An economic analysis of the recession in wool prices in 1957/59 with special reference to the operations of the New Zealand wool commission

Abstract

It is well known that prices of raw wool exhibit wide fluctuations in the space of relatively short periods. Wool production does not vary greatly from season to season so fluctuations in wool prices mean fluctuation in farmers' incomes. This is a disadvantage for taxation purposes in New Zealand anyway, and may also tend to reduce the rate of investment in the agricultural sector. This can also be argued the other way depending on how the farmer regards the extra income in high-price seasons, but there has been no actual measurement done one way or the other. These changes in farm income have a considerable effect right throughout the economy via multiplier effects especially in countries in which the agricultural sector is at all large as is the case in New Zealand. Fluctuating prices alone, apart from the resultant income changes, have the effect of obscuring to some degree the real demand situation and provides a rather unstable basis for planning wool production. This study willconsider the factors t hat contribute to these price fluctuations. The study will be divided into four main sections. The first will contain statistical analyses mainly of a time series nature. The second will be a consideration of what happened at world level during the particular period chosen for the depth analysis. Following this will be a more detailed examination of the situation in one country and the fourth section will be an appraisal of the buffer stock scheme operated by the New Zealand Wool Commission and will be based largely on observations and conclusion drawn from the other sections.