Two per cent wool levy recommendation

September 3, 2015

AUSTRALIAN Wool Innovation, which funds research and marketing
on behalf of woolgrowers, has recommended that members vote in ‘WoolPoll’ for a two per cent levy for the next
three years.

However, some Western District woolgrowers want the AWI to reduce its funding for marketing activities or change its approach to promoting Australian wool around the

A two per cent levy brought in about $43 million to AWI from woolgrowers in 2013/2014, which was combined with $8.7m from brand licensing and $13m in government contributions.

AWI has previously spent 40 per cent of its funding on research and development (R&D), which has occurred both on and off farms, and 60 per cent on marketing.

AWI chief executive Stuart McCullough confirmed last week that this spending ratio will continue.

Woolgrowers who have paid a levy will be given the chance over the next six weeks to vote on how much of their sales go towards AWI, with options ranging from zero to three per cent.

Hensley Park Jigsaw Farms principal and manager Mark Wootton said he would vote to cut AWI’s funding and he believed many other local growers would do the same.

“I’m a zero (levy) man now,” he said.

“South-west Victorian growers aren’t getting much from AWI; it’s a very NSW-centric organisation.

“I’m convinced about the
R&D, but I’m not sure if
the marketing has been


Mr McCullough said the two per cent level was put forward because that was the maximum level the Government would match, and there were also concerns about the global economy.

AWI has commissioned Deloitte to produce an independent report into “all aspects” of its organisation and had found the levy offered “excellent return on investment”.

“What they found is that the company in the last three years improved productivity, we also created some demand for wool and increased wool prices, and we delivered cost savings as well,” Mr McCullough said.

“What they also said is for every $1 spent, $2.90 was
returned to woolgrowers.”

AWI had been “very successful” in promoting wool as a ‘technical’ fibre for the ‘sports and outdoor’ market, as well as re-establishing the luxury market in China.

“The recommendation is two per cent (for the levy). The rationale for that is, firstly, the cost/benefit analysis that has been done by Deloitte indicated that we are doing OK, we are doing well,” Mr McCullough said.

“(At the time of assessment) Greece looked like defaulting on loans, America was still emerging, and China looked a little bumpy. And it has proved to be really bumpy with growth there, although promised at seven per cent, it’s going to be half that.

“We are of the view that consumer confidence is not going to be great over the next three years and now is the time to ratchet up.”

Call for changes

Despite the results presented by Mr McCullough, a number of Western District woolgrowers have called for changes to be made to AWI’s approach to marketing, as well as its transparency with the results of WoolPoll and feedback from its brand campaigns.

Mr McCullough was asked during the WoolPoll launch event in Melbourne last week about the lack of WoolPoll ‘roadshow events’ in the Western District.

“Are you afraid of what
some of the farmers might
say to you?” a woolgrower

Mr McCullough dismissed that suggestion, but it appears some local woolgrowers have concerns and want better communication with AWI.

“There’s a lack of transparency, I’ve asked them about their marketing campaigns and they’ve said it can’t be judged easily; I wouldn’t be able to run my business like that,” Mr Wootton said.

“I’m sure a lot of SW Vic growers would have voted for zero last time. AWI must have that voting data but they won’t release it.

“There’s a lot of frustration as the wool industry has changed, but I’m not sure AWI has.”


Nareeb Nareeb Station property manager and stud principal Richard Beggs said “overall I’m pretty happy with AWI” but he had concerns.

“I support the two per cent levy. I wish that AWI would offer growers a way to vote on how the levy was spent,” he said.

“I would like to see a higher percentage spent on research and on farm innovation rather than marketing

“A lot of growers feel that the spending has shifted too far towards marketing.

I’m a little disappointed in the WoolPoll committee that they didn’t give us that option.”

As AWI has recognised, many woolgrowers are looking at their returns and being tempted to switch to producing crops or other livestock.

‘Glenholme’ woolgrower Matthew Linke said he was questioning the two per cent levy recommendation.

“We’re not seeing the return with auction prices. There’s a fair value for 21 microns but with 16-17 microns it’s getting hard to meet costs,” he said.

“We want to go with a contract rather than go to auction.

“I can’t see the benefits of AWI flowing through to growers if they are producing super fine.”

Mr Linke also said that he found AWI’s approach to marketing “concerning” and he had spoken to wool buyers who shared the same opinion.

Money was also a big concern for Mr Wootton.

“Two per cent is a lot of money … I’m not going to say how much but it’s a fair motza,” he said.

“This is a real life decision and we have got other options.

“Cattle is an option for us, or prime lamb. Right now, protein is king.”

Comment: Global market is big influence on local gas policy



Rising unemployment and declining manufacturing will collide with farmer-driven campaign against unconventional gas, but international markets will play the role of umpire.


The Victorian Liberal National Coalition has announced it will support an “extension of Victoria’s (current) onshore gas moratorium until 30 June 2020”.

It should be noted that the next Victorian state election is scheduled for November 2018, resulting in the policy’s effective length being 19 months (if the Coalition was returned to power).

Victoria has a moratorium on most aspects of onshore gas exploration and development, which was originally put in place by the previous Coalition Government and later expanded.

The current moratorium is so broad that it has even halted gas exploration projects that are unlikely to use hydraulic fracturing, such as Otway Basin works proposed by Lakes Oil.

Global oil prices are less than half of what they were 18 months ago, which has placed huge pressure on the US shale oil industry following its fracking-powered boom times.

Many shale projects were given the green light with an expectation that investors would be paid back from oil prices of between $USD80 to $60 per barrel.

Oil prices have spent most of this year between $USD40 and $50 per barrel.


West Texas crude oil price index - 18 months to September 30, 2015. Source:
West Texas crude oil price index – 18 months to September 30, 2015. Source:

Liquified Natural Gas (LNG) prices were a little slower to follow oil prices but their recent fall has been considerable.

Japanese market regulators even skipped the monthly issue of LNG spot prices in June this year due to “a lack of trades”, a move that was widely interpreted as a sign of “tepid” demand.

US domestic and Japanese prices for Liquified Natural Gas (LNG) and crude oil imports to August 2015. Source: US Energy Information Administration.
US domestic and Japanese prices for Liquified Natural Gas (LNG) and crude oil imports to August 2015. Source: US Energy Information Administration.

The impact of low fossil fuel prices has been felt locally as well, with Adelaide-based oil and gas exploration company Beach Energy cutting $55 million from its capital expenditure budget in January this year.

Beach Energy was also hit by the departure of US energy giant Chevron, which had been a partner for Beach’s joint shale venture in remote South Australia.

The collapse of prices has become its own market-enforced moratorium on new unconventional gas projects, though recent sharp falls in the Australian dollar may help the fledgeling industry.

Meanwhile, an 18-month campaign against unconventional gas in rural areas in the southern half of Victoria, particularly in the rich farmlands of south-west Victoria and Gippsland, culminated in a 1000-strong protest in Melbourne this month.

Wool and red meat prices are rising and so are agribusiness wages, increasing the political clout of farmers and their representative bodies.

The upcoming state by-elections in South-West Coast and Polwarth, combined with over 1700 mostly anti-gas submissions to an ongoing parliamentary inquiry, undoubtedly had a influence in the Coalition’s new gas policy.

The Coalition’s policy appears largely based on the Victorian Farmers Federation policy, which was itself recently strengthened by a conference motion brought by farmers from south-west Victoria.

However, it must not be forgotten that agricultural exports also have floating prices and are influenced by the same global economic slowdown that has helped dragged down gas prices.

If China’s slowing economy results in anxious parents in Beijing and Shanghai no longer paying $AUD60 to $100 for Australian powdered infant formula, then an entire local industry is placed at risk.

If Japan reduces its appetite for premium Australian beef, or executives in Hong Kong take the scissors to business wear budgets, then the effects will be felt locally as well.

Fossil fuels may again dominate the economic stakes thanks to their high price inelasticity, causing large swings from relatively small changes to supply or demand.

The instant economic sugar hit that gas and oil fracking can provide could also be a future godsend for state and federal governments under pressure from rising unemployment and stagnating wages.

The estimates for how long a fracking operation can produce oil or gas varies from between three years and thirty years, but for any government under siege and facing an election that represents a lifetime.

Suffering from an impeding departure of local vehicle manufacturing and uncertainty over where new submarines are to be built, South Australia appears to be hitching its wagon to unconventional gas.

South Australian Treasurer Tom Koutsantonis, a member of a minority Labor Government, tweeted after the Victorian Coalition’s policy announcement that SA was “now the only welcoming jurisdiction for oil and gas investment supplying the Australian east coast markets”.

Should warnings from petroleum lobbyists come true, and a lack of domestic production does significantly increase local gas prices, then that could also become an election-defining issue for Victoria’s mainly urban population.

Providing that oil and gas companies have sufficient capital and shareholder goodwill, they could ride out the slowdown and return to their non-perishable oil deposits once global prices trend upwards again.

Bargain hunters have also been snapping up shares in oil and gas companies, hoping that their ‘buy in gloom, sell in boom’ strategy will pay off when the oil price rises.

For example, Kerry Stokes bought considerable Beach Energy holdings for as low as 62 cents on the dollar compared to boom times.