WOOL REALISATION

Dominion, Volume 14, Issue 210, 31 May 1921, Page 6

WOOL REALISATION

MR. MARIN’S REPORT

THE NEGOTIATIONS WITH “ 8.A.W.R.A.”

CONTINUED ASSOCIATION RECOMMENDED

IMPORTANT FACTS AND FIGURES

A report prepared by Mr. A. 1-1. Mabin regarding wool realisation has been presented to tho Government and is published below. Mr. Mabin represented New Zealand in tho negotiations with the British-Australian Wool Realisation Association, and the report represents the result of his visit to Melbourne and his consultations with tho authorities there regarding wool realisation. He surveys the situation in the light of tho information he gathered in Melbourne, and makes important recommendations, tho chief being that New Zealand should agree to co-operate with the B.A.W.R.A. in tho limitation of offerings and the fixation of prices for a period of five years. The report is as follows: — 1 have the honour to report as follows regarding my negotiations in Melbourne from April 15 to May 18, 1921, with Sir John Higgins (chairman) and the Board of the British-Australasian Wool Realisation Association. The purpose .of my visit was to inquire into the objects and. methods of B.A.W.R.A. The views held' in New Zealand at the time were that it may be desirable for New Zealand to fallin with the B.A.’W.R.A. scheme for the fixing of minimum reserves on wool,' and the allocation of quantities which were to be offered at the wool sales in Ixmdon and Australia. During my visit the great Australian wool industry- was going through a crisis—probably the greatest in its history. The market had fallen almost to zero; tho sales had been suspended, and every one concerned was engaged in an effort to avoid disaster to growers and tho Commonwealth generally. The primary cause of ths trouble was, as is well known, the huge accumulation of unsold woo] in tho Empire, in addition to unknown stocks in North and South America. B.A.W.R.A. Stocks. On December 31, 1920, alone held—

Comprising merinos, 1,095,474 bales; crossbreds, 1,683,748 bales. In addition to this the 1920-21 clips were on the market trying to find buyers as under:—

British clip, for the reason that this wool does not come upon the London market; it is soli by farmers direct to manufacturers or at: fairs. It is never quoted as a competitor to oversea clips. It is the home clip, with first call upon the local manufacturers, and, whatever' we may do, it must necessarily be taken by consumers ahead of outside wools. South American clips and others will ba dealt with later. For the time being all that is necessary for practical purposes is to deal with wools which are competitors on the Empire market, for the world’s consumption through those sources.

Empire Wool Sales. If an effort were made to sell the accumulated stocks and production through tho sales in England, Australia, and Now Zealand the channel does not appear wide enough.

Consumption. I found it difficult to assess tho world’s consumption at the present time, but finally camo to the conclusion that 2,000,000 bales was about the quantity that could bo consumed by means of the London and Australasian sales. These sales, therefore, can offer 820,000 bales more than the consumption. To force the pace would only depress prices. Herein lies the necessity for limitation of offerings. Furthermore, Australia is on the eve of the arrival of tho 1921-22 clip, and at the end of the year South Africa and Now Zealand will be in tho same position. It is evident that unless consumption increases enormously the position statistically will be worse in twelve months than it is-to-day. Statistics. Here we should pause, or we may allow ourselves to be overwhelmed by the statistical position. Figures may prove a position incurable, but fortunately there are some factors on the other side.

(1) The world is starving for wool; it is underclad; the ’well-to-do are wearing old clothes, those less favoured are in rags. Tho demand is there if tho world were normal. (2) The present visible stocks of the world are largely in the hands of one bolder, B.A.W.R.A. Tn pre-war days these wore invisible stocks in the hand® of the manufacturers. The present stocks appear huge because every bale is counted. (3) The stocks of raw material in the hands of the manufacturers arc low—there is room in their warehouses for prebablv two million hales when there is confidence in the world’s trade condi-

tions. (41 Germany toeing tho mark in regard to payment of her indemnities will give new confidence and tone, and improve tho outlook. (5) Tho cessation of the suicidal strife between Labour and Capital would also restore confidence to trade. These are a few elements which mar help to lighten the lead and bring about normal renditions earlier than wo could estimate if guided by statistics. But business men cannot live on "optimism alone, and must be guided to some extent | in their future policy by the figures on tk” Slffte.

Policy of B.A.W.R.A. The immediate policy of B.A.W.R.A. is to prevent the huge and growing accumulation of wool from being thrown upon the market in excess of the consumption.

4) Limitation. —By arranging for tho limitation of quantities to lx- offered at auction in London, Australia, and New Zealand. This it is hoped to do by mutual agreement nt tho centres named. The problem. however, of bringing the conflicting interests of distant bodies into lino is no small one. It ia only B.A.W.R.A. •which can do it, and it is to the credit of B.A.W.R.A. that during only live oionths’ existence it has doro so much, and has been able to make its power felt. This is a matter, however, in which nil must help, and we in New Zealand must: do our share in bringing about unification of policy. (2) Fixation. —The other feature is the fixing of minimum reserves based eventually upon tho cost of production. This, it is claimed, will put a bottom to the market, and establish confidence in the woo l .Hnru“ r -tbe> -act faw months

no one has known what to expect from

day to day. London market was played off against our markets, and subsequently our markets against London. Free

wools were used to break down B.A.W.R.A. prices, and B.A.’W.R.A. wools to break down free wools, till in March last zero-point hud been reached in London, Australia, and New Zealand. Buyers themselves had lost confidence altogether. B.A.W.R.A. policy aims to prevent a repetition of this. Whilst it sets no limit to upward movement of prices which may bo by better trade conditions, it does in effect say, “Here is a bottom; you can build upwards, but you cannot go under.” Tho foundation has beer set low under stress of circumstances, and must bo raised gradually. In -the meantime buyers know for six months ahead that the market cannot slip under them altogether, and this is expected to create a feeling of more confidence, and buying and reselling can go on under more solid conditions.

Proportion.—To assist in carrying out this policy, B.A.W.R.A. wishes to offer its stocks in London, in the proportion of two bales of B.A.W.R.A. wool to one bale of free wool. It doos not purpose offering at auction its stocks in Australasia. Those markets will bo confined to the selling of free wools. At the same time B.A.’W.R.A. will not neglect any opportunity of selling wool in bulk to the Continent or elsewhere and on easy terms for payment, as opportunityoffers.

Unanimity.—lt must bo evident that such policy must have almost unanimous support in each centre to win through. Nothing is more unsettling to one grower than to find that whilst he is making sacrifices by adhering to a certain policy —viz., by waiting his turn under tho limitation of catalogues, or not being able to realise through not obtaining the official reserve—some other grower who will not conform gets the market and sells. These cases, few though they- may be, are very unsettling, and will break down any scheme.

Supply and Demand.—Tho cry i» oft repeated, “Let the law of supply and de. maud rule.” What does this mean? That every- one should try to get rid of his wool as soon as possible, and cut his loss. "We were trying this in New Zoaland, London, and Australia last season, and /came to a standstill. . To offer promptly 7 the 5,900,009 bales now available for sale would stifle all demand and create such a glut in the consumers’ stores that our future clips would bo unsaleable. Such a policy would give no confidence to any one, and we should havo no demand and no ftoney. Regulation Nothing New. —In regulating quantities w<) are introducing no new principle. Tho wool trade in London •and Australia has regulated for years the quantities to be offered. We in New Zealand have not, but the idea of spreading our sales beyond December-Februafy has been an ideal we have aimed at. We may now have to adopt the ideal th rough sheer necessity. The principle of limitation of offerings, therefore, is not new, and is all the more necessary because of the accumulation. The spreading of this accumulation over a period is not a violent breach of the law of supply- and demand.

Reserves Not New. —The system of reserves is not new. Reserves on wool is an old and universal custom. Either the grower, financier, or broker will reserve 99 per cent, of the wool offered. What is new is that the same reserve on a ■parity basis shall apply in London and Australasia. Here the law of supply and demand might be invoked if the idea was to reserve at such a figure that it would interfere with tho wool going into consumption quickly. But no one is even hinting at high reserves. Cost Raw Wool Immaterial. M’lien the assertion is made that if you reduce tho price of wool you will increase the demand tho fact is overlooked that the raw material is a minor factor nowadays in the cost of the mann'factured article. A suit of clothes requires 71b. of raw wool. This at

the official average of Bd. gives 4s. Bd. as the value of the raw material in a suit. The balance of the J 314 14s. charged by the tailor is made ujj of cost oi manufacture, labour, transport, distribution, taxation, and profit. The unfortunate grower has had to carry an alto-

gether unfair proportion of the odium of the high cost of clothing. Lower prices for tho manufactured article will increase the demand for woollen goods, and consequently the consumption of raw wool, and the sooner this comes about the better, but the remedy is out of the hands of tho raw wool producer. He could reduce his price to nothing, and do tho consumer little .practical good. 'Therefore the cry, "Let the law of supply and demand have full play,” does not help the position in any way. An abnormal situation has been brought about which requires careful handling. B.A.W.R.A.’s policy of feeding the demand and gradually spreading the accumulated and glowing stocks over a period of years seems the only practical solution.

I havo shown that the present stocks and production arc more than tho world’s consumption. I was impressed by a statement made to me by Sir John Higgins, that if every’ textile mill in the world was working seven days n week it would take five years to overtake presen stocks and production. This implies that our agony is going to he tong, and a policy merely for a month or two is not going to see us nut of our trouble. Manufacturers Understocked.

On tho other hand, though the mills could not work up our stocks, manufacturers, as previously referred to, have room in their warehouses for thousands of bales which they would fill up when confidence is restored, and when they feel that present stocks are not going to be tumbled upon them at any moment, at any low price they might offer. But from a business point we should build upon the assumption that for some years to come we shall not be able to move off the production of wool as rapidly as it arrives into store. There will be”unsold carry-overs in Australia, New Zealand. and London which will be a danger to the market, and may cause the breakdown of any well-devised scheme unless the position, is strongly held. Australian Carry-over.

I have endeavoured to find out what Australia has in view. There were 1,000,001) bales unsold on March 31 of tho 1920-21 clip-enough to keep the Aus' tralian sales going for ten months without offering a bale of new wool—and tho new wool is shortly coining into store. Are the owners of the new wool going to stand aside until .the old wool is gone? If one starts selling the new. will not all ask for their new wool to take precedence? If the new wool is not offered in Australia, will it bo sent to London? If so, Txrndon will be soon blocked and the congestion there lx, worse confounded, particularly wtitb B.A.W.R.A. selling. An arrangement might be come to whereby brokers could go on selling tho old clip up to a certain point, and then draw a line and begin selling the now. Nothing is more certain, however, than that there must bo a carry-over, and that proposals will be made to B.A.W.R.A. to handle this carry-over on some terms. From this it is plain that some strong organisation is necessary to direct tho policy and handle the conflicting interests, otherwise there will be chaos. B.A.W.R.A. provides the organisation for Australia. New Zealand Carry-over.

A somewhat similar process will take place in New Zealand as in Australia. We had about 423,000 bales unsold in New Zealand on March 31. Wo shall probably ship 123,000 bales, consisting of slipes, scoured, and greasy, leaving 300,000 Ixiles to clear before November next. Wo. may at 35,000 bales per month' sell 185,000 by November and inclusive, leaving 125,WX1 bales carry-over. Thiswill be largely low-grade wool, difficult to sell and finance against, but which, nevertheless, ought to be dealt with. Decreased Production. Of course, there, is a. prospect-of eco-

nomio forces depriving us of much carryover. The low price for inferior crossbreds, bellies, pieces, locks, crutchings, and Jambs may result in Iho non-sending of these wools to market, as they will not pay to transport and sell. This will materially reduce production not only’ in New Zealand but in Australia, Argentine, and. elsewhere, and help to bring production and consumption into line more rapidly than wo can anticipate at the moment. It will bo a cruel process and an economic loss, but on present prices almost sure to follow. New Zealand can probably- handle her own carryover from year to year. If the carryover got too largo for individual brokers to finance, a pool could be formed and tho pool-owners make sales in hulk and on terms to foreign Governments, such as B.A.W.R.A. will be doing with its stocks. Finance, however, would bo required, as the pool would own wool but havo no revenue for working expenses. Extended Aims of B.A.W.R.A.

B.A.W.R.A. feels the necessity for a strong and definite policy not only' regarding fixation and limitation, but for handling carry-over wools for five years, so that its policy for tho stabilisation of the market will not be undermined by weak holders and unsettled policy, and is prepared to handle New Zealand’s carryover for five years on certain lines, it is, however, mainly a realisation association, and if it has to extend its aims so as to benefit tho wool industry of Australia, New Zealand, and South Africa, it must lay down its policy for some years ahead, nnd maintain a staff in Melbourne and London. It is obvious that it must be assured of a revenue to pay the expenses incurred through the extension of its aims, and that these expenses should not fall solely ujxm its shareholders, who aro wooigrower.s in Australia. The actual payment, however, is one to be discussed at any time when principles are accepted. South America. Now I must deal with the feature in the whole position which causes most anxiety—viz. • the South American clips. These consist of 73,090,9001 b. merino and 331,000,0001 b. crossbreds. Wo need not discuss the merino. The crossbreds are mainly 36’s to 46’8, and (in terms of New Zealand hales of 3801 b. each), equal 870,000 bales, or a iSO-per cent, clip greater than New Zealand’s. What will be tho effect of any policy of limitation of quantities, fixing reserves, or holdingup of carry-over wools from year to year whilst this competitor is free to do what it pleases? BA.W.R.A.’s policy is to constitute an Empire wool scheme which, will hold, guide, and control the supplies, production, and sales until the present abnormal stocks are absorbed, and the position returns to normal. The merino position is simple. Australia, New Zealand, and tho Cape produce 62} per cent, of the merino wool of the world, and the other 371 percent, is produced by France. Germany, Russia, Italy, North America, South America, etc., and is not a direct competitor upon the world’s market. With Australia and Cape combined B.A.W.R.A. would direct" the policy of 09 per cent, of the merino of the Empire. This is practically the whole of the merino wools sold through the Lender? and Australian markets. With the prevalent good demand for merinos and the control in one set of hands, the merino policy presents few difficulties, though during the recent slump in values generally merinos have fallen to a level unwarranted by the statistical position. A return of confidence will soon restore merino values. Crossbred: World’s Production.

The crossbred position is vastly different. The world’s production of crossic - J'*' >,

There are other places, like Russia, India, North Africa, which grow carpet wools which may be left out of consideration. For all practical purposes all the wools in the second group may be ruled out, as they are absorbed in their domestic markets, and are not competitors in London, save South America. London Competitors. This reduces the position to tho following~quantities which may have to find a market through' London, Australia, and

For the ten years 1910-11 to 1919-20 an average per annum -was shipped from South America as under: — Per

318,497,000 100 * = 125,000 N.Z. bales. Shipments to United Kingdom,

Prior to the war the average shipped to the United Kingdom from Smith America was 35.133,0001 b., or, say, 95,000 New Zealand bales. During the war years it increased to 61,43 < ,0001 b. or 160.009 New Zealand '.bales In 1919-20>t had fallen to 44,266,0001 b or 116,000 Now Zealand bales; and from October, 1920, to March 1921, 12,981,0001 b., ‘or 34.200 New Zealand bales. Accumulations. During the war there was a large decrease in the shipment of wool from South America to Europe and an increase to United States of America. The increase to the United States did not clear the production, and the statistics show that there must be an accumulation in South America of from one to two season’s clips. This constitutes a menace to crossbreds. United States Tariff. further than this the United States tariff may alter the future destination of South American wools. The best will still go to the States, but the balance, together with the carry-over, must find some other market. 1 have endeavoured to arrive at some conclusion as to how this wool will be disposed of, and the most feasible seems to be that it „.;n find its wav into pre-war channels,

will find ns w auw which were, per annum:—

Continent the Ultimate Market.

This opinion was confirmed by a buyer who had good personal knowledge of South America, who stated that the bulk of what wool was not suitable for Lulled States would 'be taken by Germany, n 8 it was a quality suitable for German trade. In addition Germany is reported to have an interest in ths accumulated stocks in Argentine, but of this I could KCt no definite information. Here wo must not overlook the point that vhoeverbnya this ivool is a consumer «n«

shuts out a possible buyer of our crossbred.

These points were brought out many times before B.A.W.R.A. and we nil realised the nature of tho problem in front of us.

Sir John Higgins maintained that if wo fell in with B.A.W.R.A. and built up a strong corporation we need not fear the Argentine competition. Ho considered —

(1) He conld bring the British companies interested in South America into line.

(2) Argentine interests generally were wrapped up in improving tho position of crossbreds, and they were suffering as much as New Zealand from tho slump in crossbreds, and were amenable to reason.

(3) That New Zealand crossbreds were -mnerior, and would have firs't call upon buyers. (4) If quantities in London were limited, South America would have difficulty in finding opportunity for selling there. Of the 1,200,000 bales which can be offered in London per annum B.A.W.R.A. is to get 800,000 bales, leaving 400.000 bales for free'wools, so when African, New Zealand, and Australian free wools are provided for there will not l>e much room for the South American. Weakness of Scheme.

It cannot be disguised that herein lies the weakness of any proposal to advance crossbreds. If we are to take the view that South America may Jswamp us, may undersell us, and benefit at our expense from any organisation we may create we may ae well fold our arms, say we can do nothing, and ask the avalanche to fall. Crossbreds as a result must be practically valueless for some years. Support B.A.W.R.A. Personally I prefo” to do something ' even if the chance of ultimate success is doubtful, and after du consideration feel that our best course is to support B.A.W.R.A. to our utmost, help to make it an Empire concern, look to its capable chairman and board, to overcome the difficulties we know exist. We shall do more good by over-supporting B.A.W.R.A. than by giving it a weak and halting support and then complaining that it is not strong enough to pull us out of our difficulties. B.A.W.R.A. Board is the only body I know of thinking out the wool problem. Most other* in the trade are submerged under their present difficulties and have not tun© for consideration of the future, bu - BAWR.A-, "with all its problems ou hand, is thinking out a policy, aid on these grounds is worthy of support. It mav fail to attain its ideals, but if any body can pull the industry through its difficulties it will be B.A.W.R.A. Mere drift will do us no good, andB.A.W.R.A.’s policy of limitation and fixation and defined forward policy is the only -alternative to drift. ' Suggested New Zealand Policy.

The question, then is, how far bew Zealand should go. W(? have old-estab-lished insular objections to being rul«t from Australia. Wo rightly refused federation. We like to manage our own affairs How close can we get in cooperation with B.A.W.R.A. without sacrificing our natural desire to keep co trol of our own business? In our negotiations wo suggested to B.A.M -R.A. that New Zealand should conform to the policy of fixation end limitation for eix months but it was obvious to us that Sta'wls only a temporary expcdien , and gave no guarantee of the future, and the board easily argued this down. We then suggested to Septembe , • to which point Ausfcalian growers and brokers have pledged themsehe=. Mo wore informed that Australia had. agr to September, 1923, with a provwo that they can review the position m S e Pt e ™' her 1922 said New Zealand might do likewise, but B.A.W.R.A. wants us to say five yearf. Australia is apparently moving towards a similar policy. Our action will assist Australia s decision, and Sfiuth Africa is expected to follow suit. Once established, the world will know that there has been formed a strong Empire combination dealing with practically the whole of the merino and crossbred wools of the Empire which find their outlet through the London, Australian, and New Zealand sales, and having a definite forward policy. If we can take care of our own carryover wools from year to year for the next four or five years, and can induce our own exporters, brokers, banks, and growers to conform to the policy of limitation and fixation, there seems every reason whv we should give an undertaking to B A.W.R.A. to conform to its policy for five years. I would suggest however that a proviso should be made that if Australia does not agree to a term we should have tho right of withdrawal at any time by giving six months notice.

B.A.W.R.A. Junior. To do this some body should be constituted (possibly a modification of the Producers’ Committee) with power to direct the wool policy of New Zealand for some years abend. Tt should represent growers, brokers, banks, freezing companies, and others interested, and it should he. able to ask and obtain general recognition of its considered policy. Its main principles to be (1) Tho regulation of wool allocations for auction sales in New Zealand. (2) Tho fixing of reasonable minimum reserves on a parity basis in London, Australia, and New Zealand. (3) The making of such arrangements ns are practicable and desirable in tho interests of wool-producers and generally advantageous to the wool industry as a whole in Great Britain, Australia, and New Zealand. (4) To formulate a policy to deal with carry-over wools, with power to act.

(5) To enter into such business arrangements with 8.A.W.R.A.. banks, or other bodies as may lie found necessary or desirable. Finally. I may say that New Zealand may place the utmost confidence in Sir John Higgins and the B.A.W.R.A. Board. No one disputes the great ability of Sir' John Figgins; and the board stands in the highest regard of all in the wool trade or out of it. Strong men and a strong policy are required at the present juncture, and if we constitute a body able to manage our own internal affairs- on tho lines suggested we shall gain much advantage by working in close co-ordination with B.A.W.R.A. in its Empire policy. I cannot close without acknowledging the thoughtful support and kindiv assistance given me all through by Mr. H. J. Manson, New Zealand Government Representative at Melbourne. He was with me through all the negotiations, nnd his assistance was invaluable, and it was good to have some one to argue the knotty points with. Needless to say, I was glad to have Dr. Peakes's helpful advice nnd assistance during the last two conferences. A. E. MABTN.

.Australian -wools New Zealand wools .Falkland Islands wool.. South African wools Bales. . 1,808,649 70S. 24.1 2,331 . ' 200,000 2 779 222

Australia Bales. 2,000,000 New Zealand 500,000 South Africa and Falkland Islands .... 500,000 3,000,000 I am leaving out of consideration fho

Bales Bales per month. per annum. England could offer 100,000 1,200.000 Australia ,, „ 100,000 1.200,000 N.Z. „ 35,000 420,000 2,820,000

ds is as to! lows: — lb. Australia 85,5(X),0(H» Now Zealand 191,000,000 Falkland 'Islands 4,000,000 280,500,000 = 271 p.c. Franco, Russia, Italy 68,450,000 North America ... 130,000,000 Spain and Portugal 31,000,000 South America ... 331,000,000 Canada 5,500,000 Germany and Austria 54,000,000 England 122,000,000 741,950,000 = 72J P-C.

New Zealand sales: — Per Lb. cent. Australia . 85.500,00(1 New Zealand .. 191,000,000 Falkland Islands ... 4,000,000 280,500,000 = 46 South America . 331,000,000 = 54 611,500.000 = 100

Lb. cent. To United Kingdom ... -17,014,000 15* To United States of America .... 121,740,000 38 To Euroi>e .... 149,1-13,000 47

Lb. cent. To United States of America. 32,670,000 To Europe 361,264,000 =s 85 To United Kingdom ... 35,133,000 = 8* 429,067,000 100 * = 95,000 N.Z. bales.