Wool floor price had to go to save industry from itself: John Kerin

Speaking at the National Rural Press Club, the second-longest serving Agriculture Minister reflected on his now infamous decision to slash the floor price for wool in 1991.

"It was impossible... I desperately didn't want to do that," Mr Kerin said.

The wool boom was at its peak and the Wool Council lifted the reserve price to 830 cents.

"The Wool Corporation were a top class board, and constantly in their annual reports they were wanting more and more freedom to operate because they had well over a billion dollars in funds," Mr Kerin said

"They persuaded themselves that wool had reached a new price plateau and that the reserve price should be put up, but they were just agitating for more power."

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But giving the Wool Council the power to set their own reserve price had been a mistake that had been seeded more than a decade earlier by his Labor predecessor in the Gough Whitlam government.

"The reserve price scheme was under [former Agriculture Minister] Ken Wriedt and it was savaged by the Wool Corporation from the word go, but things were so tough Ken Wriedt caved into them," Mr Kerin said.

"It was never exactly the same as was proposed, and it was only ever meant to be a holding mechanism, it wasn't to get the price like that."

Despite the global demand for wool, various international factors would see it quickly dry, including the collapse of the Soviet Union, Russian and Chinese mill orders reducing their orders and the uptick in floating currency rates.

"We were moving into a world where more and more exchange rates were free and mobile," Mr Kerin said.

"It was very hard to set the price in terms of all the baskets of markets that they were selling into and they suddenly ran into this weird demand."

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When demand dried up, AWC wanted to continue buying Australian wool to stockpile, hoping to outlast the market dip with its billion-dollar fund. But it exhausted its reserves and started borrowing, while warehouses all over Australia were bursting with unsalable wool.

"The industry, the Wool Council and the AWC all said 'no, no, no, we can put a tax up on ourselves up to 45 per cent and hold on to all the wool until the rest of the world pays'," Mr Kerin said.

"I said you've got to do the arithmetic, we're just not going to get through this. But they wouldn't take a decision to reduce the price.

"So I just have to do it... that was the greatest challenge but what was the alternative? They were prepared to break themselves and it was terrible. It was terrible."