WHEN Australia rode on the sheep’s back, a lot of our clothing was made of wool. That changed as synthetics and cotton became popular, but as late as the 1970s wool enjoyed strong demand because the Soviet Union used it to make military uniforms.
When the Soviets withdrew from Afghanistan and the constituent states went their separate ways, it set off a long downhill slide, exacerbated by a reserve price scheme that led to the accumulation of a huge stockpile.
Prolonged low prices prompted many woolgrowers to sell their sheep and grow crops. From 180 million in 1970 the flock dropped to its lowest level in over a hundred years. Many also switched to meat sheep; by 2009 the value of sheep meat production had risen to match that of wool.
During those years of decline it was common to hear pundits suggesting that wool was finished as a major agricultural commodity, that it had become uncompetitive, and was doomed to luxury fibre status. By implication, luxury status meant insignificance.
The past year has seen global wool markets perform strongly as the balance tipped in favour of demand. Rabobank reports that the resurgence in global wool consumption after the GFC exceeded the expectations of both producers and processors, and there has been growing international competition for Australia’s dwindling wool supplies.
One swallow does not make a summer, but it is beginning to look as if wool may be back in fashion.
What we know is that it is emerging economies that are increasing their consumption of wool. Although the old markets of Europe, USA and Japan remain significant in volume terms, they have limited growth prospects. Their economies are weighed down by recession and debt and their perceptions of wool are not likely to change in a hurry.
In the emerging economies, where there is economic growth and debt is not a problem, millions of people aspire to a more luxurious lifestyle along the lines of what they perceive is typical of the west.
The main example is China, which takes 70 to 80 per cent of Australia’s wool, where a growing share of the wool it buys and processes is used to supply the domestic market. Rabobank says the domestic market now consumes around 50pc of the raw wool imported into China, with clothing retail sales having registered year-on-year growth in excess of 20 percent for most of the past five years.
Significant income growth has increased the affordability of high quality apparel wool products, just as it has led to increasing demand for more luxurious diets, particularly meat and dairy foods. The fact that wool is perceived as a luxury material appears to be the reason for the growing demand.
This is enormously significant. Australia’s major rural commodities are not normally associated with luxury status. They might aim for the quality end of a market, and there are various attempts at creating a ‘clean green’ image, but that is not the same as being an overtly luxury product.
It makes sense though. Wool simply cannot compete with other fibres on either cost of production or processing. Being positioned as a luxury fibre means it does not need to.
What it means is that those producing wool, along with those who sell and promote it, are no longer directly competing with cotton and synthetics. Rather, they are producing a product that allows consumers to live and demonstrate a more luxurious lifestyle.
There are other luxury goods with which to compare it, but perhaps Charles Revson, the founder of cosmetics company Revlon, put it best when he said, “In the factory we make cosmetics; in the drugstore we sell hope."
The challenge for wool will be to ensure it continues to offer hope. Far from leading to insignificance, luxury status is to be welcomed.
David Leyonhjelm works in the agribusiness and veterinary markets as principal of Baron Strategic Services.