6. HANDLING, DISTRIBUTION AND PROCESSING

The service sector for the Australian wool growing industry comprises wool selling brokers, private treaty merchants, exporters, wool dumps, scourers, carbonisers and combers. Features of the sector include:

• Remarkably few changes in handling and distribution over several decades.
• Processing to top in Australia is growing steadily, but is still a comparatively small share of total production.
• Export markets for Australian wool are reasonably diversified.
• Opportunities exist to reduce handling and distribution costs.

Handling and Distribution

The pattern of wool assembly for sale and subsequent distribution to mills has changed very little over recent decades. Based on 1996-97 data, the following characteristics apply:

• The proportion of Australian wool sold through open-cry auction remains high at roughly 84% (Figure 14). Most of the remainder is sold by private treaty, but small quantities are sold by open tender and by electronic means;
• Forward selling by growers is still the exception. Turnover at the wool futures market in Sydney has increased, but is still considered too low to provide reliable hedging against price risk;
• Wool selling brokers, acting as agents for growers, handle close to 89% of grower wool sold. Within the broking sector, there are around 40 registered brokers, but two companies handle 60% of throughput, the largest ten account for 90%;
• Similarly, there are close to 50 buying firms operating at auction, but in that sector the top 10 firms account for only 55% of first-hand sales.
• In most wool receival centres across Australia, dumps for compressing and containerising greasy wool prior to shipment, are located separately from broker warehouses.

However, changes are beginning to occur. Growers are seeking more opportunities to sell forward to mills, thereby by-passing the established system. Also, a major broker has separated its wool selling and warehousing functions. The latter will offer a specialist warehousing service with in-store dumping facilities.

Processing

Production of wool top in Australia, undertaken by 11 mills, has more than doubled over the past six years to 55m.kg. in 1996-97 (Figure 15), roughly 12% of total wool sales (including Wool International stocks). Nevertheless, the proportion is still small compared to other major exporters of apparel wool, including Argentina (35%) Uruguay (75%) and South Africa (60%).

A further 140m.kg. (30%) of Australian wool is scoured prior to export, close to half of which comprises short staple wool destined for the woollen spinning sector. A small quantity, 20m.kg. (4%), is carbonised prior to export. Twelve plants are engaged only in scouring and/or carbonising.

Local processors are presently major users of wool from Wool International stocks. Given the contraction in global production and the excess global combing and scouring capacity, local mills will encounter strong competition for available supplies as WI stocks approach depletion over the next two years.

Wool Exports

Over 98% of Australia's wool production is exported in raw or processed form. Since 1991-92 annual exports have exceeded production each year due to disposals from Wool International stocks.

In 1996-97, combined raw and processed wool exports were around 786m.kg. (greasy equivalent), valued at $3,740 million, and roughly 16% of total rural exports for the year.

The top six destinations, China, Italy, Taiwan, France, Japan and Germany, accounted for 68% of Australia's wool exports in 1996-97 (Figure 16). The industrialised countries still receive over half of wool exports.

Service Sector Costs

Estimates of handling, selling and distribution costs for Australian wool are extremely approximate because of the variability between enterprises and the difficulty of quantifying individual activities. Nevertheless, estimates published by Wool International provide orders of magnitude which enable the relative significance of individual cost components to be evaluated.

Cost estimates presented in Table 2 cover all costs incurred from farm gate to delivery of greasy wool to overseas combing mills. Some cost differences may be evident when wool is delivered to an overseas spinning mill after the wool is converted to top in Australia. However, no estimates of costs are published.

From the estimates presented, three key points can be made:

1. Of the total costs incurred in moving raw wool from farm gate to an overseas mill, nearly 50% is paid directly by growers. Of the remainder, a varying proportion is met indirectly by growers because it affects the price paid by buyers for raw wool.
2. The best opportunities for reducing individual cost components lie in:
   • warehouse handling
   • selling
   • purchasing
3. Although warehouse and purchase costs together comprise only around 7% of the total CIF price of wool, the potential for industry gains is still significant since each one cent per kg fall in those costs, reduces total industry outlays by around $6.5million.

   Table 2 : Estimates of Handling, Selling and Distributing Wool from Farm Gate to Overseas Mill; 1996-97 (greasy equivalent).

   	By Item	By Sector
   	c/kg	$/kg	%
   1. Shed to Warehouse
   Transport
   Sub-Total	5	0.05	6.1
   2. Warehouse
   Handling	11
   Testing	4
   Selling commission	4
   Sub-Total		0.19	23.2
   3. Grower Levy
   Promotion and Research
   Sub-Total	16	0.16	19.5
   PROGRESSIVE TOTAL (Paid direct by growers)		0.40	48.8
   4. Purchasing Costs
   Post-sale charges	5
   Buying activities	14
   Sub-Total		0.19	23.2
   5. Delivery Overseas Mill
   Preparation to ship	8
   Freight	11
   Ship -> Mill transport	4
   Sub-Total		0.23	6.7
   TOTAL COSTS (delivered overseas combing mill)		0.82	100.0

   Source: Wool International

1. Current means of moving wool from farm gate to an overseas mill are an important source of inefficiency in terms of the total cost to users.
2. Excess global combing capacity is likely to limit the opportunities for a significant increase in combing capacity in Australia in the next five to seven years.