- The 2002/03 season
- Fig 16: Wool export volumes by grade
- Fig 17: Wool export volumes and average FOB prices for main markets
- Outlook for 2003/04 to 2006/07
- Table 6: Wool situation and outlook
- Fig 18: Production and prices trends for wool
- Longer term outlook - a possible scenario
Wool
- New Zealand's total wool sales for the 2002/03 season, at 173 000 tonnes (clean) were similar to the previous season's level. Wool exports fell by 9 percent to 137 000 tonnes (clean) for the year ended June 2003. This fall was offset in part by a 16 percent rise in domestic processing of New Zealand wool.
- Sheep numbers are expected to continue to decline, leading to lower wool production out to 2006/07. Wool exports are also forecast to decline to 2006/07, reflecting both the expected fall in production and the growth of further processing in New Zealand.
- The average auction price for the 2002/03 season increased by about 9 percent to 551 cents per kg clean, owing mainly to a 28 percent rise in the fine wool price. The average auction price in 2003/04 is forecast to decline by 14 percent to 474 cents per kg. Auction prices for all categories of wool are predicted to continue to fall through to 2004/05, before gradually rising again from 2005/06 onwards.
The 2002/03 season
Production
Total wool sales in New Zealand for the 2002/03 season remained similar to the previous season's level at 173 000 tonnes clean. A small decline in sheep numbers was offset by a rise in per-head production. Total sheep numbers at 30 June 2002 fell by 1 percent to 39.5 million head from their estimated level of 40 million the previous year. Wool production per head rose from 5.71 kg during the 2001/02 season to 5.81 kg in the 2002/03 season, reflecting favourable weather for most of the season.
New Zealand wool production comprises largely crossbred wool, suited in particular to the carpet industry. Medium and fine wool, including crossbred lambs wool, account for 36 percent of New Zealand's total sales. Most of this wool is exported to be used as handknitting yarn, or made into woven and knitted worsted apparel including wool socks and woollen spun knitwear and bedding. A small proportion is also used in carpets. Fine merino wool, which makes up only 5 percent of total wool exports, has an excellent reputation and is valued for the production of high quality apparel. New Zealand is increasingly using more of its fine wool in local domestic production. More significantly, there has been rapid growth in the further processing of strong wools in New Zealand, primarily into carpet yarns. Though investment in this sector is rising, at a production level crossbred wool is increasingly seen as a byproduct of meat production. By comparison, mid-micron breeds are still dual-purpose, while merinos are predominantly seen as wool producers, although there is growing interest in increasing their value as meat producers.
Exports and markets
Wool exports for the year ended June 2003 totalled 137 000 tonnes clean, down 5 percent from the previous season. In value terms, this equated to $798 million, about $25 million (3 percent) less than the previous season. The quantity exported over the 2002/03 season, at 79 percent of the total sales, is less than the historic average of about 89 percent. The principal reasons for this are seasonal stock adjustments and the significant growth in domestic processing. While total exports were down compared with the previous season, the volume of wool processed in New Zealand increased by 16 percent.
During the 2002/03 season, New Zealand exported wool to about 53 countries (a slight increase on the 45 importing countries a decade previously). Exports to The People's Republic of China (China) (New Zealand's largest export market) fell by 30 percent during the 2002/03 season. The quantity of wool purchased by China has fallen by two-thirds over the past eight years, from a peak of 75 800 tonnes clean in the 1994/95 season (35 percent of exports by volume), to 24 400 tonnes clean in the 2002/03 season (18 percent). This reflects the declining appeal of handknitting yarn as a product, with consumers increasingly switching to machine-knitted garments using finer wools.
Fig 16: Wool export volumes by grade
Year ended June 2003; total: 137,000t clean
Exports to the United Kingdom (UK) - currently New Zealand's second largest export market - also fell by 5 percent to 22 200 tonnes clean. The UK now accounts for 16 percent of wool exports, up from 10 percent 10 years ago. Italy, Belgium, Germany, France, and the Netherlands together imported 20 percent of New Zealand wool sales for the year ended June 2003, a sharp rise from their 4 percent share of 10 years ago. The United States (US), Nepal and Japan made up the balance of the top ten importing countries, each taking in excess of 5000 tonnes of clean wool in the year ended June 2003.
India, Nepal, Iran and Pakistan, in aggregate, have taken 15 percent of wool exports over the past decade. Of these countries, which import New Zealand wool primarily for the manufacture of hand-knotted and hand-tufted carpets and rugs, India is the biggest importer, and in the 2002/03 season imported close to 10 000 tonnes of clean wool, accounting for 7 percent of New Zealand's wool export volumes.
Of the ten largest export destinations for New Zealand wool, the US (up 35 percent) and Nepal (up 9 percent) were the only countries that imported more wool from New Zealand during the 2002/03 season.
Carpet yarn production in New Zealand for the year ended March 2003 increased to 24 700 tonnes, a rise of 16 percent from the previous year. Carpet yarn exports over the same period increased to 8 690 tonnes - a rise of 17 percent. In value terms, this equates to $94 million, up 16 percent on the previous year. Australia was the main destination, taking 72 percent of exports by volume, followed by the US, Hong Kong and Thailand.
Tufted and woven carpet production for the year ended March 2003 expanded to a total of 12.5 million square metres, a 14 percent rise on 2001/02. Carpet exports for the year ended June 2003 totalled 3.9 million square metres, with Australia being the main destination.
It is noteworthy that New Zealand is now its own largest market for the wool it produces - more is processed in New Zealand than is exported to China, though much of it is subsequently exported as yarn and carpet. New Zealand and Australia together take nearly 25 percent of New Zealand's wool production.
Fig 17: Wool export volumes and average FOB prices for main markets(in descending order of value, left to right)
Year ended June 2003
Auction prices
The fine wool indicator price increased by 28 percent to 1506c per kg clean in the 2002/03 season, compared with 1176c per kg clean in 2001/02. The main factors responsible for the price increase were:
- the severe drought that affected much of Australia in 2002 and led to reduced sheep numbers, reduced production per head, and increased Australian fine wool prices (Australia is the world's largest fine wool exporter); and
- buoyant demand from processors following the depletion of WoolStock Australia Ltd's wool stocks.
The medium wool indicator price increased by 14 percent to 797c per kg clean. This increase was driven almost entirely by the strength of China's demand for wool for producing hand-knitting yarn. Chinese stocks had been low and consumer demand relatively firm. As well, Australia's wool clip is becoming finer, reducing supplies of medium wool from that country.
The strong wool indicator price rose by 3 percent to 449c per kg clean. This smaller increase, reflecting the more stable state of the world's carpet industry, was driven mainly by the strength of the carpet market in Australasia and the growth in wool's share of the US floor coverings market. There was also increasing demand from China for stronger crossbred wool categories to meet the needs of the expanding machine-made carpets sector in China.
Outlook for 2003/04 to 2006/07
Production
Total wool sales in New Zealand for the 2003/04 season are forecast to decline to 168 000 tonnes clean, a fall of 3 percent. Contributing factors are lower sheep numbers and a likely fall in per-head production, following the poor weather over much of the country during late winter and early spring.
Sheep numbers are forecast to continue falling to 2006/07, though at much reduced rates, owing to shifts in land use in favour of dairy, deer and forestry. This will result in lower total wool production and reduced exports.
Exports and markets
There may be some small growth in wool exports in the 2003/04 season, depending largely upon inventory adjustments. Export figures for the year ended June 2003 suggest that growers and brokers are holding higher-than-usual levels of unsold inventories. In that year, only 79 percent of wool sales were exported compared with the historic long-term average of 89 percent. However, with more wool being processed domestically, any increase is likely to be modest and the trend in raw wool exports is expected to continue to decline slowly over the outlook period.
Auction prices
Prices for all wool grades at auction are forecast to decrease in the 2003/04 season owing to the higher value of the New Zealand dollar (NZD), which will reduce demand from China and Europe (New Zealand's two major export markets). As a result, the average (all-segments) auction price for the 2003/04 season is estimated to fall 14 percent to 474c per kg. Auction prices for all wool categories are forecast to continue falling through to 2004/05, reflecting the higher value of the NZD. While fine wool prices are forecast to fall for a further year, medium and strong wool prices are expected to rise. From 2005/06 onwards wool prices, in general, are expected to increase, reflecting:
- continuing lower world supplies;
- rising demand;
- wool maintaining its competitive edge over polyester and other synthetic fibres and holding its position in the domestic carpet market; and
- a forecast depreciation of the NZD against the currencies of its major trading partners.
Industry reform
The Wool Industry Restructuring Act 2003 was enacted on 4 July 2003 and, apart from the levy provisions, came into force on 8 July. The Act provides for the disestablishment of the New Zealand Wool Board, the allocation of the Board's assets to growers, and the imposition of an interim levy on wool for industry-good purposes (research and development, technology transfer, education, training, etc).
On the restructuring day, 15 September 2003, the Board was converted into the Wool Board Disestablishment Company Ltd. This grower-owned company has statutory responsibility for winding up the affairs of the former Board, distributing the Wool Board's assets to growers by way of shares in Wool Equities Ltd and Merino Grower Investments Ltd (see below), and collecting and administering the levy on wool until 30 June 2004 for industry-good purposes.
A new entity (interim name: Single Organisation Ltd) has been established to undertake both meat and wool industry-good activities. It is intended that this new organisation impose a levy on wool under the Commodity Levies Act 1990 from 1 July 2004 to replace the interim levy currently collected by the Disestablishment Company to fund industry-good activities. The necessary mandate was obtained from growers in a referendum held in August 2003. The proposed rate of levy in the first year is expected to be 5.25c per kg (2.00c per kg in respect of dags).
The wool reform process entailed the distribution to growers, in proportion to the number of sheep they farmed as at 30 June 2002, of the Board's assets by way of shares in commercial investments through two investment companies: Merino Grower Investments Ltd (MGIL) and Wool Equities Ltd (WEL).
Merino Grower Investments Ltd
Merino growers hold all the ordinary shares in this investment company, which in turn has a 65 percent shareholding in the New Zealand Merino Company Ltd (Wrightson Ltd holds the other 35 percent).
- New Zealand Merino Company Ltd is a wool broking and marketing company handling the majority of New Zealand's merino wool clip. It has developed a number of direct supply linkages where growers are contracted to supply agreed amounts of fibre meeting certain specifications for particular manufacturers.
Wool Equities Ltd
Growers own all the shares in this investment company specialising in the wool, sheep and primary industry sectors and in wool research and development. Its initial shareholders are non-merino woolgrowers. It has a number of subsidiary and associate companies:
- Ovita Ltd is a sheep genetic research company focused on the development and commercialisation of products, services and intellectual property derived from knowledge of the sheep genome and sheep genetics. Wool Equities Ltd has a one-third shareholding in Ovita, the other shareholders being the New Zealand Meat Board (through its subsidiary Agritech Holdings Ltd) and AgResearch.
- Covita Ltd is a wholly owned subsidiary of Ovita, whose role is to commercialise Ovita's research where it is applicable to off-farm markets.
- Keratec Ltd is a technology company creating new materials from natural sources using technologies that dissolve, then isolate, fractions of keratin proteins and lipids from wool. The company is developing and investigating commercial opportunities in the product areas of cosmetics, medical materials, fine fibres for high value textiles, and adhesives and resins. Keratec is 67 percent owned by Wool Equities, the remainder being owned by Canesis Network Ltd.
- Canesis Network Ltd is a new science and technology company formed out of the previous operations, intellectual property, equipment and resources of the Wool Research Organisation of New Zealand Inc (WRONZ). Canesis has two shareholders - WRONZ with 66.5 percent and Wool Equities with 33.5 percent. WRONZ remains an incorporated society and continues to own buildings and properties. Canesis provides research, technology and development services to the WRONZ membership (over 100 companies worldwide) and it undertakes contract research for the New Zealand government, the international textile processing industry, woolgrowers and related organisations. Canesis' areas of research include: manufacture and performance of carpet yarn and carpets, fabric manufacture and apparel developments, chemistry and wet processing (especially scouring) of wool, environmental issues and solutions, wool production, fibre and textile testing and measurement, and textile information services.
- Wool Interiors Ltd is a wholly owned subsidiary of Canesis whose role is to advance the performance, appeal and market profile of wool floor coverings throughout the world by working in close co-operation with leading international floor covering companies using technical innovation, creative development and marketing expertise. Wool Interiors manages the Wools of New Zealand/Fernmark brand.
- Tectra Ltd is a wholly owned subsidiary of Wool Equities Ltd. Tectra was established in July 2003 from the assets formerly used by "WoolPro" (Wool Production Technology Ltd). The company specialises in technology transfer to farmers and the provision of shearer and woolhandling courses, independent wool appraisal, and services related to pricing, reporting, quality management and risk assessment.
On 26 September 2003, notices were sent to growers advising them of their redeemable preference shares (representing the majority of the former Wool Board's cash reserves) and ordinary share entitlements in MGIL and WEL. Merino growers received their redeemable preference shares (totalling $1.47 million) as cash while WEL provided non-merino growers with the opportunity to convert their redeemable preference shares for additional ordinary shares in WEL to further develop WEL's subsidiary and associate businesses. This process concluded on 14 November 2003. Of the total $22.8 million WEL redeemable preference shares on offer, growers elected to cash in $10.5 million, leaving $12.3 million redeemable preference shares to be converted to ordinary shares in WEL. This, together with subscriptions by growers for additional ordinary shares, resulted in WEL raising $12.6 million.
A second, but much smaller, tranche of redeemable preference shares may be paid to growers once legitimate claims on the former Wool Board's assets have been settled.
References:
ABARE (2003) Australian Commodities, September quarter.
Advertising supplement (2003) Wool surges back into fashion. The Dominion Post, 26 September.
Meat and Wool Innovation (2003) Statistical Handbook.
Other sources:
Statistics New Zealand; New Zealand Wool Board; MAF
Table 6: Wool situation and outlook
June year |
Units |
2002 |
2003 |
2004e |
2005f |
2006z |
2007z |
Production |
000t clean |
173 |
173 |
168 |
167 |
165 |
165 |
Exports |
000t clean |
151 |
137 |
145 |
145 |
143 |
143 |
Fine price |
c/kg clean |
1,176 |
1,506 |
1,260 |
1,200 |
1,070 |
1,080 |
Medium price |
c/kg clean |
700 |
797 |
630 |
594 |
599 |
615 |
Strong price |
c/kg clean |
438 |
449 |
405 |
378 |
411 |
418 |
Average price |
c/kg clean |
508 |
551 |
474 |
446 |
456 |
464 |
Fig 18: Production and prices trends for wool
Longer term outlook - a possible scenario
With the worldwide shortage of strong wool, caused by declining sheep numbers in developed countries, and rising demand, the longer term outlook for strong wool producers in New Zealand is encouraging. The world housing market is expanding, increasing global demand for carpets. Despite fierce competition from synthetic fibres, wool carpets are expected to maintain their market share.
Wool and wool blend garments are also likely to maintain their niche in the fashion industry, helped by technological developments in the world garment industry, especially for wool blended garments.
Research developments by Canesis Network that are likely to become commonplace in garments in the future include:
- Non-woven wool processing methods that skip the traditional spinning and weaving processes and consolidate wool into fabrics of varying textures and mechanical properties. New products can be created that can compete with popular synthetics such as polar fleece.
- "Smart textiles", which can sense and respond to stimuli.
- New processes that can be performed in the wool scour, which can markedly extend the colour range and intensity of finished wool.
- A non-woven wool fabric for the accessories market, such as a combination of wool and leather that has already been used to produce shoes durable enough for street use but fashionable enough for the top end of the market.
Technological developments are not, however, limited to wool's use in the textile industry. The long term outlook for wool will be characterised by new uses for wool fibres, and novel applications of wool's components. For example, techniques to extract, refine and exploit the properties of keratin (a protein, and the main constituent of wool) are currently being researched. Keratin could potentially provide renewable alternatives to many petroleum-based products in the long term.
Progress will continue to be made on alternative uses for wool. Current examples include the use of wool to clean up oil spills, or for house insulation, and research continues into new, technically advanced, high-value wool-based fibres.
The future will also likely see an expansion of trade volumes, accompanying the demise of the Multifibre Arrangement, which is to be phased out by 2005. Bilateral agreements between developed and developing countries, which were put in place to protect textile industries in developed countries, will also be liberalised. The Uruguay Round Agreement on Textiles and Clothing has already encouraged a shift of textile processing capacity from developed countries to developing countries in order to take advantage of lower labour costs.
Further trade liberalisation will lower the barriers to trade in textiles and garments and accelerate this trend. The resulting lower prices will increase demand for wool-based products compared to synthetic-based products. For example, research is alreading taking place into using wool's components in a range of non-traditionals uses where synthetic materials have traditionally being used, such as cosmetics, medical materials, and industial materials.
In the future export market shares will be determined by global competitiveness rather than by the amount of import quota held for a particular market. This should also result in continuing price reductions for textiles and apparel on world markets. Wool prices, however, should rise because there will be increasing demand for falling supplies.
The industry will capitalise on new knowledge of sheep genetics and the sheep genome. Research will focus in particular on identifying genes, and their effects on sheep biochemistry and on such factors as growth and body traits, with the ultimate aim of improving returns for woolgrowers. Recent years have already seen significant changes in the composition of the New Zealand sheep flock arising from the creation of the Sheep Improvement Limited (SIL) genetic database. This centralised system helps identify sources of better genetics and standardises performance recording. The New Zealand industry should therefore be well placed to exploit new, productivity-enhancing genetic knowledge and techniques. It will also increase the industry's ability to develop niche markets for wool products that command premium prices in the future.
Environmental issues are becoming more important in many of wool's key markets. This could benefit wool, which is a natural and renewable raw material. However, wool producers and processors alike are having to review and, occasionally, adjust their processes and chemical inputs so that their wool products can qualify for an "eco-label".
References:
Canesis Network Ltd website. Available at http://www.canesis.com/home.shtm .
Dann, Liam (2003) New ways to live off the sheep's back. The New Zealand Herald, 25 August.
Morgan, Jon (2003) Protein shows versatility. The Dominion Post, 27 September.
Advertising supplement (2003) Wool surges back into fashion. The Dominion Post, 26 September.
Wool Marketing. Available at www.sheepusa.org/resources.
Williams, Alan (2003) Woollen fibre basis of new range of fashion shoes. The Press, 10 June.
Other sources:
Canesis Network Ltd; Keratec New Zealand Ltd; Wool Equities Ltd; Sheep Improvement Ltd; Ovita Ltd; Tectra Ltd; Statistics New Zealand.
Contact for Enquiries
Policy Publications
MAF Policy
Tel: 64 4 894 0252
Fax: 64 4 894 0742
Contact this person
