For some time, we have been writing about our concerns for the Merino Wool industry, noting the “fight for acres” to date has been well and truly won by the croppers. To top it off, the number of ewes now mated to terminal sires has also been growing. It hurts an old shearer/wool classer/wool broker/wool market watcher to see properties that for over a hundred years proudly produced Merino wool, jump ship and either rip out the fences and plant crops, or purchase terminal rams and get into prime lamb production.
Flock falls since 2010-11.
Between the 2010-11 and the 2015-16 census collections, the ABS estimate a decline of 10pc in the number of farms reporting to have sheep to 31,000. This decline reflects both fewer farms running sheep and the increased Estimated Value of Agricultural Operations (EVAO) base of $40,000 used by the ABS, compared to the previous $5000 minimum.
So now Australian Bureau of Statistics (ABS) has released the result of the 2015-16 national sheep industry survey confirming that the sheep flock has declined almost 1% from the previous year, and 3% since the previous census in 2010-11.
As Annabelle Cleeland notes on Farmonline National, “Australia’s flock is now at the lowest level in more than a century”.
In fact, there are now only 31,000 farms reporting to have sheep, 10% less than the previous census.
What really confirmed our fears (and further depressed this ex-shearer), was that farms identifying as Merino declined by 25%!
Merino wool decrease.
We noted previously that the amount of Merino wool has shown a steady decline, that is wool finer than 23 microns has decreased.
Since the last ABS census, Australian Wool Testing Authority report the number of tested bales of 23 microns and finer have fallen by 39,845 for the selling year. This was not a bad result as the rate of decline appears to have slowed.
It’s when you look at it over the past 10 years that the magnitude of the shift is obvious; 499,555 bales of Merino wool less were tested in 2016-17 season compared to 2006-07 season.
The challenge is to ensure that the decline has finished, because another move down in production would be disastrous. Fewer bales will mean fewer wool producers, less levy funding for R & D and a general decline in the relevance of the Australian wool industry. Wool brokers, exporters, AWTA, AWI and wool processors will all be reviewing their business models if we see another reduction in bales and subsequent reduced revenue flows.
Could Merino production fall further?
While the current prices will at least maintain the volume of Merino sheep, and in fact should result in increased matings to Merino rams, a retracement in wool price could see another exodus.
There are a couple of proviso’s however, as noted by Kimbal Curtis in the Farmonline article, “the sheep industry appears to be consolidating itself as a dual product industry with both wool and lamb production well supported”.
There is no doubt the merino breeders who have evolved into producing sheep that have meat capabilities are at the moment doing extremely well.
So too are the fine wool specialists with recent increases in this end of the market rewarding the faithful.
But if wool doesn’t hold these price levels, or at least somewhere near them, will the urge to focus on the sheep meat enterprise see a further shift to the prime lamb industry?
Can wool win back acres?
Well, we think we know why we have seen a rush to cropping at the expense of sheep acres. It’s not because there is less risk or that there is more money to be made, it’s a combination of easier ways to address labour requirements and improve productivity, and it adds up to an industry presenting itself as exciting.
These issues are actually connected, labour and productivity are addressed by innovating, coming up with smarter ways to do more and to do it more efficiently. And when an industry does this, it is exciting.
So, the bigger machine, the higher tech apparatus, the new learning around crop production attracts farmers, especially those that have studied ag science or similar and now want to be seen to be applying their skills.
The challenge for acres from crops is not going to diminish; neither will the prime lamb breeders ease up or give back to the Merino’s.
Forget building demand, we need supply.
Currently, on farm & in-store stocks are at their lowest level for decades, and processors report to be operating “just-in-time” with regards to supply.
In a previous time, either growers or the wool industry held stocks which could meet a lift in demand; today the whole industry seems to be operating on a “just-in-time” model regarding supply.
If new demand emerges, it is impossible to supply without more Merino sheep, and we can be sure that the customer won’t sit around waiting for additional supply to arrive, there are a multitude of fibre and fabric options in the market.
The current market price is good, but at a time of record low production. Production must increase if nothing else but to give confidence that supply and demand fundamentals apply to the wool industry.
In any market, a price signal should elicit a supply response. Higher prices encourage production while lower prices should dampen production.
If the wool market is not responding to market signals, then perhaps the fight for acres is only just beginning.
Now is the time to develop some real innovation
The first move is to re-direct a greater percentage of the wool levy funds to R & D, specifically R & D that impacts at the farm level. A good start would be to focus on the gorilla in the room, - wool harvesting. We have previously bemoaned the lack of innovation in this essential wool industry process. It’s now been almost 25 years since millions of wool grower levy funds were spent on robotic wool harvesting systems, all shelved without trace.
A robot shearer may have been ahead of its time then, but imagine if that $ value was invested today. And also imagine if we applied the latest robotic technology and machine learning to looking for an innovative concept for wool harvesting now.
Remember in 1990 we were still waiting for the mobile phone; today we walk around with a mobile computer in our pocket – times have changed and technology has improved dramatically.
MLA have now supported the development of a robot (see video below) to perform functions that previously were considered only in the realms of science fiction. What if in 1990 someone had suggested that a sheep carcass could be cut up without any need for a human hand? Well this is now a reality in modern Australian meatworks.
Marketing to promote further price increases are not needed, in fact it could be argued that the wool market bottomed out in 2008/09 and has been on the improve since, without any corresponding increase in production.
Focusing on production now seems timely, we have good prices but need to lift production and encourage more participants. Innovation plays an important role in attracting participants, therefore industry funds can assist in firstly developing industry innovation which should then lead to an increase in wool participants and production.