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Why Is It That The Wool Price Is So High That Australia Is Not Happy?

Mar 14, 2018

In 2017, the price of wool rose more than 30%, and this week the price rose to a record high of 18.30 Australian dollars per kilogram.

This should be good news for Australia, which is "riding on a sheep".

But local wool producers and suppliers seem to be a little bit happy.

Merino wool is very popular in Europe, and in recent years it has spread to Asia, especially China.

The rising price of wool is due in large part to increased demand in the Chinese market.

In 2017, China is Australia's largest consumer of wool, accounting for about 78% of its exports.

"The Chinese market is very volatile," said Phin Ziebell, an economist at National Australia Bank. "I'm worried that the demand is not going to last."

In addition, China's wool production is increasing, which is why many people are not optimistic about the long-term growth of wool prices.

In 2016, China surpassed Australia to become the world's largest producer of wool.

Australia's commercial organization ABARES predicts that continued growth of China's wool production will be the overall wool prices caused great impact, but in the medium term of high-grade wool price will not be affected by too much.

On the other hand, even if the price keeps going up, it is difficult for the wool industry in Australia to achieve rapid growth because of the restrictions on wool production for various reasons.

ABARES predicts that, even if prices hit a record high, Australia's wool industry is expected to grow by only 1.4% in the coming year.

Australia currently has a total of 70.4m sheep, the fourth lowest in the calendar year, while other farmers are less likely to switch to sheep.

The price of beef is high, leaving cattle farmers short of power to transform, while farmers who grow crops lack the necessary infrastructure to raise sheep.

The bigger problem is that Australia now has a serious shortage of shearers.

Emma Morvell, a shearer contractor, has refused to reject the farmer's offer because of a lack of staff.

She said: "the problem of shorthanded sheep has been raised many times over the past five years and we should have done some preparations.

Since mid-october our workers have been working seven days a week, and they have reached the limit.

Many farmers are beginning to cut their hair outside the traditional fur season, but it is difficult to solve the critical problem: there are not enough workers willing to do this very hard work.

The vast majority of wool workers get a $3 for each sheep they cut.

The most skilled workers can cut more than 200 sheep a day.

Although the income is high, workers need to work outdoors for a long time in the hard work of shearing.

Since the hair season is summer, they often have to endure temperatures above 40 degrees Celsius.

"It's hard for me to imagine working harder than that."

Australian Wool Innovation Ltd. (the Australian Wool development company, hereinafter referred to as the AWI) CEO McCullough said: "it's so easy to change jobs, many young people would rather choose to work in mines, is almost the same income, but the working environment more easily."

In addition to farmers, high wool prices have had a big impact on clothing manufacturers.

Unlike most agricultural products, wool can be stored for more than a decade without affecting its value, if done properly.

Australian wool storage company AWH said: "we have here a lot of wool had been put in the warehouse for more than 14 years, they are like the farmer pensions, only need to pay a very low storage cost, can has been preserved.

But now they're all sold out."

McCullough said: "because prices are so high, many high end wool products are losing money and some are being forced to reduce their use."

"The uniqlo I'm wearing is made of good merino wool, which costs $50," says Phin Ziebell.

And if the current price of wool continues to rise, we can't afford to buy such a class of woolen products at such a low price.

It is also hard for buyers to turn elsewhere to find alternatives.

AWI supplies more than 90 per cent of the high-grade wool used to produce clothing each year.

Mr ABARES says New Zealand's wool production is also unlikely to grow significantly: as meat prices rise, a large number of farmers choose to slaughter their lambs and sell them.

The output of important wool areas, such as Argentina and South Africa, is affected by poor weather.

The International Wool Textile Organisation forecasts that the global Wool industry will grow by just 0.5 per cent in 2018, and Australia will be the fastest growing country in the world.