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Wool Industry Restructuring Bill First Reading

By Michael Cullen, acting agriculture minister:

Speech Notes

18 March 2003
Wool Industry Restructuring Bill first reading

Mr Speaker, on behalf of the Minister of Agriculture I move that the Wool Industry Restructuring Bill now be read a first time.

At the appropriate time I intend to move that the Bill be referred to the Primary Production Committee for consideration, and that the committee present its final report on or before 16 June 2003, and that the committee have the authority to meet at any time while the House is sitting (except during oral questions), and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, and outside the Wellington region on a day when the house is sitting despite Standing Orders 193, 195(a) and 196 (1)(b) and (c).

This Bill is the culmination of many years of debate among woolgrowers on means to improve net returns from the sale of their wool.

This debate has covered the structure of the New Zealand wool industry and those activities that should or should not be funded by growers by way of a compulsory levy on wool.

The Bill is also the outcome of a number of reviews of the industry, of which the one that by McKinsey and Company in 1999-2000 is the latest.

McKinsey was commissioned by the Wool Board, with the support of growers, to review the performance of the wool industry and make recommendations on how to improve the profitability of wool to growers.

The McKinsey report was presented in June 2000, and among its recommendations were the dissolution of the Wool Board and the disbursement of its assets.

McKinsey also recommended the establishment of separate new commercial and industry-good structures.

Separation of commercial activities from industry-good activities, such as research and development and technology transfer, should facilitate commercial activities being profit focussed and subject to commercial realities.

Growers would also be able to decide what industry-good activities they are prepared to fund through a compulsory levy.

In August 2000 a referendum was held in which growers overwhelmingly endorsed by over 90 percent the McKinsey recommendations.

Following that the Board, with the assistance of an Implementation Project Team, refined the McKinsey proposals and developed the detail necessary for their implementation.

This process resulted in the establishment of the grower-owned commercial companies, Wool Equities Limited and Merino Grower Investments Limited, and in the establishment of the industry-good body, SheepCo. These three organisations are referred to in the Bill.

There was another grower referendum in May 2002 on detailed proposals. In this referendum the vast majority of growers ? over 90 percent of participants - supported the winding-up of the Wool Board and the apportionment of its assets to growers on the basis of sheep numbers.

A significant majority of growers who voted in the referendum favoured restrictions for the first two years on the tradability of growers' shares in Wool Equities Limited and Merino Grower Investments Limited.

The Bill is based on the reform proposals put to growers for the referendum and reflects the views of grower participants.

It also recognises the contribution that a profitable and vibrant wool industry can make to growth in the New Zealand economy.

The Bill provides for the dissolution of the Wool Board and the allocation of its assets to growers.

The Board will be converted from a statutory body to a company incorporated under the Companies Act. This company is to be called the Wool Board Disestablishment Company.

This company will take over the assets and liabilities of the Board and will be responsible for dealing with the Board's residual liabilities and commitments as well as the allocation to growers of the Board's assets.

During a transitional period ending no later than 30 June 2004, the disestablishment company will collect a levy on wool for industry good activities.

If a levy on wool under the Commodity Levies Act does not come into force by 1 July 2004, wool will cease to be levied from that time to finance those activities.

The provisions in the Bill for the transitional levy are similar to those for the Wool Board though there are a couple of notable differences.

The transitional levy will be able to be spent on a smaller range of activities than the current Wool Board levy and the disestablishment company will have to consult SheepCo on how the levy is to be spent.

Further, the basis and rate of the transitional levy will be the same as that of the Wool Board's levy at the time the Bill comes into force.

The Bill requires the Board to prepare a restructuring plan.

The plan will specify the restructuring day on which the Board will be converted to the disestablishment company.

The plan will specify that a portion of the Board's assets will be allocated to Wool Equities Limited and Merino Grower Investments Limited.

The restructuring plan will also provide for payments to be made to SheepCo to assist it to seek a levy under the Commodity Levies Act.

The plan will include plans for the allocation of shares to growers in the disestablishment company, Wool Equities Limited and Merino Grower Investments Limited.

During a period specified in the share allocation plan, growers will have the opportunity to cash in their redeemable preference shares or to convert them to ordinary shares in Wool Equities Limited or Merino Grower Investments Limited, depending on whether the grower farms merino or other sheep.

The Minister of Agriculture must approve the restructuring plan, including the plans for share allocation, before its implementation can commence.

The Wool Board has already started, through its grower registration scheme, identifying those growers eligible to receive shares and collecting other information, such as the numbers of merino and other sheep farmed by those growers, for the purpose of the preparation and implementation of the share allocation plans.

As far as possible normal tax rules will apply to the allocation of shares to growers and they will be in accord with those employed for previous producer board reforms.

It is the Wool Board's desire that the Bill be enacted as soon as possible to enable the finalisation and approval of the restructuring plan to take place in June and the restructuring day to be 1 July this year.

I commend this Bill to the House.

I move that the Wool Industry Restructuring Bill be referred to the Primary Production Committee for consideration and that the committee report the bill by 16 June 2003, and that the committee have the authority to meet any time while the House is sitting (except during oral questions), and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, and to meet outside Wellington on a day when the House is not sitting despite standing orders 193, 195(a) and 196(1)(b) and (c).


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