A bad news story will trump a positive story every day, and you would have to be living under a rock to have missed the scrutiny AWI have been under in recent times.
AWI have been criticised for a perceived favouritism of ‘subjective’ over ‘objective’ development, and concerns related to potential conflicts of interest.
Perhaps to balance, we should take an objective look at what should be the focus of the wool industry; and expand our idea around the need to innovate to future proof the wool industry.
Two articles in the Australian Financial Review recently caught my eye, the first was an article written by Dr Alan Finkle, Australia’s Chief Scientist. His article focused on innovation achievements and noted that “not every change that matters occurs in a single leap”.
As an example, incremental innovation is evident in Australian Universities who have more than doubled enrolments since 2001 to 1.3 million because of steady, small and consistent improvements while managing to maintain Australia’s quality brand.
He then looked at the avocado industry; a decade ago, avocado was used for salad & guacamole. The re-engineering of the supply line by farmers, raising the quality and lowering the price has seen this industry almost treble in value from $340 to $920 million in a decade. It is no longer just a seasonal fruit, but a status and could be said to represent a lifestyle trend.
The incremental innovation in the Australian avocado industry is clearly showing value in the resulting outcome.
The second article in the same paper further reinforced the idea of value as the ultimate measure of innovation success. The AFR Most Innovative Company list used the broad definition of “change that adds value” as the benchmark for companies included in their list.
So why not apply this measure on assessing the impact and success of innovation on the wool industry? There have been innovations, but have they provided value? Further to this, an assessment should provide areas where there has been innovation but it has fallen short of fully extracting value.
To apply a logical process, we will break the topic into three segments that are critical to the Australian segment of the wool industry pipeline.
- Production and on-farm activities
- Harvesting, packaging and freight
- Wool store activities and sales
It is reasonable to concentrate on these segments as they are all in the direct control of either wool producers or their representative bodies. Marketing and promotion while in a broad sense is also the producer’s domain; they are after all funding it through wool levies. However, for this exercise marketing and promotion is seen as a “step removed” from domestic innovation opportunities.
Production & on-farm activities
The wool industry was slow to respond to the “challenge for acres”, firstly from grain farming and secondly prime lamb production. The flock decline from 170 million to under 70 million is in football terms a “flogging”, although the peak number was achieved 37 years ago – an identical period to the premiership drought of the Richmond FC!
While the response to innovate was slow, in recent years sheep producers have quickly engaged. Funding for programs has come from industry, but it has been at the regional level that “the rubber has been hitting the ground”.
A big change in mindset has been implemented via advisors and their ability to arrange local farmers into “self-help” groups. There is probably no better example than Lifetime Ewe Management (LTEM). This national program is designed to assist sheep producers to improve their understanding of ewe nutrition and to develop the skills and confidence to better their management. While this program is not a specific Merino sheep initiative, the benefits clearly apply to assist improved wool production.
The results are impressive. Participants have increased their whole-farm stocking rates by 14%, increased lamb marking percentages by 11–13% depending on enterprise type, and decreased ewe mortality rates by 43%.
On-farm innovation deserves a pass mark despite missing the start in the innovation stakes. Importantly, wool producers are showing no signs of slowing in their appetite to apply continuous improvement in their farm activities. The proviso will be whether funding flows continue.
Gaps and areas for improvement
There are two obvious failings in recent history for the wool industry, mulesing and genetic improvement.
Genetic Technology in the Merino industry has lagged the progress compared to other livestock industries, in fact there are views within the stud industry that the over-arching body is anti-new technology when it comes to genetic improvement.
Real or perceived, this is a negative for the wool industry and the enthusiastic embracement of gene technology must be addressed as soon as possible.
Harvesting, packaging and freight
This will be a short segment, basically there has been minimal progress over the long history of the wool industry in Australia. We have previously looked at this on Mecardo in our article "An evolution in shearing".
The decline in the sheep flock has masked the emerging problem of wool harvesting. There are two points to be made. Firstly, it is not the usual practice for an industry with a highly physical labour component to not evolve over time with new innovations to reduce this reliance. The meat processing industry provides an example of the focus needed in labour intensive industries to address current and future challenges of finding enough skilled staff, dealing with OH&S issues, and manage the increased wages costs.
Secondly, can anyone reasonably argue that in 10 or 20 years’ time it will be possible to attract young people to take on the physically challenging role of a shearer? Or, if we must still use shearers what will we pay them!
Little value to this segment has been added apart from automatic wool presses, wider combs and a raised shearing board. We should note the introduction of female wool shed staff, but I am not sure we can claim that as an innovation, rather industry progression. Yet if we hadn’t accepted women into the wool handling process the quality of wool handling and even the capacity to get the job done would have by now been causing serious headaches.
What can we say, that the standard size for a wool bale has not changed in the history of the Australian wool industry! It’s not quite a claim that we should be boasting.
Gaps & areas for improvement
This industry issue has had several false starts with robotics and chemical shearing each providing optimism at various times before vanishing. Alan Finkel’s premise of applying “incremental innovation” would have been valuable with these stuttering efforts.
Just now there seems to finally be a focus on addressing the shearing issue. It is vital that a sustained effort is applied otherwise we will get to a point where the issue becomes urgent and the lack of foresight in the past will critically impact the wool industry.
Wool store activity & sales
The ability to measure wool is now seen as a non-negotiable with buyers; you cannot sell wool without measurement.
This has led to sale by sample, reducing the cost of storage and display samples. It also has had a positive impact on the penetration of wool into the emerging markets of China. It is difficult to imagine that China would have become such an influential customer if wool was still sold by subjective characteristics only.
Significant value has been added through providing assurance to buyers and processors that they can have confidence in the qualities of their purchases because of objective measurement.
On the other hand, you can’t help but feel that there is an enormous amount of value left on the table – how many other international commodities are still displayed on a show floor and sold by open cry auction?
In the future, we will need to use the advances in this sector to take the sale process into a new model that reduces costs and further opens competition to the world.
Gaps & areas for improvement
The fact that argument, debate and resistance from those at the coal face of wool sales still exists when we talk about industry innovations like sale by description, or centralised selling is a problem. Again, those that benefit from the status quo cannot be expected to drive the necessary next phase of innovation.
Like every industry or business, increased efficiency, constant improvement and a focus on cost reduction are essential areas that must be addressed by any business or industry that intends to be still relevant (or viable) in the future.
Innovation should be continuous, incremental and measured by the value it contributes.
Can the wool industry shake of its reputation for slow change and embrace ideas that reduce costs, improve efficiencies and provide a setting that positions the industry to not only compete with challenges, but importantly positions wool and Merino sheep as a commodity of the future?
R & D funding
Currently the wool industry is going through a boom, some would say the scale and constant improvement in wool price is unprecedented, however the question needs to be asked then, why is wool production at such a low level. If the wool price is so good, why has production fallen? A wool price boom and a record low production of Merino wool simultaneously doesn’t make sense!
Today’s wool market is a great reward for wool producers who have stuck it out through the tough times. Without being a pessimist, it would be foolish to think that high prices will exist in perpetuity, a look at recent history and other international traded commodities attests to that. Investment and innovation needs to be a focus now to prepare for any future price retracement.
The existing split of levy funds (60% marketing & 40% R&D) should be reviewed. If the success of the marketing effort in recent years is attested in the current price, then this effort can be modified and redirected towards assisting wool producers develop new innovations that
will secure at least the current level of Merino wool production.
If new innovations are not evolving now, then any retracement of wool price runs the risk of a further decline in wool production.
At the least, a 50/50 split between marketing and R& D – with a focus on R & D at the producer level, should be considered.