Tuesday, February 21, 2017

ABC Landline on Agricultural Trade with China: wool

On Sunday 5 February 2017, ABC Landline returned with a 90 minute special on Australia's agricultural trade with China. For those in Australia, the program is available for repeat on ABC Iview until 7 March. I found it quite fascinating. It also reminded me just how little I knew about some current trade developments.

Let me start with an example.

China is currently the world’s largest wool importer, and in 2015/16 it purchased 80 per cent of the Australian wool clip. China processes an average of 260,000 tons of wool per year, making it the world’s largest wool processor and largest manufacturer of woolen products for the global textile and apparel market. Wool currently represents for 3.5 per cent of the total textile output in China; the domestic market consumes over 70 per cent of its wool products.

I knew that China was now Australia's biggest buyer, but hadn't realised that it now held 80 per cent of the market. I had thought that Italy was relatively more important. I also hadn't realised that the Chinese domestic market was so important for total wool sales. .

I think, perhaps, that the thing that most surprised me was the sophistication of the production process. I know the basic stages in production from raw wool to final product, but all this was a bit of an eye-opener, including the product segmentation. It will be no secret that I love wool fabric, so it was fascinating to watch.

I was also interested in the latest women's fashions from  Chinese super model Lu Yan, As a mere male, and somewhat to the despair of my female family and friends, I am very reluctant to comment on what clothes look like in regard to particular females.

This doesn't mean that I don't have views. I do. I like colour and line, but in the end the clothes have to fit to particular bodies and the taste of the wearers. And that can get you into strife if you comment!

All that said, there have been some very good wool fashions over the years. That scratchy heavy feel that once marked wool is long gone.

Unlike cotton where you can meet increased demand by adding a few paddocks, wool depends upon sheep numbers.This production constraint is a very real issue. When demand is low, sheep numbers drop but cannot be quickly increased when demand rises. This helps make wool a more expensive fibre.

China faces particular production problems because of rising labour costs and environmental requirements. We have already seen how this has led to shifts in textile production from China to cheaper countries such as Vietnam and Bangladesh.

During the program I learned that the Jiangsu Sunshine Group was shifting production to Ethiopia with a total spend variously reported between $US 350 million and $US one billion. to set up a textile factory in the industrial park of the city of Adama. The factory is expected to produce around 10 million metres of worsted wool fabrics, and approximately 1.5 million finished parts.

I was interested in the Ethiopian example because of the brief discussion in comments on African economic development in Saturday Morning Musings - Adama Barrow sworn in, President Trump, preference deals and the Bald Archy's.
Wool was only one part of the Landline program. I will pick up other elements and especially the rise in capital intensity in agriculture in another post.



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