 2 percent of wool sales rather than the 1 percent recommended by the McKinsey report. However the original levy was based on the proviso that the meat industry would contribute proportionally to on-farm research costs. 
We encourage the moves currently afoot to create a single pastoral organisation covering sheep cattle deer and goats funded by a single levy. This bill could be an opportunity to further that. I note the formation last year of Meat and Wool Innovation and the memorandum of understanding between Meat New Zealand and SheepCo announcing the common goal of a single pastoral industry board. In the meantime we have fewer fears that SheepCo will become the Wool Board resurrected in drag since it will be an incorporated society managed by six farmer-elected directors. However United Future would want to ensure that there is strong accountability to levy payers. 
In closing we would again urge wool growers throughout New Zealand to get involved in this next period of time in making submissions to the select committee and in taking ownership of their industry in order to get the outcomes that they desire.