Fine fleeces /Having faltered during the 1990s, the Australian Merino wool industry is seeing a resurgence on the back of a growing luxury market in China and it’s proving a welcome boost to Brand Australia along the way.
The pastoral hills of Boorowa, 340km southwest of Sydney, do not conform to the typical image of the sunbleached Australian outback. But this is the heartland of the au$2.4bn (€1.9bn) Merino wool industry and a new source of optimism for the Australian economy.
Following the 1991 collapse of the government-led protectionist Reserve Price Scheme – which manipulated the global wool market for almost two decades and led to a devastating 20-year free-fall in Merino flock numbers – Australia’s 43,000 wool growers are only just starting to find their feet again. As Merino numbers fell from 170 million in 1990 to 70.8 million today, there’s a renewed global demand for natural fibres, and Australian Merino, which makes up a quarter of wool apparel globally, is an industry to watch.
Despite the current dampening effect of the European markets, the Australian clip, which produces 359.7 million kilos for export each year, traded at a record level in 2011. And the future looks bright too – the Merino flock is estimated to grow at a rate of 5 per cent a year as wool growers rebuild their stock and take advantage of strong consumer demand from China and other developing markets.
This resurgence has been driven by efforts to innovate at the luxury level of the market, producing Merino so fine that it’s a competitor to cashmere. Ironically, the catalyst for this fibre refinement was the collapse of the Reserve Price Scheme, which led to 4.7 million bales of wool ending up in stockpile, forcing a mass exodus from the industry. Others raised their game, however, shifting production towards the sort of higher-value wool that the market demanded.
A key player in this flight to quality was the Australian Wool Research and Promotion (awrap) organisation. “The market is driven by financial incentives of course, so the message coming from awrap during that time made the push towards going finer more attractive,” explains Helen Cathles, president of Australian Superfine Woolgrowers Association (aswga). As opposed to the heavy and itchy wool most of us would remember from our childhood, modern Merino is light and breathable, adept in both warm and cool climates. It absorbs and redistributes moisture easily, and has what wool growers call a “memory”, meaning a garment will stretch before effortlessly returning to its original shape.
The exceptional qualities of today’s superfine wool can be traced to the concerted effort at genetic improvement during the early 1990s. One breeder who embraced the new movement was fifth generation Merryville farmer Wal Merriman. No stranger to innovative breeding techniques, Merriman was a pioneer of artificial insemination in the 1970s and his grandfather developed a breed now known as the “Merryville Type” in the 1930s. “Pretty well all the fine and superfine industry, with the exception of one or two Saxon studs, have a Merryville influence,” says Merriman. “When people were trying to fine up their stock in the 1990s, they used a lot of our genetics.”
Traditionally, the superfine wool exported from the ports of Sydney, Melbourne and Fremantle in Western Australia was destined for the hungry looms of Italy. But export patterns have changed dramatically in recent years and around 80 per cent of Sydney’s trade is now destined for the Chinese market. “China has taken over as the key destination for Australian wool,” says Lachlan Benson, an executive general manager at the Sydney Ports Corporation. “There’s been subdued growth in key wool markets such as the European Union, the US and Japan, but the domestic Chinese market has remained firm.” With European luxury houses such as lvmh and Richemont Group showing double-digit surges into China last year, Merino is clearly benefitting from the Middle Kingdom’s seemingly insatiable appetite for luxury goods.
Stuart McCullough, ceo of Australian Wool Innovation (awi), the not-for-profit organisation that executes marketing, research and development on behalf of Australian woolgrowers, agrees that China is making the Australian wool market profitable again. “All the growth is in China. The Chinese are keeping this market going, irrespective of which country the wool ends up as a garment. Our wool may still be bought by the Italians, but you don’t have to talk to many Italian weavers to know they’re all making their money in China.”
Dr Paul Swan, the awi’s Market Intelligence and Trade Reporting manager, puts his faith in reports that predict the newly affluent Chinese consumer will increase their spending on clothes by 20 per cent a year for the next 10 years. “China as a luxury market for wool as a luxury fibre is growing rapidly. All our latest data supports the view that wool prices will remain high in the region. Global supply is tight, so what’s happening in Europe is being balanced, to some extent, by growth in other markets.”
All eyes may be looking East, but the future of luxury Merino wool textile production in northern Europe, and in Italy in particular, also remains strong at the premium level. Loro Piana and Ermenegildo Zegna have championed the Australian product for decades, while the Italian mills Vitale Barberis Canonico and Reda purchased 35,000 bales of Merino wool in 2011.
Despite concerns about macroeconomic headwinds in 2012, McCullough believes the immediate future for Australian wool is promising. “With the European credit crunch, there’s no question it’s going to be tough. It’s going to test the market again. But we’re optimistic in the sense that we moved through the last credit crunch nicely. We will be geographically selective in spending our marketing resources; we will target New York and the other affluent parts of the States.”
Merino’s global repositioning has indeed been astute. The iconic Woolmark logo was created during the 1960s. Formerly co-owned by wool growers from Australia, the UK, New Zealand and South Africa, the logo was left solely in the hands of Australia as the other nations departed from the Woolmark Company during the 1970s to the 1990s to create their own individual logos and identities. Worried that the logo’s ubiquity was starting to hurt the Merino luxury brand, the awi created the Woolmark Gold as top-tier in 2010, a by-invitation-only label offered to a handful of producers.
Despite these developments in the industry, there are still serious challenges ahead. The ultrafine clip may continue to act as the Australian Merino “flagship”, but top-end growers often work off-farm to support their enterprise, with many actually running at a loss. Obtaining skilled labour, sheep shearers in particular, is an ongoing concern as the Merino flock continues to swell. There are many other associated costs to growth, such as re-installing fences across thousands of acres, given many farmers tore them down to plant crops during the Merino purge of the 1990s.
The most important issue then is securing a fair and equitable price for the ultrafine and superfine wool growers. “The return for ultrafine wool growers is about one fifth of their production costs at the moment” explains Cathels. “It costs around au$300 a kilo to grow that wool, and they’re receiving nothing like that in the auction rooms. As a superfine wool grower you end up with a lot fewer bales to sell and your costs go up. The markets just aren’t recognising that yet.” With tough times ahead for key European producers, convincing them to fork out more for a bale is an uphill struggle.
Andrew Ledger is a fifth generation wool grower from The Mullion, near Yass, New South Wales, whose family farm has been in continuous Merino operation since 1830. He runs 7,000 sheep on 6,000 acres, in an enterprise that also includes cattle, and remains cautiously optimistic about the future of wool prices. “We’re going to wait three to four years and if things look really good, and with the way they’re going with marketing and promotion of our product that’s likely, then we’re going to say goodbye to all our cattle and return to a full Merino-only operation”.
Elsewhere, wool growers such as Escorial in Tasmania, owned by the New Zealand-born Radford family, have executed a direct supply chain deal with Brooks Brothers, giving them exclusive rights to their clip. Others, such as the ultrafine growers Jemala from western Victoria, are doing tie-ups with major Chinese mills and manufacturers.
The awi has also been busy stitching up fresh marketing collaborations with Italian luxury brands, such as Giorgio Armani and Ermengildo Zegna. Sam Guthrie, the global business development manager of awi, rationalises the situation as win-win for both brand and wool growers. “Today’s luxury brands find success through a balance of elite product quality and brand mythology. The current renaissance in demand for superfine Australian merino wool is directly related to this.”
The rebranding of Merino has become increasingly influential in elevating Brand Australia as a whole, argues Guthrie. “The local wool grower represents a struggle for excellence and innovation, something this generation of farmers, and many generations before them, have pursued doggedly.”
The good news for Australia’s farmers is that even if nations such as China or Russia manage to raise the quality of their fleece, they will face credibility issues when compared to centuries of farming heritage and skill in the eyes of the global Merino consumer. Few things beat a strapping Australian farm hand in terms of brand value.
Ninety per cent of Australian Merino is sold through the national auction system, managed by Elders Australia. Before auction, each wool grower’s clip is taken to a regional centre for testing by the Australian Wool Testing Authority (AWTA), where a core sample is taken to ascertain micron, yield and vegetable matter content. The sample is then sent to laboratories in Melbourne and Fremantle to be assessed for micron value. Once purchased, three bales of wool are compacted by machine into one bale, bar-coded and loaded into containers.
The quality of Merino is measured in microns (micrometres) and the lower the micron, the finer the wool. The Australian Wool Testing Authority (AWTA) has lent its technology to Merino wool growers since the 1980s, meaning every sheep can be individually tested for fibre length, strength, and curvature.
So how does one discern between the different micron fleeces? In terms of fleece definition, ultrafine wool is considered to be 14.9 micron and finer. Superfine wool is between 15 and 18.6 microns, and coarse wool is anything above 23 microns.
What to look for in a Merino sheep, as told by wool grower, Tim McGrath, of Hopefield, Boorowa, NSW
Body: “I’m looking for a longer body, straight up. The longer the sheep, the more everything: more wool, and more meat.”
Loin, back, flank and hindquarter: “Deep in the loin, going down the back and down the flank, down to the hindquarter. The area near the sheep’s rear end is where they grow a large bulk of the wool.”
Chest: “Reasonably big chest, so she’s got plenty of heart room, which means she can walk all day if she has to.”
Shoulder point: “Not so much at the back of the neck, more so down the point of the shoulder is the finest, more elite piece of the fleece.”
Throat: “A nice drape down the front of the neck, but nothing too over the top.”
Head: “You want good coverage, with a nice bonnet-like covered head.”
Fleece: “You want to feel the softness by hand. Dark flecked tips indicate nourishment. You also want it as clean as possible, with little vegetable matter.”