How is AWI funded?

The Statutory Funding Agreement between AWI and the Australian Government defines the conditions under which AWI may invest the levy and Government-matched funds for R&D. The primary aim of the agreement is to ensure the funds are invested in line with woolgrower and Government expectations. 

How are AWI finances managed?

We run a budget the way growers do on farm – adjusting all the time for variables like price, weather, production and more. When the AWI Board makes financial decisions and allocates budgets, it considers:

  • delivering a benefit to woolgrowers and the industry – increasing woolgrower profitability and global demand for wool.
  • woolgrowers’ priorities – what R&D and marketing activities have been identified as priorities during consultation with woolgrowers.
  • alignment with AWI’s Strategic Plan – developed by the AWI Board to reflect woolgrowers’ R&D and marketing priorities.
  • pathway to commercialisation – ensuring the investment can be commercialised and thereby realise benefit for growers.
  • market failure – where private investment is low/non-existent.

AWI Reserves

AWI protects woolgrowers’ collective R&D and marketing investment by maintaining – and annually reviewing – its reserves level, which ensures the company retains sufficient funds to manage potential threats to the industry or changes to the company’s operations.

FORWARD CONTRACTS RESERVE

  –   to cover contract commitments in the event AWI is shutdown (reviewed at the end of each financial year) – currently $21.2 million.

OPERATING RESERVE

  –  nine months of annual operating costs in the event AWI receives a 0% WoolPoll result – currently $23.8 million.

EMERGENCY ANIMAL RESERVE

  –  fixed at $5 million to cover any contingent expenditure arising from obligations under the Emergency Animal Disease Response Agreement.

DISCRETIONARY RESERVES

  –  In 2017/18, the Board introduced a $35 million Discretionary Reserve to enable AWI to manage the cyclical nature of wool prices, by ‘banking’ any significant increase in income. The Discretionary Reserves is set aside for:

  • building resilience and a buffer to protect R&D and marketing projects in the event of a downturn in wool prices, and
  • investment in new, major R&D or marketing opportunities as they arise.

Available Reserves may go up or down based on levy choices expenditure, wool prices and production.

 

What markets are recovering best from the global COVID-19 pandemic?

In 2020, the global economy experienced its deepest recession since World War II. Overall, it is estimated that the global GDP contracted 3.7% in 2020. The COVID-19 pandemic has caused major disruption in all global industries and the wool industry has been no different. With unemployment rates rising around the world and less luxury spending, monitoring global market performance has never been more important.

Of the key wool consumption markets, the Eastern Hemisphere markets have fared much better than the Western Hemisphere markets. In particularly, China, has been an anomaly in 2020 and was a rare economy that experienced growth. This is shown in the chart below where China had a 1.82% increase in GDP in 2020, whereas all other major markets for wool, experienced contractions. The European markets of France, Germany, Italy, Spain, and the United Kingdom were all severely hit.

Looking forward, it is expected that the global economy will grow at a record speed of 6% in 2021. This projection however still comes with levels of uncertainty, and it will be dependent on the effectiveness of the vaccination rollout programs throughout the world. This outlook is also considering that there will be continued fiscal and monetary support provided by governments. China is tipped to be the quickest growing economy of the economies highlighted in 2021 and is expected to grow at 8.75%. All key markets are still expected to grow at significant rates throughout 2021, which brings a level of optimism to the global economy.

Where wool fits in to the recovery

The wool landscape has changed as a result of the pandemic and the more traditional uses of the fibre are quickly becoming shadows in the new and evolving consumer landscape. COVID-19 has brought about lockdowns all around the world and this has meant a world were working from home has become commonplace, little to no major events have taken place and very minimal travel has occurred.

Suiting as a result of the pandemic has been the worst hit wool apparel category and signs of recovery are not on the radar just yet. In contrast, wool knitwear products, despite a large hit amid the pandemic in April-May of 2020, are recovering and look to reach pre-pandemic levels in the short to medium term.

The chart below shows the year-on-year change for the value of global imports for both wool knitwear and wool suiting as a way to compare 2019 performance with 2020 performance. Knitwear fell as low as -50% in the heart of the pandemic and has slowly recovered, where in the final months of 2020, it started to see near prepandemic levels. Suiting on the other hand bottomed at approximately -70% during the pandemic, and then plateaued between -40-50% for the most-part through the final six months of 2020.

It is expected that the trend of casualisation in the workplace will continue throughout 2021 and the years ahead. Not only will knitwear be an opportunity for wool, but sportswear, Personal Protective Equipment (PPE) and casualwear will be areas with potential for wool moving forward out of the pandemic.

 

Trade dynamics

The destinations for Australian greasy wool have become more and more narrow over the past 20 years, and the COVID-19 pandemic has not helped in this regard. In 2001, China took a bit under 55% of Australia’s wool clip, and increased to about 87% in2020. The challenge in 2020, was limited production capacity caused by lockdowns and other precautionary measures taken as a result of the pandemic.

There was a 10-year-period from 2009 to 2019, where China took about 80% of greasy wool consistently. Italy as an export destination for greasy wool has seen the largest drop off in the past 20 years, during which the country’s share of Australian wool dropped approximately 22% to only 2.7% in 2020. In 2020, five countries import more than 1% of wool from Australia and the countries are China, Czech Republic, India, Italy, and South Korea. It is worth noting that South Korea receive their wool from Australia in the form of carbonised wool.

  

Wool production

The major challenge looking forward for Australian wool production is land competition and how Australian farmers look to best utilise their land. It is expected that this competition in the years ahead is only going to increase, and the challenge is how to maintain wool as a key competitor and feasible land use option.

Land use competition is increasing in importance due to the growing global population and the effects that climate change is having. By 2050, the population will have reached 10 billion people and with this added comes a higher demand of food, apparel and other consumer goods. Climate change is also likely to have an impact on land use as seasonal patterns will shift and cause farmers to adapt their habits accordingly.

 Australian wool production has declined in recent years as a result of drought and poor seasonal conditions in major wool-growing areas throughout Australia. Positively, the forecast for the 2020/21 season, sees a slight increase of 2.1% in wool production which would see the national clip at 290 million greasy kgs. The first estimate for the 2021/22 season for shorn wool production is 305 million greasy kgs, an increase of 5.1% compared with the current season.