Australia is the world’s number one producer of premium quality fine wool, and is the largest producer of all wools by value and volume. Wool was Australia’s second largest agricultural export in 2006-2007 behind beef, valued at $3.07 billion and making up approximately 11 per cent of total farm exports. Australia ships wool to 52 countries with the biggest being China, which takes around 65 per cent of the national clip.
Trade with China
As highlighted by the trading figures above, China is by far and away the Australian wool industry’s most important trading partner. China has always had a strong domestic wool processing industry, but it has grown into a world leader in the processing and manufacturing of textiles.
China has now become the dominant source of global demand for wool. It is by far the world's largest importer of raw wool fibre, where in the mid 1990s, around 20 per cent of Australia's wool exports, by volume, were going to China. Today, this figure has more than tripled.
Australia’s traditional markets such as Western Europe and Japan, and even the processing sector in Australia have shifted to China. Unfortunately, wool is the only major commodity exported to China from Australia that incurs a significant tariff, with all wool over the quota of 287 mkg being subject to a 38 per cent Tariff Rate Quota (TRQ).
Photo: Andrew Hope, Sydney North, NSW
In 2006, whilst the full quota was not taken up, the total quota was allocated for the first time. This occurred again in 2007 causing a severe disruption to the international market for wool. Were Australia not in the current drought, on the basis of the projected growth in trade with China, the quota would have almost certainly been exceeded.
WoolProducers Australia is working with the Australian government, the Department of Foreign Affairs and Trade, the Department of Agriculture, Fisheries and Forestry and other industry stakeholders through the Wool Industry Trade Development Advisory Committee to ensure that wool benefits from the proposed Free Trade Agreement (FTA) that is currently being negotiated with China.
WoolProducers Australia believes that it is essential that the quota is abolished as part of a FTA and that other measures are taken prior to the conclusion of a FTA to address this trade limiting and anti-competitive measure.
On the second point, in consultation with China the groups above have had some success in achieving an improved and more transparent system for allocating and reallocating quota. However, there remains much work ahead to achieve a trading system that is completely free of artificial barriers to entry.
Australia/China Free Trade Agreement - Government
Australia/China Free Trade Agreement - Industry
Ensuring quality is a key priority for the Australian wool industry. Where there is a mixture of lower quality with premium wools there can be contamination from dark fibres or broader wools causing prickle. Problems can occur on-farm, through to the end of early stage processing, and once there is quality problems it is almost impossible to fix. Wool is now a premium product and therefore must command premium prices for Australian growers and Chinese processors and manufacturers to be profitable.
Stopping contamination can predominantly only be addressed by individuals, but everyone in the pipeline has the shared responsibility for improving and maintaining quality, and ensuring long-term profitability for all stages of the wool pipeline. Dark fibre contamination of the Australian Merino wool clip has traditionally been associated with fibres originating from urine stains and isolated pigmentation found in the fleece.
However, the increase in exotic breeds in Australia has most likely outpaced the understanding of those who farm these sheep of the best management practices to reduce contamination of their own and their neighbour’s flocks.
Grower representatives such as WoolProducers Australia and our state member organisations have been proactive in educating growers of their rights and responsibilities. However, it is also very important that we do keep the issue of exotic breeds in some perspective given the relatively low numbers of these animals in Australia compared to what is still overwhelmingly a Merino flock.
Clip preparation is also a key step in ensuring a consistently high quality product is delivered and although labour constraints are one potential challenge, the industry continues to review and improve training and guidelines to overcome this.
The Australian Wool Exchange (AWEX) has recently completed a thorough review of the Code of Practice for preparation of Australian Wool Clips (Woolclassers Code of Practice) which has the objective of maintaining and enforcing a high standard of clip preparation in Australia.
However, one of the most frustrating sources for contamination is the blending of wool during processing. Despite the best efforts of Australian growers to ensure that they are producing fine white wool and that it is being classed in accordance with the code of practice, blending can undo this good work. That is why the Australian industry has developed programs such as the Verification of Australian Merino (VAM) to help meet the expectations of end users.
Verification of Australian Merino
Dark and medullated fibre risk scheme
To assist customers of greasy wool make informed decisions about the risk of dark fibres occurring in their purchase, the Dark and Medullated Fibre Risk Scheme (DMFRS) was introduced for Merino fleece and piece wool in July 2004. It provides a rating of the risk of dark and medullated fibre contamination from contact between Merino and exotic sheep and is expressed on the Australian Wool Testing Authority (AWTA) test certificates and in sale catalogues.
The DMFRS allows wool growers to promote their clips as white and uncontaminated and wool buyers and processors to minimize the risk of buying contaminated wool. The following documents assist growers and brokers to understand the DMFRS - the new National Wool Declaration that commenced in July 2008 is also included.
Introduction to the Dark and Medullated Fibre Risk Scheme
Dark and Medullated Fibre Risk Scheme Decision Tree
Vendor Declaration Form for Transfer of Ownership of Sheep
Explanatory Notes for Transfer of Ownership of Sheep
National Wool Declaration for Mulesing, Dark Fibre and Chemical Use
Dark Fibre and Stain
Federation of Australian Wool Organisations
WoolProducers Australia is the wool grower member of the Federation of Australian Wool Organisations (FAWO). FAWO is the basis of the Australian National Committee of the International Wool Textile Organisation (IWTO). With virtually all industry sectors as members, FAWO can also facilitate joint industry responses for addressing major local issues. FAWO has been integral in establishing key trade related industry initiatives, such as the DMFRS for example.
Federation of Australian Wool Organisations
International Wool Textile Organisation
The International Wool Textile Organisation (IWTO) was established in 1928 as the first arbitration body for the international trade of wool and wool products. It was born out of an arbitration agreement signed between the representative bodies of the British and French wool-textile industries in 1927. Membership of IWTO is based on national committees from member countries, each of which appoints delegates to attend annual meetings (FAWO).
As a trade based organisation, IWTO soon realised that in order for contracts to be fully specified, objective techniques for measuring wool characteristics and invoice weights were required. This minimised the likelihood of disputes and also provided an objective basis for arbitration should a dispute arise. Consequently IWTO now plays a central role in fostering the development of internationally accepted test specifications for raw wool, wool sliver, yarns and fabrics.
Developed progressively since its inception by the IWTO, the ‘Blue Book’ represents the basis for the conditions under which most of the world wool trade has traditionally conducted its business. The rules contained in it are agreed between the various players in the wool-textile trade via the national committees of IWTO.
Through this committee structure, the rules are developed by all stakeholders in the industry, in particular buyers and sellers. The rules are therefore fair and objective since they are not imposed upon by any one group upon another. The Blue Book is regularly reviewed to reflect the current commercial practice and requirements.
The WoolProducers Australia membership of FAWO allows growers to have a voice on the world stage of wool.
International Wool Textile Organisation