Agribusiness Report: Wool making a comeback thanks to Covid

COMMENT:

Once a star export earner, the fortunes of strong wool have hit rock bottom. But could Covid-19 be an unlikely saviour?

The story of New Zealand's strong wool exports is one of faded fortunes — from the wool boom of the 1950s, when it was our biggest export commodity — to thousands of tonnes of wool now sitting in storage, as world prices hit new lows.

Recent decades have seen the demand for wool decline to the point where shearing sheep now costs more than farmers make from selling their wool.

Since 2017 the price of wool has fallen from $5/kg to $2/kg, due to changing consumer preferences and global oversupply.

But Covid-19, as they say, has changed everything — and it might be about to change the fortunes of this one-time export high-flyer.

The fickle consumer preferences that relegated this wonderful fibre to the bargain bin, could now swing back in wool's favour as sustainable, traceable and naturally sourced products take on new value.

Around the world, Covid-19 brought into focus the need for consumers to look after their health, their society and their environment.

Being biodegradable, hygienic, naturally fire retardant and sustainably produced, New Zealand wool ticks many of these boxes for consumers.

For the moment, farmers are prepared to carry the cost of shearing, seeing it as an animal health cost, but some are looking to reduce stock.

Already New Zealand will likely produce the least amount of wool on record this season — an estimated 133,000 tonnes, down 2.8 per cent on last year — a direct reflection of declining sheep numbers.

There is no doubt some farmers have been under additional financial pressure due to the low prices, but there are also good reasons why wool is here to stay, why it plays a vital role in a diversified and sustainable farming sector, and why there are many reasons to be optimistic.

Leading the charge

If the cavalry's on its way, it's being led by numerous companies looking to develop innovative and novel uses for wool — from using it for packaging and hygiene products, to making boat hulls from it.

Among them is one of the country's largest retailers of furniture and bedding, Big Save Furniture.

It has seen huge demand for its new range of locally-made furniture, which uses woollen padding and upholstery.

The company has committed to paying farmers a fair price for their wool, in this case at least $4.50/kg — part of its efforts to make its own business and products more sustainable, and to support the primary sector.

Along with paying farmers fair prices, the company has put even more skin in the game by recently buying four sheep and beef farms in the Ākitio, Hawkes Bay and Tararua regions.

Lorraine Mapu, Managing Director, Business Banking ANZ New Zealand.

Diversifying in this way, and bringing more of its production back to New Zealand, Big Save Furniture is better able to control its supply lines and ensure their long-term sustainability.

As well as investing in research and product development, the company is currently also installing solar panels on five of its showrooms, with an ultimate goal of becoming 100 per cent sustainable.

It has a plan to replace the plastics and synthetic foam in its products with wool, which — being biodegradable — makes them much easier and safer to dispose of at the end of their life.

Big Save Furniture is also exploring using wool for other applications, including using tightly-woven mats as fire-retardant ceiling panels and as a non-toxic alternative to weed-killer, to stop grass from smothering native saplings.

Innovations like these are important for woolgrowers as each new product creates another market for the fibre, and builds the potential for increased demand and improved prices over time.

Everyone loves a winner and this renewed interest in wool is only likely to increase public awareness of the benefits of wool in other products.

The growing movement away from synthetic fibres, towards natural products, will only encourage other manufacturers to join in, further increasing demand.

Back On the Farm

Bringing it back to the farm, there is no question low wool prices have hit farmers in the pocket, but from what we are seeing, for most of them, wool is only part of the equation.
They are also meat producers — some of the best in the world — and most have benefited strongly from improved and consistent lamb and mutton prices in the past few years.

On many of these farms, wool makes up less than 10 per cent of total farm income, and the overall combined income from both meat and wool has increased in recent years.
This has meant the negative impact of low wool prices on woolgrowers has been less than expected, and it has been able to be absorbed by most farmers.

The good news is that any increase in the price of wool will now go straight on to farmers' bottom lines — which bodes well for when wool prices do eventually pick up.
In the short term, wool may not be a significant revenue source for farmers, but once prices rise to the breaking-even point, the income will help to offset the costs of meat production, so will ultimately improve profitability.

There's also a clear lesson in this — the way meat prices have supported farmers through this period is a reminder of the continuing value of diversification.

The global market for our products has never been assured, and — as the pandemic clearly demonstrated — a strong and resilient primary sector needs to be able to manage disruptions like these.

Covid was not the first such shock, and it won't be the last, so as a nation — and as farmers — we can't be putting all our eggs in one basket.

Multiple sources of income on a farm make it better able to weather unexpected changes — whether that be drought, pandemic or changes to customer preferences — and this means they are more sustainable as a business.

Patience will be needed before farmers see higher prices for their wool, but it's clear the fibre's special qualities and our expertise in producing it stands New Zealand in good stead when the world wakes up to wool's potential.

- Lorraine Mapu is Managing Director, Business Banking, ANZ New Zealand.