In a bid to reduce its vulnerability to potential supply chain and trade disruptions, Australia's $3.6 billion wool industry is looking to build onshore wool-processing facilities.

Currently, just 5 per cent of the nation's wool clip is processed in Australia. Most of it is sent in its raw form to China where wet processing removes grease and vegetable matter, and dry processing combs and cards the wool, ready for the global spinning market. 

WoolProducers Australia's general manager Adam Dawes said it became very obvious in 2020 how vulnerable Australian wool growers were to sudden changes in global supply chains, geopolitical tensions and biosecurity risks.

"They were risks that could come about from an emergency animal disease, such as foot-and-mouth disease (FMD), or disruptions to market access — either through the impositions of quotas or non-tariff barriers," he said.

Mr Dawes pointed to South Africa, where FMD outbreaks left farmers temporarily unable to export unprocessed wool, an event that would cost Australia $1.2 billion, on average, for each year affected.

Mr Dawes said extended global shipping disruptions had seen ships delayed, and some vessels had dropped off key exporting ports, which delayed wool shipments to downstream customers.

Australian wool processing

In a bid to reduce the industry's exposure to risk, WoolProducers Australia commissioned Deloitte Access Economics to conduct an early-stage analysis of the viability of reintroducing some early-stage processing in Australia.

It would be a significant shift from the current operating model, which sees about 80 per cent of Australian wool shipped directly to China in its greasy form, which is unprocessed wool straight from the sheep's back. 

"We looked at processing up to 50 per cent of the wool that we produce as part of this feasibility study," Mr Dawes said.

"Part of the reason for that was that we looked at what happens to our wool when we export it.

"So as a starting point, we looked at a moderate increase to a high-level increase up to 50 per cent of the wool that we produce, and what impact that might have in terms of risk mitigation to our industry." 

Mr Dawes said the report found the increased Australian labour costs of wet processing wool, in comparison to countries like China, would be offset by reduced freight costs.

This was because the washing and carbonising of the wool removed waste, which was about half of wool's raw volume.

New target markets

He said the next phase of the project would investigate if supply chains could adjust to combing and carding wool before spinning —  a decoupling of traditional wet and dry processing. 

Target markets for Australian processed wool would include India, Vietnam, Bangladesh and Indonesia, which the report identified had strong textile sectors but little wool production. 

Mr Dawes said Australian processed wool could attract a price premium.

"We know that sustainability and supply chain transparency are of increasing importance to consumers of all agriproducts, including wool," he said.

"We'd [also] be able to offer assurances around some of the credentials of some processing innovations — such as using renewable energy [and] decreased water consumption.

"It would all add to the story of sustainability that is Australian wool."