Australia is the world's largest wool producing country, accounting for about 30% of world production. Wool production has been declining in Australia and the world for the last 10 years, but the latest data on sheep numbers suggest that the decline may have bottomed out. Since 1990 Australian shorn wool production has fallen by about 35%, to around 640,000 tonnes in 1999-2000. Almost all of Australia's wool is exported, the major markets being China (accounting for around 30% of Australia's wool exports), followed by Italy, Chinese Taipei (Taiwan), Republic of Korea and France.
Wool producers have had to face significant changes over the last decade, including a decline in the underlying demand for wool, changes to wool marketing arrangements, disruption of traditional international markets, and strong competition from other fibres, all of which have had a major impact on the profitability of all sectors of the wool industry.
The decline in the underlying demand for wool reflects changes in lifestyle (such as the trend to more informal, easy-care clothing) and the increasing competition from other fibres, particularly high quality synthetic fibres. On top of this, economic upheaval in many countries traditionally considered to be large purchasers of wool resulted in fluctuating demand for wool. These factors, together with a very large supply of wool left over from the high production of the late 1980s and early 1990s, resulted in a dramatic fall in the price of wool in recent years. However, this fall appears to have halted, with wool prices generally improving over the last 12 months, particularly for finer micron wool, and more recently the broader types. Reasons for this include a reduction in the quality and quantity of stored wool and strong demand due to a historically low value of the Australian dollar against the US dollar.
Demand for wool has traditionally been a cyclical phenomenon, determined largely by economic cycles and world-wide trends in clothing fashion. Attempts to minimise the damaging effect of these short term cycles on the income of woolgrowers have been in place for many years. In 1970 a wool deficiency payments scheme was introduced, the original intention of which was to protect wool growers from severe short term price reductions caused by fluctuations in the demand for wool. A minimum reserve price was introduced in 1974 to provide growers with a guaranteed minimum price for their wool. The scheme was funded by a proportion of the tax paid by growers on the value of shorn wool, and was administered by the Australian Wool Corporation (AWC), which purchased all wool not meeting the minimum reserve price at auction. This wool was later sold during periods of higher prices.
The reserve price scheme worked well for about 20 years. However a combination of a sharp fall in demand and a high reserve price (set during a period of high demand in the late 1980s), resulted in the scheme being suspended in February 1991, when the size of the AWC stockpile had reached 4.7 million bales. The Government, with the agreement of the industry, decided that the scheme could no longer be maintained.
The Australian Wool Realisation Commission (AWRC) was initially responsible for the disposal of the wool stockpile. In December 1993 the disposal of the stockpile became the responsibility of Wool International (WI), a statutory corporation of the Commonwealth Government. WI was required to sell the stockpile in accordance with a statutorily imposed disposal schedule, the last bale of stockpile wool to be disposed of by 31 December 2000. At 30 June 1998, under the management of WI, the stockpile had been reduced to 1.2 million bales. By October 1998, equity in the wool stockpile had reached a level significantly higher than the wool debt and, therefore, ongoing Government involvement in stockpile management was no longer justified.
On 15 October 1998, the Commonwealth Government announced a freeze on sales of wool from the stockpile, and an intention to privatise WI by 1 July 1999. On this date WI became WoolStock Australia Limited, a public company limited by shares allocated to previous holders of units of equity in WI. WoolStock Australia took over the assets and liabilities from WI and is fully accountable to its shareholders for the efficient management and sale of the stockpile. The principal activities of WoolStock are selling the stockpile, and making distributions to unit/share holders. By 9 August 2001 the stockpile was completely sold.
A second reform process was undertaken to replace the Australian Wool Research and Promotion Organisation (AWRAP) with private sector arrangements by 1 January 2001. Following the continuing low demand and prices for wool and a successful ‘no confidence’ motion in the Board of AWRAP (in November 1998), the wool industry Future Directions Taskforce was established to undertake a major inquiry into the future of the Australian wool industry. The Taskforce presented its findings in June 1999. While most of the recommendations of the Taskforce report were focused on individual farm businesses and what they could do to improve their profitability, there were recommendations for Government to consider, including the future of AWRAP and wool tax arrangements.
On 23 September 1999, the Minister for Agriculture, Fisheries and Forestry announced an Eight Point Plan for progressing those recommendations of the Taskforce report that related to industry services and levy arrangements. A key element of the Plan was to conduct a grower ballot (WoolPoll 2000) to give woolgrowers the opportunity to vote on their preferences for future industry services and associated wool tax arrangements. The final result of WoolPoll 2000 was released on 6 April 2000 and showed 61% of votes, based on an optional preferential voting system, supporting the service model involving a 2% levy rate. On 1 May 2000, the Minister announced the next stage in the wool reform process and the reduction of the wool tax rate from 4% to 3% from 1 July 2000 to cover the costs of transition. The 1 May announcement included the establishment of a Woolgrowers’ Advisory Group (WAG) and the Interim Advisory Board (IAB) to drive the next stages in the reform process. The IAB and WAG worked in conjunction with the Government’s Office of Asset Sales and Information Technology Outsourcing (OASITO) throughout the process.
A scoping study phase considered a number of possible options, with the agreed new arrangements taking the form of a company established under Corporations Law, Australian Wool Services Ltd (AWS), with a number of subsidiaries, including Australian Wool Innovation Pty Ltd (AWI) and TWC Holdings Pty Ltd. AWI manages the wool levy and funds R&D and innovation, and TWC Holdings has taken over the work of The Woolmark Company, concentrating on the commercial development of the Woolmark brand and its sub-brands, and the commercialisation of intellectual property matters. AWS and its subsidiaries commenced operation on 1 January 2001, meeting the target date set by the Minister. Woolgrower reaction to the new arrangements was positive, with over 36,000 woolgrowers applying for shares, representing over 70% of wool tax received at the time of conversion. As of June 2001, share applications represented about 80% of wool levy receipts.
From 1 July 2001, the wool levy rate was reduced to 2%, in line with the WoolPoll 2000 ballot result. The new privatised arrangements provide for:
- increased contestability and competition in the application of wool levy expenditure;
- woolgrowers to have a more direct say in levy expenditure and shareholding in the commercial activities of the company; and
Shorn wool (greasy wool) contains an appreciable amount of grease, dirt, vegetable matter and other material. The exact quantities of these impurities in the fleece vary with climatic and pastoral conditions, seasonal fluctuations and the breed and condition of the sheep. It is, however, the clean wool fibre that is ultimately consumed by the textile industry, and the term 'clean yield' is used to express the net wool fibre content present in greasy wool.
The gross value of wool produced in 1999-2000 remained static at $2.1b (table 16.50), less than half the value recorded in 1988-89 ($5.9b), the peak year in the wool boom of the 1980s.
- accountability to the Commonwealth in the expenditure of wool levy funds, and the Commonwealth matching R&D contributions.
The total amounts of taxable wool received by brokers and purchased by dealers in recent years are shown in table 16.51. They exclude wool received by brokers on which tax had already been paid by other dealers (private buyers) or brokers.
16.50 SHEARING, WOOL PRODUCTION AND VALUE
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Sheep and lambs shorn
Average fleece weight
|(a) Comprises dead and fellmongered wool, and wool exported on skins. |
(b) Gross value for shorn wool is based on the average price realised for greasy wool sold at auction; for skin wools the gross value is based on prices recorded by fellmongers and skin exporters.
Source: Livestock Products, Australia (7215.0); Agriculture, Australia (7113.0); ABARE, Australian Commodities, March Quarter 2000.
16.51 TAXABLE WOOL RECEIVALS
Brokers and dealers
Brokers as %
of total receivals
|Source: Livestock Products, Australia (7215.0). |