Melbourne a super-fine location for domestic wool processing

Melbourne has been identified as the ideal location for expanded domestic processing of wool in Australia, according to a new report looking at ways to grow exports and mitigate trade risk. 

The financial assessment found wet processing in Metropolitan Victoria was the option most likely to be financially viable according to WoolProducers Australia’s (WPA) phase two study into the sustainable future for Australia’s wool supply chain.  

Compiled by Deloitte Access Economics, and released this week, the report ranked Barwon as the second best location, only falling behind Metropolitan Melbourne due to a potential lack of skilled labour. 

Regional NSW locations Central Western NSW and the Riverina were ranked the third and fourth best options for a wool processing facility, with issues such as an inability to collaborate with near-by processing facilities, access to employees and, in the case of the Riverina, water availability and quality during drought, bumping them down the list. 

 Trade risks explored 

The report identified that effectively all of Australia’s wool trade is now exported in a raw greasy state. The clip is almost exclusively shipped to China, which accounts for 85% of the value of trade in 2022. 

The next largest markets for Australian greasy wool exports that year were Italy (6%), India (5%) and Czechia (formerly the Czech Republic) (2%). 

Risks to the current arrangements were identified as animal disease outbreaks and exposure to policy decisions in trading partner countries. 

In the event of a disease outbreak, such as Foot and Moot Disease, Australia was at risk of a loss of market access, higher capital costs and reduced capacity, with a projected $2.1b per annum hit to wool output and an 89% relative impact.  

Regarding trade, the report estimated that if China imposed an 80.5% tariff on Australian wool, similar to what occurred to the barley trade in 2020, it would result in a $1.1billion hit per annum to wool output, or a 34% reduction. 

Wool’s future 

The work looked at two distinctive, yet interdependent solutions to these problems.  

WoolProducers General Manager Adam Dawes said the first option was to develop early-stage processing in Australia, most likely with increased pre-export scouring. 

“This would require supply chain adjustment with potential exports to diversified countries that have new top-making operation coupled with existing, planned or future spinning operations,” he said. 

Top-making refers to the preparation of wool for the spinning process. 

The other solution could be the development of road maps for the expansion of early-stage wool processing in Vietnam, India and Bangladesh.  

“Given each of these countries have well-established textile industries, individual roadmaps for each country were developed with findings catered to their specific textile industry needs and experience in relation to the use of Australian wool,” Mr Dawes said. 

“These roadmaps, which will be available to the public on Friday, have evidenced that there are clear opportunities to instigate, collaborate and cultivate early-stage wool processing in Vietnam, India and Bangladesh respectively.” 

Call for funding 

WPA called on the Federal Government to establish a three-year Wool Trade Policy program, to implement the proposal to reduce supply chain trade risk exposure. 

“Supply chain diversification and expansion is in everyone’s interest, but it’s no-one’s responsibility. With Australian production of 80% of the world’s apparel wool we need to continue investment in this space,” Mr Dawes said.  

“To futureproof the Australian wool industry and the prosperity of the rural and regional communities that it supports, this work must be supported and sustained by trade policy activities in the near-term years to ensure that the opportunities identified materialise into tangible actions that deliver the identified de-risking outcomes.” 

Background 

In 2021 WoolProducers successfully applied for an Agricultural Trade and Market Access Cooperation (ATMAC) program, to secure funding to undertake Phase 1 of Ensuring a sustainable future for Australia’s wool supply chain through trade risk mitigation.  

The Phase 1 report identified that diversification of trade of 50% of Australia’s wool production could deliver up to $1.1 billion in trade risk mitigation, along with a number of other significant opportunities such as jobs, freight efficiencies, positive contribution to GDP and alignment with numerous government policy objectives such as biosecurity, economic contribution and supply chain prominence. 

In 2022 WoolProducers again successfully applied for an ATMAC grant to complete Phase 2 of this work to understand the options available and actions required to diversify and complement existing trade patterns of early-stage wool processing of Australian wool. 

The work of the project was undertaken by Deloitte Access Economics, who were guided through the formation of an industry steering committee comprised of representatives from WoolProducers, Australian Wool innovation, Australian Council of Wool Exporters and Processors and the National Council of Wool Selling Brokers of Australia.