Interview - Stuart McCullough AWI

Q&A

Stuart McCullough CEO AWI with Victor Chesky

All wool producing countries and all manufacturing chains within the wool industry have been affected by the COVID-19 pandemic. The closure of retail outlets, and the cancellations of trade shows and exhibitions, have disrupted market plans for all. I asked Stuart McCullough, the CEO of AWI, the peak body that represents most wool growers in Australia, how current issues have affected marketing and R&D.

The fact that so many negative occurrences all came in rapid succession and within a short space of time has been unprecedented. It has forced us to re-evaluate how we spend wool grower funds and what we must do to stay ahead of the curve. Firstly, AWI revenue is largely dependent on the wool levy income, which is determined by wool production volumes and prices. This levy was reduced from 2% to 1.5% in 2018 and that has affected our discretionary spending. Of course, this was a wool grower decision, and we respect it. Secondly, Australia has also been in the grip of an ongoing severe drought and although this is not an unexpected occurrence in Australia, it usually only affects one or two wool growing regions at one time. This time the drought has affected most wool growing regions and therefore wool production as well. Thirdly, wool prices that were at a high of $21 per kg also came down in late 2019 and this also affected our income. And in addition to these issues the COVID-19 pandemic has effectively put a stop to consumer spending in all our main markets. Traditionally AWI funding was split with a ratio of 60% directed to marketing and 40% for onfarm R&D. Currently that ratio has shifted to 30% marketing and 70% on-farm R&D. AWI must be particularly smart about when, where, and indeed whether it is prudent to actually invest woolgrower funds - and this is especially the case with our marketing activities at the moment. For example, before COVID-19 we were running 400 projects, now we are running 200 projects.

Marketing projects can be turned on and off quickly enough, but the toll on human resources can be much more damaging.

Our on-farm R&D is continuing as normal. Some of the main projects to mention are in animal welfare, in particular large investment has been made into mulesing solutions. We also continue to invest in programs around wool handling and shearer training. This is particularly important this season as New Zealand shearers who traditionally supplement shearing capacity here in Australia has not

been possible because of travel constraints.

An important part of AWI’s Wool Harvesting & Quality Preparation program is the funding of hands-on practical training for shearers and wool handlers in the shed, aimed particularly at increasing their productivity, skills development and professionalism.

In the student and trade education space we continue to focus on on-line training through our Woolmark Learning Centre. Our self-training is based on a digital delivery platform so this is working well in the current climate for all our markets around the globe.

Do you see consumer trends changing because of COVID-19 and are there new opportunities for wool fibre?

“AWI must be particularly smart about when, where, and indeed whether it is prudent to actually invest woolgrower funds - and this is especially the case with our marketing activities at the moment. For example, before Covid-19 we were running 400 projects, now we are running 200 projects”

We see some good opportunities that have been created, particularly in the technical textile market. Wool is not classically known to have a strong position in this market but we see the opportunity for wool to be used more widely in such areas as personal protective equipment (PPE) including face masks. We don’t know how consumer behaviour and spending will shift in the near future. For example, a fear of using public transport may see commuters cycling and walking to work and working from home. This will influence the types of clothing they wear, creating opportunities in the apparel sector. So there could be a swing away from tailored textiles and we could see this slack being picked up by commuter wear and sport wear.

AWI released its Wool 2030 - Strategic Plan in May. Can you expand on the developing new markets for Australian wool?

New markets are not so easy to find. There is no country that can process wool and convert to finished garments better than China. China will of course remain a major country for wool processing and wool consumption. China was the first country to be affected by COVID-19 but it has also been the first country to come out of it - an exceptional achievement if you consider its large population. We are very pleased to see life and commerce resuming in China.

There are three major trigger points for a country to be a mass consumer of wool. It must have a large population, appropriate cold climatic conditions, and an affluent consumer base. Very few countries in the world have all these distinctive features. China has all three. There is no other country as important as China. It has a 300 million strong affluent middle class, and another 300 million on its way. So, China is the perfect customer and converter of our product. Therefore we will continue to introduce marketing strategies in China.

We will see how the USA emerges from the pandemic before we make decisions on our plans there. The northern hemisphere selling season will give us some indication about market conditions. Until this new data is available, showing how the pandemic has affected consumer behaviour and spending, we would like to keep our powder dry. We will preserve funding and make assessments as we go based on real numbers when they become available.