Wool

Wool is derived from sheep or other animals Caprinae family. Sheep is the principal member of this animal family that produces wool. Wool has many uses and for this reason it is a very valuable business commodity. Most countries produce wool but the production is not enough to sustain their demand hence the need to import from other countries whose production supersedes what they need and thus have the capacity to export and still have enough for domestic use. Such countries include: Australia, China, New Zealand, Argentina, Uruguay, UK, and South Africa. The major wool export destinations include countries such as China, Italy, India, Czech Republic, Taiwan, Malaysia, Thailand, Bulgaria, Japan and German. Some of the uses of wool include the manufacture of clothing and blankets, carpets, horse rags, and in upholstery. Most common use of wool is its use in the manufacture of diapers. Diapers are highly marketable because every mother will always need to cover her child with diapers every day. This presents a high demand for wool for the purpose of manufacturing diapers among other things.

Introduction

Among the top ten wool exporters, Australia leads the list. The major importer of Australian wool is china among other countries. Actually, Australia produces 25% of the worlds total greasy wool production. The wool produced in Australia is one of the major revenue earners for the Australian people. In 2005/2006 financial year alone, the wool exported was worth $2.64 billion. China is a major Australian competitor in the wool industry. Despite the fact that China has the highest sheep population in the world, Australia still emerges as the world’s top wool producer. Australians 100 million sheep is mainly 88% Merino which is a sheep breed with very high wool productivity. Most of Australians wool is greasy making it have high demand especially fro China. Australians wool exports have been increasing from time to time. This means that most countries are now seeking to import wool from Australia. In the 2004/05 financial year, the exports raised mainly due to high demand for wool especially the demand for fine and superfine wool (Kadolph , 2007). The rise was 10% more than the previous financial year. Australia is opening up its export to other countries as its production keeps on increasing and this paper seeks to explore the opportunity for the wool export from Australia to Canada.

Strengths

The Australian wool has been known to be of high quality. This is explained by the fact that most countries import wool from Australia. China, which is the major Australian wool destination, has maintained buying wool from Australia not only because Australia has the capacity to supply the gigantic amounts demanded by china but also because of the quality of its wool.

Australians wool can be exported while in its greasy form or it can washed and refined sorted and graded before being exported. This treatment constitutes processed wool. These options are offered to take care of the importers specification. There are those countries who will prefer the Australian greasy wool whereas others will prefer the processed form of the Australian wool (Hitches B, 1998).

Besides the quality of Australian wool, Australia has the capacity to produce enough wool to export and to retain enough for domestic uses. Australia is the world’s largest wool producer claiming 27% of the total world’s wool production followed by china which also claims dominance as the world’s largest Australian wool export destination. The graph below shows the top ten wool producers in the 2004/05 financial year.
Top ten wool producing countries 2004/2005

Source: Australian Wool Production Forecasting Committee, ABARE
Weaknesses
Almost 85% of Australian wool is sold by open cry auction or the sale by sample method in which a sample from each bale is presented for the buyer’s scrutiny before buying. This kind of selling encourages the appearance of middlemen thus making it expensive for foreign buyers. Even though other buying methods such as sale by tender still exist but the percentage of woo sold this way is minimal.
Opportunities
Australia exports sugar to Canada. This is a very important introductory business ties that can help expand the commodity profile that Canada imports from Australia. The fact that the sugar export process is a success then this is a marker that there is a possibility that the wool export can also be a success based on the stability of business ties between the two countries demonstrated by the Australian sugar export to Canada.

Australia depends on the exports for its revenue. In fact, 20% of GDP is claimed by revenues fro exports. Recently, the Australian government has made efforts to liberalize the export market in its bid to maintain its glory in the international market as a major exporter. Important policy initiatives at the domestic level have been taken in favor of exports. There has been also been efforts to lower the export tariff barriers and the introduction of pro-competition policies to encourage exports. All these are good opportunities for wool exports to Canada.

The increase in demand for wool in Canada also poses a possible opportunity for export of wool from Australia to Canada. Canada’s end use demand for wool hit an all time high in 2007. Even though Canada still produces wool, it is evident that the demand for wool beats its supply (Johneen, 2008)
Threats
China claims more than 64% of Australian’s wool exports with other countries such as India and other Middle East countries claiming some stake in the Australian wool. This means that just as much as Canada can still get some stake in the Australian wool exports, it can’t get enough for its production needs because china will always be given priority based on the fact that it has been importing wool from Australia since 1990.

Source: Australian Wool Industries Secretariat
The ABARE’s survey of 1999 showed that factors such as land degradation through weed infestation, soil erosion and wildlife and remnant vegetation protection affect the sheep and thus the wool industry in Australia. Any natural and environmental factors that adversely affect the sheep population will have a negative impact on wool production hindering any export opportunity. Therefore, for the wool production to keep increasing each year, such factors have to be anticipates and appropriate measures taken

The relative low prices of wool and the marketing of wool challenges in Canada pose a formidable threat to Australian’s export of wool to Canada. If the price for wool in china and Canada are compared, it will be realizes that China has better prices than Canada despite the fact that china is even a bette3r wool producer than Canada. In fact it owns the world’s largest sheep population. Based on this, Australia is bound to export wool to China than to Canada.

Canada has import prohibitions and restrictions on a number of commodities such as ammunition, used motor vehicles, alcohol and beverage etc. textile, wool and fur are also listed under the restricted commodities. These restrictions are likely to hinder the feasibility of wool export from Australia to Canada. (EIPA,2008 )

In conclusion, the opportunity for wool export to Canada from Australia can be workable because of the fact that the two countries are already business partners in that Australia exports sugar to Canada. Also the fact that Australia is the world’s largest wool producer gives it the capacity to supply wool to Canada. Regarding the wool import restrictions that Canada has in place, the two government can come together to deliberate the possible measures to be taken by both to make the doing of business with each other favorable. This is possible for example if Australia opens up its market for importation of a specific commodity while Canada on the other hand will move to drop the restrictions on wool. This way, the wool export to Canada will be a reality. However, with china in the scene, wool exports to Canada can be sustained by a subsequent increment in Australians wool production capacity. This can be achieved by increment in the number of sheep population by almost 50% so as to have a surplus of wool to Canada after China has taken its share. Such a wool export increment, will not only increase the share wool export contributes to the GDP but also will make Australia maintain it glory as the world’s largest wool producer.