Economic Evaluation: Australian Wool Export Market Trends & Analysis

This report provides an economic analysis of the Australian wool export market, highlighting the interplay of demand and supply. It examines the factors driving the strong international demand for Australian wool, including favorable exchange rates, the high price of substitutes like cotton, and the shift in focus of competitors towards coarser wool. The report also discusses the impact of innovation in wool products and the increasing demand from markets like China. While the Eastern states are experiencing increased wool yields, Western Australia faces challenges due to dry conditions. The report recommends focusing on promoting wool production across different regions of Australia. The analysis indicates that the agricultural sector, particularly wool exports, plays a vital role in the Australian economy, with China and Italy being major importers. The report concludes that the demand for wool is increasing at a faster rate than supply, leading to price increases and emphasizing the need for continued support and development of the wool industry.

Running Head: ECONOMIC ASSIGNMENT
Economic Assignment
Name of the Student
Name of the University
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Table of Contents
Introduction................................................................................................................................2
Brief summary of the article......................................................................................................2
Article evaluation using economic theories...............................................................................3
Recommendation........................................................................................................................5
Conclusion..................................................................................................................................6
References list............................................................................................................................7

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Introduction
Agriculture in Australia is an important contributor of country’s economy with two
third of total agriculture product being exported all around the world. Agriculture accounts
for nearly 12% of nation’s GDP. Australia has sold 80% of total wheat, 90% of the wool
produced and 50% of barely to the international market (agric.wa.gov.au 2018). Australia is
the largest producers and exporters of Wool. The sheep farmers enjoy an advantageous
position because of rising demand of Wool from all around the world. The wool export of
Australia is increasing in line with wool production. The report centers on evaluation of a
news article regarding the dynamics of wool’s export market in Australia.
Brief summary of the article
The article points out that the demand of wool continues to stay strong benefitting
sheep farmers of Australia. The farmers enjoy a continuous cash flow for 20 years in the
financial year. The profitability of the sheep farmers has increased because of a high rate of
return from wool. The Rural Bank of Australian Wool Annual Review and a report published
by Australian Bureau of Agriculture and Resource Economics and Sciences reveals that high
prices of wool continues to set to a high level.
The favorable exchange rate is one factor contributing to high international demand
for Australian wool. The exchange rate is expected to remain at stable rate of US 74 cents for
the next five years (farmweekly.com.au 2018). The demand for exported wool thus exceeds
its supply. This ensures a good time for Australian farmers and helps to overcome the
damages caused by natural disaster such as drought. The technical innovation in the new
wool product such as fake fur, sports and active wear has significant contribution to export
expansion. The rural bank forecasts that in the sportswear market of China is expected to
double between 2015 and 2020. This will pull the demand far above the potential supply.

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The competitors like of Australian farmers like those in New Zealand have shifted
their focus on a broader micron wool by keeping more meat bread sheep in their cattle. The
competing farmers thus are leaving the fine micron market of Australian farmer. This in
effect increases the demand for finer wool of Australia. The high price of traditional
substitute of wool like cotton restricts any price fluctuation in for cheaper quality fabrics.
Annual income of the sheep farmers is expected to reach at $160,000, which is 20 years high
recording a 35 percent increases as compared to the previous financial year of 2016-17
(farmweekly.com.au 2018).
The export of wool has accounted an increase of 20pc in its value with worth of $3.65
billion. The export volume has increased by 6pc in the last year.
Article evaluation using economic theories
Demand and supply are the two most important tools for understanding market
dynamics. Demand represents the behavior of buyers while supply represents the behavior of
sellers. The balancing state of demand and supply bring equilibrium in the market (Cowen
and Tabarrok 2015). External factors that causes change in demand or supply changes the
equilibrium price affecting price and output in the market.
The wool farmers in Australia are experiencing an increase in the demand. The
increase in international demand is one factor contributing to an increased wool demand. The
export volume to China has accounted a 24 pc increase while that to the Italy has increased
by 40pc. Price of related goods is an important determinant of demand. The high price of
potential substitute, cotton further enhances demand for wools (Berry 2016). The relatively
lower price of wool in terms of Aussie dollar has increased the demand of wool in the
international market. The international competitors of Australian farmers mostly supply
coarser wool. This retains the demand for Australian finer grade wool. The favorable demand

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condition thus boosts the wool demand securing a high income and stability in the market
(Doran-Browne et al. 2016).
Figure 1: Effect of increased demand of wool
(Source: as created by Author)
The steady supply along with high demand helps further contributes to an increase in
Wool price. In the wool growing region, the forecasted median rainfall contributes to
securing a supply. The innovation in wool products contributes to an increase in supply
(Taylor et al. 2014). Innovation in the wool market expanded the demand for wool. The
demand for sportswear in Chinas market has increased rapidly (Barnard 2017). The growth of
demand exceeds the growth of supply giving an upward pressure on price. The Rural bank
has forecasted a persistent increase in demand and price for the next 12 months.

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Figure 2: Demand for wools exceeds the supply growth
(Source: as created by Author)
The wool market expansion has contributed to an increase in cash income of the
farmers. The favorable demand supply scenario has increased the production of wool clip
1.4pc larger accounting three successive years of growth. The size of flock is expected to hit
76.6 million during 2018-19 (farmweekly.com.au 2018).
Recommendation
The increased yield of wool is mostly accounted in the Eastern states. The Western
Australia in contrast is expected to record a decline in yield head because of a dry seasonal
condition. Therefore, focus should be given on facilitating favorable production environment.
A steady water supply should be maintained during dry seasons.
In the livestock export, wool occupies the third place next after beef and veal
combined and wheat (Cottle and Cowie 2016). However, as the current market research
suggests wheat has a higher prospects of growth in the upcoming years. The export

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department thus should shift its focus to promote wool production in different regions of
Australia.
Conclusion
The agricultural sector is one of the vital sector of Australia playing an important role
in meeting both domestic and international demand. Agricultural export related to livestock is
an important aspect to be considered. In the past few years, Australia has experienced a faster
growth in international demand for wool. China, Italy are the some major importers of wool.
The low price of cotton is another factor raising demand of wool. Demand increases at a
much faster rate than growth of supply, increasing price. Western Australia in lagging behind
eastern states because of a drier seasonal condition.

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References list
Agric.wa.gov.au. (2018). Agricultural exports | Agriculture and Food. [online] Available at:
https://www.agric.wa.gov.au/food-export-investment/agricultural-exports [Accessed 23 Apr.
2018].
Barnard, A., 2017. A Century and a Half of Wool Marketing. Textiles in the Pacific, 1500–
1900, p.333.
Berry, P., 2016. Sheep meat and wool. Agricultural Commodities, 6(3), p.83.
Cottle, D.J. and Cowie, A.L., 2016. Allocation of greenhouse gas production between wool
and meat in the life cycle assessment of Australian sheep production. The International
Journal of Life Cycle Assessment, 21(6), pp.820-830.
Cowen, T. and Tabarrok, A., 2015. Modern Principles of Microeconomics. Palgrave
Macmillan.
Doran-Browne, N.A., Ive, J., Graham, P. and Eckard, R.J., 2016. Carbon-neutral wool
farming in south-eastern Australia. Animal Production Science, 56(3), pp.417-422.
Farmweekly.com.au. (2018). Strong demand tipped to continue - Agriculture - Sheep -
General News - Farm Weekly. [online] Available at:
http://www.farmweekly.com.au/news/agriculture/sheep/general-news/strong-demand-tipped-
to-continue/2757042.aspx?storypage=3 [Accessed 23 Apr. 2018].
Taylor, T., Greenlaw, S.A., Dodge, E.R., Gamez, C., Jauregui, A., Keenan, D., MacDonald,
D., Moledina, A., Richardson, C., Shapiro, D. and Sonenshine, R., 2014. Principles of
microeconomics. OpenStax College, Rice University.