AWI to feel budget pain from wool price and production slide

Wool price and production slide will cause budget pain for AWI


Sheep
CUT YOUR CLOTH: Australian Wool Innovation CEO, Stuart McCullough, said the marketing and research company would need to make budget cuts because of falling revenues.

CUT YOUR CLOTH: Australian Wool Innovation CEO, Stuart McCullough, said the marketing and research company would need to make budget cuts because of falling revenues.

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The falls in wool prices and production, if sustained, will cause budget cutbacks at Australian Wool Innovation.

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The twin falls in wool prices and production will mean cuts across the board at Australian Wool Innovation including staff.

AWI is already taking $21.5 million out of reserves to cover a projected shortfall in its 2019-20 budget of $21.1m.

However, the expected revenues from the wool levy on growers of $48.6m will be under pressure if the recent nosedive in prices is sustained for a long period.

AWI's income has already taken a hit when grower shareholders voted narrowly last November to reduce the levy on wool sales from 2pc to 1.5pc.

Wool production is also expected to drop by around 15 million kg in 2019-20 to around 285 million kg.

"These are numbers I have to deal with and convert into an operating reality," AWI CEO, Stuart McCullough, said.

Cuts would have to be made across all AWI's activities along with human resources, he said.

Mr McCullough believed the board wouldn't be keen on drawing more than $21.5m from reserves in any one year. Another drawdown was likely in the 2020-21 operating year.

Reserves are forecast at $94.5m at June 30 next year.

"We are chasing the (wool) market down a bit and having to adjust budgets on the fly to remain on target but we will do that."

Mr McCullough said an Eastern Market Indicator (EMI) of around $15 a kg was still profitable for woolgrowers and he was confident a Merino flock recovery would start once favourable seasons returned.

The present price downturn had also reignited concerns the Australian wool industry had most of its eggs in the China basket which now buys around 75pc of the clip.

"China is a wonderful partner to us, not only from a processing point of view but also in (domestic) consumption.

"It has everything. Population, cold climate and now affluence.

"They are going to remain a dominant partner in the wool industry for a long while," Mr McCullough said.

He said AWI was working to build wool processing capacity in countries like Vietnam which was now a global manufacturing hub for sportswear textiles, also one of AWI's target markets.

China and South Korea were making large-scale investments in Vietnam.

The current spate of trade wars and economic uncertainty around the world made Vietnam an attractive and safe haven for all kinds of manufacturing.

Australian Prime Minister, Scott Morrison, was in Vietnam last week further bolstering the strengthening economic ties between the two countries.

"I was in a (Vietnamese) factory a couple of months ago which employs 8000 to 10,000 people and it was knitting wool sweaters day and night," Mr McCullough said.

"Sudwolle (Group), the biggest wool spinner in the world, is about to open a plant just outside of Ho Chi Minh City."

This would give the Vietnamese wool textile processing industry better access to yarn, he said.

AWI was also partnering with Youngone, a major manufacturer of outdoor apparel, footwear and gear which has a large plant in Vietnam.

The story AWI to feel budget pain from wool price and production slide first appeared on Farm Online.

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