A snapshot of the South African wool clip

Following a recent trip independent analysist Andrew Woods of Independent Commodity Services, compares the South African wool industry to the Australian industry and shares his thoughts.

Key points: 

• The South African Merino clip is around 13 to 14 per cent (pc) of the size of the Australian Merino clip in greasy terms. 
• When looking at non-mulesed volumes, South African volumes are roughly double Australian for the broader Merino micron categories 
• When RWS volumes are looked at South Africa dominates the 18.5 micron and broader categories.

Merino wool is predominantly supplied by southern hemisphere countries, which includes South Africa. The South African wool industry has some facets very much like the Australian industry and some completely different aspects.

South Africa is the other southern hemisphere country which has a good reporting system for their wool auction system, where nearly all wool is sold - as is the case for Australia. Arguably South Africa has a better reporting system as Cape Wools regularly publishes annual supply data, something Australia does not. It also publishes weekly quotes for RWS premiums.

Growers often consider South African wool production as competition for Australian production, which is valid if we are planning to further shrink our clip in order to boost price. In the long run that is a losing strategy.

A more constructive approach is to view South African wool production as a sibling to Australian production, with all the competition and co-operation which goes on between siblings.

This article outlines some of the basic facts about the South African Merino clip (which makes up around 70 pc of their total clip on a greasy basis, similar to Australia), rounding the commentary out with some insights the writer gained visiting these parts of this region during the recess.

Note: The insights are limited, as we only travelled from Gqeberha – formerly known as Port Elizabeth or PE to the locals (the centre of the wool industry in terms of wool sales and where Cape Wools is based) via the high Karoo, back to the coastal region then on to Cape Town. This is the equivalent of driving through the western Riverina, down through western Victoria across to Melbourne. For anyone considering such a trip, it is well worthwhile as that part of South Africa is stunningly beautiful.

South African wool production has faced similar pressures to Australia from cropping, making their rangelands wool production more important. Labour costs are cheap, which is one of the key differences to the Australian industry, with shearing quoted generally around $1.50 per head (full contract), ranging from 80 cents (you get what you pay for) up to $3.00 in the more remote regions. The main staple length of the South African Merino clip is around 60 mm as many farmers are shearing on six to eight month intervals.  

The volumes used in this comparison are auction based. Around 10 pc of the South African clip is aggregated in the homelands from communal farmers, and exported directly by a couple of exporters. There are some 40,000 communal farmers registered with Cape Wools (typically with less than 10 sheep) compared to around 8,000 commercial farmers whose wool as a rule is sold at auction. 

 They tend, like many Australian farmers, to think in terms of gross margins and a fixed stocking rate, which does not allow improved pasture productivity to reduce overhead costs per animal.

In addition, their general view (again similar to Australia) is that gains from reducing micron are outweighed by losses in clean fleece weight chops off another potential productivity gain in terms of wool quality. Averages are useful but they can hide some interesting information.

When non-wool attributes are added, South African Merino wool really starts to punch above its weight. Fly strike is not an issue there, so mulesing is not carried out.

Compared to non-mulesed Australian Merino volumes, South Africa is equivalent for 18.5 and 19 micron and then exceeds Australian volumes by a factor of two for the broader micron categories. When it comes to 18.5 micron and broader Responsible Wool Standard (RWS) accredited Merino wool, South Africa dominates. From a marketing perspective, driven at the farm level, the South African Merino clip has parlayed a lack of mulesing into a significant financial advantage by having around half of the Merino clip accredited to RWS. 

Cape Wools is the marketing arm of the South African wool industry, employing 4 to 5 people. It provides market reporting, some marketing initiatives and runs their traceability program which has immediate importance for disease control (foot and mouth disease) and in the longer run for quality systems wanting to follow wool back to the farm level.

In simple volume terms, the Australian Merino clip is seven to ten times the size of the South African Merino clip (depending on the comparison used). However, processors buy on wool specifications and quality, and when these filters are applied to the Australian Merino clip, South Africa more than matches us on the broader side of our Merino production. Commercial wool growers in South Africa face many of the issues Australian farmers also face, with on farm productivity a key common problem.

In summary, the South African wool industry (the commercial farmer section) is similar to Australia except it has cheap labour and ongoing disease issues. All wool exported (nearly the entire clip) is heat treated (farm bales held in store for 28 days at 18 degrees) beforehand due to the presence of foot and mouth disease. The other part of the South African wool industry, the communal farmers, is minor in terms of volume and different altogether, averaging less than ten sheep per farmer.