Wool trade sanctions would crush industry

Restrictions on wool exports to China would cripple industry

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Restrictions to China's trade would be devastating to Australian wool industry.


Restrictions to Australian wool exports to China's trade, coupled with the lack of viable alternative markets, would have a presumptively crippling effect on the Australian wool industry.

This is according to a report released last week by Rural Bank, outlining China's share of Australian agricultural exports and the potential effect if any trade sanctions were put in place.

The report, using average annual report figures from the last five financial years, showed China is Australia's largest market for wool exports and has been since the early 1990s, with two-thirds of all Australian wool production exported to China.

China accounted for 77.4 per cent of the value of Australian wool exports in 2019/20, totalling $1.9 billion.

This makes wool the most heavily reliant agricultural commodity on China.

At the recent Australian Wool Innovation (AWI) Annual General Meeting (AGM) AWI CEO Stuart McCullough told the meeting the demand for Australian wool overwhelmingly came from one place in 2020 - China.

"China remains a very important customer to us," Mr McCullough said.

"It has the right climate, size of population and growing affluence for the consumption of wool.

"They are a unique partner from a manufacturing point of view, but also from a consumption point of view, currently processing about 83pc of the Australian wool clip of which half of that they are domestically consuming."

But he told the audience AWI were very aware of the tension between China and Australia and were working on an industry to industry basis.

"We are trying to bolster our relations with our industry partners," he said.

"From an industry to industry point of view we can effect change. From a government to government point of view we cannot. We will continue to work on those relationships."

However, Mr McCullough said AWI have had an Emerging Market strategy in place for the past eight years, with good amounts of success.

"This has seen an increase in processing and consumption of wool in places including India, Vietnam, Bangladesh and Sri Lanka," Mr McCullough said.

"All these places show promise from certain parts of processing and the supply chain.

"Emerging Markets remain a key strategy of the company and something we will push forward with in the years to come."

Being the world's largest consumer of wool, China is heavily dependent on Australian wool to produce clothing and textiles with very few alternative suppliers to provide suitable volumes and quality.

Given the significant proportion of Australian wool that is exported to China and China's dominance as a woollen textile manufacturer, it is no surprise that there are few viable alternatives for Australian wool exports.

Italy is Australia's second largest market for wool, however only accounted for 5.8pc of export value in 2019/20.

India and the Czech Republic are similarly small export markets for Australian wool, accounting for 5.4 per cent and 2.9 per cent of export value in 2019/20, respectively.

According the Rural Bank's report, given the scale of woollen textile manufacturing in these countries, there would be a very low possibility of being able to purchase the volume of Australian wool that currently is shipped to China.

However, the report stated the outlook for wool prices are already unfavourable as the impacts of COVID-19 already reduced demand for high value woollen clothing.

Reduced demand is set to be met by increased supply on the back of improved seasonal conditions and carry-over stocks from last season.

This has already seen wool prices drop to the lowest level in over five years in recent months.

But Mr McCullough believes there is opportunity for a level of stability surrounding the prices the market is currently experiencing.

"April to June was an overreaction and certainly the last couple of weeks indicates the prices are stabilising," Mr McCullough said.

"We (AWI) believe that the 1200c/kg level or a bit above that, we could stabilise this production around the 275-295 million kilograms level."

Given China's mutual reliance on the trade of Australian wool it would be unlikely that China would impose significant trade access restrictions on Australian wool.

But any reduction in access would likely lead to a further decline in prices given the current subdued demand and increased supply environment.

The story Wool trade sanctions would crush industry first appeared on Farm Online.


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