Australian woolgrowers are set to benefit from the suspension of wool exports from South Africa to China due to an outbreak of foot-and-mouth disease (FMD).
The peak body of the South African wool industry, Cape Wools SA, released a statement saying that the industry decided on Friday to postpone a crucial wool auction due to China’s customs department suspending “all greasy wool imports from South Africa as a result of the foot-and-mouth disease outbreak earlier in the year”.
It said it was awaiting official notification from China regarding the exact position of the China Inspection and Quarantine Bureau with regards to its imports.
The Australian Wool Exchange Eastern Market Indicator is currently $19.68 a kilogram — $1.56 higher than the same time last year, and it is expected the market would now rise further.
Endeavour Wool Exports trading manager Josh Lamb said the shutdown of the South African wool market meant buyers for Chinese mills would have to compete for the reduced wool supply.
“Most Chinese mills spread their buying out between Australia, South Africa and New Zealand most weeks, so if you take out one of those countries supply-wise the obvious thing is that quantity will have to move to other countries, and Australia would be the beneficiary of that,” Mr Lamb said.
He said it was too early to say how much the market would surge.
“I imagine there will be an increase this week,” Mr Lamb said.
“We were heading that way anyway and the market has been building reasonably nicely over the last two to three weeks, so this might just put a little bit of fuel on the fire.”
Cape Wools SA has escalated the issue “to the highest level and is now being dealt with at the appropriate inter-governmental level”, adding:
All government departments have already been notified about the situation and the impact it will have on the Wool Industry and the farmers and workers alike.
The industry will continue to monitor the situation closely and communicate with all export/import authorities on an ongoing basis.
We are confident that the wool industry is receiving the utmost attention and that the situation will be resolved within the shortest possible time in order for the industry to resume normal trading activities.
Lack of wool lifts prices
National Council of Wool Selling Brokers of Australia executive director, Chris Wilcox, said South Africa were a significant but small player.
“South Africa produces about 10 per cent of the wool that Australia produces with 70 per cent of their export wool going to China,” he said.
“The Chinese do rely on them, so I do expect they will look to Australia and that demand will push prices up as a result.”
This is not the first time the export wool trade from South Africa to China had been suspended, there was an outbreak of FMD in 2000 and in 2011 Rift Valley Fever also impacted trade.
Mr Lamb said the difference with this time was there was not a stockpile of wool in Chinese mills and that would also boost the price for the Australian wool market.
“What we have seen over the few years with restrictions on credit in China and market conditions mills have tended to be behind with their purchasing.” he said.
Keeping the clip clean
Last week, it was announced that FMD was detected in meat products declared and seized at Australian airports several times since December.
Mr Lamb said the Australian wool industry would be decimated if there was an outbreak of the disease.
“It’s always a worry as China has fairly strict quarantine regulations and we can’t afford to have our major customer, who is taking nearly 80 per cent of the Australian wool clip most years, to be out of the market at any stage,” he said.
Mr Wilcox cited the FMD outbreak in the United Kingdom in 2001 which led to a two year suspension of wool exports from the UK into China.
“When there was Rift Valley Fever in South Africa it was two months before they could export to China again.”
Mr Wilcox said the Federation of Australian Wool Organisations had prepared a strategy for the wool industry in Australia if there was an outbreak of FMD.
“We have an emergency animal diseases working group that have developed a plan for, if and when, there is an outbreak,” he said.
“We are ready to respond quickly by quarantining the wool that been affected so trade can be resumed quickly.”
The Australian wool clip was valued at $3.9 billion in 2018.
“If wool exports were suspended for any period of time that would be a significant amount of money that the Australian economy would lose,” Mr Wilcox said.