Domestic wool processing would inject $1.8 billion into the economy and create 600 full time jobs

Establishing a domestic wool processing industry in Australia would require “significant” capital investment but inject $1.8 billion into the nation’s economy and create nearly 600 full-time jobs, a new feasibility study has found. The Deloitte Economics report, commissioned by WoolProducers Australia, was released in November after seven months of examining whether the nation could set up a domestic wool processing industry and reduce risks associated with exporting wool. The “wide ranging” feasibility study, underpinned by a $662,000 Federal Government grant, found it would cost $1.1 billion to set up early stage wool processing in Australia, including the construction of six to 14 plants. It also revealed the $3.6 billion wool industry’s reliance on exporting nearly all of its wool unprocessed and to China left significant risks from animals disease events, trade disruptions and geopolitical tensions. The report found Australia’s capacity to lift early-stage processing by as much as 50 per cent (170 million kg) would reduce the impact of a foot-and-mouth disease outbreak by $1.2 billion, on average, for each year affected. It also gave an indication that Australia’s take up of early stage processing, including scouring and carbonising, would be internationally cost competitive when compared to current operational costs, but the capital investment required would be “significant and commercially unappealing”. The report found that expanding early-stage processing capacity in Australia to process 170 million kg a year could add up to $1.3b to wool industry output and $1.8b in GDP for Australia each year, which would be in addition to any risk reduction. Target markets for Australian processed wool would include India, Vietnam, Bangladesh and Indonesia, where the strong textile sectors have been primarily focused on synthetic fibres and cotton. WoolProducers chief executive officer Jo Hall said the wool textile supply chain was one of the most complex agri-product supply chains in the world. “Given we only have sovereign capacity to domestically process 5 per cent our clip, our heavy reliance on offshore early-stage processing presents some emerging risks that we have been able to assess through the grant,” she said. “WoolProducers have become increasingly concerned about the material impact that trade disruptions could have on our wool market. “These disruptions can occur though freight and logistics issues or through the imposition of tariff and non-tariff barriers.” Ms Hall said one key example would be if Australia was to suffer an outbreak of an emergency animal disease, such as foot-and-mouth disease. “The report outlines the financial impact of various risk scenarios, including the imposition of tariff and non-tariff trade barriers and an EAD incursion,” she said. “In addition to delivering positive trade risk management outcomes, the report found that the scouring and carbonising components of early-stage processing were cost-competitive with current supply chains on a cost to customer basis. “While labour and energy costs are higher in Australia, there is a significant advantage in terms of freight efficiencies and days-to-customer basis.” Australia is the world’s biggest wool exporting nation, accounting for 39 per cent of global wool exports worth an average $3.5 billion each year through an industry that provides 200,000 jobs. Last year’s exports reached 328 million kg worth $2.75 billion. But the industry is heavily exposed to international export market forces with about 93 per cent of the national clip exported in a greasy – or unprocessed – state, primarily to China. Federal Agriculture Minister Murray Watt said the report found the economic impact of expanded early-stage processing would increase GDP by $1.6b, and create nearly 600 full-time jobs. “Wool requires dedicated early-stage processing before it can enter more generic textile manufacturing processes,” he said. “Currently, Australia only has capacity for 5 per cent of our early-stage wool processing, with the remaining 95 per cent of Australian wool production reliant on offshore early-stage processing, which is concentrated in a small number of export markets. “By completing early-stage wool processing domestically we can increase regional jobs, strengthen industry resilience, boost market diversification, value add our exports of woollen products and mitigate trade risks.” Ms Hall said the report outlined potential benefits while considering existing barriers in re-establishing this sector, including energy and labour costs, water availability and innovation opportunities to address these barriers. “It assesses tariff and regulatory barriers, that may prevent domestic and diversified early-stage processing from integrating with downstream textile supply chain operations,” she said. “Additionally, it explores opportunities to split early stage ‘wet’ and ‘dry’ processing between domestic and offshore locations. “Report findings indicate that domestic and diversified early-stage processing of wool was feasible and should be explored further through the completion of a comprehensive business case.” Pressures on the wool industry, including a shrinking national wool clip and increasing energy and labour costs, resulted in the offshoring of much of Australia’s wool processing capacity throughout the 1990s-2000s, to a point where Australia now only has sovereign capacity for early-stage processing of about 5 per cent of its wool.