THE Australian government has thrown in the sheepskin. Faced with a stockpile of nearly 5 million bales of unsold wool, the government has decided to suspend a plan that guaranteed producers a minimum price of $7 per kilo for cleaned wool. Instead, the country's 60,000 wool producers will receive the free-market price, which will be considerably lower.
The government was forced to change its policy because of the mounting cost of its efforts and the collapse of the wool auction market over the past three weeks. With the uncertainty over the future of the wool price plan and the hostilities in the Gulf, buyers disappeared.
Last week, the Australian Wool Corporation (AWC) presented the government with a five-year plan, which projected its debt, guaranteed by the Australian government, would increase to US$2.7 billion from $2.3 billion and the wool stockpile would grow to over 5 million bales by the next year.
On Sunday, however, Prime Minister Bob Hawke called the minimum floor-price scheme a failure. And, on Monday, John Kerin, the minister for Primary Industries, said the government would suspend the floor price mechanism until after June 30.
``If there is to be any form of Reserve Price Scheme from July 1 it will be self-funding and the floor price will be set conservatively against then prevailing market prices,'' Mr. Kerin says.
The government put together a package, which includes US$230 million in supplementary payments for wool growers who sell their wool during the rest of the 1990-91 season. The AWC estimates half of the wool crop has yet to be sold. In addition, the government has decided to review the flock reduction program which was designed to eliminate 15 to 20 million sheep. And the AWC has scrapped its proposed quota program, which told each wool grower how many sheep could be raised for next season.
Because of the high stockpiles and the large debt, Kerin estimates it will take five years for the industry to fully recover.
AWC chairman Hugh Beggs said ``the realities of life must be faced.''
Wool producers in Australia are very efficient. The most efficient sheep stations have one ranch-hand per 10,000 sheep. In Britain, there is a shepherd for every 400 sheep. In Australia, the sheep often are raised on marginal land, which would not produce wheat or other crops.
Wool grower Jim Maple Brown believes the floor price system has made wool too expensive for many apparel producers. At least half of the wool is used in blended fabrics. With the high price, he says, many apparel producers shifted to other blends without wool. Mr. Brown heads a free-market organization called Wool Into the 21st Century.
The minimum floor price system was begun in 1970 to smooth out the fluctuations in the market. However, two years ago, prices surged, encouraging farmers to increase their flocks. The AWC increased its floor price as well. Last year, as the wool from the larger flocks hit the markets, the price fell.
By October, the AWC was buying 70 percent of the wool sold. To finance its purchases, it taxed the producers. This year the tax is 25 percent of their income. The tax will remain in place until the stockpile and debt are eliminated.