An uncertain road ahead

According to 2030 Australian Wool Innovation (AWI) Stratigic Plan published in July 2020 economic growth and consumer incomes in the major wool consuming countries are now the key drivers of the demand for wool. There is a strong relationship between the per capita consumption of wool and the per capita income levels in each of the major wool consuming countries.

The eight major wool consuming countries at retail are: China, USA, Japan, Italy, Germany, South Korea, UK and France. Collectively these countries account for 65% of world consumption of apparel wool (source: International Wool Textile Organisation). In 2021 global growth is projected at 5.4%. China is projected to grow by 7-8%. Overall, this would leave 2021 GDP some 6½% lower than in the

pre-COVID-19 projections of January 2020 and this will impact wool consumption in many countries. There is a higher than usual degree of uncertainty around this forecast. The baseline projection rests on key assumptions about the fallout from the pandemic, in particular how each country handles the transition to a new normal, and how quickly and successfully the rollout of vaccines will occur.

As far as we know sheep are immune to this virus but the demand for wool is uncertain and this will affect wool growers and how much or how little is invested in wool growing at the farm level. A shift in consumer values will impact every facet of the apparel industry: from fibre production (raw materials sourcing) including product carbon foot printing and ethics; through to supply chain processes – a combination which could lead to higher engagement within provenance messaging and onfarm practices.

Wool production 2020

Australia - In August the Australian Wool Production Forecasting Committee (AWPFC) updated its forecast of shorn wool production for the 2020/21

season. This second forecast is for production of 280 million kilograms (mkg) greasy, a 1.1% decline on the 2019/20 estimated production of 283 mkg greasy, but an upward revision from the 276 mkg forecast in April 2020.

Committee Chairman, Russell Pattinson said that “despite encouraging rainfall in early in 2020 will, in part, carry forward 45,000 15,000 0

The number of sheep shorn (estimated to be down by 5.2%) remains a key factor limiting recovery in shorn wool production in the short term, particularly in Western Australia and NSW, despite a gradual increase in annual average cut per head (up 2.9%) as a result of improved seasonal conditions in many wool growing regions. The Committee estimates shorn wool production for the 2019/20 season at 283 mkg greasy, a 5.5% decline on 300 mkg greasy for the 2018/19 season. Australian Wool Testing Authority (AWTA) test data showed that the average yield ended the 2019/20 season at 62.2%, down 0.9% on 2018/19, mean fibre diameter was unchanged at 20.5 microns while staple length increased by 2 mm to 85.6 mm as producers moved away from shorter shearing intervals (e.g. every 6 months) back to shearing every 8 or 12 months. New Zealand - Greasy wool in storage is hard to accurately determine, but could be 150,000 farm bales. Included in the numbers are the approximate 30,000 bales of genuine Merino wool. Sheep per head is currently around 27 360,000. Wool weight per stock unit is 5.13 kgs/head/greasy. Total greasy kilograms is 140,356,000 gsy/kgs. The total number of farm bales is 850,000 and the average yield is 76% across both Islands or 106,671,000 clean kilograms. “pre- COVID-19 NZ experienced full clearance of wool stocks. There is strong demand at the moment and much is going to India and Nepal. We have been at full production for the past two months. In August we washed 70,000 farm bales, which was a near record

some areas, the effect of the prolonged drought on wool production in 2019 and

NZ Wool Exports by Region Clean Equivalent – Year End 30 June (July to June)

into the 2020/21 season”.

Sheep and lamb turn off data from the Australian Bureau of Statistics to the end of June 2020 showed a 10% decrease in total turnoff compared with the previous season as producers in some regions of the country seek to rebuild their flocks.

Tonnes 50,000

40,000

35,000

30,000

25,000

20,000

10,000

5,000

month for our group”.

North Asia European Union South Asia

2018-19 Middle East North America

2019-20

Source: Beef + Lamb New Zealand Economic Service | Statistics New Zealand Other

South Africa - wool production in 2019 was

29.2 million kg clean. South Africa went into “hard lockdown” at the end of March 2020, resulting in the cessation of all trading activities, including wool exports. This did, however, result in some backlogs in normal trading activities and also extended the wool season into July 2020. “Taking into account the difficult trading conditions, especially at retail level for the fashion brands, we feel encouraged by the current prices still being achieved for the SA wool clip.Good quality wool, especially when produced sustainably, is attracting good interest from the buyers, with these fine merino wools usually performing better than the market average”, says Deon Saayman of Cape Wools.

“We have seen and probably will for some time to come experience price volatility and can hopefully build on the current lower price levels as a base for processors and spinners to once again incorporate more volumes of wool in their offering. Improved market sentiment and an upward trend in consumer spending in the major consuming countries will be the catalyst for better prices”.

Uruguay - wools are mostly produced on native grasslands in combination with beef cattle. With a stock of 6,3 million sheep, wool production was about 24 million greasy. Annual exports of wool and wool products in the 2019 season reached a total of 35 mkg (greasy basis). The majority was exported as tops (57 %), scoured wool represented 26 % and greasy wool the remaining 17 %.The present distribution of sheep shows a predominance of dual-purpose breeds that generate incomes both from wool and meat. Recent results of a national survey showed most popular breeds run by woolgrowers were: Corriedale (42 %), Merino (27 %), Polwarth (9 %), Merilin (4 %), Romney Marsh (3 %) and Merino Dohne (2 %). As a direct consequence of this, the micron profile of the wool produced in Uruguay is mainly mid-micron (2430 microns) and fine wools (less than 24 microns) to manufacture a wide range of end-products (apparel uses and interior textiles). Argentina - Federación Lanera Argentina (FLA) forecast a slight increase in the production of 44,6 million kg greasy for this season. Argentina is the 5th largest wool producer in the world with a wool production of 42.000 tons of greasy wool in 2019/2020. The industry is forecast to grow this volume in the new season to 44.611 tons. The national wool clip is split up into 60,5 % fine wool, 37,5 % medium crossbred and 2 % coarse wool.

This wool clip was grown on the back of a sheep population of 10.623.542 sheep. For the upcoming season 2020/2021 it is estimated that the Argentinian sheep population will increase by close to 2 million sheep. This increase is based on a recent headcount during a wider vaccination activity in a couple of wool growing regions. The largest number of sheep live in the province of Chubut 31,77% followed by Santa Cruz 22,51% and Buenos Aires 13,96%.

Only 1000 tons of greasy wool is consumed in Argentina while the rest is exported to various wool manufacturing countries. In 2019/2020, 25 % of the Argentina wool clip was exported to Germany in the form of wool tops as well as scoured wool and noils. The second-largest export destination was China, with 19.7% of which the majority was in greasy form. Overall, 60% of all Argentinian wool is exported as wool tops, 30.5% as greasy, 5.9% in form of noils and 3.2% scoured. The remaining 0.4% are by-products such as burrs.

Over recent decades the Argentinian wool industry has developed its sheep genetics to a finer wool clip to meet the demand of consumer markets for more next-to skin-friendly wool fibres. Today, the fineness of the Argentina wool clip ranges between 16.5 and 32.6 or above. 40% of the clip has a fineness between 19-21.

Source: World Economic Outlook (WEO), McKinsey 2020, The State of Fashion 2020 10 Houzz & Home 2019, AU Houzz & Home Renovation Trends Study, Argentine Wool Federation, NZ Meat and Lamb, AWI Wool 2030 – a strategic plan for Australian woolgrowers, British Wool, SUL Uruguay, Cape Wool