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War Economy

Wool Production exceeds Requirements

Wool Production exceeds Requirements

One of the strangest economic effects of war was the steady accumulation of very large stocks of unwanted wool at a time when, in many other industries, resources were being diverted away from production of all but the most immediately essential requirements. The fact that, on sheep farms, wool could in a sense be regarded as a by-product of meat production was not a complete answer to this conundrum. It was no answer at all in the later years of war, when wool production increased much faster than meat production.

By the end of the war, New Zealand had accumulated stocks of wool amounting to approximately 370 million pounds, equivalent to more than one full year's production of wool; this after there had been considerable pressure for extra production of butter, cheese, and meat for much of the war period. For these food products, farmers were unable to meet the full demand, there being in fact a declining trend in butterfat production.

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While the wool stockpile was growing, it was necessary to ration the consumption of meat and butter in New Zealand, quite apart from the very drastic rationing which occurred in the United Kingdom. It is surprising, therefore, that there was not more re-orientation of farming to food production in preference to wool production, so as to provide more suitably for the United Kingdom's needs. As it was, wool production in 1944–45 was 20 per cent higher than the average of the three pre-war seasons. Meat was, by way of comparison, 15 per cent higher, the number of lambs slaughtered being 14 per cent higher, while butterfat production was lower.

Before examining this apparent misapplication of farming resources, one or two other facts should be taken into consideration. To some extent it was to be expected that stocks of wool would accumulate over the war period. Enemy countries were no longer taking any portion of British Commonwealth supplies and, even with increasing wartime needs of allied countries, there was likely to be a surplus.

The accumulation of wool stocks was not peculiar to New Zealand. By 1945 stockpiles amounting to nearly 3000 million pounds of wool were held in South Africa and Australia.

The situation is well summed up in an article published in 1946:1

‘The wartime rate of American wool consumption rose to the all time record of around 1,000 million lb. greasy per annum. Consumption in Australia, Argentina and India was also considerably increased. The higher rate of consumption of these countries was, however, far from sufficient to make up for the loss of markets on the European continent, and, from the end of 1941 onward, in Japan. Wartime civilian supplies in the United Kingdom were reduced to about 35 per cent of the pre-war level, and the overall rate of U.K. wartime consumption was about one quarter below pre-war.

‘On balance, world consumption during the war could absorb only about two-thirds of current supplies from the five main exporting countries; which meant that by the summer of 1945—i.e., after nearly six years of war—the accumulation of stocks in the Dominions and South American countries had reached a total equal to about two years' supply.’

In New Zealand, as in Australia, a favourable wartime market had been assured for all wool produced. Within a fortnight of the outbreak of war the United Kingdom Government had contracted to purchase the entire Australian and New Zealand wool clips for

1 Gerda Blau in ‘Wool in the World Economy’. Paper read before Royal Statistical Society. Journal of the Royal Statistical Society, 1946, p. 220.

page 211 the duration of the war and one year thereafter. The original price was fixed at about one-third above average price for the 1938–39 season, but a 15 per cent increase, in May 1942, raised it to over 50 per cent above 1938–39.1

When the 15 per cent price increase was given in 1942, wool stocks amounting to a season's clip were already in store. With the 15 per cent increase, wool prices had moved above the pre-war level by more than those of meat or dairy produce; in fact, the New Zealand Government, with a stabilisation policy to maintain, found the increase in wool incomes embarrassing, so far as the internal economy was concerned, and diverted part of the money into compulsory loans. Owners of greasy wool were to receive 5 per cent of the appraisal values of their wool in Government bonds or stock. This proposal met with strong opposition from farmers and led to heated exchanges in Parliament.2 In the upshot the farmers, with a right of appeal for payment in cash instead of in Government bonds or stock, received £16 million in cash out of the 1942–43 season's earnings of £16·7 million.3 In the following season £15·2 million out of £15·8 million was paid in cash, and in the 1944–45 season the full amount was paid in cash.

Compared with the other major farm products, wool price increases were affected comparatively little by stabilisation policies in New Zealand. The Government's comprehensive economic stabilisation plan, which included stabilisation of farm produce payouts, took effect from December 1942,4 but the 15 per cent increase in wool prices was announced in May 1942 and operated from the 1942–43 season and for the rest of the war. Consequently, though wool prices had by 1943 increased more than the prices for dairy produce and meat, wool was the only one of these commodities which was not affected by the new stabilisation scheme for farm payouts. The result was that no portion of wartime wool earnings was siphoned off into stabilisation pool accounts.

Whereas, by 31 July 1945, £9.2 million had accumulated in the Meat Industry Reserve Accounts and £4.7 million in the Dairy

1 Wool prices were low in 1938–39, but not low enough to invalidate the comparisons which follow.

2 See for example, NZPD, Vol. 262, p. 71, of 3 March 1943.

3 Parliamentary Paper H-30, Marketing Department (Export Division), 1943, reads, at p. 21: ‘Payment to owners of greasy wool was made as to 90 per cent of the appraisal values on appraisal; at the end of the wool year 5 per cent of the appraisal values was paid in Government bonds or stock; the balance of the purchase price was distributed in cash as a percentage (8·82183 per cent) on the appraisal values. The effect of the purchase basis outlined is that woolgrowers received (in cash and bonds) for their total 1942–43 season's greasy wool the overall average price of 13·996d per pound, which represents an increase of 14·008 per cent on the overall average price for their total clip for the 1941–42 season. The total amount paid to owners of greasy wool for the 1942–43 season was £16,723,585, comprising payment in cash of £15,991,827, and payment in Government bonds and stock and to credit of National Savings Accounts £731,758.’

4 See Chapters 11 and 12.

page 212 Industry Stabilisation Account, no such account existed for wool. Such portions of the wool earnings as had been paid for in Government bonds or stock, or as credits to National Savings Accounts, had become assets of individual farmers.

Why did the United Kingdom Government pay such a high price for wool, when so much of it was stockpiled, unless it was to prevent it from getting, by devious routes, into enemy hands? Of course, with their less favourable conditions for farming, the price may not have seemed high to them.1 It certainly could not have seemed high to the Australians, whose negotiations were primarily responsible for the 15 per cent increase in 1942. However, there were a number of woolgrowers who feared the further onslaught of wool substitutes should the price of wool be pushed too high. Before the war, forward thinking about wool had been clouded by the tendency for users to accept substitutes. In its 1939 report,2 when wool prices were only two-thirds of those reached in May 1942, the New Zealand Department of Agriculture had written:

‘The future ahead of fine wools is not promising. No doubt prices will rise beyond their present low level, but whether or not the high prices of the past will ever again be realised depends largely on the future of staple fibres, the production of which is increasing enormously. One point is perfectly clear; the total world's supply of wool is not now anything like sufficient for the total requirements of goods which at one time were manufactured entirely from wool. Thus substitutes have become a necessity in world trade. However, the fact that staple fibres by themselves are not suitable for replacing woollen goods in their entirety makes it apparent that the full production of the world's wool is in no danger of oversupplying the market. One does not infer, however, that wool substitutes will not check wool prices, and this check is more likely to be felt in the fine than in the coarse wool trade. The matter is one of particular significance to our mountain-sheep industry, where the returns are almost wholly derived from fine wools and where the returns per sheep are low.’

A United Kingdom war history makes reference to this fear of substitutes and then goes on to say: ‘Dominion wools were therefore sold “at a price sufficient to meet their costs including freight” while the price of home-produced wool, which was dearer, had to be subsidised at the dominion price level.’3 It is unlikely that the United Kingdom could have known precisely the costs of production of

1 In fact, the United Kingdom producer received a subsidy on account of his higher costs (J. Hurstfield, History of the Second World War, The Control of Raw Materials, p. 378).

2 Parliamentary Paper H-29, p. 4.

3 Hurstfield, op. cit., p. 378.

page 213 New Zealand wool; they were not known in New Zealand. However, this statement does illustrate the conflict of objectives which must have troubled those in the United Kingdom who were responsible for fixing a bulk purchase price which would apply to homeproduced as well as Dominion wools.

In view of the wide differences in production costs in the United Kingdom and the Dominions, some suitable adjustment in the Dominions would have been appropriate to see that their lower costs did not make the bulk purchase price an incentive to produce a large surplus. New Zealand, after 1942, had sufficient control over costs and prices to have done this, but, due partly to the accident of timing which has been mentioned1 and partly to the very vocal resistance of sheep farmers, no really adequate action was taken. The New Zealand Government may also have been moved by sympathy for woolgrowers, who had been in difficulties when war broke out.

At the end of the war it was estimated that it would take 12 to 13 years to clear all surplus stocks of wool,2 but this assessment was to prove much too pessimistic.

Of the accumulation of wool stocks, Ross writes:3

‘It may be asked if there were attempts to divert production from wool to meat and to rationalise the sheep industry to save manpower. No such attempts were made. The surplus of meat during the years of restrictions on shipping were a deterrent to a switch from wool to meat.’

However, with the favourable price offering, it would no doubt have been difficult to persuade farmers to put less emphasis on wool. Though a change in emphasis between meat and wool would be comparatively slow in the sheep-farming industry, part of the increase in wool production, which helped to add to the huge stockpiles, must have been induced by the favourable price and by the fact that no portion of the price was held back in stabilisation pool accounts, as happened with meat and dairy produce.4 This failure by the New Zealand Government to realise the economic implications of its farm payout decisions seems inexplicable in time of war, when it was so important to divert as much of the country's farm production as possible to the supply of scarce food.

In the first two years of war, New Zealand farmers do seem to have concentrated on producing meats and dairy produce rather than

1 p. 211.

2 Farming in New Zealand, New Zealand Department of Agriculture Bulletin No. 279, p. 71.

3 Ross, Wartime Agriculture in Australia and New Zealand, p. 258.

4 As already mentioned, the small portions of wool earnings not paid in cash but as Government bonds or stock, or as credits to National Savings Accounts, became assets of individual farmers.

page 214 wool. Sheep flocks decreased, but the number of breeding ewes was kept up, and the number of lambs born1 rose nearly 8 per cent in two years. Moreover, a much higher percentage of lambs was slaughtered, and, as a result, lamb carcass numbers increased by 21 per cent in only two years. Dairy cow numbers were also higher in 1941 than in 1939.

Chart 46 shows changes in emphasis between breeding ewes, other sheep, and dairy cows for those war years where the information is available.

chart of agricultural statistics

Chart 46
Index Numbers: Base 1937–1939 (= 1000)

After 1941, with increasing shipping difficulties for perishable foods and with a 15 per cent wool price increase in May 1942, the whole situation changed. Breeding ewes, though increasing in numbers, declined as a percentage of total flocks, the number of lambs born remained almost stable for three seasons, and the proportion of lambs slaughtered declined progressively. Moreover, dairy cow numbers were now falling each year. The emphasis had shifted from dairy farming to sheep farming, and, in the sheepfarming industry, to building up flocks and growing wool rather than producing and killing a maximum number of lambs for meat.

1 Estimated from statistics of lambs tailed.

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Chart 47 gives changes in the numbers of lambs tailed and lambs slaughtered, and shows the tendency, after 1940–41, for the annual lambing to be used more for flock increases and less for killing. The two sets of figures are not exactly comparable, because of differences in statistical coverage, but the general impression is correct.

chart of agricultural statistics

Chart 47

New Zealand uses for her own manufactures a surprisingly small percentage of the wool she grows, but the figures received a boost during the war. With defence orders to be filled by local woollen mills, a good deal more wool was used in New Zealand. Before the war, the mills had been buying about seven million pounds of wool a year, but they bought as much as sixteen million pounds in some war years.

The wool-scouring industry staged a recovery, after being in the doldrums in the immediate pre-war period. Its wartime staff averaged 50 per cent higher than the pre-war figure.

The effect of the war was to give a fillip to the wool industry. Before the war, sheep numbers had started to decline. There had been concern about prices and costs, and about deterioration of land. A Royal Commission on the sheep-farming industry had been page 216 set up, and was sitting when war broke out. A new commission was to sit soon after the war, but, by then, the situation had changed considerably. Sheep numbers, after reaching their lowest point in 1940, rose again by nearly 10 per cent before the end of the war. The industry was now much stronger, but it faced the future with an embarrassingly large stockpile of wool.