5. WOOL PRODUCTION IN
AUSTRALIA
Australia's production of 640m.kg. of shorn wool in
1997-98 will be close to the average for the past three seasons (Figure
9).
In terms of fibre diameter, the composition of the
Australian clip has shifted distinctly finer over the past decade due to a
combination of drought (hunger fine), changes in flock structure and the
application of genetic technologies. During a three-year period to
1989-90, the proportion of 19·5 micron and finer averaged around 6%
compared to an average of over 14% in the three years to 1996-97 (Figure
10).
Although production has steadied in recent years, several
factors are continuing to contribute markedly to the industry's potential
to achieve a sustainable recovery in production:
- Poor returns on investments to Australian wool growers.
- Small increase in average size of farms growing wool.
- Very low growth in productivity.
- High costs of producing wool.
- Attractive prices for sheep meat.
- Improved returns from alternative land uses.
- Threats associated with parasite control.
Poor Profitability
Studies by the Australian Bureau of Agricultural and
Resource Economics (ABARE) have shown that, since 1980, real net income on
specialist wool farms has fallen by over 60%, with a corresponding decline
in business profit.
That result contrasts markedly with mixed crops/livestock
enterprises which have maintained net income during the period and with
specialist cropping farms that have actually increased their returns.
Some of the declining performance of sheep enterprises is
attributable to the sharp drop in prices received for wool since the 1988
peak (Figure 11), causing a sharp deterioration in the terms of trade for
wool growers. However, factors contributing to wool's comparatively poor
performance run much deeper, involving farm structure, productivity growth
and production costs.
Low Growth in Farm Size
Specialist sheep farms have the lowest concentration of
large scale properties of all the broadacre industries. The impact on
gross incomes from sheep is stark. In 1995-96, 73% of specialist sheep
farms had gross income of less than $100,000, resulting in an average rate
of return of -3·5%. In contrast, the largest 11% of properties had gross
incomes exceeding $200,000 and had rates of return in excess of +5·7%.
The heavy skew in the structure of sheep enterprises is
illustrated by the largest 11% of sheep properties producing 40% of gross
value of wool production, while the smallest 73% produce a mere 34% of
gross wool value.
Furthermore, the growth in average size of sheep
enterprises is slow. Work by ABARE has shown that the number of all
broadacre farms declined by 1·9% per year in 17 years to 1993-94.
Productivity Growth
Estimates by ABARE indicate that productivity gains by
specialist wool growers have averaged about 1% per annum over the past 20
years but there is a significant range of performances, (Swan Consultants,
appointed by The Woolmark Company to study productivity in wool
production, reached similar conclusions). Other data relating to that
broad estimate include:
- Productivity gains for sheep producers have been higher on larger
properties, below 1% on smaller properties.
- The average of 1% for sheep compares to corresponding averages of
4·6% for crop specialists and 3·2% on mixed crop/livestock farms.
- Importantly, technological improvements in cotton and manmade fibre
production have outstripped productivity gains in wool production.
- The modest gains by sheep enterprises are attributable in large part
to reduced labour input and deferred investment. Gains from applied
technologies have not been noteworthy, a reflection in part on the
comparatively slow progress with genetic technology and negligible
changes in shearing techniques.
The overall position for sheep enterprises caused Swan
Consultants to conclude in its report to The Woolmark Company - "The
situation is not sustainable. Without a significant improvement in terms
of trade, a significant exodus of growers from the industry can be
expected" (p.vii).
Costs of Production
It is extremely difficult to provide acceptable estimates
of representative costs of producing wool. Actual costs vary widely
between regions, between similar farms and between different enterprise
mixes.
Nevertheless, production costs are regarded as being far
too high relative to prices received, so some form of credible analysis is
necessary.
For indicative purposes, cost data have been obtained
from the South-West Victorian Monitor Farm Project, based on a comparative
analysis of 49 grazing properties for the 1996-97 financial year. The
regular analysis has been conducted since 1970. Cost estimates in Table 1
have been provided for four categories of costs:
- Variable costs such as shearing, crutching, animal health and
supplementary feeding.
- Pasture costs, including fertiliser, chemicals, and seed, based on
an estimate of the area grazed by sheep.
- Fixed/Overhead costs comprising items such as rates,
repairs/maintenance, insurance, accounting, depreciation, etc. which are
allocated to sheep on a pro rata basis.
- Total Labour costs, including an owner/operator allowance (but
excluding labour costed in shearing, etc), estimated in terms of time
worked on specific sheep activities.
Total wool production costs have been recalculated as a
break-even price by subtracting from total costs, the net trading profit
(loss) from purchase and sale of lambs, hoggets and sheep. The average
break-even price of $4.94 per kg greasy for the farms monitored, compares
with an average auction price in 1996-97 of approximately $4.00 per kg
greasy. However, the top 20% of growers in the monitoring program had a
break-even price of $2.88 per kg.
Table 1 : Estimates of Costs of Producing Wool,
Victoria, 1996-97 ($1kg greasy)
| Category |
Average |
Top 20% |
Range |
| 1. Variable |
2.05 |
1.50 |
0.52 - 3.86 |
| 2. Pasture |
0.73 |
0.53 |
0.14 - 3.64 |
| 3. Overheads |
2.13 |
1.52 |
0.80 - 6.09 |
| 4. Labour |
1.00 |
0.75 |
0.36 - 2.82 |
| Total Costs
less livestock trading |
5.91 |
4.30 |
|
| Break Even
Price |
4.94 |
2.88 |
- |
Source : South-West Victorian Monitor Farm Project
Sheep Meat Prices
Gross income to wool growers has been significantly
supplemented by improved returns from the sale of sheep for meat purposes
- both for domestic slaughter and for live exports (Figure 12).
Furthermore, the prices have been sustained and income for wool received
by Merino producers has, in recent years, averaged around 70% of total
income from sheep compared to 85% in the late 1980's.
The implications for the wool industry have been two-fold:
- Liquidation of flocks to generate cash flow has inhibited any
potential recovery in sheep numbers.
- Many growers have consciously bred for improved returns from sheep
meat, thereby compromising the industry trend to finer apparel wool.
Alternative Land Uses
While wool prices have languished for much of the 1990's,
improved returns from alternative land uses have encouraged many growers,
including specialist wool producers, to further diversify their
enterprises away from wool. This is particularly true of grains and pulses
which have become an increasingly familiar site on high-rainfall sheep
properties. In the case of grains, predictions have been made that prices
will ease over the next five years, but will not return to the low levels
of the late 80's and early 90's (Figure 13).
With productivity gains in the grain sector averaging
over 4% per annum, the incentive for wool growers to turn to crops has
been very strong. The wheat sheep zone (32% of wool production) will be
particularly affected, but some forecasts predict that up to 30% of land
in the high-rainfall zone (45%) could be converted to crops. Only the
pastoral zone (23%), by its nature, has limited alternatives to sheep.
From another extreme, considerable areas of sheep grazing land are being
lost each year to land degradation. Agriculture WA estimates that over the
next 20 to 30 years the area of saline land in WA will increase from 1·5
to between 4 & 6 million hectares.
Parasite Control
Wool growers face several threats associated with the
control of internal and external parasites:
- Parasite Resistance: There is already substantial evidence of
increasing resistance by nematode parasites to available anthelmintic
treatments and no new classes of anthelmintic are known to be under
development. Similarly, some of the common treatments for blowflies and
lice are no longer routinely effective.
- Animal Welfare: One of the most effective and commonly used methods
to reduce blowfly strikes in the breech is the mulesing operation which
involves the surgical removal of skin from the breech area. The
short-term pain involved for the animal is considered justifiable
relative to the consequences of blowfly strikes which, initially at
least, are difficult to detect.
Nevertheless, there is a belief that
the operation will not be morally acceptable as a long-term control
measure. The practice is already banned in some countries.
- Consumer Safety: Reference has already been made to the tighter
legislative controls being imposed by many countries on chemical
residues on textile fibres (see 3 above). The regulations being
introduced to prevent chemical contamination of meat products are even
stricter.
- Occupational Health and Safety: A recent incident in Australia,
involving litigation against a producer, has focused attention on the
risks created for employees by sheep treated with chemicals.
Over and above these threats is the cost of parasite
control to the sheep industry. Apart from the direct costs of prevention
of around $200 million per year, the industry loses significantly from
parasite-related deaths and from the reduced quality and quantity of wool
associated with parasite infestations.
Alternative measures being pursued at present include
breeding programs to increase flock resistance to internal parasites and
improved flock management practices to reduce the likelihood of chemical
contamination.
Key Issues
- Costs of wool production are far too high due, in part, to the
low rate of adoption of available technologies.
- The wool industry cannot sustain a continuation of poor
profitability caused by deteriorating terms of trade.
- The present methods of parasite control are not sustainable in
the long-term.
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