CHAPTER 2
SIGNIFICANT INDUSTRIES INVOLVED IN VALUE-ADDING
Introduction
2.1 This chapter presents an introduction and overview of some of
the major sectors of the Australian agricultural industry involved in value-adding
activities, namely:
- textile industries: wool and cotton;
- grain industries: wheat and rice;
- meat industry; beef, lamb, sheep, pork and pet food;
- dairy industry;
- sugar;
- tobacco; and
- horticultural industries: dried fruits and wine.
2.2 In addition to the overview provided of selected agricultural
based industries the chapter also sets out details of specific value-adding activities
undertaken by some industries.
Textile industries
2.3 Australia's two most significant textile industries are wool and
cotton. This section of the chapter sets out the importance of these two industries to
Australia along with the major problems they has faced in recent years. The section also
describes the significant value-adding activities that take place in the industries.
Wool
2.4 From 1980 to 1990 the national sheep flock witnessed unprecedented
growth. However, with the collapse of world wool markets in 1990-91 Australia
was left with a residual stockpile of 4.7 million bales of wool and an
industry debt totalling close to $3 billion. [1]
2.5 Australia has the largest sheep flock in the world located on approximately
70 000 wool growing properties. Due to drought and falling returns from
wool, Australia's number of sheep fell to 120 million head in 1995-96.
It is expected that the national herd will increase to about 140 million
in the years 2000-2001. Australia's wool production accounts for almost
30 per cent of world production. [2]
2.6 Australian shorn wool production was estimated to have fallen by
about 39 per cent between 1989-90 and 1995-96. The bulk of this decline
was attributed to lower prices following the collapse of the reserve price
scheme. The Australian Wool Production Forecasting Committee was of the
view that shorn wool production will fall by around 6.9 per cent to 631
000 tonnes in 1995-96. Shorn wool production is projected to rise to 660
000 tonnes in 1996-97 as farmers rebuild their sheep flocks. Production
is expected to continue to rise, reaching 775 000 tonnes by 2000-2001.
[3]
2.7 The Australian sheep flock is predominantly pure-bred merino producing
fine and medium wool particularly suited for the manufacturing of apparel.
[4] As a result of its superior growing and preparation
Australian wool demands a price something like three or four times the
price paid on the European market for Russian wool. [5]
2.8 Until recently Australian woolgrowers were largely indifferent to
expanding the early stage processing of wool in Australia. The focus of
these producers was directed to the sale of greasy wool and to the statutory,
guaranteed minimum price available to wool sold through auction. [6]
It appears that when there is a fall in the price of wool there is increased
interest among growers in the possibility of increasing the early stage
processing of wool but when prices improve for raw wool interest in this
form of value-adding declines. However, the International Wool Secretariat
(IWS) [7] did not believe this fall off
in interest in value-adding was the result of farmers being lazy or inefficient
but simply that they acquired a more realistic view of the prospects of
gaining a return from the early stage processing of their wool. [8]
Problems faced by the industry in the past
2.9 Efforts to add value to wool through processing in Australia have
faced many difficulties in the past. Wool traders who have effectively
controlled the trade claimed that value-adding to wool in Australia was
contrary to their interests. [9] The Wool Industry Review Committee stated
in August 1993 that until the 1980s:
High protection, industry fragmentation and the anti-competitive management
and labour practises that it encouraged, combined with the associated
raising of economy-wide costs, extinguished competitiveness in processing
activities in which Australia had potential advantages. [10]
2.10 Competition from synthetic and other fibres has significantly impacted
on the wool industry. As of March 1994 man made fibre production was ten
times that of wool production while cotton out produced wool by a factor
of 11 or 12 times. [11]
Value-adding operations
2.11 In its evidence to the inquiry the International Wool Secretariat
submitted that value-adding did not start at the farm gate but with the
“production process on the farm and then proceeds beyond the farm
gate and into processing.” [12]There
are a variety of methods employed to add-value to raw wool, including:
- scouring to remove the natural grease and dirt from raw wool;
- carding and combing into “top” prepare the clean wool for
conversion to yarn;
- spinning the wool into yarn;
- weaving and knitting the yarn into cloth;
- dying and finishing the cloth; and
- fabricating the cloth into garments and other consumer products. [13]
2.13 There are three types of manufacturing systems used in the
production of wool textiles:
- the worsted system;
- the semi-worsted system; and
- the woollen system.
About 60 per cent of apparel is produced on the worsted system that uses
fine to medium wools to produce fine, lean yarn and fine, smooth handling
fabric. Although 80 per cent of Australian wool is suitable for use in
the worsted system only 15 per cent of these wools are processed prior
to export. [14]
2.14 The woollen system uses shorter fibre wools to produce coarse bulk
yarns. Seventy per cent of such wool is scoured or carbonised in Australia.
About six per cent of this wool is further processed in Australia into
apparel, blankets, carpet and upholstery fabric, some of which is exported.
The semi-worsted system generally uses longer-coarser wools to produce
coarser yarns for carpets. [15]
Early stage processing of wool (ESP)
2.15 Until 1970 less than 20 per cent of the national wool clip was scoured
in Australia. By 1992-93, 30 per cent of Australia's total wool production
was processed through scouring and carbonising stages accounting for $660
million in export income. [16] Activities
of Japanese companies contributed to this expansion in scouring in Australia.
Japanese companies, faced with pollution problems in their own country,
encouraged the export from Australian of high quality scoured fleece wool.
During 1992-93 Japan took as much of its raw wool from Australia scoured
as in the greasy form. Japanese investment encouraged both scouring and
topmaking operations in Australia. Further investments from countries
such as France, Germany, Italy, the UK, Korea and the United States have
further supported scouring in Australia. [17]
According to the International Wool Secretariat the construction of new
scouring and carbonising plants have given Australia a “world class,
technically advanced, and highly efficient early-stage processing industry.”
[18]
2.16 Although Australian mills continue to scour and carbonise much of
the lower end of the wool clip there is now a substantial and expanding
scouring sector that processes high quality combing wools for export.
As with the increase in wool scouring, the post 1970 developments in wool
combing have been almost entirely export focused. [19]
2.17 There are significant advantages to the Australian wool
industry in exporting scoured wool. These advantages can be summarised as:
- scoured wool attracts a premium of about 15 per cent compared to
greasy wool;
- scouring has an impact on quality since it increases the dialogue
between producers and processors;
- scouring of wool reduces the mass of greasy wool by 35 per cent which
reduces freight costs although not significantly since freight rates are a function of
both mass and volume;
- scoured wool increases market flexibility. It has been claimed that
the availability of scoured wool has been important in Australia gaining
market penetration in China. [20]
2.18 The topmaking process involves a considerable increase in the
scale of value-added income. The process has a return of 50 per cent or more compared with
the relatively small gains resulting from scouring. Other benefits of topmaking to the
Australian wool industry and economy include:
- increased employment;
- a reduction in freight cost of around 20 per cent compared to greasy
wool; and
- increased contact between growers and processors leading to improved
wool top quality. [21]
Later stage processing of wool (LSP)
2.19 While early stage processing enhances the value of wool, the greater
increments in value-adding lie in the later stages of processing. As noted
earlier the Australian Wool Processors Council has estimated that the
value-adding index from greasy wool to fabric as 1:10.7 compared with
1:1.6 for wool processed to the top stage only. [22]
2.20 In 1992-93, only 10 million kilograms (mkg) of Australia's 800 mkg
national wool clip was processed through to the yarn stage in this country.
This represents only 1.25 per cent of the national wool clip. Yarn and
fabric processed in Australia is almost exclusively sold in the domestic
market which despite significant levels of protection have been under
increasing pressure from imports. [23] in 1992.
2.21 Unlike early stage processing, later stage processing that provides
the greatest value return to the industry, has declined in recent years.
For example, the production of pure wool and wool blend yarn, other than
carpet yarn, has declined by 38 per cent since 1981-82. This resulted
in a significant reduction in the quantity of wool processed into fabric
in Australia during this period. [24] Woollen yarn production dropped from 2 190
tonnes in 1988-89 to 2 060 tonnes in 1991-92. Worsted yarn production
fell from 4 430 tonnes in 1988-89 to 3 200 tonnes in 1991-92. [25]
2.22 Yarn for machine knitting represents 67 per cent of worsted yarn
production. It is claimed that the fashion switch away from wool jumpers
and the increased import of finished garments has severely affected the
market for yarn for machine knitting. Woollen fabric production fell form
4.8 million square metres in 1988-89 to 3.7 million square metres in 1991-92
and production of worsted fabric dropped from 5.0 million square metres
to 4.4 million square metres during the same period. [26]
2.23 In 1979 there were 20 enterprise groups owning 31 major wool spinning
and weaving mill operations. As of 1992 this figure had fallen to eight
enterprise groups operating 12 major spinning and weaving mills. [27]
Cotton
2.24 Cotton is a very significant export earner for Australia. During
the past ten years between 88 and 94 per cent of Australia's cotton crop
was exported each year making Australia one of the world's largest exporters
of cotton. Australia has consistently remained among the top five cotton
export nations. Its ranking among cotton producing countries has ranged
from second, behind the United States in 1989-90 and 1990-91 to being
the world's fourth largest exporter at present. The Committee understands
that Australia has the prospect of becoming the world's third largest
producer of cotton, after the United States and Uzbekistan, by the year
2000-2001. [28]
2.25 Australia's exports of cotton increased significantly over the last
30 years reaching 295 000 tonnes in 1994-95. Since the late 1960s Australia's
raw cotton trade has generated $6.9 billion in export revenue with more
than $3.8 billion being produced since 1990. In 1992 cotton became Australia's
fourth largest agricultural export after wool, wheat and beef. Australian
cotton exports are expected to increase to 562 000 by the year 2000. [29]
2.26 The area planted to cotton in Australia was estimated to be 291
000 hectares in 1995-96, which was 69 000 hectares more than in 1994-95.
The shortage of irrigation water limited plantings for the fourth consecutive
season. The area planted to rain grown cotton in Australia was estimated
to be 100 700 hectares in 1995-96, 67 000 hectares more than the 1994-95
area. Production of rain grown cotton was forecast to be a record 61 700
tonnes in 1995-96. This was 17 per cent of forecast total production.
[30] The availability of water for irrigation
is clearly the main constraint on further expansion of the cotton crop.
2.27 Since 1980 cotton's share of the world total fibre market has been
steady at about 48 per cent with mill consumption of cotton increasing
at an annual rate of about 2.1 per cent. Cotton is expected to maintain
its market share at about 48 per cent over the medium term in spite of
increased competition from a new generation of improved synthetics, particularly
micro-denier fibres. [31]
2.28 The cotton industry provides an excellent example of how new varieties
of a crop and improved yields resulting from scientific research can make
a significant contribution to improved income resulting from value-adding.
Until 1991 most Australian cotton was considered to be comparable with
that produced in California and Arizona in the United States. This cotton
was know as CA cotton. This put Australian cotton in the high-medium category
for cotton although until 1991 such Australian cotton sold at a substantial
discount to CA cotton. However, by 1991 super varieties of cotton that
the Commonwealth Scientific and Industrial Research Organisation (CSIRO)
developed had largely replaced US varieties in this country. These new
Australian varieties of cotton improved buyers' perception of Australia's
cotton. This resulted in Australia's cotton obtaining a premium when sold.
[32]
2.29 Mr Bob Dall' Alba, General Manager, Marketing, with the
Queensland Cotton Corporation Ltd, has stated:
Australian cotton is now clearly positioned as a premium product and,
in the medium staple market our high grade cotton competes directly
with the yardstick of fine cottons, San Joaquin Valley. This has been
possible because of the foresight shown by our industry in concentrating
on product improvement. The new technology developed and implemented
has resulted in improvement in the quality of Australian cotton fibre.
[33]
2.30 The acceptance and application of new technology has enabled Australian
cotton farmers to obtain yields more than double the world average. [34]
2.31 Mr Max Foster, a commodity analyst with the Australian Bureau
of Agricultural and Resource Economics (ABARE), improved cotton varieties and better
agronomic practices are likely to result in significantly lower cotton production costs
over the medium term. According to Mr Foster:
Particularly significant to trends in cotton production costs are the
new transgenic cotton varieties that have been genetically engineered
to resist insects or to be unaffected by chemical weed killers. [35]
2.32 The Committee understands that the Australian spinning industry
is an important consumer of Australian cotton and in recent years has
been undergoing a resurgence. In the mid-1980s Australian domestic processing
of cotton had declined to about 20 000 tones per year but by 1993-94 this
figure had increased to 31 700 tonnes of which 25 per cent was exported
after processing. It is projected that by 1999-2000 Australian domestic
processing of raw cotton will reach 35 000 tonnes per annum. [36]
Footnotes
[1] Evidence, IWS, p. 140.
[2] T. Goesch and others, Outlook for
Wool, Outlook 96, Vol. 2, Agriculture: collection of papers delivered at the Outlook
96 Conference held in Canberra 6-8 February 1996, organised by ABARE, p.184; see also Evidence,
IWS, p. 139; Maximising the Return: Adding Value to Australian Wool: Report of the
Wool Processing Task Force, Department of Primary Industries and Energy, Canberra, 1993,
pp. 5, 6; Wool: Structuring for Global Realities, Report of the Wool Industry
Review Committee, Canberra, August 1993, p. 48
[3] T. Goesch and others, Outlook for
Wool, Outlook 96, Vol. 2, Agriculture: collection of papers delivered at the Outlook
96 Conference held in Canberra 6-8 February 1996, organised by ABARE, p.184; see also Evidence,
IWS, p. 139; Maximising the Return: Adding Value to Australian Wool: Report of the
Wool Processing Task Force, Department of Primary Industries and Energy, Canberra, 1993,
pp. 5, 6; Wool: Structuring for Global Realities, Report of the Wool Industry
Review Committee, Canberra, August 1993, p. 48. For information on the current and future
state of the international and Australian wool industries see T. Goesch and others, Outlook
for Wool, Outlook 96, Vol. 2, Agriculture: collection of papers delivered at the
Outlook 96 Conference held in Canberra 6-8 February 1996, organised by ABARE, pp. 177-179.
180-185.
[4] Wool: Structuring for Global
Realities, Report of the Wool Industry Review Committee, Canberra, August 1993, p. 50.
[5] Evidence, IWS, p. 176
[6] Evidence, IWS, p. 147.
[7] In March 1994 the Committee received a
submission from the Australian Wool Research and Promotion Organisation (AWRAP). In 1995
AWRAP was integrated into the International Wool Secretariat. As a result of this
development any reference to the AWRAP submission has been changed to the IWS in this
report
[8] Evidence, IWS, p. 186.
[9] Evidence, Professional Resource
Group, p. 194.
[10] Wool: Structuring for Global
Realities, Report of the Wool Industry Review Committee, Canberra, August 1993, p. 59.
[11] Evidence, IWS, p. 173.
[12] Evidence, IWS, p. 177.
[13] Evidence, IWS, pp.
141-142.
[14] Maximising the Return: Adding
Value to Australian Wool: Report of the Wool Processing Task Force, Department of
Primary Industries and Energy, Canberra, 1993, p. 16.
[15] Maximising the Return: Adding
Value to Australian Wool: Report of the Wool Processing Task Force, Department of
Primary Industries and Energy, Canberra, 1993, p. 16.
[16] Evidence, IWS, pp. 148.
By 1993 33 per cent of the national wool clip was undergoing some form of processing. The
vast majority of this production, 95 per cent, was exported as scoured or carbonised wool,
or as wool tops. Wool: Structuring for Global Realities, Report of the Wool
Industry Review Committee, Canberra, August 1993, p. 63.
[17] Evidence, IWS, pp. 146,
148, 158.
[18] Evidence, IWS, p. 147.
[19] Evidence, IWS, p. 146.
[20] Evidence, IWS, pp.
158-159.
[21] Evidence, IWS, pp.
162-163.
[22] Maximising the Return: Adding
Value to Australian Wool: Report of the Wool Processing Task Force, Department of
Primary Industries and Energy, Canberra, 1993, p. 16.
[23] Evidence, IWS, p. 148.
[24] Wool: Structuring for Global
Realities, Report of the Wool Industry Review Committee, Canberra, August 1993, p.
vii.
[25] Maximising the Return: Adding
Value to Australian Wool: Report of the Wool Processing Task Force, Department of
Primary Industries and Energy, Canberra, 1993, p. 16.
[26] Maximising the Return: Adding
Value to Australian Wool: Report of the Wool Processing Task Force, Department of
Primary Industries and Energy, Canberra, 1993, p. 16.
[27] Maximising the Return: Adding
Value to Australian Wool: Report of the Wool Processing Task Force, Department of
Primary Industries and Energy, Canberra, 1993, p. 16.
[28] M. Foster, Outlook for Cotton,
Outlook 95, Vol. 2, Agriculture: paper delivered at the Outlook 95 Conference held in
Canberra 7-9 February 1995, organised by ABARE p. 231.M. Foster, Outlook for Cotton,
Outlook 96, Vol. 2, Agriculture: collection of papers delivered at the Outlook 96
Conference held in Canberra 6-8 February 1996, organised by ABARE, p. 335 and Mary Scott, Future
Export Markets for Australian Cotton, Outlook 96, Vol. 2, Agriculture: collection of
papers delivered at the Outlook 96 Conference held in Canberra 6-8 February 1996,
organised by ABARE, p. 345.
[29] Mary Scott, Future Export Markets
for Australian Cotton, Outlook 96, Vol. 2, Agriculture: collection of papers delivered
at the Outlook 96 Conference held in Canberra 6-8 February 1996, organised by ABARE, pp.
347, 352; see also Bob Dall' Alba, Positioning Australian Cotton in the World Market,
Outlook 94, Vol. 3, Agriculture: collection of papers delivered at the Outlook 94
Conference held in Canberra 1-3 February 1994, organised by ABARE p.142; M. Forester and
others, Outlook for Cotton, Outlook 94, Vol. 3, Agriculture: collection of papers
delivered at the Outlook 94 Conference held in Canberra 1-3 February 1994, organised by
ABARE p. 136.
[30] M. Foster, Outlook for Cotton,
Outlook 96, Vol. 2, Agriculture: collection of papers delivered at the Outlook 96
Conference held in Canberra 6-8 February 1996, organised by ABARE, p. 337; see also M.
Foster, Outlook for Cotton, Outlook 95, Vol. 2, Agriculture: paper delivered at the
Outlook 95 Conference held in Canberra 7-9 February 1995, organised by ABARE p. 234.
[31] M. Foster, Outlook for Cotton,
Outlook 95, Vol. 2, Agriculture: paper delivered at the Outlook 95 Conference held in
Canberra 7-9 February 1995, organised by ABARE p. 235; see also M. Forester and others, Outlook
for Cotton, Outlook 94, Vol. 3, Agriculture: collection of papers delivered at the
Outlook 94 Conference held in Canberra 1-3 February 1994, organised by ABARE pp. 134, 135.
[32] Bob Dall' Alba, Positioning
Australian Cotton in the World Market, Outlook 94, Vol. 3, Agriculture: collection of
papers delivered at the Outlook 94 Conference held in Canberra 1-3 February 1994,
organised by ABARE pp. 143, 144.
[33] Bob Dall' Alba, Positioning
Australian Cotton in the World Market, Outlook 94, Vol. 3, Agriculture: collection of
papers delivered at the Outlook 94 Conference held in Canberra 1-3 February 1994,
organised by ABARE p. 148.
[34] Bob Dall' Alba, Positioning
Australian Cotton in the World Market, Outlook 94, Vol. 3, Agriculture: collection of
papers delivered at the Outlook 94 Conference held in Canberra 1-3 February 1994,
organised by ABARE p. 142.
[35] M. Foster, Outlook for Cotton,
Outlook 96, Vol. 2, Agriculture: collection of papers delivered at the Outlook 96
Conference held in Canberra 6-8 February 1996, organised by ABARE, p. 338.
[36] M. Foster, Outlook for Cotton,
Outlook 95, Vol. 2, Agriculture: paper delivered at the Outlook 95 Conference held in
Canberra 7-9 February 1995, organised by ABARE p. 240.