Scott Carmody

Australian Wool Innovation Ltd (AWI Ltd) 2020 report

Throughout the trials and tribulations of the past 12 months, Australian Wool Innovation (AWI) has continued to work relentlessly for Australian wool growers to ensure the sustainability of our industry and the profitability of wool growing enterprises. Most sectors of the wool apparel pipeline largely rely upon supply from Australia, so the decisions made by Australian wool growers will have important flow on effects up the supply chain.

AWI’s annual revenue has depreciated significantly after wool prices went into freefall last year. With current demand for wool products further inhibited around the world because of coronavirus, AWI has adjusted its expenditure to cope with the current circumstances.

AWI’s income is largely dependent on wool levy income and that continues to deteriorate. This is due to mainly three factors:-

1) Wool Levy rate

In 2018, Australian woolgrowers voted for a wool sales levy rate of 1.5 per cent to fund the activities of Australian Wool Innovation (AWI), which was down from the 2 per cent that the company had previously been operating on. The new levy rate was introduced on 1st July 2019. That represented an immediate 25% loss even if the wool price and production had remained stable, which it did not.

2) Wool Price

The price fall in the industry barometer of price, the Eastern Market Indicator (EMI) is significant at over 50% loss from the record high levels of the 2018/19 season when the EMI averaged 1939ac.  The current EMI oft 890ac is substantially below the 5-year average of 1546ac.

3) Production

Australian shorn wool production has fallen in the past 5 years from 340 million kgs to an estimate 280 million kgs to be shorn this year. This is an 18% reduction in wool volumes.

While AWI will release reserves to buffer the current shortfall , it is also extensively reviewing all areas of expenditure across the company.

Australian climate

The past year has seen some of the harshest conditions that Australian wool growers have faced. Drought and bushfires were initially the primary causes of hardship but more recently the impacts of the pandemic on wool prices have severely hampered prospects of a quick return to full production for Australian sheep and wool enterprises.

Thankfully, 2020 has seen the breaking of the long running drought in most affected areas of the country. During the past four years, much of south eastern Australia has been affected. This is the area in which a high percentage of farms are dedicated to wool production. The worst affected region had been New South Wales with the surrounding regions of southern Queensland, inland and western Victoria and eastern South Australia significantly affected by a lack of rainfall which followed a preceding period of below average rainfall between 2012 and 2016.

As part of the AWI remit, the company researched and published a range of drought planning, management and recovery resources which were made available to woolgrowers many of whom were going into, enduring or recovering from drought. Similarly, in association with Primary Industries and regions of South Australia (PIRSA), livestock safety during bushfire and bushfire recovery documents were enabled. All of these documents are available on www.wool.com

Heavy rainfall between February 2020 and early May 2020 brought a sense of quiet optimism and hope to Australian wool growing communities. Many regions have recorded more than 300mm of rain so far this year, eclipsing the entire annual totals of both 2018 and 2019. It must be noted though that pockets of intense drought persist in the far west, northern tablelands and south-east New South Wales and many parts of the state are now just in the early stages of pasture recovery.

Rebuilding the flock

The drought and bushfires and then in some cases, floods, have all combined to limit the nation's supply of sheep. Rebuilding those sheep numbers is going to be difficult. Some farmers are carrying large debts from feeding their stock through the drought. Others have sold their core breeding ewes and have to begin their breeding programs all over again. Some regions also experienced loss of livestock due to the natural disasters.

Livestock prices have hit record levels over the corresponding period, so many farmers have found it extremely tough to restock, or even to budget to restock. Finance is largely being approved for new livestock, as the banks realise they probably don't have a choice but to support the farmers with more funding to restock, because there's only one way to pay debts back.

On the positive side, many farmers not affected were in a good position to capitalize on those high to record livestock and meat prices and to offload excess stock. In addition, grain prices were also some of the better prices received for many a season.

Australian farmers are very resilient and most don’t approach wool growing as a short term enterprise. Whilst it is unfortunate prices are so low, our farmers are very good managers of lean times and at facing hardship. As long as a wool price rebound occurs as soon as practical, there should not be too much further damage to wool production, but there may be a significant swing away from wool sheep to meat sheep if that rebound is delayed too long and lamb and sheep meat prices remain at the high prices of today. 

Woolgrowers who have large debts to pay have been forced to sell at the lower prices but many others have chosen not to sell at these historically lower prices. With spring shearing now underway, the stockpile of raw wool stored on farm and in wool brokers stores is expected to grow from farmers who can wait for better prices.

On farm R&D

To combat the barriers to rebuilding sheep numbers and wool volumes, AWI continues to invest in  research, development and extension to assist in land owners choosing to grow wool as a viable enterprise or use of their land.

Woolgrowers take great pride in the management and care of the animals and land they have stewardship of. This is fundamental to the Australian wool industry. It also presents a unique opportunity to demonstrate to the world how wool as a natural and renewable fibre is grown as part of a sustainably managed ecosystem.

Animal health, welfare and productivity is crucial to the Australian wool industry and  AWI invests in on-farm R&D to deliver new knowledge to woolgrowers and support the adoption of innovation and best practice to increase the profitability and sustainability of growing wool.

Along with protecting sheep from pests and diseases, AWI assists woolgrowers protect their animlas from wild dog attack.  This conservatively costs the Australian economy  over $89 million a year in lost production and control costs. The impacts of wild dogs are felt across Queensland, the pastoral and now cereal zones of Western Australia, the New South Wales and South Australian pastoral zone, and along the Great Dividing Range in New South Wales and Victoria. AWI invests in a comprehensive suite of projects in wild dog control.

Well designed and constructed exclusion fences have been very effective at preventing wild dogs from entering woolgrowers’ properties or ‘clusters’ of properties, resulting in increased on-farm productivity and the ability for woolgrowers to run sheep without the stress of worrying about attacks.

Having the capacity to keep dogs out of a property or properties, and  the eradication of the wild dogs inside the fence, is the key to future long-term freedom from predation.

Future direction for wool

The Australian wool industry is well positioned for demand recovery when the current global crisis eases. Wool measures up well to consumer expectations of a garment that has a light footprint throughout its entire lifecycle. What’s become clear is that the current linear model of Make, Take, Dispose is not sustainable and does not work for people or our planet. The solution is to adopt a circular economy, where fashion designers and brands design with circularity in mind.

In the Material Circularity Indicator by the Ellen MacArthur Foundation, wool gets the highest score possible, confirming its excellent fit with the circular economy.

Many brands and designers are asking themselves how they can shift into a circular business model and create more sustainable products while still turning a profit? Wool is by its very nature a circular fibre that can help them more easily transition to circular products.

Whilst innovative products and processes have certainly come a long way since the 1800s, the principle remains the same. Wool’s inherent benefits, such as being 100% natural, renewable, biodegradable and recyclable make it inherently circular and the ultimate choice when designing for longevity.

Even at the end of its useful life in apparel, wool is highly valued in the open loop recycling process, where its natural flame resistance and insulative properties make it sought after for use in products such as mattresses and automotive interiors.