by Staff Writers
Hong Kong (AFP) June 26, 2011
Just as customers had begun returning to Vijay Sadhwani's Hong Kong tailor shop after the spasms of the world financial crisis, his business suffered another setback -- the rocketing price of wool.
Growing demand from newly wealthy places such as China and crunched supply caused by years of farmers abandoning the sector because of its poor rewards have resulted in a doubling in the price of wool over the past 12 months.
"This time it's quite serious actually -- the price of wool, cotton, everything has gone up," Sadhwani, who owns OM Custom Tailors in Hong Kong's Kowloon district, told AFP.
"It's had a big impact on us and we have to absorb a lot of the increase."
Customers at Hong Kong's myriad tailors range from one-hit backpackers on their way to an English teaching job in Asia, to high-flying city types who need wardrobes full of tailored threads.
Prices for a made-to-measure suit start at US$250 and climb steeply, depending on the quality of the fabric.
And those prices are coming under pressure as the value of wool -- the dominant material in a suit -- continues on its heady trajectory.
According to figures provided by the International Monetary Fund, the price of fine wool traded on the Australian Wool Exchange almost doubled between May 2010 and May 2011 to more than $17 per kilogram ($7.70 per pound).
Decades of low prices for the material have driven farmers in wool-producing nations such as Australia and New Zealand into alternative, more profitable, land uses.
Then China got interested in wool as a luxury product and a sudden boom in demand ran straight into a dip in supply, sending prices through the roof.
Wool farming has been in the doldrums for at least the past 15 years, said Martin Paterson, chairman of the New Zealand Wool Classer Association and a South Island wool farmer whose family has been in the industry since 1864.
With a two-year lead-in from when a sheep is born to when it can produce a full-sized fleece, the upfront costs can be difficult to bear, he said. Add to this the vulnerability of the animal to parasites and it makes the industry very labour intensive -- and very costly.
Paterson said fine wool, like that Sadhwani uses, has been selling at below cost for more than a decade.
As a result, wool flocks in New Zealand and Australia, the world's biggest wool producer, have shrunk dramatically, with farmers moving into more profitable areas such as dairy cattle, sheep meat or grain.
Annual wool output in Australia now stands at about 340 million kilograms -- well below the 1.05 billion kilograms of two decades ago.
Peter Morgan, executive director of the Australian Council of Wool Exporters and Processors, told AFP a decade-long drought in the country had also taken its toll on the industry.
"Supply is tight because for most of the past 20 years, wool prices have been at the bottom end of the scale... and the drought has been very important because that has led people to reduce their stock numbers by sending sheep for slaughter," he said.
In China, this shrinking production has collided with a growing demand for wool.
Zhang Dapeng, an executive with maozhi.com.cn, an industry website based in south China, said: "It is certainly increasing. Raw material prices are changing every day."
The price he pays for yarn ranges from 80 yuan ($12) to more than 100 yuan per kilogram, depending on the wool content, he said, adding a wool sweater can retail for around 1,000 yuan in a Chinese department store.
Morgan said while demand for wool was growing strongly, particularly from China, he did not expect output to increase significantly in the next financial year.
"I don't know any wool buyer who's bearish at the moment," Morgan said. "It doesn't mean they are not cautious, but no one's bearish
"And I don't think anybody expects any downward pressure on the market for the foreseeable future. We expect supply to remain tight. Sheep meat is still so attractive and grain is attractive too."
Michael Creed, agribusiness economist at the National Australia Bank, said he expected wool output would eventually increase as a result of the higher prices but this could take some time.
"Our expectation is that in the coming year global wool output will lift, prices will ease a little but still stay very high," he told AFP.
On his New Zealand farm, Paterson said the current price made wool production sustainable, but needed to be maintained to make the industry viable.
"I have to say, I don't think we're going to see a major resurgence in wool production or sheep numbers as a result of the present prices because the alternative land uses are still good," he told AFP.
"You need certainty. The price can vary hugely from sale to sale but you need stability if you're going to plan three, four, five years ahead."
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