A LEADING wool market analyst has warned against "putting all eggs into one basket" in allowing China to dominate the Australian wool industry – a move which he says could result in a loss in quality control and harm Australia’s premier Merino wool reputation.
Malcolm Bartholomaeus, Callum Downs Commodity News, said he was "concerned" the industry had "allowed a shift away from Japan and Europe to China" where he said Australia did not have the same sort of quality and price point control.
He told woolgrowers at a Victorian Stud Merino Breeders Association conference in Bendigo that allowing almost the entire wool manufacturing sector to move into China was a "foolish" move.
In March this year China imported 81 per cent of Australia’s total wool exports - a jump from a stable 10-year average of around 60pc.
The comments come in the wake of a crisis meeting between Italian wool spinner Laurence Modiano, Modiano Ltd, and Agriculture Minister Tony Burke over the Government’s withdrawal of credit insurance from the non-Asian wool industry.
"I explained to him that we pay the grower cash for his wool, and then finance it for approximately six months before it leaves our mill, at which point we provide credit terms of up to 180 days to our spinner clients," Mr Modiano told Rural Press from London yesterday.
"The long pipeline means we are financing the growers' wool for up to a year before we get paid - no easy task in a world squeezed of credit."
Mr Modiano said the terms offered to his customers had to be insured in case of default and as a result of large losses in various industries credit insurers were withdrawing or severely cutting back from many sectors, including textiles.
He estimated early stage European wool processing had dropped 63pc in the 12 months to April and 30 million kilograms of capacity had down – the equivalent of 15pc of Australia’s forecast wool production - on the back of a collapse in consumer demand and the withdrawal of credit insurance.
Alternatively, he said, lending in China had risen nearly threefold in the first quarter.
"Neither (Trade Minister Simon) Crean nor the Prime Minister responded to my earlier letters. Mr Burke, however, appeared sympathetic and said he would look into it," Mr Modiano said.
"Unless there is help from the Australian Government in the form of export credit guarantees to its old trading partners it is likely that woolgrowers will be increasingly dependent on China."
Mr Bartholomaeus would not discuss who should take responsibility in monitoring quality control in China.
But Lempriere Fox and Lillie managing director Jonathon Lillie –whose company has a mill in China – said the Australian wool industry needed to take "systematic" action to encourage competition back into the market.
"The horse has bolted relating to manufacturing," he said.
"But I don't think quality in China is an issue….yes it is not up to the standard of Italian cloth but it can and will get there. Quality has improved with European control and guidance."
In terms of market dominance Mr Lillie said a major opportunity to transform the industry had been lost with a break down in wool centralisation talks.
"With shortage of supply they can come in and buy until it gets dear and then pull out. If there is not another strong competitor in the auction system to take up this slack then we’re going to see the market fall," Mr Lillie said.
"Australian Wool Innovation should be looking at the current system and working out how it can serve the industry into the future and fast track change."
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