Will wool growing be a viable business in 2029?

Product Information

All commodity producers suffer from declining terms of trade. This situation has been occurring since the industrial revolution, which provided the catalyst for specialisation across a range of sectors in the economy. Efficiency gains in agriculture have been a trigger for the industrialisation and subsequent urbanisation that is a feature of modern economies

There is no reason to consider that this trend is about to change. It is inexorable. It occurs because productivity gains enable the commodity to be produced for a lower cost and over time, efficient markets reflect the lower cost of production in the price they pay.

In a market where producers are striving to earn higher profits than their competitors, producers improve productivity which in turn leads to further reduction in prices. This is a catch 22 situation but is not new. The industry has been managing to achieve substantial productivity gains since sheep were first introduced to Australia. Some of the most dramatic have come through technologies such as fencing, prior to which we needed one labour unit per 300 sheep, mechanical shearing, mechanisation (incl tractors, motor bikes, wool presses), ‘sub and super’ and exotic perennial pastures.

Australian wool producers can stand aside and refuse to be part of the treadmill of productivity gains and theory would have it that in doing so they should be able to prevent further declines in the real value of wool. Such an approach may be achievable if the Australian wool industry did not have competitors, either wool producers in other countries or producers of competing fibres such as cotton or synthetics. Those competitors also seek efficiency gains that drive down prices over time. If the wool industry chooses to stand aside and ignore this trend it will do so at its own peril. It will become the domain of history text books and zoos for rare and endangered species.

This paper discusses the decline in real wool prices over time and how well that decline has been matched by producers achieving efficiency gains. In addition, it considers the decline in cost of production that is likely to be required for wool production to remain viable and competitive with other industries that require similar resources as wool. Also the possible means of achieving such a reduction are presented and discussed.