Australia's Wooly Tangle
The world wool market has contracted sharply at a time when Australian producers have increased the size of the flocks.
TERRY and Margaret Conn have driven three hours from Mudgee to watch their wool get auctioned. Even before the auctioneer brings the gavel down on their next year's income they know the likely result: The Australian Wool Corporation, with the financial support of the government, will buy the bales at half the price the Conn's received last year. This spring as flatbed trucks bring the bales of wool to places like the Sydney Wool Center here, warehouses are bulging with wool that cannot be sold.
The world wool market has contracted sharply at a time when Australian producers have increased the size of the flocks. Australia has stockpiled 3.7 million bales of wool out of a total production of 6 million bales.
To try to cut down on future wool clips, some wool growers have voluntarily started to kill their older sheep. However, to bring the wool supply into line with demand will take slaughters on a massive scale.
Australia needs to reduce its flock by 20 percent, or 36 million sheep, estimates George Mack, who sits on the board of the Australian Wool Corporation. The AWC presented its own business plan to the government on Oct. 1. The AWC plan would increase the levy on wool producers to 25 percent of their income to pay for the stockpile, reduce the flock by 20 million to 30 million sheep over the next 15 months, and place a limit on the amount of wool sold at auction each week. This year the tax has already risen from 8 percent to 18 percent of growers' incomes.
However, getting wool growers to reduce the number of sheep is not easy under the current system. The AWC sets a floor, or minimum price. Currently the average minimum price is $5.60 (US) per kilo, down from a high of $6.96 per kilo early this summer.
At current prices, wool grower David Pockley in Tarago, New South Wales, still makes a profit. So, Mr. Pockley plans to increase his sheep flock on his station, ``Pylara,'' by 10 percent and reduce his cattle stock by 10 percent. ``If you are getting 10 percent less but produce 10 percent more, you make more income even after your extra costs,'' says Pockley, whose family has been raising sheep for 60 years.
Pockley is not alone in increasing production. Wool growers in central Queensland, for example, after eight years of drought are buying ewes for breeding at low prices. ``That just makes sense,'' says John Kerin, Minister for Primary Industries and Energy.
Some growers don't have much of a choice because their land leaves little flexibility. Mr. Mack, for example, owns 40,000 acres of land at Brewarrina in New South Wales. ``It is a low moisture area,'' he says. Thus, he can't shift to cattle or wheat. Mack, however, plans to cut back on his ewes. Wool growers who normally would shift to wheat are stuck as well, since the price of wheat on the world markets has fallen even more sharply.
Even though wool prices are down, costs are not. The Conns, who are former lawyers, note that almost all the expenses for their 2,300 acre farm have risen.
``As wool prices rose, everyone wanted to be part of it,'' says Mr. Conn, whose expenses for shearers, shedhands and other services increased this year. The financial squeeze will mean ``a considerable number of wool growers will go under,'' he says.
Only two years ago, there were shortages of wool. The price rose to $8.80 per kilo on the world market and the AWC floor price was increased by 71 percent, a move now faulted by the government.
The high prices coincided with good rainfall, which gave ranchers good grass for their sheep. ``They could not handle the grass with their normal flock,'' explains Peter Austin, a spokesman for the AWC. As a result the flock size increased from 140 million sheep to 180 million sheep.
This year, however, the Soviet Union, East European countries, and China have withdrawn as significant buyers of wool. The AWC currently has a team in the Soviet Union which would like to buy 100,000 bales. The problem is that the Soviets don't have the cash to buy the wool. Other consumers, such as Western Europe, have pulled back from the market with the large supply available.
This leaves the AWC as the largest buyer. At the auction here, the AWC ended up buying 69.4 percent of the 21,500 bales offered for sale that day.
To purchase all this wool, the AWC borrows money. The loans are guaranteed by the Australian government. The government recently eliminated its cap of $2 billion for AWC borrowings.
It had little choice. Wool represents 14 percent of all exports. Two years ago, it was the largest single export item with a value of almost $5 billion. Although there are only 80,000 wool growers, sheep farming is the most common form of land use in Australia. ``You find sheep from the Gulf of Carpenteria to the tip of Tasmania,'' Mr. Austin says.
The government is now searching for a way out of the problem.
Over the short term, it is sure to encourage the producers to reduce their crops. Over the long term, however, Australia will have to find ways to improve the marketing of its wool. Out of the 18 percent the farmers pay the AWC, only 3.5 percent is used for promotion. Most of the rest goes towards the price support.
The Conns likewise are convinced marketing is the answer. Wool represents only 5 percent of the fabric used in the textile industry. ``We need to be more aggressive in going after the other 95 percent,'' Mr. Conn says.