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Th '''Australian Wool Reserve Price Scheme''' (RPS) was a [[reserve price]] scheme for [[wool]] that operated in [[Australia]] between 1970 and 2001. The scheme was set up to smooth out the occasional swings in prices for wool, of which Australia is a major producer. The intention was for the [[Australian Wool Corporation]] (AWC) to buy wool if its price fell below a price set by the [[Wool Council of Australia]], and sell it later when the market recovered. The scheme was funded by a levy on wool sold by growers.
The scheme collapsed in 1991 leaving an enormous wool stockpile and with enormous losses. A key cause of the collapse in the scheme was a change in the scheme's governance arrangements, which led to increased political pressures to raise prices to unsustainable levels. The collapse was attributed to the introduction of a guaranteed minimum floor price in 1974. The minimum floor price gave artificial confidence to wool mills which saw little to no price risk and began purchasing forward and increasing stockpiles. At the same time farmers bred more sheep and produced more wool. The floor price had increased by 70% by 1991 and the defunct AWC had built up a stockpile that would crash the industry.<ref> [https://ift.tt/32wALgw How did Australia and New Zealand the two biggest exporters in the sheep industry collapse?]</ref>
At its peak in April 1998 the price of clean wool was 1269 cents per kilogram. The high price encouraging a vast increase in production. The reserve price for wool came to be set by the Wool Council, which set the floor price at a high 830 cents a kilogram. Shortly after that decision the market collapsed. For various reasons both the Chinese and the Russian mills all but stopped buying. Before long, the AWC had run through its billion dollar plus reserves and started borrowing. Warehouses all over Australia were bursting with a massive and unsalable wool stockpile. But the Corporation and Council resolutely refused to consider any reduction in the floor price.
Instead the stockpile was increasing and debt over many months while he tried to get the wool industry’s leaders, who were not really representative, to see reason. When minister Kerin did act, the reserve price was initially cut to 700 cents a kilogram. There were still no buyers.
In February 1991 the reserve price scheme was suspended with the AWC wool stockpile at 4.7 million bales. AWC had piled up millions of dollars in debt every day. When free market auctions resumed shortly afterwards, wool sold for 430 cents a kilogram. It took about a decade to sell off the stockpile. By October 1998, wool prices hit a record low of 465 cents per kilogram.<ref>[https://ift.tt/30r1hFF Breaking the Sheep’s Back: A review of the Australian wool industry and government intervention]</ref>
When the reserve price scheme collapsed, farmers and wool related businesses all went broke. Key processors in England, Germany, France, Italy and Eastern Europe went out of business. China invested heavily in new textile technology, factories and machinery, and by 2018 would buy 80% of Australia’s wool clip.
==References==
Liquid error: wrong number of arguments (given 1, expected 2)
Th '''Australian Wool Reserve Price Scheme''' (RPS) was a [[reserve price]] scheme for [[wool]] that operated in [[Australia]] between 1970 and 2001. The scheme was set up to smooth out the occasional swings in prices for wool, of which Australia is a major producer. The intention was for the [[Australian Wool Corporation]] (AWC) to buy wool if its price fell below a price set by the [[Wool Council of Australia]], and sell it later when the market recovered. The scheme was funded by a levy on wool sold by growers.
The scheme collapsed in 1991 leaving an enormous wool stockpile and with enormous losses. A key cause of the collapse in the scheme was a change in the scheme's governance arrangements, which led to increased political pressures to raise prices to unsustainable levels. The collapse was attributed to the introduction of a guaranteed minimum floor price in 1974. The minimum floor price gave artificial confidence to wool mills which saw little to no price risk and began purchasing forward and increasing stockpiles. At the same time farmers bred more sheep and produced more wool. The floor price had increased by 70% by 1991 and the defunct AWC had built up a stockpile that would crash the industry.<ref> [https://ift.tt/32wALgw How did Australia and New Zealand the two biggest exporters in the sheep industry collapse?]</ref>
At its peak in April 1998 the price of clean wool was 1269 cents per kilogram. The high price encouraging a vast increase in production. The reserve price for wool came to be set by the Wool Council, which set the floor price at a high 830 cents a kilogram. Shortly after that decision the market collapsed. For various reasons both the Chinese and the Russian mills all but stopped buying. Before long, the AWC had run through its billion dollar plus reserves and started borrowing. Warehouses all over Australia were bursting with a massive and unsalable wool stockpile. But the Corporation and Council resolutely refused to consider any reduction in the floor price.
Instead the stockpile was increasing and debt over many months while he tried to get the wool industry’s leaders, who were not really representative, to see reason. When minister Kerin did act, the reserve price was initially cut to 700 cents a kilogram. There were still no buyers.
In February 1991 the reserve price scheme was suspended with the AWC wool stockpile at 4.7 million bales. AWC had piled up millions of dollars in debt every day. When free market auctions resumed shortly afterwards, wool sold for 430 cents a kilogram. It took about a decade to sell off the stockpile. By October 1998, wool prices hit a record low of 465 cents per kilogram.<ref>[https://ift.tt/30r1hFF Breaking the Sheep’s Back: A review of the Australian wool industry and government intervention]</ref>
When the reserve price scheme collapsed, farmers and wool related businesses all went broke. Key processors in England, Germany, France, Italy and Eastern Europe went out of business. China invested heavily in new textile technology, factories and machinery, and by 2018 would buy 80% of Australia’s wool clip.
==References==
Liquid error: wrong number of arguments (given 1, expected 2)
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