The Sheep's Back - Australia's rural sector is laughing all the way to the bank as the Aussie dollar plummets.
Living off the sheep's back - again.
Every time the Australian dollar drops another half a cent, which it does often, cheers roll across the pastures, paddocks and vineyards of the country. The crumbling currency is boosting Australian exports of wool, wheat, beef and wine. That has brought a welcome boost to struggling rural communities that have been deep in the financial dung for years.
Take sheep. There are 115 million of them - down from 190 million a decade ago, and now at their lowest numbers since the Korean war. Poor wool prices, over production, and competition from man-made fibres, sent graziers broke and put bankers in the shearing sheds. Now there has been a remarkable turnaround. Wool prices have climbed 34% in domestic dollar terms over the past 12 months to a six-year high of A$8.25 a kilogram. Wool exports this year will be worth A$3.7 billion (US$1.85 billion), China buys over 30% of that, and imported a record 295,000 tonnes last year. Italy, Taiwan and South Korea are the next best customers.
Chris Wilcox, chief economist of industry body Woolmark, points to rising demand for fine wools, and a shortage of overall supply, driving prices "There has been something of a shift among spinners and weavers towards luxury natural fibres and away from synthetic materials, where costs have been affected by the high oil price," says Wilcox. "There are clouds on the horizon, China depends on Japan for 25% of its re-exports of made up woollen garments, and the Japanese economy is flat. So we would not be surprised to see some softening later in the year, but demand is currently holding up well."
A mountainous 4.7-billion-bale stockpile, administered by the government for over 10 years, which depressed wool prices, has been privatised and is nearly gone, with only 400,000 bales left. Australia is the world's biggest producer of wool. It sells almost one third of the current 1.3-million-tonne global consumption. It will take time for farmers to increase their sheep flocks to capitalise on improved prices. Principal competitors South Africa and South America have sharply curtailed production.
Australian growers concentrating on fine wool that is woven into Italian suits and high quality ladies' wear, have called up a little high technology to help. Some use lasers to measure wool, and others employ optical fibre diameter analysis in culling out animals that have coarser wool to improve the breed.
If the wool growers are dancing a jig, their wheat farmer counterparts are playing the fiddle - even though crops were decimated last year by floods in New South Wales and Queensland and a drought in Western Australia.
Rock bottom prices for grain on the Chicago Futures Exchange still translate into A$260, a tonne - thanks to the fact that the Australian dollar is now worth half a greenback - and that is the highest price in living memory. The growers are expecting a bumper harvest this year, and some are locking in good prices by selling on the forward market. Grain growers are the most efficient operators in Australian agriculture and make much more money than their livestock neighours. But their reward is not exactly a kings' ransom in view of the hard work and long hours. A recent study showed that the average wheat farmer is making A$450,000 a year from their crops and, after costs of A$312,000, a pre-tax profit of almost A$140,000 - about what a desk bound senior executive would earn in the cities. Their wealth creation rests on the capital appreciation of a well run rural property. Grain accounts for one quarter of the value of all agricultural exports.
Beef farmers too are enjoying their best times since the early 1970s. Australia is getting premium prices of US$1.65 a kilo for its chilled beef. Exports of live cattle, badly hit by the 1998 Asian crisis are rapidly recovering and will reach one milion head for the first time soon.
The industry is determined not to give any hint of being happy about the twin scourges of mad cow disease and foot and mouth, which have swept Europe and spread to competitor Argentina. But undeniably the clean and green reputation is a plus factor. Overseas sales of chilled beef were a record 900,000 tonnes last year. Japan, South Korea and the United States are the biggest markets and they are taking all Australia cares to sell. That is driving up the price of prime cuts on the domestic market and this is causing some resentment among local carnivores.
At least they can wash their dinner down with an affordable glass of red. Australia is the world's fasted growing wine exporter and will ship almost A$2 billion worth to the US and Europe this year. And the British cannot get enough of the stuff. Sales have quadrupled in recent years and the Australian BRL Hardys brand is the largest selling wine in Britain.
Total overseas exports of the rural industry are expected to rise 19% to A$27 billion in the financial year to the end of June. The output of Australia's 220,000 farmers accounts for over 6% of GDP and there is more scope for the country to fill the supermarket shelves of the Asia-Pacific region.