Australia's wool industry squeezed by drought

Australia's eastern grazing lands have turned scrubby brown as drought strikes yet again, adding to deepening woes for wool growers suffering a long, slow decline from changing fashions and soft prices.
Barely a year after the end of Australia's worst drought in 100 years, autumn rains in the southern hemisphere are already late and farmers can barely believe their bad luck.
"We're sliding back into the black hole," says wool grower Alix Turner, standing in dry paddocks in the heart of sheep country around Goulburn, 150 km (95 miles) south-west of Sydney.
It's yet another blow for the industry, which is struggling to compete with cheaper synthetic fibres and cotton. Wool is increasingly seen as prickly, heavy and old fashioned.
An economic boom in China - the main buyer of Australian wool - is also emerging as both a blessing and a curse as China's massive textile output undercuts producers around the world, depressing prices for wool.
Australia was once said to be "riding on the sheep's back" but the industry's prosperity peaked in the early 1950s. Wool exports still earned a respectable A$2.8 billion ($2.2 billion) in the 2005 crop year, but this is just 10 percent of total farm exports and 2.8 percent of total exports.
Wool's share of world fibre production is declining, slipping from 5.2 percent in 1990 to just 2.1 percent by 2004. This compares with 36 percent for cotton and 61 percent for synthetic fibres, says the Australian Bureau of Agricultural and Resource Economics.
China now takes half of Australia's annual wool exports, replacing Japan as its biggest customer, but China poses problems that Japan never did.
Cheap Chinese textile exports are depressing wool prices by undercutting expensive textiles from the fashion centres of Europe and the United States, says analyst Kerry Stott, managing economist of industry marketing body The Woolmark Co.
The industry is upset that cheap Chinese textiles appear to be stopping wool from cashing in on a strong market in the United States, and improving markets in Japan and Germany.
Wool prices have fallen 30 percent since 2002, when they topped 1,000 Australian cents a kilogram. Wool blends and cottons have become more fashionable for top-quality garments, particularly in women's wear, where manufacturers might once have turned to high-quality merino wool.
Mad cow and foot-and-mouth disease in other parts of the world have also pushed up sheep meat prices - and meaty sheep are not good wool-producing sheep. Adding insult to injury, China's economic boom has led to a shortage of shearers as workers stream to Australia's mines, which pay high wages to feed the world's hunger for minerals.
Grower hopes are high that the market has bottomed out. Australia's sheep flock is back up to around 105 million from 95 million in 2004, after sheep that could not be fed were slaughtered during the once-in-a-century drought of 2002 and 2003.
Australian wool growers say they need returns of around 1,000 Australian cents a kg for a sustainable industry, compared with present auction returns of just over 700 cents.
Chris Wilcox, chief economist of Woolmark, recently forecast that wool prices would rise 10-15 percent over the rest of 2006, buoyed by dwindling global supplies and retail demand.
Surrounded by his empty, brown lands, grower Turner also believes wool can recover as a premium fibre but is perplexed at its fall in value and can see no simple answers. "Quality apparel wool is something Australia does very well and somewhat exclusively," he says.
Meanwhile, autumn rains are late. Last year, rain finally arrived in mid-June, leaving farmers racing to plant winter crops. At Turner's 400-hectare (1,000-acre) property, it is so dry in the spike-grassed hills that adjoining Pejar dam was declared officially empty a few weeks ago.
The main water reservoir for Goulburn's 25,000 population, Pejar is a cracked-earth dustbowl with barely a trickle of water left at the base of its cavernous empty space. Turner faces a bleak future unless it rains.
He's already sold more than two-thirds of his property in the past seven years to pay debts. Drought has already depressed wool prices by burning off ground cover and producing fleece contaminated with burrs and dust and of poor tensile strength.